06 January 2014

Here’s an interesting thought: if you’d invested £100 in the FTSE 100 index at the start of 2013, it would now be worth £114.40. If you invested the same amount is the general retail sector, it would be worth £132.60.

But, if you’d been brave enough to invest it in a basket of UK auto retail shares, it would now be worth £151.22. Even better, if you’d invested it in Cambria Automobiles it would now be worth almost £300 – or Pendragon; it would have doubled.

I’m not suggesting that we measure the success of the UK auto retail industry entirely by stock market prices (there’s a full analysis of the year in the upcoming issue of Auto Retail Bulletin. But it is an interesting reflection of how much confidence professional investors have in the future.

They are not alone. We won’t see full year figures for a couple of months but the latest ASE results (to the end of October) show a 40% improvement in rolling 12-month profit for the typical ‘average’ dealership. In most cases, that improvement is coming exclusively from new car sales – not the margin on the metal but the bonuses from achieving target. Where does that leave prospects for 2014?

Leaving aside the certain fact that manufacturers will up the targets to pay less bonus, it’s also worth bearing in mind that there are some signs of a recovery in continental European markets. That could mean a rebalancing of supply across the region and less pressure to register cars here.

As a result, the temptation will be for manufacturers to take some of the subsidised finance deals away (despite low base interest rates) and pocket the funds. That means less reliance on subvented finance and on volume bonus. So, if we’re to offer investors another 50% return in 2014, it’s probably time to switch the focus. It’s curious anomaly of this industry that we seem to be good at new cars, or used, or aftersales – but, very rarely, all three at the same time. Just a new year, food for thought ….

Rupert Saunders

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Tags: FTSE, our blog, Rupert Saunders, sales forecasts, SHARE PRICES, used cars