FLEETS face two years of disposals misery as the crisis of confidence in used car values deepens with a new survey revealing the UK has the lowest residual values in Europe. Residual values as a percentage of the original price of the car have slumped 3% in the last three months in the UK, offsetting much of the benefit from price cuts launched by manufacturers.

The latest Eurotax Residual Price Index, which examined the price of two-year-old vehicles throughout Europe, showed that in the UK the average residual value was 59% of new price, equal to Belgium, while Italy retained 61%, Switzerland 65%, Germany 66% and Spain 68%.

However, used prices could still be pushed down further. When actual prices are converted into Euros, used car prices in the UK fell 5.4%, but they convert to the highest price in Europe because of the strength of Sterling.

Even if new car prices are slashed across the board, much of the fall will be offset by the dramatic downturn in used car values over the past year, the survey shows. Industry estimates put the annual fall in residual values in the UK at an average of 10%.

Rick Yarrow, author of the residual price index, said: 'Falling residual values have increased the cost of ownership. People changing their cars now are losing out the most.'

Outright purchase fleets and contract hire firms, which have had to shoulder the burden of the long-term slump in used car values face further hardship.

Peter Cooke, head of the centre for automotive industries management at Nottingham Business School, who worked on the report, said: 'I feel this will take a couple of years to settle down. Manufacturers will be altering car prices, or changing warranties and the effects of all these changes will take a long time to show through.'

Adrian Rushmore, chief car editor of Glass's Guide, argued the effect of the Government's campaign on new car prices would be 'negligible', but warned: 'The private motorist determines residual values. Car price reductions given to this group of people are potentially more damaging to residual values than price reductions given to fleet.'