BBC News Online: Business

Cheaper cars drive higher sales

Consumer demand for cars remains high because of lower prices, according to the Alliance & Leicester Car Price Index.

New car prices in April were 6.4% cheaper than a year ago.

All categories of new cars saw a year-on-year fall in price, but multi-person vehicles (MPVs), such as the Land Rover Discovery, experienced the greatest fall, of 15.6%.

The buoyancy in the new car market has prompted the Society of Motor Manufacturers & Traders to revise its 2001 sales forecast upwards to 2.3 million from 2.25 million.

Prices creeping up

However, despite cars being generally less expensive than a year ago, the index has shown that prices have been edging up since last December, when they were 10.4% cheaper year-on-year.

"It's a crucial time for new car buyers as we approach the anniversary of the big price cuts," said Steve Fowler, editor of What Car?, which produces the Car Price Index in association with Alliance & Leicester.

"We're already seeing signs of prices creeping back up, and we'll be watching the car makers very carefully to make sure that they're not forcing price rises on customers where they really shouldn't be."

Last year, carmakers were ordered to cut prices in the UK after prices for new cars were found to be 10-12% higher than in other European countries.

This was followed by new legislation aimed at increasing competition in the car industry.

Second-hand sales thriving

In the second-hand market, the index showed that "nearly new" (one year old) and "used" (three years old) cars are both increasing in price.

Prices for nearly new cars rose 5.1%, while used cars rose by 6.7% - the highest recorded increase since the index began in October 1999.

Compact executive cars, such as the BMW 3 Series in the nearly new category saw the largest rise in price, of 10.8%.

For used cars, luxury vehicles, such as Mercedes S Class, showed the greatest price rise, of 12.4%.

In both second-hand categories, city cars - such as the Ford Ka - and MPVs dropped in price.

Douglas McWilliams of the Centre for Economics & Business Research said: "The UK economic landscape has brightened considerably over recent weeks with stock markets rallying and interest rates falling further.

"The robustness of the car market reflects this."