Pendragon will combat the over-supply of nearly-new cars in the first quarter by completing its business restructure plans, which includes the termination of 26 new car franchises.

Sir Nigel Rudd, Pendragon chairman, explained at the company's AGM how too many pre-registered cars had put increased pressure on the retail market and its dealerships in the first three months of 2007.

“As a consequence of this there is an ongoing attrition of dealerships and the number of dealership locations is reducing as owners leave the industry and often sell their property for alternative use,” said Sir Nigel.

“At the same time as this attrition is taking place there is also a consolidation underway in which Pendragon is taking a leading role.”

Since a review of the business, Pendragon has sold eight franchised dealerships, closed eight new car franchises and served notice to terminate a further 26 franchises.

Sir Nigel said these measures would initially cause an operating profit reduction of £12 million, but would soon be offset by approximately £28m it expects to gain from its business and property disposals. He also said Pendragon would expect £75m in cash inflow over the next 18 months, allowing the group to reduce its debts and acquire more businesses.

The Pendragon board will also use the profits made from property disposals to buy back shares for cancellation. It also announced an increased dividend of 16% to at least 4p extra per share.