2013 was a bumper year for the motor retail sector as turnover and profit reached an all-time high, but increasing pressure from manufacturers, and registrations growth forecasted to level out, may put the brakes on growth, according to figures released by business advisory and accountancy firm BDO.
BDO’s latest report into the financial health of the motor retail sector shows revenue in the top 150 dealers achieving double-digit growth in 2013, up 12.1% to £47.7 billion, while profit before tax increased to £648 million, a 42% increase on 2012 figures and a far cry from 2008 figures which showed a loss of £198m.
Local dealers appearing in the BDO Motor 150 Report include Harwoods, Snows Motor Group, Foray Motor Group, Peter Cooper Motor Group, City Motor Holdings, Sandown Group and Hendy Holdings.
The 2014 Motor 150 Report has shown that resurgence in the sector has been driven by a rise in new car registrations to 2.3 million (+10.8%), having recovered from a low of 1.9 million in 2011. While the rise is welcomed, the forecast for 2014 indicates a levelling out of the market at 2.5 million as car registrations return to pre-recession norms in the UK.
A reduction in debt as dealers reduced gearing and increased cash reserves also contributed to the record figures in 2013 but increasing pressure from manufacturers is likely to slow down growth in the coming years.
Manufacturers have continued to invest in product development and expect a similar commitment from car dealers in the form of new showrooms and increased dealer standards.
In 2013, freehold and leasehold property costs increased by 38% as a result of these investment requirements. The creation of more than 4,200 jobs reflected the upward momentum of the sector but also increased staff costs by 8.4%.
Despite the sustained profit divergence between the largest and smallest companies, first reported in the 2013 Motor 150, growth was seen across the board. In 2013, the large companies at the top end grew by more than 10% and the smaller companies with lower sales average around 5% growth.
Malcolm Thixton, head of BDO’s motor retail team, said: “Our research shows that the motor retail sector is back to pre-recession levels with a strong balance sheet supported by a steady pipeline of sales. The majority of dealerships at either end of the 150 spectrum are experiencing growth and are feeling positive about the future.
“Manufacturers have supported their dealerships through the hard years, but now they expect a return. By reducing margins, setting more challenging targets and stricter standards, dealers will need to think outside the box to maintain levels of profitability that we’ve seen in 2013.”
For the third consecutive year, Arnold Clark posted the highest profit before tax - an increase of £24 million in 2012 to £85 million in 2013.