HR Owen has raised £2.5m to reduce its debts by releasing its five VW car franchises and one VW van outlet in an MBO headed by Jonathan Smith, previously the group’s Volkswagen divisional director.

The Citygate Automotive dealerships, located in north-west London and the M25 region, had gross assets of £16.2m in December, 2004, and net assets of £8.1m. In 2004, the business made a loss of £200,000 before tax.

The agreement was announced following the sale for £3.4m in December of HR Owen’s six Ford PAG dealerships in East Anglia to Lookers.

Nick Lancaster, HR Owen chief executive, says: “I have many regrets about not continuing with Volkswagen because I believe it is a great brand and will do well.

“Retaining VW did not, though, fit with our business plan, and the MBO and sale to Lookers has enabled us to virtually eliminate our debts.”

As part of the MBO agreement, Volkswagen Group UK bought the freehold or control of the head lease on Citygate dealerships at Colindale, Chalfont and High Wycombe.

The manufacturer already owns the Ruislip site and does not plan to acquire the Citygate premises at Watford.

A Volkswagen UK spokesman says: “We want, eventually, to own the freehold or control the head lease on dealership hubs at 85 sites in our network of 240 outlets, and now have 54 of them.

Location is a vital factor in retailing, and the policy ties in with our programme of company-sponsored dealer principals.”

In the earlier agreement, Lookers announced a conditional agreement to acquire two Jaguar, two Land Rover and two Volvo dealerships from HR Owen. They are in Colchester, Ipswich and Bury St Edmunds, adjacent to Lookers’ existing PAG territory.

Completion, expected soon, is subject to approval by shareholders of HR Owen and landlord agreement to the leaseholds.

Lookers will pay £2.2m cash for goodwill and about £1.2m for fixed assets and stock. The group, which expects to add approximately £50m in turnover, will have eight Land Rover outlets and six Volvo.

Lookers operates five Jaguar outlets in Scotland and Northern Ireland and this acquisition represents its first two in England.

HR Owen retains three Volvo dealerships, two Land Rover and four BMW/Mini. All are likely to be sold this year.