Back in 1979, Gary Numan sang an ode to the feeling of safety inside cars. These days, autos provide little sense of security for investors. Manufacturers are going through a historic upheaval due to parts shortages and electrification. The disruption extends to UK car dealerships, where a wave of consolidation is under way.
The pandemic encouraged car manufacturers to attempt to forge direct relationships with buyers via internet sales. Not all have been successful. Increasingly, they favour large dealers as a way to exert greater control over pricing. That is a spur to change in the sector.
At the front of the push is TDR Capital, the UK private equity owner of Constellation Automotive. It took a 3.1 per cent stake in Aim-listed Vertu Motors earlier this month. The move sparked speculation that it could be aiming to combine the business with Marshall Motors which it bought in 2021. Constellation, which operates brands like Webuyanycar and Cinch, already holds 20 per cent of Lookers which it acquired at the start of last year. Analysts described this deal as a blocking stake, designed to repel predators.
Peer Pendragon received a full bid from US-listed dealer Lithia last year, which was later withdrawn. Litiha is now rumoured to be looking at private deals in the UK.
Car dealerships have benefited from the higher prices commanded by new models and second-hand cars due to the global semiconductor shortage. But profitability has started to come under pressure from rising costs. Analysts expect Lookers’ ebit margin to be 2.5 per cent this year, down by a quarter from 2021. With further slippage expected this year, the sector has derated by around a fifth since the start of 2021. Dealers are now trading on mid to high single-digit multiples of earnings.
Industry trends point towards bigger, more integrated dealerships. That process means whittling down a fragmented market. Expect fewer dealerships, even as car production rebounds.
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