Brexit drives pessimistic outlook for motor dealers
- Only 24% of UK dealers expect an increase in profits in 2017; a drop of 20% from 2016.
- 8 out of 10 dealers say Brexit uncertainty will have adverse impact on the sector.
- Used car performance expected to have most positive impact on profitability.
- Pre-registration levels, consumer confidence and costs have most adverse impact on profitability.
- Online retail set to become integral part in the future new car purchasing model.
- 59% happy with franchise partners’ future proofing strategy for AFV and autonomous vehicles.
Motor dealers in the North West are concerned about a dent on profits in the next 12-months, according to a report by an influential accountancy group.
The MHA Motor Dealer report reveals a significant drop in optimism amongst UK motor dealers with 76% of dealers surveyed expecting profits to drop or remain static for the year, an increase of 20% from 2016.
The report is compiled by the UK-wide group of accountancy and business advisory firms, which includes North West accountancy firm Chiks. It looks at the current outlook of the sector as well as future trends including online retail, alternative fuel and autonomous vehicles and the outlook for M&A across the UK.
The pessimistic outlook was driven by the ongoing uncertainty around Brexit with 76% of dealers believing it will have an adverse impact on the sector over the next 12 months.
A number of consumer confidence issues are also worrying motor dealers. These include the potential changes in purchasing habits resulting from concern around possible diesel scrappage, the recent scrutiny on potential Personal Contract Purchase (PCP) mis-selling, and the likelihood of continued reductions in retail registration numbers.
Ginni Cooper, a director at Chiks, said: “I am not surprised to see the survey results confirming the marked change in dealer confidence levels we have heard from our clients recently. The industry is going through a period of change and I do think that online developments may start moving at a pace now. The continued strength and resilience of the sector is certainly dependent on all parties (including manufacturers and their franchise partners) working together to ensure a sustainable business model for the future.”
Sue Robinson Director, of the National Franchised Dealers Association, added: “We have entered challenging times, but our sector is resilient and used to coping with difficult and unexpected situations. It is encouraging to see that the majority of dealers feel positive about their partners’ strategy for alternative fuel vehicles.
“We are also pleased to see that there is a very high level of awareness of the importance of online retailing. These two elements are likely to become predominant aspects of car retailing in the near future.”
Despite the reduced optimism, dealers are expecting to drive their performance predominantly through used car sales this year.
Growth plans in the businesses themselves remained relatively steady with 60% of dealers saying they planned to grow over the next 12 months compared to 64% in 2016. However, there was a significant shift in how that growth was going to be achieved. Only 13% of those surveyed said growth would come from acquisition compared to 40% in 2016. Organic growth and redevelopment is now the main focus with 62% of dealers compared to 44% in 2016. A quarter of dealers said their growth is expected to come from expanding the number of locations, an increase of 9% from last year.
The survey results also reflect the fact that M&A activity slowed during the back end of 2016 and beginning of 2017, with only 7% of dealers looking to exit their business and only 8% looking to acquire.
Future trends in new vehicle purchasing were dominated by the growth potential from online retailing. 94% of dealers cited online as becoming an integral part of the new car purchasing model in the future. 63% of those dealers believe it will happen within the next five years. However, there remain key areas to address including clarity around where responsibility for selling vehicles will lie and the infrastructures required to hand them over.
Alternative Fuel Vehicles (AFVs) are set to gain a significant market share within the next five to ten years. 59% of all respondents said they were either very happy or happy with their franchise partners’ strategy for future proofing AFVs and autonomous vehicles. For premium brands the level of confidence was much higher than volume brands (74% and 54% respectively)
The MHA Motor Dealer report is based on data from 88 senior managers from dealerships across the UK in England, Wales and Scotland.
To download a free copy of the full report, please click here.