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Motor trade's falling profits fuels recession warning

Falling profit margins and falling capital returns in the motor trade reflect a UK economy on the brink of recession acccording research published today.

Profitability throughout UK plc has fallen for the seventh consecutive quarter in the 12 months to September 2000 and falling business investment and profitability have already resulted in thousands of job losses, factory closures and reductions in forecasts for economic growth this year, according to Experian, in its latest 'corporate health check'.

It found that profit margins among motor traders has fallen in the latest quarter from 2.4% in the the fourth quarter 1999 to 1.65% in the fourth quarter of 2000. - more than five times faster than than the industrial average.
Experian says this reflects the pressure from internet suppliers for new and used cars, "as well as cheaper Kwik Fit style operations which have eroded dealers' market share".

The sector's average profit margin is less than a quarter of the industrial average of 7.17%.

Return on capital in the motor trade also slumped to its lowest level for three years during the last quarter of 2000, from 15.66% in 1999 to 10.73%. "The level of one-third over the year was twice the level of decline in the industrial average and second only to the clothing and textiles sector" says Experian.

Peter Brooker, author of the report, said: "Not only do British companies still have to cope with the continued loss of international competitiveness as a result of the strenght of the pound against the euro and its weakness against the US dollar, but exports outside the EU have also fallen.

"The prospects for 2001 are not encouraging. The fundementals have not changed since the beginning of the year and, if anything, key economic indicators such as manufacturing output, producer input prices, business investment and the balance of payments have all deteriorated."

The Experian Corporate Health Check is based on the audited financial results of the 2,000 largest UK companies.

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