Pendragon: slow motion car-wreck?

Industry analysts have been sounding the alarm about Britain’s credit-driven car boom for years. Is the crash upon us? An ugly profit warning from Britain’s biggest dealer has certainly renewed concerns, said Alan Tovey in The Daily Telegraph. Shares in Pendragon, which owns the Evans Halshaw and Stratstone dealerships, fell by almost a fifth on Monday (dragging down those of its rivals too) when it slashed forecast annual profits from £75m to £60m. CEO Trevor Finn said a glut of vehicles had been made “more acute” by “waning demand”. Industry sources have described the latest new car registration figures as “bloody”, leading to big discounts and “a concertina effect” on the prices of used cars too.

“You don’t need to have run a car shop since 1989, like Mr Finn, to work out that the market was overdue a correction,” said Philip Aldrick in The Times. The industry’s finance model, based on personal contract purchases (PCPS), “exploded at such unstable speed” that a “slow-motion car wreck” seemed all but inevitable. Growth in sales to consumers peaked in March 2015, “so manufacturers flooded the business fleet”. Now that’s “saturated” too. Throw in evidence that squeezed households are starting to hold back on “big-ticket items” like cars, and you can see why the industry’s in such a fix.

The best scenario for dealerships such as Pendragon is that manufacturers start producing fewer vehicles – thereby driving prices up again, said Nils Pratley in The Guardian. But given lengthy supply chains, it’s an “open question” how quickly they’ll react. Finn expects profits to start growing again next year. Perhaps he’ll be proved right. But after years of acceleration, fuelled by the “turbo-charged” growth of leasing contracts, “expect the change of gears to be clunky”.