• UK's largest dealer group sees profits halved in H1
  • High ambitions tempered as it slashes costs
  • Some upturn lately on UK car market scrappage-induced uptick and higher used car prices

Wind back five or six years: Pendragon was on a mission to do what had not been done properly anywhere in the world. It was going to be a mega successful car retailer as a result of being big, brave and clever.

It was going to do for cars what Tesco did for cans of beans and Marks and Sparks did for boxer shorts.

It was going to wrestle the manufacturers to the ground until they surrendered the best beans at the lowest prices. It was going to build the prettiest showrooms with an irresistible lure for passing motorists in lacklustre Fiestas. It was going to install systems that multiplied and divided faster than any other, advertise nationally in a way that would eclipse all competitors, sell all the brands and be the Big Name in Cars.

Pendragon became the dragon that stalked the earth, breathing fire and buying rival dealer groups. The bigger they were, the more Pendragon wanted to consume them.

For a while in a booming economy, lesser creatures stood politely aside. Money lenders deferentially tendered the cash. Car makers craved an audience hoping theirs would be the favoured goods that Pendragon might consider selling.

And so it grew. Until early last year when the first signs of consumer reluctance began to show, used car values fell rapidly, and Pendragon's adding and dividing machines told them that the game was up.

The last year has been slash and burn, cut the staff, sell the properties, close the loss-makers, drop the hopeless franchises, and get in the hole with the worried bankers and pull the lid down. A share price that had peaked at 130p became 3p. Pendragon, in all but name, was a dead dragon.

The first sign of sustainable breathing was the refinancing by the banks who boldly agreed a goodwill valuation for the business which computes as GBP1.3m per franchise. That allows debt at today's level of GBP317m and that allows the company to go on trading.

Yesterday's results showed a tiny profit before tax of GBP8.7m on sales of GBP1.6bn. It is going to have to go on cutting its losses and selling its saleable assets. Will the dragon breathe fire again? Probably not.

Can it show that there is a case for economies of scale in car retailing? Doubtful.

Does the new-car retailing industry run well as anything other than an owner-driver-corner-shop where the owner loves his customers to death and has no concern whatsoever for Head Office and Shareholders? Indeed it does not.

Not yet anyway. Pendragon may have time for one more change of clothes. It may find a way into the modern world of Motorpoint and AutoQuake where canny buyers source cheap cars, and sell them systematically, politely and profitably in an attractive manner.

But fire-breathing giant and master of all it surveys? No. As a result of this bloody recession the landscape has changed.

Rob Golding

See also: UK: Pendragon reports H1 profit almost halved

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