He could not say whether more redundancies would be necessary. “We are the right size for the market now,” said Finn. “The action was highly significant for those affected, and the total looks a lot, but it must be put into perspective.”
Pendragon still employs more than 14,000 people and redundancies averaged about 1.5 jobs for each of its 333 dealerships.
A Pendragon trading statement at the end of June announced the job cuts and referred to May’s 9.5% fall in new retail and 15.4% for small-business registrations. It expects new car registrations to decline for the rest of the year.
The statement added that the group’s profit for the year was difficult to forecast in such volatile trading conditions, but said sales volumes were “robust relative to the market”.
There was an element of empathy across the motor retail sector because everyone faced the same difficulties, said Finn, and he expected car manufacturers to give support where they could, in ways such as reducing sales targets.
“A lot of dealers are losing money because a range of factors, including higher interest rates and council tax bills, are making many people reluctant to buy a new car,” he said.
“The most important one is the price of fuel. Everyone is talking about how much more it’s now costing them to fill their tanks. Because no one knows where interest rates or the price of oil will be at the end of the year, it’s impossible to know where the market will be.”
The share price of quoted motor retailers has tumbled, with Pendragon’s down to 13p in early July, a fall of 55% since the start of the year. At their peak two years ago, Pendragon shares were trading at 132p.
Finn said this did not cause him to lose sleep. His group – formed in 1989 – had come through two previous economic downturns and he did not believe it would collapse or that shareholders would desert it.
“The stock market always over reacts to everything and our share price will bounce back,” said Finn.
A motor retail analyst who asked to remain anonymous told AM that he believed Pendragon was “very vulnerable” because of a flawed business model.
“Other dealers are not suffering nearly as much as Pendragon because they are less centralised and more customer focused. If it is still profitable and cash generative then there is no immediate crunch point,” he said.
“However, banks will be looking at their covenants and that is the real question. If the banks take the same view as I do then they won’t relax their banking covenants and will be looking for a way out.
“Notwithstanding positive cash flow, Pendragon must have declining capital ratios and a declining security position based on asset values. Institutional shareholders must be wondering what the future brings and whether they would be better off with a board that sees motor retailing differently.”
A “gradual disintegration” is likely, said the analyst, with loss-making sites shut or sold. Less likely is a takeover. “Pendragon is now a ‘high risk recovery stock’ and just about everyone is risk averse just now,” the analyst added.
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