What does Pendragon say about auto retail business model?

  21 October 2018

The auto retail industry is not exactly flavour of the month with the stock market at the moment, unless you are big into used car retailing.

It’s not just this week which has seen some big names take a battering (although the 113.5p drop in the price of its ordinary shares will make Inchcape investors wince) but the sector as a whole.

The scale of the challenge facing auto retailers, of how to adapt their business, has been laid bare by Pendragon. Earlier this week it made the headlines with its profit warning based round the WLTP crisis but if you take a longer view you can see something a lot more troubling.

Three years ago, on October 23, 2015, its ordinary 5p shares stood at 44.0p. When the London Stock Exchange closed last Friday they stood at 24.3. They have recovered a little from this year’s low, in February, of 21.4 but the trajectory is not one calculated to inspire confidence.

Last year Pendragon squeezed out a profit of £60 million from a turnover of £4.7 billion, this year it expects to make £50 million. Strip out its money making Pinewood CMS operation and the picture looks even less rosy. Its net debt has risen 50% in the past three years, one of the few KPIs to show an increase – even if it is in the wrong direction!

It wasn’t so long ago that I heard of a BMW retailer who said the shop where he bought his shoes made more money than he did selling cars. Whether factually accurate or not, it underlines the tiny margins in the new car end of the market.

Which leaves us where? When a colossus like Pendragon says the sensible money is in used, which it is, when it disposes of some of its premium brands, which it has, it sends out a clear message that, for too many businesses, the current model is broken.

Is selling shoes is better business than selling cars? Ask Trevor Finn.

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