7:02 am, March 14, 2023
Jaguar Land Rover dealers are facing the prospect of booking multi-million-pound impairment charges in their accounts as a result of losing their Jaguar franchises.
Senior motor trade accountants and auditors have warned Jaguar Land Rover dealers may have to write down the values of their dealerships as a result of drastic changes to the network.
Car Dealer revealed at the weekend that Jaguar dealer numbers could be cut from more than 80 today to fewer than 20 in just two years.
Dealers at a recent investors’ meeting were told of the moves which come as part of Jaguar’s switch to agency sales. Details of the meeting were leaked to Car Dealer.
The plans have raised concerns with dealer partners now facing the prospect of writing down the huge investments they were asked to make in ‘dual Arch’ dealerships.
Currently, it has not been made public which dealers will keep their franchises. It is understood those that lose the Jaguar representation will either cease as a JLR partner or focus solely on Land Rover sales.
Marshall Motor Group invested £10m in a Jaguar Land Rover showroom in 2019. Many other dealer groups invested similar sums in these huge sites. Vertu Motors, Lookers and Pendragon all represent the brands.
David Kendrick, partner at UHY Hacker Young, said: ‘Yet again we are seeing significant network cuts and there will be a huge number of Arch dealerships that have facilities that exceed their needs.
‘Millions have been spent on these dealerships in recent years and now groups will be faced with a significant empty space – perhaps it can be used to house an alternative brand or focus on used cars.
‘In reality the brand should really be compensating the dealer network for this strategic change in direction which will ultimately have large ramifications when it comes to impairments and property valuations.’
Jaguar Land Rover has been asked if it will compensate dealers it had previously asked to invest huge sums of money, but the manufacturer declined the opportunity to comment.
One dealer source said: ‘When the Arch franchise concept came out there was a simple ultimatum from Jaguar Land Rover – either you invest in these new sites or they’d find someone else who would.
‘The fact we’re now being told a few years later that Jaguar is not part of the plans and we’ll lose that brand is unbelievable.’
Inside a JLR Dual Arch dealership
Kendrick explained that for standalone Jaguar dealerships an impairment charge will have to be seriously considered. These could be booked as exceptional costs in accounts but will still affect the dealer group’s profitability.
Motor trade auditor Steve Le Bas, from BDO, told Car Dealer that he would certainly be questioning whether an impairment charge will need to be considered by affected dealer groups.
He said it will come down to the ‘value in use’ attributed to the property by car dealers.
‘What you would do is you would come up with a discounted cash flow for the dealership going forwards – what you think it will make in its new guise – and discount that back to today’s money,’ said Le Bas.
‘If the value of that discounted cash flow for the next five years comes to a number that is higher than what is in the books at, then in theory, there’s no impairment. If it doesn’t, then there is a charge.’
Le Bas said impairment charges could be avoided if, for example, car dealer groups manage to fill the empty space with another brand or a used car business.
However, the chances of Jaguar Land Rover allowing that is slim.
‘Impairments will depend from dealer to dealer on what they are going to do with that showroom,’ he added.
‘If they can put another manufacturer in, or they can have a very strong used vehicle site that performs extremely well, then there’s a good chance there won’t be an impairment.
‘But if it just becomes a site that doesn’t do anything like what it was built to do, then absolutely, there will be an impairment discussion to be had.’
Jaguar Land Rover dealers that are transferring to just Land Rover will also have to consider the impact this will have on their fixed costs. Whereas before this was spread between two brands, it will now be forced upon just one, impacting the profitability of the Land Rover showroom.
Mike Allen, from investment bank Zeus Capital, said these impairments could particularly hit those dealer groups that lease the showrooms and don’t own the freehold.
Car Dealer asked Jaguar Land Rover whether it would allow franchise holders to use the space vacated by Jaguar for other brands, but it declined to comment.
Instead, it repeated a previously issued statement, which read: ‘Jaguar Land Rover is reimagining the future of modern luxury by design through its iconic British brands. As part of our “Reimagine” strategy one of our key objectives is to establish new benchmark standards in customer service for the luxury sector.
‘We will adapt our customer journey for our future clients, providing multiple touch points, delivering leading luxury experiences and creating a customer-centric culture.
‘Our objective is to build a stronger and more sustainably profitable Jaguar and Land Rover network for the future. We are consulting with our retail partners on how we achieve this objective but it is too early to disclose details due to their commercial nature.
‘The first of the new, all-electric Jaguars will be revealed before the end of 2024, and will be with customers in 2025. We will tell you more about Jaguar’s future before the end of this year.’
Main image: Library shot of Jaguar Land Rover site, used for illustrative purposes only
