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The Big Picture: Tough times at Pendragon

Pendragon is facing its most difficult trading period since it was demerged from Williams in 1989.

After relentless growth, which swept it to No1, and strong results, critics are now sharpening their pens following a profit warning in the summer and speculation of a second one shortly.

The share price has been steadily falling – dropping to a low of 55p last month from a high of just over 130p at the start of last year, although it had made a slight recovery to 63.5p at the time of writing.

A falling share price could see banks tighten debt levels (Pendragon has debts of £350m and interest payments that guzzle almost half its operating profits); it could also make it hard for Pendragon to grow further.

So what’s going wrong at the UK’s No1? It’s been accused by analysts of employing a smoke and mirrors strategy where frequent acquisitions mask long standing problems. They claim that Pendragon finds it difficult to grow organically and that companies it buys fail to progress as well as they did previously.

Pendragon says that the market is causing its woes, although close rivals Lookers and Inchcape have both posted strong interims.

What is certain is that Pendragon is losing staff, including many Reg Vardy managers, and they are not all by design. Few ex-employees I’ve met have anything good to say about the company they left.

It’s a common but accurate phrase: the motor industry is a people business and people buy from people. No group can afford to let some of its best people leave.

Could it be bought if results don’t pick up? Not in its entirety – it’s far too big for any rival to swallow painlessly. And much of its property is tied up in the JV leaseback deal.

Many retailers have taken a schadenfreude view; they are relishing the problems facing Pendragon. What they perhaps fail to realise in their glee is if the UK’s No1 collapses it could be devastating for the sector. Investors will lose their nerve and funding will become more costly and more difficult to secure.

Whatever your view of Pendragon, everyone should hope the group finds a way out of its difficulties for the good of its employees and the industry.

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