The UK’s Top 100 UK car dealerships have reduced debts from £12.5bn to £9.7bn over the past year, according to accountancy firm UHY Hacker Young.
The report attributed the debt reduction to the sale of property assets, the trimming of capital investments and a renewed focus on cash generation. By doing this, UHY Hacker Young believes the sector has significantly improved its financial strength ahead of the expected Brexit-related slowdown in car sales.
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UK dealerships recognise that big ticket purchases like cars are the first to suffer when consumer confidence drops. As a result, according to UHY Hacker Young, dealers have gradually been reducing their risk since the EU referendum in 2016.
Another contributing factor was the VW emissions scandal in 2015, which prompted a fall in the sale of diesel cars – prompting dealers to start reducing risk.
In 2018, 2.36m new cars were registered in the UK – down 7% from 2.53m in 2017. This is according to figures from the Society of Motor Manufacturers and Traders (SMMT), which also found that registrations of new diesel cars dropped 20% year-on-year in January 2019.
Paul Daly, partner at UHY Hacker Young, believes the debt reduction trend is putting dealers and the wider market in a stronger position. “To date, dealership results have fared well despite the fall in new car sales owing to the strength of the used vehicle and aftersales markets. However, preparing to weather any post-Brexit storm through debt reduction seems a very sensible move by the sector.”
“Risk of a sales slump caused by a post-Brexit knock on to consumer confidence and the potential 10% tariffs on EU manufactured vehicles in fairly severe but lower gearing will certainly help to keep this manageable,” continued Daly.
The government must take into account the tough conditions faced by the automotive industry, Daly noted, especially in areas such as emissions policy, tax incentives for hybrid and electric vehicles and in the regulation of finance to fund car sales.
Net debt of UK car dealerships
