Car dealers should open negotiations over potential rent arrears now as the COVID-19 coronavrius threatens to harm cashflow in the coming weeks and months.
That is the advice being offered by newly-launched automotive retail strategy consultant Accendia as the impact of coronavirus deepens and cashflow problems bite.
Accendia’s three founders – Richard Adams, former head of group property at Volkswagen Group, and Robert and Richard Stephens of automotive property consultants RS & Co – have warned that dealers could struggle to pay the rent due on the March and June quarter days.
Adams said: “Several retail clients have approached us to ask what can be done to keep cash in the business and it seems to us that early intervention, by approaching landlords immediately, would be prudent.
“Many landlords will be expecting an approach and should recognise that properly constructed solutions will benefit landlord and tenant alike.
“There is evidence other retail sectors are already in discussions and we believe early intervention is important as there will be many calls for assistance and there is a danger that landlords will eventually suffer ‘deal fatigue’, refusing to engage constructively with parties who make a late approach.”
Accendia said that dealer groups and OEMs need to implement an emergency rental strategy now to mitigate the impact of coronavirus as consumers put off unnecessary purchases.
As AM reported last month, China experienced a decline in new car retail volumes of over 90% as coronavirus took its toll on the sector during the first half of February, the month eventually finishing 80% down year-on-year.
Buying a new car will be among the first retail casualties as consumers follow government advice to stay home and limit social contact, according to Accendia.
For a sector already grappling with falling registrations and lean margins, the effect could be catastrophic for smaller groups and single-site operators.
Accendia is advising UK dealerships which are subject to rent or lease arrangements to identify vulnerabilities and engage with landlords as soon as possible to structure a temporary arrangement in respect of their forthcoming rent obligations to help maintain operational viability.
Adams added: “Whilst it’s widely accepted that a future reorganisation of retail routes to market is desirable and inevitable, that should be managed in a controlled fashion, not implemented piecemeal in a distressed environment.”