Demand for new and used cars was in the doldrums in the run-up to the Christmas/New Year break, with motor retailers expressing cautious optimism that sales would pick up once the turkey and tinsel have been tidied away. There was some pre-Christmas auction activity, with traders cherry-picking the most saleable entries, but private buyers were largely absent from the forecourts. Prices weakened further across the market as a result, dipping to new lows in the luxury/executive sector.

High street spending figures for the holiday period will be a key indicator to consumer confidence in early 2006. If cautious consumers borrow less and spend less, reinforcing an emerging trend, it will spell harder times ahead for the retail motor trade. Buyers prepared to take a punt on prices continuing to fall should be rewarded with unrivalled value for money in the New Year.

Even must-have used cars are falling in value. It's now rare for values of newly introduced ranges to hold up after a brief initial honeymoon period. It's not difficult to find a Golf Mk 5 with a few thousand miles on the clock at a useful reduction; and a used 2005-model Focus can show a £3000-plus saving against list price.

Rapid new car depreciation obviously has a knock-on effect on the values of older vehicles. And prices of new cars are rising slower than the overall rate of inflation (by an average of just 1.4 per cent in the 12 months to October 2005, according to EurotaxGlass's), further strengthening the deflationary trend.

There's one further factor: new car buyers are getting more for their money. New-generation cars pack ever more kit, with ABS, air con and multiple airbags pretty well standard on new motors. So sat nav, DVD players, xenon headlamps and parking sensors are now in-demand items that are filtering through on to the used car market.

Used car buyers who want it all - and want it cheaper than ever before - should look at the luxury car sector. Sales of models such as 7-Series, Jaguar XJ and S Class have declined steadily in recent years, and used values have tumbled. EurotaxGlass's figures now show an average residual (trade) value of just 57% of list price after one year and 12,000 miles.