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Profits warning signals challenges for Pendragon

After a period of regular acquisitions and expansion, UK No1 dealer Pendragon faces its biggest challenges since it was formed in 1989.

Many of these challenges are viewed within the industry as linked to last year’s acquisition of Reg Vardy, which added almost 100 dealerships in one shot and took Pendragon’s turnover above £5 billion.

Rival dealer group executives and industry consultants believe Pendragon has failed to integrate Vardy successfully. They point to a loss of general managers, with some joining Vertu Motors, set up by former Vardy managing director Robert Forrester. He has already built turnover to place his group in 10th position in the AM100.

Chief executive Trevor Finn has warned the City that Pendragon’s profits will be lower than expected this year (by £20m) and in 2008 (by £10m). He blames interest rates and denies that Pendragon is suffering more than other groups.

“Interest rates have risen by 25% in 12 months and that’s bound to have an effect on our business, just as it has done with Tesco and many more companies,” says Finn.

Pendragon’s share price has fallen to its lowest level for 18 months and well behind its 125p one-year high in April. Broker recommendations are weak sell.

Asked how many dealer principals have left this year, Finn said: “We have 500 in the group and I am not going into details. But staff turnover is little different from Pendragon’s before the Vardy acquisition, or of Reg Vardy itself before we bought it.”

According to dealers in northern England, several profitable Vardy sites are now running into problems because they are headed by less experienced managers.

Asked about the recent sale of dealerships in Germany, Finn said: “They have been running at a loss and so it made sense. We have a good retail business in the USA, which continues.”

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