The Pendragon share price doesn’t know where to go. It was 2p this time last year when most of the punters were gambling that it would go bust. It shot up to 20p when the bankers came up with the loans that kept the show on the road. By the mid-summer – when the market was beginning to rake through the ashes of the economy looking for recovery plays, Britain’s biggest car retail group rattled up to 44p.
Most of that euphoria leaked away over the winter in the wait for the 2009 full year financial results. Yesterday as the numbers were released it shot up 10% and then shot down 15% to 25p on very little buying or selling. Nobody really knows what to do with a rather badly damaged retail experiment.
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Nobody has done it before – turning car dealerships into chain stores. Or at least not to this extent. What has been proved is that a local dealer with a good handle on his market and a pride in his brand can make better margins more often that a sprawling chain run by regional directors. It just is that sort of business. Retail car buyers like buying from the local shop and they like dealing with the people who own the shop and who enjoy hand-holding.
Pendragon gobbled large – often listed – dealer groups that had gobbled up local garages. CD Bramall, Reg Vardy, Evans Halshaw were all trophy purchases. At their peak values, they were all as valuable as the entity that now contains them, and which has a market capitalisation of GBP164m.
What is hurting is the debt – acquired expensively and in desperation. Pendragon is 300% geared and paying 9% on GBP315m which means every one of 276 franchise points has more than GBP100,000 to pay in group interest charges before it staffs the shop and opens for business.
As a consequence, the business keeps economising. Twenty six dealers closed last year at a cost of GBP8.6m. Another nine dealers are to close in the current programme; 367 jobs have gone since 2008; GBP211m has been taken out of inventory; Jeep, Dodge and Chrysler are the latest brands ditched.
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By GlobalDataAnd yet the car sales and service retail chain still seems to be a marginal business. Just 25% of the operation makes 80% of the profit, and the software and leasing businesses make more operating profit (GBP16.4m on GBP50m of sales) than the garages in the Evans Halshaw volume car division made – and they sold 220,000 cars in the year.
Pendragon remains a determined and inventive company but the laws of retailing seem to be against them. Every time you go into Tesco there is more stuff than before, presented more attractively than before, with brighter lights than before and with so many staff on hand that they have to fight over the right to show you where the peanut butter is, and to load the shopping bags for you.
A business model in car chain stores that requires less and less stock and fewer and fewer staff seems ill suited to current UK retailing trends. It would be interesting to hear whether there is any part of the world where car, and car-maintenance customers regard themselves as exceptionally well-treated. Maybe there is no such business model – a clarification that would suit many prejudices.
Rob Golding
UK: Pendragon returns to modest profit
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