Regional dealer groups are facing falling gross margins on car sales as plcs consistently pick up greater returns.

Figures from chartered accountant and business adviser Baker Tilly reveal local limited retailers achieved similar gross margins as plcs in 1999, around 13.5%, but this has since fallen to 10%, compared with plcs’ 15% returns.

Turnover per employee highlight further differences: limited groups averaged around £225,000 per head in 1999, but this has more recently levelled off at about £289,000, despite briefly rising above plcs in 2000. Plcs have risen from £260,000 to £310,000 per employee over five years. “Clearly plcs are more profitable – and that’s probably because they get better terms from the manufacturers,” says Baker Tilly managing partner Stephen Duffety.

“There will be some fall-out from the industry – some groups are operating with liabilities greater than assets: they are, in effect, insolvent. And they will be in trouble if interest rates rise and the economy stalls because many of them are on the cusp.”

He believes manufacturers are looking for a balanced portfolio of dealerships, consisting of businesses with clear succession planning, that are well funded and which deliver on performance.