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Stability’s back for used cars, says Vertu Motors, but new car retail looks uncertain

OEMs and franchised dealers face a daunting task to deliver sales mix and volume expectations in the new car market as many private buyers find young used cars much more attractive thanks to recent price drops, according to Vertu Motors, one of the biggest motor retailers in the AM100.

Its latest trading statement notes that after falling used car prices have stabilized, Vertu has actively worked to increase the turnover of used vehicle stock and reduce overall inventory levels. As a result, there has been an improvement in gross profit per unit from used vehicle sales in recent weeks.

Manufacturers selling new vehicles in the UK face challenges in managing the mix of internal combustion engines (ICE) and battery electric vehicles (BEV) due to ambitions to reduce emissions. This may lead to disruptions in supply and pricing as manufacturers strive to comply with regulations.

High prices of new vehicles, especially electric ones, have dampened retail demand, leading some customers to opt for used vehicles, which now offer more attractive prices after the market correction, it said.

Vertu said it is currently focused on navigating through this period of market adjustment, considering factors such as high interest rates and industry trends, and while short-term profitability may be affected, the group remains committed to its long-term strategy and is well- positioned to seize opportunities that arise during market adjustments, given its track record and strong financial position.

It continues its “pruning” of its dealership network to optimistic performance, recently closing its Seat and Cupra dealership in Birmingham – where there is now no representation – and ending Renault/Dacia sales at Mansfield and Hyundai sales at Morpeth. Last year it added Nissan at Stockton, Ford in Newcastle and MG at Chesterfield, as well as acquiring Rowes Garage which added Honda sites in Plymouth and Truro and outlets in Plymstock and Plymouth which will be refranchised in due course.

The group responded proactively to market changes, reducing used inventory levels by over £40m and improving net debt position. Like-for-like used vehicle volumes grew by 0.8%, a notable improvement from a 5.7% reduction earlier in the financial year. However, gross profit from used car sales decreased significantly, with gross profit per unit dropping to £1,241 and a gross margin of 6.3%, compared to £1,402 per unit and a 7.0% margin in the previous period. Despite this, margins began recovering in January with increased stock turn, particularly in volume franchises, signaling a return to more typical levels, especially in premium franchises.

Core group gross profit per unit on the sale of new retail and Motability was £2,010, a 13.1% reduction on the comparative period (FY23: £2,312 per unit). Like-for-like gross profits from the sale of new retail and Motability vehicles grew £0.7m compared to the same period last year on increased volumes, which was lower than anticipated due to weaker margins.