Warning lights are on for motor dealership

Aug 29 2008 by Iain Laing, The Journal

STRUGGLING motor dealership Pendragon predicted another 18 months of UK trading misery yesterday as it warned over full-year profits.

The Nottinghamshire-based firm, which bought Sunderland-based Reg Vardy two years ago, has seen “unexpected and significant” falls in used car prices since its last update in June as consumer confidence falters.

The company, which cut 500 jobs earlier this year but still has more than 5,000 staff in the North East, said UK trading conditions “will continue to be difficult for the remainder of this year and throughout 2009”.

Chief executive Trevor Finn said the group’s cost-cutting moves would see the firm finish the year in profit, “albeit significantly down on last year”.

Pendragon’s underlying pre-tax profits slumped by almost 60% to £13.4m in the six months to June 30. It is heavily exposed to the domestic market, with all but 11 of its 343 dealerships based in the UK.

The company, which warned investors two months ago that it was difficult to forecast the profit outlook for the year, said wholesale prices for used cars had been cut aggressively in June and July to reflect falling demand.

June saw the biggest single monthly reduction in prices for five years, with large executive and off-road vehicles hit hardest.

The firm added: “We expect that the current price correction in the used car market has some way to go, although we anticipate that it will have run its course by the end of the year.” The falling prices knocked revenues at Pendragon – down £170m on a like-for-like basis – with margins at Stratstone and Evans Halshaw both being squeezed.

The company has also embarked on a series of disposals which have helped it reduce its debt burden by £44.4m since the beginning of the year.

But shares fell 3% yesterday as the market reacted to the firm’s latest gloomy assessment of prospects.

Panmure Gordon analyst Mike Allen said: “Market conditions are clearly tough in the industry at present, with Pendragon not seeing a respite to this until the second half of 2009 at the earliest. Cost reduction measures have been taken, but could be offset should we see a further deterioration in market conditions.”