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Inchcape sells a high proportion of smart marques in fast-growing economies like Singapore and Hong Kong, so it was supposed to be more resilient than those dealers selling Astras and Mondeos to suburban Brits. That resilience has proved a mirage - and Inchcape's plight now is a sign of how badly the industry is hurting.
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It has seen its shares plummet 90 per cent in the last six months; late last year, it issued two profit warnings in quick succession, and there was another alert today. The company now expects "more substantial sales declines than previously estimated" across the board, and is conserving its cash by withholding its 2008 final dividend. It paid out 10.5p a share last year.
The company also said it was mulling a cash call. Although it is within its debt covenants and its £1bn of banking facilities are only just over half drawn, analysts are worried that it could still end up in breach given its poor sales performance, not only in the UK but overseas.
Other dealers face similar issues. There was a fair bit of consolidation during the boom years, so many companies took on debt to buy up smaller operators. And while falling sales are part of the problem - they fell 11.3 per cent last year as a whole, and by 21.2 per cent in December, according to the Society of Motor Manufacturers and Traders - the seizing up of credit markets is also to blame. Many cars are sold on credit, yet dealers can no longer offer the range of financing options they once did.
Government intervention could yet help the sector. One option is to allow motor finance companies to access the Bank of England's special liquidity scheme, swapping car loans for liquid assets like gilts. However, little progress has been made on this so far.
Car distributors are among the worst performers even within the battered general retail sector, and the 'perfect storm' of falling consumer spending, high debt, non-functioning credit markets and a longer-term push towards 'greener' transport mean that's unlikely to change in the short term. Don't bank on the government riding to the rescue. Both the sector generally, and Inchcape specifically, are high enough.
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-IC-2.1.3g-prod - 17/03/2010 18:13:09 - ben.wheeler
