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Car retail ‘resilient’ after measured acceptance of Government support, opinion

Alison Ashley, RSM head of motor retail

The car retail sector’s well-considered the acceptance of Government’s COVID-19 support has left many businesses on a sound footing to deliver a successful 2021.

Here, RSM’s head of motor retail, Alison Ashley, has unpicked the Government’s Coronavirus business support schemes statistics to consider the highlights and trends seen across the motor dealership sector.

A total of £65.9bn has been claimed by 1.3m employers for 11.6m furloughed jobs across all sectors which clearly shows that CJRS income has been a welcome and business critical relief for many businesses; not least dealers who were required to close the showroom doors from March 23, 2020, which impacted around a quarter of the year.

While dealers adapted quickly to alternative ways of working and engaging with customers, furlough has been the backbone of the 2020 results.

With an estimated two million workers still on furlough across the country, car dealers have worked hard to retain and return their staff to the businesses.

Staff shortages, already widely reported across the country in sectors such as hospitality, are one of the next challenges that will hit the motor retail agenda.

Bounce back loans of £47.4bn form the lion’s share of the total £80.4bn of all business loans approved under the various government business loan schemes. Wholesale and retail accounted for the highest level of funding by sector at £12.3bn.

Our experience across the motor retail sector has been that use of the Government’s business loans has been pretty low.

While a number of dealers initially considered CBILS and CLBILS, it was encouraging to see that existing funders were generally willing to extend their existing commercial facilities without the need to access the government backed loans.

Even more pleasing to see was the subsequent low or non-utilisation of facilities as cashflow across the sector has been incredibly strong.

The bounce back loan scheme statistic is staggering. Whilst we do not expect that these have a direct bearing on the sector, there is a predicted default rate of up to around 40% which could have wider implications.

The business rates holidays for retail, hospitality and leisure businesses is estimated to have supported almost 400,000 business with £10.8bn of relief.

The relief will buoy results across the sector due to the substantial property footprint.

Unlike CJRS income, which is reported separately in the annual accounts, the benefit from rates discounts is netted from the related expense and provides less transparency on the impact on like-for-like results. 

Finally, the Government reported £33.5bn of cumulative VAT deferrals.

We saw that deferrals across the sector mirrored the reported profile of the total £33.5bn which remains unpaid.

Dealers have benefitted from the deferred cash outlay of VAT and this is reflected in reported low utilisation of facilities across the sector.

Increased cash headroom has no doubt been a relief for dealership teams who have been managing the additional burden of furlough claims, business closures, safe reopening and rapid deployment of digital strategies.

However, since December last year HMRC became a preferential creditor for VAT, PAYE and deductions in respect of employee national insurance, so dealers are very likely to see their banks taking a keen interest in debts due to HMRC as it may reduce their security in the event of business failure.

Clearly, and understandably, the level of support across the country and in the sector has been substantial.

As the restrictions have lifted through 2021 and the level of financial support winds down, pressure of maintaining profitability and cashflow will return to the sector.

However, the sector has proved resilient and adaptable to market demand and consumer and economic shifts; and 2021 should prove to be another successful year.

The latest AM industry special issue

The presence of a powerful and active regulator in the marketplace, the Financial Conduct Authority, means there has never been the attention given to the critical driver of new and used car markets, point of sale finance and insurance. 

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