UK vehicle dealer group Pendragon expects to report a full year loss for 2008 of GBP30m, it said in a statement to the stock exchange, adding that the group nonetheless continues to generate positive operating cashflows.
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“Since we last commented [in August] on our trading performance there has been a marked deterioration in the outlook for economic activity in the UK,” Pendragon said. “Whilst we welcome recent interest rate cuts, we believe it will be some time before the consumer benefits from banks passing this benefit on. In common with most companies in the retail sector, we are experiencing the impact of faltering consumer spending in the face of a squeeze on household budgets and tighter credit.”
“Year to date new car registrations are down by 9% with the retail sector in which we operate down considerably more at 12%. In October registrations were down for the sixth successive month and registrations have fallen by 21.4% over the past three months. Industry forecasts for new car registrations have been revised down to 2.1m this year and to 1.9m next year.
“The used car market has also been more difficult in the last four months with prices falling by approximately 5% per month on average, with executive and large 4×4 vehicles [SUVs] being hardest hit.
“The aftersales market, whilst holding up well, has become more difficult in recent months.”
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By GlobalDataPendragon said it had completed a number of previously announced cost saving exercises in the second half, axing over 2,500 jobs or nearly 20% of its headcount, at a cost of GBP3m but with an annualised saving of “at least GBP40m.”
By the end of this year it would have closed 75 dealerships since June 2007 which were identified as likely to be “unviable” in the more difficult markets now being experienced.
“The trading losses and closure costs of those dealerships this year have been GBP12m. The annualised losses of the closed dealerships are estimated at GBP20m,” Pendragon said.
The dealer group said it had been reducing vehicle stocks and its target was to reduce non manufacturer-funded stocks by at least GBP50m at year end compared to a year previously. New manufacturer-funded stocks had risen at the half year but were now reducing, as anticipated, as manufacturers were starting to reduce production levels.
“The actions taken this year have negatively impacted our results, both directly through such things as redundancy and closure costs, and indirectly through disruption caused. However, these actions have been necessary in the light of the ever declining outlook for our economy. The benefits to profits next year, coupled with savings from the recent interest rate reductions, will be significant and at least GBP60m,” Pendragon said.
“Notwithstanding a further reduction in the new car market, the positive actions taken on the cost base and the favourable impact of the recent interest rate cut lead us to be optimistic of improved trading next year.”
Pendragon added it was “considering options regarding the future” of its dealership management software subsidiary Pinewood.
