Selling cars has never before seemed such a risky and complex business to be in, judging by recent failures large and small. Completely Motoring, with 165 staff across its 14 showrooms in 11 locations, is the latest group to enter administration and the list of operators taken close to the edge by a poor summer for trading is expected to get much longer.
South-west based, family-run Completely Motoring follows Sentinel Cars, which ran out of road in July, and the spectacular collapse of online car dealer Cazoo after years of rapid expansion. Even a clever virtual platform and an expensive sports sponsorship ultimately couldn’t buck the longstanding dynamics of Cazoo’s underlying troubled market.
There are more than 15,000 car dealers in the UK, of which more than 4,000 are franchised dealerships of larger groups. The auto industry’s many moveable parts have been shaken up significantly in recent times, not least during the Covid pandemic. Shrinking stocks of used cars became a huge problem: reduced production of new vehicles during lockdowns worldwide was exacerbated by a global automotive chip shortage, which only ended last year.
Throw in a cost of living crisis, higher wages for employees, business rate increases and the soaring costs of leasing and operating large showrooms and customer centres, and suddenly the problems that many dealers face routinely are hugely amplified. The most important of these is the perennially wafer-thin margin available to the industry. Some small second hand cars are regularly sold at a loss, with the shortfall recouped on selling warranties. It’s a tough, finely balanced game that, so far, high volume e-commerce has failed to revolutionise. Ahead of its administration, Cazoo’s brand and website only managed to fetch ‘up to £5m’, including a deferred payment.
Indicata UK says mispricing of used cars could cost UK dealers nearly £500m in 2024. The used vehicle research group examined more than 50,000 used cars sold or on sale by 300 UK dealer groups and identified two primary mistakes: overpricing slow-selling stock and under-pricing fast-moving, popular vehicles. Indicata believes the level of used car profit being left on the table by dealers is worrying, especially when there is a restricted supply of used vehicles in the market. Since used cars contribute heavily to overall profitability, clever dealers will adopt dynamic pricing strategies supported by real-time data.
September’s new plate day saw the UK new car market grow by 1% to 275,239 units. The modest rise, driven mainly by improved fleet purchases, marked the best September for the industry since 2020 but was still 19.8% down on the same period in 2019 – the final year before Covid began affecting results. Private consumer demand fell by almost 2%. Non-fleet buyers of both new and used cars are also being squeezed by huge hikes in motor insurance rates.
Motor sales insolvencies totalled 119 in H1 2024. July and August saw a combined 46 company closures in the sector, suggesting that H2 could be higher. Dealership groups or independent operators considering the insolvency toolkit for an exit route or restructuring, while the decision is still theirs, are welcome to get in touch for a free-of-charge initial exploratory chat. As ever, the Buchler Phillips philosophy is ‘work out, not bail out’.
Written by Bea Vakharia, analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.