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Insolvent dealers double in past year says EY

The number of dealers going bust has doubled in the past year, according to a report by accountancy firm Ernst & Young.

It also shows significantly lower profit margins than in the nineties: the UK’s top 25 dealers reported 7.1% earnings before interest, tax, depreciation and amortization (EBIDTA) in 1989-1990 and only 3.1% in 2006-07.

While new car sales typically represent 50% of turnover, they only make up 25% of gross profit.

Meanwhile, aftersales only make up around 15% of dealer revenues but is the largest generator of profits with some dealers targeting and delivering over 50% of gross profit.

Eric Wallbank, UK head of Ernst & Young’s automotive team, said the overall slump in new car sales over the last 18 months will lead to weaker demand for servicing and parts from franchised dealers in the medium to long term, further adding to dealers’ profit woes.

“The strength of new car sales until mid 2008 should sustain dealer servicing volumes in the near term, but the impact of a drastic fall in sales from then on will be hard felt across franchised dealers over the next three years or so.

“Add to this better build quality, longer service intervals and a consumer trend towards smaller vehicles and the future outlook for servicing volumes will be downwards for years to come. And if a dealer is representing a marque which has lost market share then they could be facing even steeper declines in revenues.”

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