'End of the road' fears for embattled car dealerships after financial distress levels surge

Fears are mounting over the future of thousands of car dealerships after levels of financial distress rocketed by more than a third amid flagging sales and worries over the future of diesel, according to new research.

The latest Red Flag Alert from Begbies Traynor revealed the number of new car retailers experiencing "significant" financial distress jumped to 1,206 in the final three months of 2017 - an increase of 35% compared with a year earlier.

Used car retailers in significant distress surged by 34% to 1,851 companies.

The report - which monitors the financial health of UK companies - showed the overall number of automotive firms in Britain suffering financially rose 21% year on year to 15,516 in the final three months of 2017.

Begbies warned it could spell the "end of the road" for the most under-pressure firms as trading looks set to remain tough in 2018.

Jaguar Land Rover to cut production at Halewood
Jaguar Land Rover to cut production at Halewood

It said consumers were holding on to their cars for longer amid confusing Government restrictions on diesel vehicles, rising inflation, reduced availability of credit and low consumer confidence.

The growing trend towards car leasing rather than buying new or second-hand vehicles added to the pressure on the sector.

Figures from the Society of Motor Manufacturers and Traders showed recently that UK car sales fell in 2017 for the first time in six years - down 5.7%.

There was further evidence of the woes in the sector earlier this week after car giant Jaguar Land Rover revealed it will cut production at its Halewood plant amid slowing demand caused by Brexit uncertainty and diesel concerns.

Julie Palmer, a partner at Begbies Traynor, said: "Consumers up and down the country 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.

"Confusing anti-diesel legislation from the Government has potentially had the biggest dampening effect on consumers' car buying activity over the past year.

"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".

The study found that even firms involved in leasing activity have not been immune to the sector slowdown, with a 26% hike in the number of those in significant financial distress in the fourth quarter, to 894.

The year ahead is set to prove even more challenging, according to Begbies, with diesel sales to remain under pressure and the Government's renewed commitment to investing in the next generation of driverless and low-carbon vehicles creating further uncertainty among UK car buyers.

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