Pendragon decision shows difficulty for franchises versus independents

This week’s news that Pendragon is closing 22 of its Car Store supermarkets has put a sharp focus on the challenges facing large franchised dealer groups. One of those challenges is trying to win a larger part of the used car market from independents to compensate for dropping new sales.

It is to shut 17 ex-franchise conversions and five small-format locations which average stock of 30 cars. The shrinkage policy means that 22 of its 34 sites and one prep centre will be shut over the coming months as it deals with the twin problem of having too many cars for sale and some Car Store websites not delivering the profits needed to justify the cost of opening their doors.

It has also taken the axe to used cars at its franchised dealerships. At the end of the last financial year it had £375 million in used cars but by the end of H1 this year that had dropped to £236m, a cut of £140m.

However, it is confident that going forward the Car Stores should have a strong and healthy future, ideally targeting cars and vans between two and seven years old which is a market it says has an annual sales volume of around 3m units. Pendragon further says that Car Store is aiming to deal primarily in two to seven years old vehicles.

Short-term actions to improve performance

In a statement released on Wednesday, it said:

“The Board initiated a detailed strategic and market review of the Car Store business and the challenges it has faced. This review confirmed that there continues to be a significant and attractive market opportunity for Car Store, however, a number of short-term actions are required to improve performance, including a number of site closures.”

Chris Chambers, Non-Executive Chairman, added:

“Whilst market conditions have been challenging in the first half of 2019 with headwinds in both the used and new car markets the Group has continued to deliver like-for-like revenue growth. However, there has been a material decline in the Group’s profitability principally as a result of the actions taken to address excess used car stock. We made significant progress reducing this exposure in the latter period of the first-half and we remain committed to the strategy of growth in the Group’s used car proposition. The business is fully focussed on maximising performance, but we expect the market to continue to be challenging during the second half of 2019.”

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