Last Autumn Ford's chairman and managing director Ian McAllister took out full page advertisements in national newspapers promising car buyers that they could buy a new Ford with confidence, because despite all the "rip-off Britain" talk Ford's new car prices weren't about to be slashed. And to back this up he promised anyone who did buy a new Ford a refund if the company did subsequently cut prices; although that guarantee only lasted until the end of last year.

If you took Mr McAllister at his word and bought a new Ford Focus last autumn you might be advised to look away now, because last Friday Ford dropped - or "realigned" in Fordspeak - the prices of their Focus range by up to £1,000. So the 1.4 litre CL 5-door Focus, previously £13,000, has just come down to £12,000 - a cut of just over 7.5%.

The Consumers' Association has enraged much of the British car industry with their ceaseless attacks on what they see as rip-off car prices, and Phil Evans, their senior policy adviser, is in no doubt as to the significance of Ford's announcement: "Every pound taken off the price of a Focus is an admission of guilt. This announcement is proof that they have been taking British consumers for a ride and makes a mockery of their so-called 'price promise'."

Another explanation for Ford's decision is that competition has simply got stiffer, not least because private buyers have been giving car dealerships a wide berth for months, and Ford has simply been forced to respond to market movements. During the few months in which Ford has been trying to hold the line on prices many other car makers have cut theirs very substantially. Recently Mitsubishi cut their prices by an average of 10%, and other car makers have been doing much the same, albeit more subtly.

Saab and others have been enhancing the specification of their models substantially without increasing prices, while Nissan used the launch of their new Almera, which went on sale last week, to radically alter their pricing structure. The new Almera is an altogether superior car to the model it replaces, yet the new 1.5 litre E model is priced at £10,700 - some £800 less than the outgoing equivalent. And what's even more significant is that even at Ford's new prices the £12,000 Focus 1.4 litre Zetec 3-door is still £1,300 more than the equivalent Almera.

Ford doesn't only have its direct competition to worry about either, because the internet is causing problems too. Online buyers can now cut out British franchised dealers and simply import their new cars from Europe. The Consumers' Association will launch their own carbusters.com import service at the end of this month, and they expect to undercut even Ford's new prices. For instance the Focus 1.6 LX 5-door is now listed at £13,500, down £500, but that saving seems insignificant when carbusters.com claims that it expects to be able to sell you the same car for just £10,323.

Meanwhile Vauxhall has stolen a march on Ford when it comes to selling in cyberspace, because their ".com" range of cars is only available over the net and is attractively priced. For example the Astra.com costs £11,500 - excellent value against the nearest equivalent Focus at £13,500. To make matters worse for Ford the online brokers offer good deals on the Focus too: newcarsdirect.co.uk was offering the Focus 1.4 CL for just £11,851.55 when I checked, and that was based on the old list price of £13,000. However the list price is now down to £12,000, but newcarsdirect.com's MD Richard Sanders says that Ford's realignment will simply allow him to cut the car's online price further - maybe right down to £10,850.

So does all this price cutting and on-line competition suggest that prices still have further to fall? Once again Phil Evans of the Consumers' association is in no doubt. "Prices must be cut further across the board. Our message to consumers is to hold off from buying a new car in the UK as your pressure on the car manufacturers is beginning to bite."

However some trade observers such as CAP, which publishes the trade car price bible, the Black Book, suggests that this analysis is simplistic. What really matters is the actual selling price of a new car - called the transaction price - rather than the list price. CAP's senior editor Daren Wiseman says that "the list price tends to be a starting point for negotiations, and by waiting for it to come down consumers are missing out on some tremendous deals". And CAP's chief economist Mark Cowling adds that he thinks that at the new prices the highly-rated and in-demand Focus represents "a very good buy indeed".

So Mark Cowling's view is that the new Focus's prices won't fall further in the short term, but this doesn't mean that he thinks everything in the market is good value now, nor that overall prices haven't got further to fall. "Overall we expect prices to stay flat or to fall slightly, and I'd expect to see some good tactical deals this summer on cars that are in the middle of their life cycle, or are that bit older." As an example Cowling points to the deals available on the Citroën Saxo at present, and he adds that while the VW Golf's price is unlikely to fall there may be special deals on the older, less fashionable Passat.

The complicating factor in all this is that trade and industry secretary Stephen Byers has now received the competition commission's report into car pricing, and although the department of trade and industry can't say when the report will be published it seems likely that it will see the light of day within the next two months. Some rumours suggest that Byers will come down hard on the car industry, which would almost certainly mean further price cuts, but even if he doesn't it's hard to see car prices going up again in the short term.

So unless you need a new car badly I'd be inclined to hang on a little longer, although it's worth doing some shopping online, using car brokers like newcarsdirect and vehicle locators like Autohit.com. And don't forget the real world dealers, because they're hurting badly and the car makers are trying to support them with juicy marketing incentives - which all helps to bring that all-important transaction price down. Because of this, Mark Cowling of CAP argues that this is a good time to go out and see dealers and listen to what they can offer - just don't buy until you see the tears in their eyes.