Reg Vardy, number three in the AM100, has warned that falling used car values will hit profits by £4.2 million for the first half of the financial year.
The group made £14.9 million profit in the first half of 1999.
Chairman Peter Vardy said the continued uncertainty surrounding new vehicle pricing has seen the sustained fall in used vehicle values.
He also criticised manufacturers for failing to give retailers the discounts offered to fleet operators, as recommended in the DTI order on new car pricing.
In his statement Mr Vardy said the fall in used car values had been particularly marked for three year old vehicles where the Vardy group has commitments until February 2002 to repurchase vehicles previously supplied under Motability contracts to Ford, Vauxhall and Renault customers.
"The forecast market values for these vehicles are now expected to be lower than the repurchase prices which will result in a loss on disposal," Mr Vardy said.
Similarly, but to a lesser extent, the forecast market values of some long term contract hire vehicles within the group's fleet are also predicted to be lower than the residual values that have been set in the contracts.
It is estimated that profits for the first half of the year will be £13.5 million (1999: £14.9 million).
On the group's prospects for the remainder of the financial year Mr Vardy said he had been disappointed by the reaction to the DTI order.
"The various responses of manufacturers with regard to fleet equivalent prices for retailers, as required by the order, were published on December 1. "The directors believe that so far these responses fall short of the actions intended by the order and have not yet resulted in any material benefit to motor retailers. "It is therefore the opinion of the directors that, whilst trading in the second half should show an improvement on that for the first half of the current financial year, the group's operating profits for the full year are now likely to be lower than previously expected."