More car dealership failures looming
THE heavy impact of the recession on the auto trade was revealed today.
Accountants Ernst & Young said 24 dealerships had gone under in the first nine months of 2009 – twice the number that failed in the same period in 2008.
E&Y said plummeting car sales, heavy discounting of new vehicles and lower levels of servicing had all taken their toll.
The firm’s report: UK Car Dealerships – Lessons from the last recession – says the current slump will be more keenly felt by the sector than was experienced in the 1990s, and the situation will get worse before it gets better.
Eric Wallbank, UK head of Ernst & Young’s automotive team, says franchised car dealerships are hurting just as much as the car makers.He said: “A cocktail of falling sales and diminishing profit margins has led to unprecedented levels of dealer closures.
“But the true extent of distress facing dealer groups is being masked by the closure of many loss making sites which would have not been reflected in the overall insolvency numbers.”
He says this recession will be more harsh because dealers were operating on much lower profit margins going in to the recession than they were in the 1990s.
The UK’s top 25 dealers reported 7.1% EBITDA in the period 89 – 90, compared to 3.1% in 06 – 07.
Mr Wallbanks said the market place will get worse for dealers before it improvesL “We expect the number of dealer failures and site closures to accelerate into 2010 as the full effects of the current drop in car sales are felt.
“The franchised dealers best placed to weather the storm will be those able to retain a significant proportion of customers’ aftermarket spend and those representing growth brands.
“This is particularly true of dealers offering a strong line of smaller vehicles which are proving to be increasingly more attractive to changing consumer tastes.”
He said it is difficult to predict whether the Government’s scrappage scheme had carried the industry through the worst of the economic crisis, but believes the biggest driver of recovery will be the emergence of the economy from recession.
