UK car dealers cannot rely on manufacturer support indefinitely after Vauxhall took the decision to terminate all its retail network contracts, according to restructuring advisory practice Duff & Phelps.
Michael Bills, managing director of the practice, said that manufacturers had â€œclearly been supporting their dealer networksâ€ during the recent new car registrations downturn through â€œthe relaxation of onerous franchise terms as well as through strong bonus and incentive schemesâ€.
But Bills added: â€œHowever, it is not clear how long this support will continue.â€
His comments came as Cox Automotiveâ€™s chief operating officer, Martin Forbes, warned that other manufacturers were likely to follow in the footsteps of PSA Group-owned Vauxhall with greater consolidation and contraction of their franchised dealer networks.
Forbes said that at this point it was too early to measure the impact of this decision on Vauxhall dealerships, but added: â€œThe market is shifting at great speed making it difficult to confidently predict where it will be in two years, once these changes have come into play.
â€œHowever, we expect to see a continuation of dealership consolidation and a growing appetite for manufacturers to work with larger groups and reduce contracts.â€
In its analysis of recent market events and the likely pressures on the market moving forward, Duff & Phelps noted the impact of new car registrations decline in March, the Society of Motor Manufacturers and Traders (SMMT) reporting that 474,069 new cars driven off forecourts in the month, a 15.7% decrease from 2017.
It said that â€œthe dramatic fall in sales was driven by a near total collapse in diesel sales, while petrol sales rose by 0.5% year on yearâ€.
Bills stated: â€œThis March has presented the UK dealership sector with a real challenge, especially if those dealers have new stock irrespective of whether they are petrol or diesel.
â€œYear-to-date sales for new cars are down 15.7%, however, much of that fall can be attributed to bumper sales in March 2017, as drivers flooded to dealers to beat the then-new road tax system.
â€œBut the devil is in the detail. Petrol sales are in fact up â€“ albeit by 0.5% year-on-year, but it is diesel that is dragging the industry down, with a 37.2% fall in March sales, compared to a 23.5% fall in February.â€
According to the SMMT, March marked the 12th consecutive month of declining new car sales and the market was down 12.4% year-to-date. Last month was still the fourth biggest month on record for the industry, with a total of 562,337 cars sold.
â€œAs with any business, cashflow is king and March has delivered a mixed picture for the industry. The bad weather – including the â€˜Beast from the Eastâ€™ – inevitably reduced footfallâ€™s presence on dealer forecourts.
â€œEaster coming earlier this year did not help either as it tends to be a family-focused time of year, as opposed to car buying.
â€œOur view is that there will be some dealers with large numbers of new vehicles sitting on their stocking plans that will be 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.â€