Dealers could see used car values fall over the next 12 months as the market comes under increasing pressure from record new car sales. Despite residual values rising last year, used car sales have slowed during the first quarter of this year sparking fresh fears of falling prices.

But Johnathan Brown, car editor at Glass's, is urging retailers not to panic. “By comparison with 2003, used cars sales during the first quarter of this year have been less active. Overall we expect values to drift back gently with the inherent strength in the market bolstering values but lacking the momentum to drive further increases.

“By the end of the year, we will also see used car supplies increasing – the inevitable legacy of several years of record new car sales – and this could result in a further residual value drift.”

Over the last 12 months, research shows that strong demand and balanced supply has lead to strong second hand values. Three-year-old cars are the strongest performers with the average retained value increasing from 44.7% in March 2003 to 49.9%.