Pendragon PLC, one of the world’s leading automotive retailers, have reported a dramatic crash in their pre-tax profits by almost half, as they shift from luxury showrooms to the used-car market.

A new strategy to survive in a troubled market

Pendragon PLC Group currently operates from 220 locations and have four divisions: UK motor, US motor, Pinewood Technologies (automotive software) and fleet solutions. The UK Motor businesses are branded Evans Halshaw and Stratstone.
Following disappointing results, they announced that the US Motor arm would be sold (for an estimated £100 million) and that they disposed of four premium brand franchises (releasing £26.0 million). They also outlined their strategy to:

• Develop their share in the UK used car market and double their used car revenue by 2021 (through network and online sales)
• Expand their software offering (Pinewood) worldwide (Pinewood)

The move followed poor sales in a challenging market, where customers seem to become more reluctant to invest in premium cars for a number of reasons: uncertainty over the government’s negotiations around a Brexit deal and the impact on car and part imports, the industry’s move towards green vehicles due to measures against diesel vehicles, the increases in the cost of fuel etc.

Results in line with expectations

A 41% drop in profits (to £28.4 million) in the first half of 2018, is being blamed on a fall in Pendragon’s UK motoring division – which is the biggest part of the business.

“We are gaining momentum as we lead the transformation to fully online used car retailing. This will give us greater self-determination and deliver more reliable, sustainable earnings. Our industry leading software company gives us unique technology and expertise, to reformat our business model. We are also continuing to reallocate our capital into higher return areas to increase shareholder value. Underlying profit before tax was £28.4 million for the first half and we remain in line with expectations.”
Trevor Finn, Chief Executive

The new car market has been unstable for a while, and even though it may show signs of stabilisation, typically with a high demand in alternatively fuelled vehicles, the numbers are still not those of a booming industry (-5% in new car registrations in Q1 2018).
For more details about the market, read our latest blog: “car sales slowly starting to stabilise“.
Seeing such big players struggle within the current market is always a worry. The automotive industry is undergoing a profound transformation, and only the most adaptable may be able to survive and even thrive. Within the next few months, with further developments around Brexit negotiations and more measures destined to improve the air quality  (e.g. ULEZ, congestion charge, government grants to purchase PHEVs), we may see more companies struggling and realigning their strategies. Hopefully, once we get a better understanding of the outcome of Brexit negotiations, the industry may get some reassurance and the market goes back to the levels of growth we were used to.