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Chartered Trust comment

The pace of change in the retail motor industry is hotting up. After several months of uncertainty, and sustained attack from organisations like the Consumers' Association, the Competition Commission report has finally been published.

It needs to be studied in great detail - not just for the small print but also for the implications which are unwritten, and so often go unsaid.

One thing is already clear. The Government's response to the report will have a significant effect on the way in which dealers finance their vehicles and, as a result, on their relationship with their several finance providers. If prices to the customer are to come down, the squeeze on retail margins will be tighter than ever and every opportunity must be taken to increase additional income streams.

Many experts expected the Government to call for 'unbundling' of point of sale F&I products, just as there has been in the travel industry. Taking retail finance and insurance packages out of the headline price of a vehicle would have had the immediate effect of lowering prices which is surely the Government's headline aim.

But ministers seem to have been extremely wary of doing anything to upset the recommended retail price structure, almost certainly because it forms the basis of the company car tax regime. The Inland Revenue is not yet ready to propose a workable alternative although it is working on one.

Only a cynic could suggest the Government deliberately left recommended retail prices high in order to protect its company car tax revenue - currently £1.71bn a year. But it is hard to find any other explanation.

So, we are left with the rather vague commitment to let dealers buy stock on the same terms as fleet customers, provided the dealers 'buy outright'. The Government believes this will lower prices to the customer by offering dealers the wholesale discounts previously only available to the fleet industry. But the manufacturers are already resisting the change.

For many dealers the implications of buying outright are significant. Current manufacturer stocking plans allow cars to be on forecourts for several months before they have to be paid for, or sold. The interest charges are set against profit and loss; the asset value remains with the manufacturer wholesale company.

But an outright purchase would place the asset on the dealer balance sheet and could greatly increase debt ratio - not to mention the effect it will have on medium term cashflow. For many smaller dealerships, already struggling with low margins, falling used car stock values and increasingly sophisticated customers, the extra burden will put further downward pressure on bottom-line profits.

Striking the right balance will not be easy. The relationship you have with your finance house will play a vital role in finding a solution to this problem. Dealers need to be working with a finance company with the products, training and systems which help them optimise their retail finance profit centre.

We look forward to talking to you.

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