Car dealers are currently facing a tough market, with profits steadily decreasing, and industry experts predict it may get worse before it gets better. According to Peter Smyth, director at Swansway, car retailers are bracing for a "survival of the fittest" scenario, where only those willing to work hard will thrive through 2024.
Recent filings from several dealerships, including Listers, Vindis, and John Clark Motor Group, show declines in pre-tax profits, even though many saw an increase in turnover. Smyth attributes this to a mix of rising interest rates, shrinking profit margins, and the increased cost of salaries and overheads due to the ongoing cost-of-living crisis.
The situation is further complicated by an oversupply of new cars, which has driven down margins, and a shift in the industry towards electric vehicles (EVs), despite limited demand from customers. Moreover, high competition for quality used cars has pushed up wholesale prices, reducing profit margins on these vehicles.
Looking at 2023, industry experts, including Steve Young from ICDP, highlight how last year's results benefited from supply chain issues lingering from the pandemic, but this year has seen a return to normal, with challenges like fluctuating used car values and the transition to EVs adding pressure on dealers. Comparing 2022 to 2023 is difficult, as the market conditions have drastically changed, making it harder for dealerships to maintain profit levels.
Ian McMahon, an automotive partner at UHY Hacker Young, points out that rising costs and fluctuating used car prices contributed to weaker performance in 2023, but he remains optimistic that dealers are finding ways to adapt and improve operations, particularly in terms of overhead management.
Philip Nothard from Cox Automotive adds that reduced profit margins and increased overheads are affecting the entire automotive sector. He emphasizes that comparing year-on-year performance doesn’t give the full picture, as dealers are facing significant challenges from both local and global economic uncertainty. The pressure is being felt across the entire automotive ecosystem, not just by retailers.
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