As recession fears grow, this is a great time to treat yourself to a brand new car.

With more than two million new cars to sell each year, salesmen are doing deals to get them off the forecourt.

The obvious tactic is to slash prices. At Saga Car Direct, the average discount on the recommended price is almost £1,600 per car.

You can pick up an upmarket Rover 75 automatic saloon from Saga for £21,738 - almost £5,000 off the list price of £26,555.

Alliance and Leicester's (A&L) car price index confirms the 36th consecutive monthly drop in the price of new cars.

In relation to average earnings, A&L said new cars had never been more affordable. Car price wars are in the air.

Buyers are using haggling power to switch from cheaper family and small cars towards stylish superminis like the Renault Clio and Ford Fiesta.

And they're getting more car for less money.

The Fiesta 1.3 three-door today costs £7,995 compared to £8,640 in 1998.

Today's much higher specification includes power steering, central locking, CD player, passenger airbag and split-fold rear seats.

Andy Bayes, A&L's head of motor finance, said: "Superminis have seen sales rise three per cent in a year when the total market shrank six per cent.

"Buyers want cleaner, fuel efficient cars for today's congested cities."

Angie Boakes, Saga's business development manager, tells her older customers to focus on basic price rather than sales gimmicks.

Ms Boakes said: "Many people in their 50s and 60s, particularly if they have lost a company car, treat themselves to their last big car.

"Free insurance means much less to them than it does to a 25-year-old."

If dealers offer zero per cent finance, it usually makes sense to take it. Invest the money you would have spent and collect the interest later.

If buyers need a loan, money is cheap. Rates are at their lowest level for years, with Liverpool Victoria charging 6.8 per cent APR to online applicants borrowing between £5,000 and £25,000.

On a £15,000 unsecured loan, several lenders, including Northern Rock and Abbey National, have rates below seven per cent, while Sainsburys, Tesco, Royal Bank of Scotland and Cahoot are only a little above.

RAC Financial Services offers 8.9 per cent APR and includes free RAC membership.

A middle way for borrowers is car purchase plans, which cut monthly repayments by deferring up to 60 per cent of the value of the loan. A&L and M&S are leading providers.

The package provides a three-way choice at the end of the term of the loan: Sell the vehicle and pay off the loan, change the car and use the trade-in value to clear the deferred amount or keep the vehicle and continue the fixed, low monthly payments.

Although it is a great time to buy, it is not so good when it comes to selling.

So many new cars have arrived on Britain's roads the second-hand market is flooded and many cars lose half their value in the first three years.

The latest edition of motor trader's bible Glass's Guide reveals the rate of depreciation is faster than ever.

After three years and 45,000 miles, a top of the range Vauxhall Vectra sinks from £22,750 to a trade-in value of £6,275.

Even a £155,000 Rolls-Royce Silver Seraph collapses to £53,675 - a loss of almost £700 per week before you've paid for petrol or insurance.

Managing editor Adrian Rushmore said: "Residual values for three-year-old vehicles are at their lowest level in living memory.

"The most dramatic falls in residual values during 2002 were for those sectors that have enjoyed the biggest growth in new sales during the past two years - MPVs and premium brand upper-medium cars."

The 2003 Car Depreciation Report from A&L and The Centre for Economics and Business Research found an average 45 per cent depreciation in the first three years.

Ms Boakes said: "As car sales slow, depreciation is easing. Second-hand values might be levelling instead of continuing to fall."

One thing never changes - start playing with new cars and you tend to lose money.

Friday April 11 2003