Pendragon, one of the largest dealer groups in the UK has warned investors to expect pre-tax profits for the year to reach just £60m – down from the £75m recorded for FY2016.
The news came in an interim management statement, in which it also revealed Q3 profit for the new car sector fell by 20.7% on a like for like basis, with used gross profit falling 20.3% over the same period.
In the new car sector, Pendragon noted that year-to-date gross profit was down 10.2% on a like-for-like basis.
In the premium sector, Pendragon noted it had experienced ‘unprecedented’ pressure on new vehicle margins caused by certain manufacturers continuing to force vehicles into the market despite softening demand.
In the volume sector, it said there had been a notable decline in registrations which, coupled with the pressure on margins in the premium sector, had caused such a drop in profitability.
In the used sector, the dealer group said the decline in demand for new cars had caused a consequent correction in used car prices.
The price correction in the used car market was ‘primarily focussed on some premium brands’, as a reaction to the significant numbers of cars being registered and then sold into the market at significant discounts.
In a statement given in the update, Trevor Finn, Pendragon chief executive, said: “Following a strategic review, the board is now committed to focussing on reshaping the business to accelerate transformation.
“We are placing our software and online technologies at the heart of our business as a platform to fulfil customers’ vehicle and servicing needs. We believe this strategy will provide more reliable and sustainable returns.”
Since the release of the statement, share prices have dropped from 29.25p at 4:30pm on the 23rd to 21.75p at the time of writing.
As a result of these results, Pendragon said it is conducting a strategic review of the premium brands to evaluate by manufacturer the investment appeal of their franchise proposition.
It said it planned to review capital requirements by manufacturer and only allocate capital where it saw strong future prospects for reliable returns.
Despite these struggles, the dealer group said it anticipated a resumption of growth in profits in 2018.