Used car prices have ‘stabilised’ while ‘consumer uncertainty’ is impacting demand for new cars, Vertu Motors boss Robert Forrester has said.
Forrester was writing in the listed dealer group’s trading update for the five-month period ended January 31, 2024, issued today (Mar 4) on the London Stock Exchange. At a wider level, the update shows Vertu ended 2023 in strong cash position.
In a lengthy statement, the dealer group – which has 188 sales and aftersales outlets – referenced its guidance in December which noted a ‘notable decline’ in wholesale used car prices had occurred between October and December 2023.
Vertu said that during the latest five-month period, like-for-like used car volume grew by 0.8% while the gross profit generated from used car sales was £4.7m lower than the figure it achieved in FY23.
However, it had reduced its stock levels by over £40m during the period, ‘significantly’ reducing its net debt position.
As of January this year, Vertu believes the sharp falls in used car values have leveled out to the point of normalisation, and margins have improved in both its volume and premium brand franchises.
In a separate video broadcast, Vertu CEO Forrester said: ‘We are back to a sensible used car market.’
For new cars, like-for-like volumes fell by 5.1%, although Motability volumes grew significantly by 73.1% like-for-like.
The dealer group said it’s seeing a ‘dampening effect on new vehicle margins as competition to drive the market increases at the expense of margins’, due primarily to slow sales of new electric cars in the private sector and increased discounting.
Group revenues for the period were 7.8% up like-for-like and service revenues up 5.3%.
Year-end net debt (excluding lease obligations) is expected to be reduced on market expectations to £60m-£65m (FY23: £75.4m).
In the update, Forrester said: ‘I am pleased with the team’s performance against a fast-changing market backdrop with used vehicle prices now stabilized at lower levels and consumer uncertainty impacting retail demand for new cars.
‘Our resilient aftersales business continues to thrive aided by higher technician numbers. The work that has gone into cost control and optimizing stock levels has contributed to an excellent cash performance.’
He added: ‘Despite the impact of the complex market dynamics on the short-term performance of the business, the current market presents opportunities for Vertu with our strong balance sheet providing; financial flexibility, portfolio of strong brands, robust and scalable systems, and a great team.’
During the five-month period, Vertu acquired south-west-based Rowes Garage Limited, adding four Honda dealerships to its portfolio, and has been rebranded as Vertu Motors or Bristol Street Motors. In February 2024, the Plymstock site was closed and was consolidated into the central Plymouth dealership.
In September 2023, Vertu opened a Bristol Street Motors MG dealership in Chesterfield, Derbyshire – its fourth MG site.
Other developments included the relocation of a Vauxhall site in Newcastle upon Tyne, with the vacated site being turned into a Ford operation, and Bristol Street Motornation Stockton being re-franchised to Nissan.
Vertu also ‘pruned’ its portfolio during the period, closing its Seat and Cupra operations in Birmingham in January 2024, and relinquishing its Renault/Dacia franchises in Mansfield and a Hyundai franchise in Morpeth. Vertu said it incurred ‘no material costs’ through the actions.
Looking ahead, Vertu said customers are likely to purchase a used vehicle instead of a new one due to the cost-of-living crisis and more attractive used car prices following values falling last year. It is also working hard to increase used vehicle stock turn and reduce inventory levels.
Full-year FY24 results are expected to be ‘broadly in-line with current consensus’.
Results for the year ended February 29, 2024, will be announced on May 15, 2024.