Chief executive Trevor Finn was forced to make a series of cuts going into 2009, and during the year, but in 2010 things are finally starting to look up.
In the first quarter his group announced it was back in the black, the difficult decisions had been made and were starting to bare fruit. Here, the boss of the UK’s number one car dealer group talks to us about his plans for growth, his hopes and fears for the car market in 2010 and his favourite car brand.
2009 was a very tough year for the car industry, how do you think the rest of 2010 will compare? It is definitely going to be better. The main thing driving that will be the fact we won’t have the depreciation we had last year in the used car market. Not withstanding the fact scrappage has been taken out of the system if you look at the registrations and took scrappage out, in October to December last year we saw year-on-year increases. Scrappage has confused the picture but even taking it out, the market has turned from its worse point in the final quarter of last year.
What was your take on the scrappage scheme – was it the right thing to introduce when it was? I was very sceptical of the scrappage scheme but there’s no doubt about it – it worked. I am convinced it was self-funding. Most customers who bought under scrappage were used car buyers and we know that the VAT receipts on a new vehicle are much higher than those on a used one. If it was converting new car buyers into new then it was definitely giving a one-off boost to the Treasury. I think it did help the industry. As I said, I was sceptical, but I have to put my hands up and say I think I was wrong about it and that it was a success.
Scrappage accounted for about four per cent of our volume which was less than the national average, but it had different effects with different brands. If you look at the data, Ford did very well out of it and we hold a lot of Ford franchises, so that was where the principal volume was. But we’re not weighted towards the Korean brands that did very well out of it which is why we saw a smaller overall volume compared to the national average.
What would you like to see the next government do to help the car industry out? Well, what we’d obviously all like to see is Jeremy Clarkson to be the next minister of transport. That would be the most popular choice in our opinion.
Brilliant! But on a serious note, what about things like the showroom tax – was that a bit of a kick in the teeth for the car industry? Well, it was a long time coming so it was expected. If you look at tax rates on empty business properties there’s quite a burden on many in this industry. The fact the government levies rates on empty buildings certainly doesn’t help business. There are lots of things if you look that could help not just the car industry but businesses in general.
What problems and opportunities does being the UK’s biggest car dealer group present? It gives us benefits in that we see a lot of best practice across our group. We’ve got the breadth of visibility to see what’s going on. But then the biggest disadvantage we have is that because we’re so large our perceptions are distorted by our weakest link. We’ve got some absolutely first class businesses with excellent people, and quite often the business might not be recognised for that because a single business, single outlet or single individual may have let us down at some point. You’re as good as your weakest link, so that’s really our biggest disadvantage.
Does it give you good sway with the manufacturers you represent? We’ve been established for quite a long time and we’ll have notched up 25 years this year with quite a few of the manufacturers we represent. We’ve already been in business with others for more than 25 years, and that’s personally and as a corporate. When we’ve all been through what we’ve been through together – and you need to remember that it’s not just retailers that have had a hard time, but manufacturers too – then you appreciate the good times more.
Where is the growth going to happen for Pendragon now? We’ve got two major areas that we’re in control of and that will be major growth areas for us and that’s aftersales and used cars. In the new car market, by and large, growth is determined by the manufacturers and how they want to grow their market share and position themselves in the market. We have very little influence over that and can only grow using the tools that are provided. We’ve got a bit more influence over aftersales and used cars.
How important will used cars be to your group this year then? Historically we’ve always sold more used cars than new and that applies in the premium end of the market and the volume end. It’s a part of the business that has always been very important. The SMMT and commentators say the new car market is going to be flat, so that in itself probably means we’re going to sell more used cars than we did the year prior.
You’ve had a good start to 2010, returning to profit in the first quarter – will that be sustained? I think so. We’ve got momentum in the business and we’ve got ourselves in good shape. We took some tough decisions going into the downturn, some more during the recession to hold it together going through it so from our point of view, things are looking up. And there’s no reason why in the absence of a major shake-up in the broader economy why that momentum won’t continue.
Are there any plans to grow Pendragon with acquisitions this year? It’s unlikely. If you look at where we are, we’ve got 300 outlets spread across the country. Lots of people are aspiring to grow their businesses, but we did our stint of that prior to recession. We downsized during the recession and the key to it now is to push more activity through the sites that we’ve got.
What about abroad – any expansion plans there? Not at the moment. We’ve still got our businesses in California that are going through a very similar cycle to the UK. They’re starting to recover and we’re seeing some positive signs out there. To be fair, we don’t have to go and buy anything to grow, and that’s because we’ve done our growing already and we’ve now got the right footprint.
There was news recently of some sites under threat of closure – is that still the case? Not really. We’re about the right size, but when you’ve got 300 sites there’s always some movement and consolidation. Then there’s manufacturer requirements and property issues, but in the round we’re as stable as we have been for 20 years.
On a more general topic, what are your thoughts about alternative fuelled cars and how they’ll affect car retailing? Electric seems to be the direction everyone is going. It doesn’t quite do it for me as someone who likes cars, but not everyone is motivated by the same thing. For some people cars are a form of transportation and that’s it, to other people they’re a hobby, an interest, a passion. It depends where you stand on that as to where you stand on electric cars. But you don’t have to look very far into the future to see an electric Porsche 911 and would that be exciting to people if it performed? I’m sure it would. In terms of making money out of these cars and whether leasing is the way forward, well that’s a difficult call. We don’t know what the durability is going to be like, or what the running gear and systems are going to be like. A change in propulsion unit is a big change, but it’s not a transition from a horse and cart, is it?
So you are a big car fan yourself? Oh yes. I tell people I’m not, but I seem to have a few and I mess about with them all the time, so I must be. What do I drive myself? Well, you really need to ask something like ‘what do you have as private car?’ Or better still, ‘what is the favourite car that you own?’ Then I’d answer, at this moment in time, my E-Type Jaguar.
What about the internet – is that where you see the most opportunities? It’s probably the biggest single, life-changing event I’ve known in my life. It’s changed everything about the business. The way people buy things is now totally different and we’ve had to respond to that.
Where do you see Pendragon in five years from now? In a similar space, a lot more profitable and more stable. We’ll have been through a period of consolidation and will have more throughput at our existing sites so I think in terms of performance we’ll be seen as a high performing, very successful enterprise. But that will only come as a result of us doing the business.
In light of that, what’s the biggest threat facing the car industry going forward? More legislation. Quite often it is used to drive change, which is fine, but it’s over what time scale that is implemented. Legislation is the biggest unknown that will change the shape of things for us.
What about the car brands you represent – any that hold a particular place in your heart? That’s a great question. A brand that I like is Cadillac. It’s brave, uncompromising and just a little bit crazy.
And finally, have you got one piece of advice for car dealers? Stay focused and stick to the basics. Which are? Sell parts, sell labour, sell cars…