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Private and Commercial Finance Group

Nick Lancaster, chief executive of London-based HR Owen, is warning manufacturers that traditional franchised car retailing may no longer be viable with volume brands in the South-east because of soaring costs.

HR Owen has told investors to expect a first-half loss this financial year and group chairman John MacArthur blames falling consumer confidence, with “difficult trading conditions” towards the end of 2004 which have continued this year.

“The industry has suffered from the adverse effects of rising interest rates, stagnating house prices and falling consumer confidence,” MacArthur says. “These negative factors have been particularly evident in London and the South-east where our activities are mainly concentrated.”

His statement promises a “significant cost-reduction programme” but Lancaster cannot yet say how this will be achieved. The company is forecasting a better second half thanks to a reduced cost base and advance orders for new models.

“We’re trying to cut costs, while manufacturers are attempting to do the same, partly by transferring distribution costs to retailers,” says Lancaster. “Manufacturers have to accept that costs are now too high and that there must be major changes in car retailing over the next five years.

“They will have to support dealers financially through difficult economic times, or see them drop franchises, leaving carmakers to do the retailing themselves. We have four Ford PAG outlets in East Anglia, whose combined return would not finance a single showroom in central London.

“The extra London costs, such as security and off-site storage of cars, means we can’t achieve a 1% margin on sales, while the national average is 1.5% to 3.5%, and some groups with specialist brands achieve 4% in the north.”

HR Owen is a £450m turnover group with 44 outlets, including Volvo (five), BMW/Mini, Mercedes-Benz, Audi and Land Rover (four each), Seat, Chrysler and Volkswagen LCV. In his comments, Lancaster excludes specialist brands such as Lamborghini (HR Owen holds the UK concession), Rolls-Royce and Bentley (the group has one outlet for each brand), Ferrari and Aston Martin.

In March, HR Owen appointed Rothschild to conduct a strategic review but Lancaster says speculation he may leave car retailing is premature.

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