Sales of used cars at Pendragon (PDG) have tended to make up for slowing turnover of new ones, but this does not appear to be saving it anymore. The company warned that a drop-off in demand for new cars, coupled with used cars becoming cheaper, means underlying pre-tax profit is expected to be £60m in 2017, compared with £78m last year. During the three months to September, like-for-like gross profit fell by a fifth in both the new and used car divisions.
Pendragon anticipates a return to profit growth next year. However, management admitted that the market for new cars is expected to decline for the rest of this year and through the first half of next year, as manufacturers adjust to lower demand. Fewer people are registering new cars, which along with a surge in pre-registration in used cars as manufacturers attempt to hit unit targets, has also weakened prices for nearly new vehicles. This has put pressure on margins, especially at the Stratstone brand where used gross margins fell from 6 per cent during the first quarter to below 2 per cent.
The focus has now shifted to the vehicle servicing and software division after a strategic review found that this would provide more reliable and sustainable returns. Technology is playing an increasingly important role in car servicing, and management believes its platform is set to meet demands.
