Used cars drive down profits
NORTH East car retailer Vertu says the used vehicle market has stabilised after seeing a hefty drop – but warned that consumer uncertainty is still impacting demand for new models.
The Team Valley-based business now has a network of 188 sales outlets across the UK, predominantly operating dealerships under the Bristol Street Motors, Vertu and Macklin Motors brand names.
In a trading update for the fivemonth period ended January 31 it said used car prices dropped by 10.3% between October and December, as values plummeted on the back of an influx of supply into wholesale markets, a reversal of the gains seen in the previous few years.
Vertu warned in December that this would knock its profits, but said it would also make cars more affordable to buyers. The company says prices have “stabilised in recent weeks following post-October wholesale pricing correction”, and are now more in line with seasonal norms, with like-for-like sales by volume up 0.8% in the five months to January 31.
It said profit margins from used cars have started to recover since January, as new stock has been added.
However, the group said the new vehicle market continues to suffer, with like-for-like sales by volume down 5.1% in the five months to the end of January amid cost pressures on consumers, with car makers increasing incentives and offering discounts to attract sales.
The firm said: “The group’s new vehicle order-take for the important plate change month of March is currently tracking at levels below prior year level as order banks have been satisfied and the UK moves to a supply push market.
“These trends have the potential to impact margin and volumes and leads to an uncertainty for the new retail market.”
Overall, Vertu said group like-forlike revenues were up 7.8%, due to a more resilient performance from its after-sales business, mobility sales and cost cutting actions. Service revenues were up 5.3%.
Chief executive Robert Forrester said the group was having to adapt to a fast-changing market backdrop.
He said: “I am pleased with the team’s performance against a fastchanging market backdrop with used vehicle prices now stabilised at lower levels and consumer uncertainty impacting retail demand for new cars.
“Our resilient aftersales business continues to thrive aided by higher technician numbers. The work that has gone into cost control and optimising stock levels has contributed to an excellent cash performance.
“Despite the impact of the complex market dynamics on the shortterm performance of the business, the current market presents opportunities for Vertu with our strong balance sheet providing; financial flexibility, portfolio of strong brands, robust and scalable systems, and a great team.”
Vertu is forecasting that full-year underlying pre-tax profits will be “broadly” in line with recently lowered market expectations.