EUROPEAN fleets are heading for a residual value meltdown as the European Union opens its doors to new member states - and the floodgates to thousands of cheap imports. The stark warning came at the launch in Brussels last month of the new Credit Suisse First Boston New Car Price Index and Eurotax Residual Index, which reported 'a close correlation between residual and new car prices'.

The index authors predict that new car prices (certainly pre-tax) will harmonise downwards, thereby driving down residual values and more entrepreneurs will trade used cars cross-border, taking cars to markets with high residual values and then undercutting local prices.

Both these risks will increase if the EU opens its doors to new member states with cheap new car markets. The CSFB New Vehicle Index reports, for example, that retail new car prices in both Poland and the Czech Republic are 12% below the European average. These two countries are likely to be in the first wave of new entrants to the EU, and could join within five years given the European Commission's determined enlargement policy.

If countries like Poland and the Czech Republic do join the EU they will bring further downward pressure to bear on western new car prices, and fuel uncertainty and potential deflation in residual values.

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