THE European fleet market is facing a residual value 'time-bomb' with the advent of the Euro, according to a new report from KPMG European Automotive Practice. 'Europe on the Move - the KPMG review of automotive retail and manufacturing' warns that too many fleets are still treating the single European currency as a technical issue, and doing no more than install new software to handle it.

This strategy fails to take account of the Euro's impact on new car pricing and its knock-on effect on residual values, cautioned James Rodger, KPMG executive consultant. 'The single European currency will create price transparency,' he said. 'Car buyers will compare prices in different countries across Europe and want to buy where vehicles are cheapest.'

Rodger believes this will force new car prices down to their lowest common level, and that this deflationary pressure will then undermine residual values. 'Used car prices will be depressed in response to significant reductions in new car prices, and a 'residual value time-bomb' has been set ticking for the vehicle leasing industry in Europe,' he said.