According to EurotaxGlass's, the average price paid for a new car has risen dramatically over recent years, climbing by 23% from GBP13,900 in March 2001 to GBP17,100 in March 2007. 

Adrian Rushmore, Managing Editor at EurotaxGlass's, outlines some of the key trends that have fuelled the increase in prices paid for new cars. 

"Aspirational brands like BMW, Audi, and Mercedes have enjoyed significant market growth as customers switch allegiance from traditional volume-brand manufacturers. 

In addition, the lure of new diesel technology has also proved to be irresistible to many, even though the price premium over a petrol model could be between GBP1,000 and GBP1,500 for the same specification of car.  Lastly, vehicle manufacturers have successfully managed to sell higher-specification and niche models where their profit margins are healthier."

The average price paid for three-year-old used cars has also increased since 2001, from GBP6,700 to GBP7,800.  However, depreciation as a proportion of original cost new has grown at an even faster rate.  During this period the typical three-year-old car has fallen in value by an additional GBP1,700, thereby cancelling out the rising prices being achieved for used cars.

Even though the focus of the EurotaxGlass's analysis was on three-year-old vehicles, the company reports that the same rising trend of depreciation is evident for one, two and four-year-old cars.

"The depreciation figure for March 2007 suggests an improving situation for the market, as the year-on-year increases are not only arrested but partially reversed," comments Rushmore.

"However, the particularly positive upturn in prices seen throughout last year has been in decline again since the end of March, not least due to successive increases in bank interest rates which have dampened consumer enthusiasm.  Therefore, we expect the average rate of depreciation to rise during the summer months relative to the same period in 2006."