Skidding Off the Forecourt

The UK new car market has continued to fall throughout 2018, with a decline in sales driven by a near total collapse in diesel sales; however, petrol sales actually rose by 0.5% year on year.1

Read Upside - Autumn 2018

As with any business, cash flow is king, and recent months have delivered a mixed picture for the industry. The bad weather in early 2018—including the “Beast from the East”—inevitably reduced footfall on dealer forecourts. Easter coming earlier this year did not help, since it tends to be a family-focused time of year as opposed to an opportunity for car buying. There will be some dealers with large numbers of new vehicles on their stocking plans. These will become due for payment unless the dealers can negotiate further lines of finance from their manufacturer partners, who will have to continue to support them if new car sales continue to falter.

Manufacturers have clearly been supporting their dealer networks through the relaxation of onerous franchise terms, as well as through strong bonus and incentive schemes. It is not yet clear how long this support will continue. August saw a spike in sales for the UK new car market, as customers appeared to capitalize on considerable discounts offered by dealers ahead of the new emission regulations coming into effect. Any models not tested under the new WLTP regime cannot be sold post September 1, 2018.2

The sector is facing some critical structural issues as the era of cheap money and PPI payments comes to a close3 and the number of consumers turning to the web to do their research on brands increases. An interest rate rise just before the all-important new registration month of September is not the sort of news that dealers want customers to be reading about, especially as over 80% of new car sales are bought on some form of credit agreement.4

However, not only is the market facing a threat from the drying up of cheap credit but also from the current negative sentiment toward diesel cars and the lack of infrastructure for mass use of hybrid and electric vehicles. Our advice to those UK car dealerships already feeling the pinch on cash flow is to act now.

Manufacturers will not want to see longstanding dealerships suffering and possibly even disappearing as a result of an economic slowdown. Accurate forecasting, planning ahead and embracing of the rescue principles that Duff & Phelps promotes will be necessary to manage a challenging economic period.

 

Sources:
1 https://www.theguardian.com/business/2018/apr/05/sales-new-cars-uk-slump-march
2 https://www.autoexpress.co.uk/car-news/consumer-news/94714/uk-new-car-sales-up-23-per-cent-in-august-as-hybrid-demand-surges
3 https://www.fca.org.uk/news/press-releases/fca-finalise-plans-place-deadline-ppicomplaints
4 https://www.independent.co.uk/money/spend-save/new-car-buy-consumers-finance-oncredit-diesel-registrations-drop-income-a8246106.html

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