More automotive businesses showing signs of ‘significant’ distress

Time 9:30 am, January 25, 2018

THE UK automotive sector faces an uncertain future, according to new research, as consumers are holding onto their vehicles for longer amid confusing information and the reduced availability of credit.

According to Begbies Traynor’s latest Red Flag Alert research, which monitors the financial health of UK companies, in the final quarter of 2017, the number of UK automotive businesses experiencing ‘significant’ financial distress hit 15,516, an increase of 21 per cent compared to the same stage last year.

And those levels of ‘significant’ distress have risen for both used and new car dealers. In the used market, this figure rose by 34 per cent to 1,851 companies, while new car retailers saw an increase of 35 per cent to 1,206.

Leasing and rental companies were not excluded from this and also experienced a 26 per cent increase in ‘significant’ financial distress over the past 12 months, with 894 businesses affected.

Perfect storm

Begbies Traynor, the professional services consultancy, has linked the decline in new car sales, down 5.7 per cent in 2017, due to decreased consumer confidence. This, paired with confusing information from the government and less credit available, is creating the perfect storm, according to the firm.

Begbies Traynor partner Julie Palmer said: ‘Consumers are tightening their belts in the face of rising inflation, increased interest rates and real wage pressures, causing households to put the handbrake on spending on big-ticket purchases, and encouraging many to hold on to their vehicles for longer.

Even those owners looking to upgrade their vehicles are struggling to do so, as a recent glut of second-hand cars on the market continues to depress the value of second-hand motors while making new vehicles and their hefty price tags even less appealing.

‘Confusing anti-diesel legislation from the Government has potentially had the biggest dampening effect on consumer car-buying activity over the past year. At the same time, recent public-sector deals aimed at supporting investment in driverless and low-carbon vehicles – while a welcome step for green campaigners – have done little to improve the confidence of new and used car sellers, who are already in danger of carrying too much stock that buyers no longer demand.

‘Looking forward, there are few signs that consumer sentiment and the restricted credit environment will improve any time soon, which I’m afraid could mark the end of the road for many of the UK’s most distressed automotive businesses this year.’

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Rebecca Chaplin's avatar

Rebecca has been a motoring and business journalist since 2014, previously writing and presenting for titles such as the Press Association, Auto Express and Car Buyer. She has worked in many roles for Car Dealer Magazine’s publisher Blackball Media including head of editorial.

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