Motor retail experts at Grant Thornton believe more than 1,000 franchised outlets will close next year.
Recessionary conditions are impacting on dealers and manufacturers, forcing them to take a more realistic view of the new car market.
Nigel Ruddock, national head of Grant Thornton automotive services, told delegates at the AM Financial Management conference last week that he predicts the network of 5,200 franchised retail outlets in the UK will shrink to between 3,500 and 4,000.
He said: “This will be painful, but it might not be bad news in the medium term. There have been too many dealers making little to no profits for too long. There are too many dealers chasing too few customers.”
Ruddock also suspected that General Motors, Ford and Chrysler might not remain the Big Three for long. All are calling for US state aid to prop up their manufacturing bases.
“Chrysler is the most likely to go under. It has less international brand coverage and there are political issues due to its hedge fund owners if it comes to a bail out by the US government,” he said.
“GM must adopt Chapter 11 style precautions even if it doesn’t go into insolvency. There’s too much complexity with GM’s brands, it needs to shed six and focus on its core brands. This could mean that Saab will go. Only the holding company of GM will be affected if it goes into Chapter 11 so the effects won’t be felt in the UK. All subsidiaries will be kept running by cash injections from the US government.”
Grant Thornton’s advice for dealers was to keep things simple and focus on doing the basics well.
Paul Burrows, a partner in Grant Thornton, suggested that to survive the recession dealers should follow a principle based on “the four pillars of strength” – people, process, cash flow and balance sheet. Train people and keep them positive, analyse whether the process works, and consider cash and income carefully, he said.
“It is a concern that most dealers will be submitting information to their banks which is just profit-based, with no view for future cash flow. If you don’t think about cash flow you may not be here in a year,” he added.
With finances and funding fragile, pre-registering vehicles was not a sustainable option. Burrows said: “You have to realise registrations are just that and will destroy your business. People are just sitting on their money and it is hard to part them from their cash.”