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Unemployment is biggest danger

Unemployment is a greater threat to the retail motor industry than the possibility of a credit crunch. That is the view of corporate stock-broker Panmure Gordon.

Attendees at the AM Financial Challenges in Motor Retail conference heard that economic analysts believe fear of job losses is more likely to make consumers delay changing their car or footing the bill for expensive repairs than higher interest rates.

Although there has been little evidence of a credit crunch in the UK, financial institutions are being more cautious. Panmure Gordon managing director Andrew Burnett cited statistics from Barclaycard that up to half of credit card applications received in recent weeks had been rejected.

“Unemployment is a bigger and more pernicious foe to this industry than higher interest rates”, says Burnett.

Panmure Gordon predicts that a quarter-point cut in the interest rate will be needed by March 2008, when the effects of a credit crunch may begin to show.

In the retail sector, dealers are of interest to investors because of the property they typically hold.

Mike Allen, Panmure’s motor retail researcher, said that was because motor retailers were not as location sensitive as other retailers and were able to sell property assets in high-demand areas and move to other suitable sites.

Analysts are interested in the question of whether a dealer can successfully control hundreds of outlets from one head office.

Although centralisation brings benefits, such as cost reduction in personnel, national advertising, security and consumables, Allen believes it very unlikely that the industry will see 500 or more sites operated successfully by one group.

Nevertheless, Allen and Burnett agreed that further acquisitions among dealer groups will come.

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