Lookers profits go into reverse as car market '˜softens'
The group’s comments came as it reported that pre-tax profits dropped from £46.7 million to £44.6m in the six months to 30 June, despite revenues rising 5 per cent per cent to £2.46 billion.
The company, which acquired Taggarts’ sites in Motherwell and Glasgow in 2003, said new car sales in the UK had weakened, and that the political backdrop and the fall in sterling were adding to the uncertain outlook.
“We have seen a softening in the new car market in recent months,” said Phil White, chairman of the group, which also operates dealerships including Edinburgh Audi.
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“Furthermore, the current political environment, Brexit and weaker exchange rates have created a degree of uncertainty in the UK economy, which is unhelpful and we therefore view the second half of the year with some caution.”
White said he expected the UK new car market to fall by 2.6 per cent this year. Despite the warning, Lookers made no change to its guidance for the full-year.
It follows similar comments from rival Marshall Motors on Tuesday, which said economic and political uncertainty was putting the brakes on the UK new car market. Despite the fall in profits at Lookers, which is led by chief executive Andy Bruce, the company raised its interim dividend by 10 per cent to 1.41p per share.
Revenues from aftersales, which represents the largest proportion of the group’s business, increased 4 per cent on a like-for-like basis.
The company also pointed to a positive increase in new and used car revenue and gross profit.
Meanwhile, figures from motor industry body SMMT yesterday revealed that UK used car transactions fell in the second quarter of 2017.
A total of 1.83 million used cars changed hands in the period, a fall of 13.5 per cent, after a record 2016.
Graham Hill, car finance expert at the National Association of Commercial Finance Brokers, said the “negative narrative” around car finance could be impacting buying confidence.
Hill said criticism of personal contract purchase plans in particular could be driving this slump in activity.
“While the Financial Conduct Authority is right to be looking into the dubious selling practices of certain dealerships, car finance products are robust routes to car ownership. It’s the lack of transparency around what these deals actually entail that really needs to be investigated.”
Alex Buttle, of car buying comparison website Motorway.co.uk, said although the 13.5 per cent drop in used car sales suggests transactions have “fallen off a cliff” it was important to bear in mind 2016 was a record year.
“That rate of growth was always going to be unsustainable - particularly when you factor in Brexit being triggered, a government in shambles, the demise of diesel and the horrendous press coverage around a potential car finance bubble.”
He pointed out that first quarter used car sales had hit record levels and it was not surprising there had been a cool-down.