Arnold Clark hit with £30m bill from Reeves’ Budget tax hikes

- £30m annual cost surge

- Profits recover post-cyber attack 

- Aftersales and auctions thrive

AM100 retail giant Arnold Clark is facing a £30m rise in annual costs following the tax changes unveiled in Chancellor Rachel Reeves’ first Budget - a move it warns could have a significant impact on the motor retail sector.

The figures were disclosed in Arnold Clark’s newly filed annual accounts, which show the group generated £5.1bn in revenue in 2024, up from £4.9bn the previous year.

Pre-tax profits also rose 4.3% to £120.7m, recovering from the previous year £161m when a cyber attack and inflationary pressures dented earnings.

In light of the stronger performance, the family-owned business increased its annual dividend payout from £15m to £21.9m.

The Glasgow-based company revealed that increased and a sharp rise in the National Minimum Wage are the main drivers of the cost surge.

In a statement signed off by the board, the business said: “Whilst the Autumn Budget delivered in October 2024 seems a long time ago, it contained a number of proposals that are likely to have significant impacts on the group and the wider automotive market.”

The group highlighted that changes to employer NIC rates, a lower NIC threshold, and higher minimum wage levels would collectively add £30m to its wage-related costs annually.

While 2024 marked a second consecutive year of growth for Arnold Clark, the company noted that UK new car registrations remain below pre-pandemic levels.

Battery Electric Vehicle (BEV) registrations were up 31% compared to 2023, yet BEVs still fell short of the Government’s Zero Emission Vehicle (ZEV) Mandate targets despite strong backing from manufacturers.

Even so, Arnold Clark delivered a strong new car sales performance, with 64,215 new units sold - up 22% year-on-year - bolstered by a marked rise in EV sales. However, the company acknowledged this was accompanied by a slight dip in retail margins.

In the used car market, the business benefited from a 5.5% increase in transactions, with over 7.6 million sales across 2024.

This reflected improved availability and variety, particularly among 3-4-year-old vehicles, as new car supply strengthened.

While used car prices stabilised after sharp declines in late 2023, manufacturer discounts on new BEVs negatively impacted used BEV values - a drop that in turn helped stimulate consumer demand.

Arnold Clark reported an overall 2% growth in used vehicle sales, selling 191,699 vehicles over the year while maintaining healthy used vehicle margins.

Elsewhere in the business, aftersales saw profitability rise 7%, despite persistent challenges in attracting experienced technicians.

The group highlighted its apprentice programme as key to addressing labour shortages, welcoming over 300 new apprentices in 2024 and starting 2025 with a fresh intake of 127 in March. In total, the group now employs nearly 800 apprentices.

Operating expenses increased by £21m in the year mainly due to inflationary pressures which is reflected employee costs increasing by £21m to £496m, despite employee numbers remaining relatively consistent.

Arnold Clark Finance Limited, the group’s vehicle leasing and rental arm, posted a 13% revenue increase to £607m, despite tough market conditions.

The rental division also delivered a strong year, with high vehicle utilisation and increased revenue. However, its leasing fleet size declined due to the firm’s decision to reduce exposure in specific market segments.

Profit before tax fell to £6m here, down from £40m in 2023, mainly due to higher borrowing costs, increased depreciation on pricier replacement vehicles, in addition to the fall in EV residual values within its contract hire fleet.

Meanwhile, Central Car Auctions more than doubled its activity, holding 471 auctions in 2024 - up from 226 in 2023. The growth was supported by a rollout of smaller auctions at new satellite locations.

This boosted vehicle sales by 21% to 53,998, with a return to physical auctions helping to improve conversion rates, driving a 28% increase in revenue and a notable rise in pre-tax profits.

Despite these headwinds, Arnold Clark’s outgoing chief executive and group managing director Eddie Hawthorne said: “I am pleased to report that, despite a difficult economic environment, which continues to impact consumer demand combined with the disruption in the UK car market, the group had a positive full year performance.”

He added that the business was focused on growing the business by expanding the geographic footprint of its retail outlets across both its multi-franchise dealership and used car retail network, along with the supporting infrastructure.

Founded by the late Sir Arnold Clark in 1954, the business operates over 200 dealerships across the UK.