Upper-medium company cars could be frozen out of a recovery in residual values because of poor demand for this size of car in the market.

Latest figures on the used car market from Cap Network reveal used car prices for three-year-old/30,000-mile vehicles were 4.4% higher last month than a year ago. The biggest improvement was in lower-medium vehicles, up 10.5%, with all sectors improving except upper medium vehicles, which are down 6.6% year-year-on-year.

This month's Cap Black Book warns: "Reports suggest that Ford Mondeo, Citroen Xantia, Peugeot 406 and Rover 600 are struggling in most guises, especially high-mileage examples. Those that do seem to remain in demand are diesels, especially the Volkswagen Passat, Peugeot 406, Skoda Octavia and Audi A4."

But the Alliance & Leicester Car Price Index indicated that while dealers may have a gloomy outlook towards upper- medium cars when buying them at auction, they take a different attitude when putting the vehicles on the forecourt.

The index claimed that the average forecourt price of three-year-old vehicles had jumped nearly 13% year-on-year.

Prices for upper-medium cars were up 7.3% in the same period, while prices for lower-medium vehicles were up nearly 20% and luxury cars were up 25%. Both the Cap Index and Alliance & Leicester said prices for new cars had fallen by between 5% and 7% on average compared to a year ago.

Douglas McWilliams, of the Centre for Economics and Business Research, said: "The low new car prices and better trade-in terms are good news for private car buyers who are flocking to the showrooms. We expect that private car sales this year will be up by over 30%."