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Latest ONS stats show UK back in recession

The Office for National Statistics (ONS) has indicated in its preliminary estimates that the UK economy has returned to recession.

However, the ONS indication is based on 40% of the information that will be used to reach later figures.

According to the latest statistics the UK economy shrank by 0.2% in the first quarter of this year. This followed a 0.3% fall in Q4 2011.

Dealers will not be surprised at the news and many still have tight cost controls in place since adjusting business plans to cope with the previous recession in 2009.

The mainstream media coverage of a “double-dip” could see a further reduction in consumer confidence however.

Industry views

Graham Bushby, head of motor at Baker Tilly Restructuring and Recovery, said: "Today’s announcement from the ONS will be another severe blow to the motor retail industry.

"However, it is unlikely to be against expectation. In our market survey of late 2011, 59% of dealerships indicated that new car sales would see the greatest negative impact on the sector in 2012, with 75% expecting to see a decline in consumer demand throughout the year.

“Our research also showed, at the time, that 49% on dealerships had seen a 20% or greater year-on-year fall in profit before tax."

Bushby said March's increase in new car registration figures suggest the sector has responded well to the current economic malaise.

He said: "However, it will be interesting to see if this trend continues against the inevitable blow to consumer confidence brought about today’s announcement.

“Successful dealerships will not only acknowledge the current market challenges but go further in demonstrating a month-by-month flexibility and innovation in proactively tackling the challenges of a rollercoaster economy.”

Phill Jones, commercial director of Motors.co.uk, said: "Today’s news that Britain is now in a double-dip recession is very disappointing for all of us.

"The good news is that while dealers face harsh trading conditions, a car is still an essential purchase for most families and people are looking more than ever for value for their next car. There are a number of dealers out there doing a rawing trade despite the harsh economic climate, so it’s not all doom and gloom for everyone.

“It is now more important than ever to understand what you get for your marketing and how this converts into return on investment."

Tim Peake, Trader Media Group, group strategy director, said: "Although we are now officially in a technical recession, the automotive industry has already shown itself to be highly resilient to macro-economic pressures.

"Specifically, the focus on used car sales to support declining new car sales and the streamlining of businesses to focus on core activities, has supported dealers through the previous recession.

"Encouragingly, the most recent data from ASE suggests improvement over the first two months of 2012, with dealer profitability being higher year-on-year. Average net profit as a percentage of sales was -0.2 per cent, compared with -0.5 per cent in February 2011.

"This time round there is very little ‘fat’ left that dealers can trim from their businesses. So, more than ever, dealers that will be winners will be those that: focus on how they are pricing their vehicles, using retail-minus rather than cost-plus pricing; are highly geared towards closely monitoring stock turn and use local market intelligence data and tools to source vehicles where there is a clear local demand; and ensure that their online presence is fully integrated into their entire business proposition with the objective of becoming true internet car retailers.

"It’s also worth remembering that new car registrations were up in March by 1.8%, fuelled by private new car sales up 7.4%, and consumer confidence for major spend items is improving. So although the latest quarterly GDP figures push us into a technical recession and the market is challenging, the outlook and underlying trends in our own industry are perhaps more positive than the headlines would suggest."

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