Car prices 'to fall by a third'

'Car supermarkets' may be set up selling different vehicle makes

The Trade and Industry secretary Stephen Byers is to announce new rules which could slash car prices by a third.

The new measures are expected to force car dealers to offer private car owners the same discounts offered to fleet buyers. The announcement will be made on Monday afternoon.

Cost comparisons

ALFA ROMEO 145 UK - £11,040 Denmark - £6,178

CITROEN SAXO
UK - £6,442
Greece - £3,979

FIAT BRAVO
UK - £10,183 Finland - £6,304

The changes could result in savings of up to £6bn for UK consumers. For example, the cost of a new Ford Focus could fall from £12,000 to £8,000.

Car manufacturers have already gone on the defensive. On Monday they warned that they did not have the margins to cut prices by between 30 and 40%.

The figures associated with fleet discounts had been exaggerated and become a "thing of legend", the Society of Motor Manufacturers and Traders (SMMT) said.

Prices have already fallen 10% since the Competition Commission report on the car industry in April, the SMMT said.

Over the weekend, industry sources described price cuts of up to 30% as "fairyland figures".

Andy Pringle, deputy editor of What Car magazine said that fleet buyers may get cheaper cars but they sacrifice choice, something which consumers may not be prepared to do.

He added that many of the incentives manufacturers currently offer customers - such as free servicing - may disappear if they have to cut prices.

The DTI said on Monday that the 30% to 40% figures were "speculative and the legislation did not aim to cut prices by any specific amount.

Mr Byers is to give the car industry 30 days to respond to the new rules before changing the Fair Trading Act.

European markets

The new regulations are expected to allow dealers to buy vehicles from continental Europe, where car prices are much cheaper.

The new rules may also allow supermarkets to start selling cars, possibly at vastly reduced prices.

A Competition Commission report in April found that UK motorists paid up to 12% more than their continental counterparts.

European Commission statistics show that UK buyers can pay up to twice as much as drivers in other EU countries.

Buyers stay away'

Many potential car buyers have decided to wait and see what the government will do before parting with their cash.

"People are just not walking into the dealerships because of all the uncertainty, so at least there is now a chance that in the long-term sales will start to pick up," a car industry source said.

The Consumers Association said buyers had been staying away from showrooms and described the move as a "victory for consumer power".

Spokeswoman Jenny Driscoll said: "It's possible now there will be a surge in people buying cars when prices do fall, because they have been waiting for it to happen."

The AA said price cuts would not affect the second-hand market and were good news for "everyone except those who have just bought a new car".