Smaller dealer groups are struggling to keep up with their larger peers, accounting firm BDO has found, as consolidation in the motor retail industry starts to have an increasing effect.

This was despite the shop floor of the automotive industry appearing in good financial shape

In its annual Motor 150 report, which analyses the financial health of the top 150 motor retail businesses, BDO found net profit before tax increase by 11.8% to £922m, turnover increased by over 6% to £58.6bn and net margin reach 1.57%, which BDO said was the highest in the reports history.

BDO said it had found this growth had been predominantly within the larger business, while smaller groups appear to have struggled, or witness slower growth.

The accounting firm said this was partly as a result of organic growth, but also due to acquisitions by the larger groups as consolidation in the sector continued apace.

As an example of this, BDO noted that net margins in the largest 75 dealers increased by 7.2%, whereas the smaller 75 dealers saw net margins fall from 1.12% to 0.97%.

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The 150 retailers employ 814,000 people, contributing over £70bn in turnover, and exporting over 1.2 million vehicles to in excess of 100 countries.

Steve Le Bas, partner in BDO’s motor retail team, said: “The continuing strong financial results are obviously welcome but mask the widening gap between the larger groups and smaller businesses who are likely to face the biggest challenges as we enter a new period of uncertainty.

“New vehicle registrations, much like the economy as a whole, are cyclical in nature and many feel we are due another downwards turn.

“The general tone in the industry appears to be that trading is becoming more challenging. The achievement of unit targets is becoming much harder and in many cases the number of units sold has remained constant whilst the margins have dropped. This means everyone is working harder to achieve the same result.”

While some have argued that pre-registration levels were ‘under control’, Bas said the pressure to do so cannot be maintained. He said: “Continued pressure to pre-register vehicles at each quarter-end cannot be maintained. With the general uncertainty that surrounds the sector and the wider economy post-Brexit, the effect of the devaluation of the pound or the level of inflation is difficult to predict for the year ahead.

“The squeeze on margins is set to persist and dealer performance going forward is likely to be determined by how well they can balance control of their margins with the continuing pressure to hit targets.”