Motor retail industry sees turnover rise but profits fall

15 April 2013

Dealerships should focus less on ‘getting back to normal’ and more on adapting to the current economy.

  • Motor industry contributes £10bn to UK economy, employing more than 730,000
  • Turnover up by £800m but profits suffer with 25 of the top 150 making a loss
  • Motorists are keeping their cars for longer, with average car now 7.44 years old
  • Focus on good service and online offerings is key for dealerships in 2013

As the shop floor of the UK automotive industry, motor retail contributes £10bn to the national economy and employs more than 730,000.

Accountancy and business advisory firm BDO LLP has released its annual Motor 150 Report revealing the aggregated performance of the top 150 companies in the UK motor retail sector.

The report covers performances in the latest audited accounts and looks into the future accounting periods. It provides a considered insight into recent economic events and sector activity, including future dynamics of the motor retailing industry and offers professional views and advice for the future.

The overall turnover for the top 150 UK motor dealers in the industry was up by 2%, increasing by £800m to £40.7bn, but reductions in gross margins resulted in a fall in operating profit of £96m to £549m. More than two thirds of the group produced lower profits than last year, with 25 making a loss compared to only 11 last year.

Companies reporting a strong year referred to their internet presence and investment in staff training & development as important differentiators.

Malcolm Thixton, BDO’s Head of Motor Retail, says: “It is important that dealerships focus less on ‘getting back to normal’ and more on adapting to the current economy. Success stories are coming out of those that focus on service and building long term relationships, whilst developing e-commerce strategies to attract, convert and retain customers and people.”

After-sales continued to see challenging trading conditions where there has been a 20% reduction in vehicle parc over the last five years, reducing the number of vehicles available for servicing.

The report also notes that the average car is now 7.44 years old, two months older than a year ago, suggesting motorists are either keeping their cars longer or that new cars are more efficient and need less servicing.

Thixton continues: “Despite these challenges, we see a number of groups that are still able to grow this area of their business and are making the most of opportunities, including introducing service plans for vehicles over three years old, improving customer databases and contact points via call centres and other forms of social media. Regular training of service advisors is essential to maximise profitability.”

Overall, the balance sheet of the group improved, as companies retained profits and paid down borrowing rather than incurring large amounts of capital expenditure or investment by way of acquisition.

More than half of the companies incurred total costs of £139m on adding to or improving their freehold properties. Stock and corresponding loans increased by £500m, although this was spread across the group with no obvious reason why this has happened, but could be the result of pressure from manufacturers. Gearing (excluding stocking finance) was marginally up at 31% compared to last year, but still significantly down from the 45% we saw in 2009 as companies very sensibly retain profits and pay down borrowing.

Data from the Society of Motor Manufacturers and Traders (SMMT) showed that both the north and south saw reductions in registrations, with the north 8.7% down compared to 4.6% down in the south, whereas the registrations in the Midlands were up 2%. However, the recently published car registration figures for 2012 suggest the market is getting back on track.

As profits come under pressure, manufacturers continue to look at how they go to market, with a number either operating or taking strategic interests in retailing. In addition, as the internet plays an increasing role in the way consumers source and buy new and used cars, manufacturers are also advised to take a greater interest in how consumers source, buy new and used cars.

Despite the number of companies going into administration, there have been a noticeable number of large new entrants into the market who have worked hard for their profits to ensure a customer’s visit to a dealership is beyond that of a transactional event.

The changing nature of today’s retail sector means that 2013 will be a year of continued opportunity for dealers who continue to take on the challenge. Thixton concludes: “For growth to be sustained, dealers need to continue to adapt and remain open to change. Registrations increased slightly in the year and we believe that the sector can still produce good returns for those that invest appropriately.”

Download the latest Motor 150 Report.

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