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Car dealers cut debt by 22% to guard against ‘post-Brexit storm’

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The UK's top 100 car retailers have cut 22% of debt from their business in order to avoid a “post-Brexit storm”, according to the findings of research carried out by UHY Hacker Young.

UHY said that the biggest car retail operations in the country succeeded in reducing their debt from £12.5 billion to £9.7billion by selling property assets and trimming capital investment to “significantly improved the financial strength of the sector ahead of the expected Brexit-related slowdown in car sales”.

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Paul Daly, partner of UHY Hacker Young, said that since the Brexit vote in June 2016 UK dealerships have been gradually de-risking in the knowledge that big ticket purchases like car sales are the first to suffer when consumer confidence fails.

“The cutting of debt among UK dealerships has put them in a much better, stronger position,” said Daly.

“To date, dealership results have fared well despite the fall in new car sales owing to the strength of the used vehicle and aftersales markets. 

“However, preparing to weather any post Brexit storm through debt reduction seems a very sensible move by the sector.”

“Risk of a sales slump caused by a post Brexit knock to consumer confidence and the potential 10% tariffs on EU manufactured vehicles is fairly severe but lower gearing will certainly help to keep this manageable.”

UHY said that the fall in sales of diesel cars in the wake of Volkswagen’s dieselgate emissions scandal initially prompted car dealers to start reducing risk.

The Society of Motor Manufacturers and Traders (SMMT) said that in 2018, 2.36 million new cars were registered down 7% from 2.53 million the previous year.

Registrations of new diesel cars have fallen 20% to 46,823 in January 2019 down from 58,713 in the previous year. 

Daly believes that the tough trading conditions that the automotive industry faces needs to be taken into account by Government in areas such as emissions policy, tax incentives for hybrid and electric cars and in the regulation of finance to fund car sales.

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