THE price of new cars is on the increase, according to a latest survey.

The What Car? Price Index, which tracks the cost of buying cars, shows that new car prices rose by 1.6 per cent during March, compared with the same month las year.

Prices increased despite new car sales dropping 5.6 per cent year-on-year in the crucial month of March when the new 05-registration prefix was released.

However, nearly-new car dropped in value by more than six per cent in March and used car prices fell by 7.5 per cent, compared with March 2004.

Steve Fowler, What Car? group editor, said: "Given the slow new car sales in January and February, we’re surprised our Price Index didn’t show a drop in prices during March – we’d expect dealers to be trying to entice more buyers into the showroom.

"It will be interesting to see if their tactics continue, especially as prices of second-hand cars on dealer forecourts are coming down markedly."