The move means the group loses all its BMW/Mini representation in the south of England, but it will retain the six dealerships that form its northern hub.
The Stratstone BMW sites in Milton Keynes and Taplow, Bucks, will be under the control of other dealers by September. The Tring site in Hertfordshire has just been sold to Specialist Cars. The Windsor business will close in early August.
Trevor Finn, Pendragon chief executive, told AM: “The decision to sell these dealerships was agreed with BMW and we have worked together to ensure continuity for the team and the customers.”
Tim Abbott, BMW (UK) sales director, added: “These dealerships in the southern part of the country were not working for Pendragon. The changes form part of our network reorganisation which is affecting 12 other dealers in the UK.”
Abbott reiterated that BMW has a “long and strong relationship” with Pendragon and the dealer group’s six other BMW dealerships are “highly successful and in no way affected by the national network review”.
That was a view shared by Mini general manager Andy Hearn, who praised the Stratstone Mini outlet in Derby as a high-performing and innovative business.
However, it’s clear that Pendragon was unable to replicate the success of its northern BMW/Mini hub at its southern outlets, raising questions over its ability to spread best practice across the 308-outlet business.
BMW would not reveal which other dealers and sites are affected by the review, but all changes will have taken place by the end of September.
Renewal of its five-year franchise contracts began in April.
Dealers not being renewed have been given six months’ notice and help selling their businesses.
Pendragon is also closing Stratstone Ferrari in Little Aston, Birmingham, and has just sold its Stratstone Jaguar workshop in Weybridge to bodyshop chain DWS (see page 33).
The UK’s largest retail group has come under further pressure following press reports that it had broken its banking covenants with Royal Bank of Scotland, related to its £375 million joint venture with property fund manager Aaim.
The Daily Telegraph claimed it had breached loan-to-value covenants on £325 million, which was supplied by Royal Bank of Scotland, leading to a demand for a £20 million cash injection.
Finn wouldn’t confirm the reports, but said: “If there needed to be a cash injection it would be closer to £10 million.”
One industry analyst said Pendragon would struggle to borrow that much money.
“It hasn’t got the asset base any more, which is part of the problem.
The joint venture has diminishing asset values and a diminishing income stream, which has devalued the Pendragon covenant,” he added.
Finn is bullish that Pendragon’s share price will recover from its 55% drop this year, and said its board has the talent and experience to come through the economic downturn.
However, the analyst said the business has surrendered any advantage it once had. But he didn’t expect the share price to fall much further (currently 13p).
“There’s more to be gained by hanging on for a recovery than there is left to lose in the paltry share price.
“The damage has already been done and current shareholders are locked in for the ride,” he added.