Dealers flag down ministers for help

Car distributors warn sector is 'starting to implode'

The Government is considering radical plans to boost the car dealerships as fears grow that the sector, which employs 700,000 people, will be wrecked by the credit crunch and the Jaguar Land Rover crisis.

Paul Williams, the chairman of the Retail Motor Industry Federation, said the Department for Business, Enterprise and Regulatory Reform (Berr) had requested further information on two proposals put to Lord Mandelson, the Business Secretary, last month.

The first proposal urged the abolition of a regulation starting in January that will prevent dealers from applying for vehicle excise duty refunds on cars taken in part exchange. This will cost the industry at least £80m a year. The second was a call for a scheme that would encourage drivers to get rid of old, heavily polluting vehicles in favour of greener cars – a move that would improve sales.

Mr Williams said: "Berr was asking for more information within 48 hours of making the proposals. The [dealership sector] makes a contribution to GDP twice that of manufacturing."

The three leading car dealerships have all made gloomy disclosures recently. Lookers warned last week that its 2008 pre-tax profit would be around £10m, against an average forecast of £16m; Pendragon has cut 1,500 jobs and asked its auditor, KPMG, to examine business plans that could involve a debt-for-equity swap with its banks; and Inchcape shares have fallen about 70 per cent in the past quarter. A senior figure at one of the big three warned: "The way things are going, you could end up losing the whole. It could be that debt covenants will be breached. The industry is starting to implode."

The lack of demand for Jaguars and Land Rovers is exacerbating the dealerships' problems. Tata, Jaguar Land Rover's Indian owner, is looking for $1bn (£6.7bn) from the Government after buying the marques this year. Berr has yet to decide whether to help ease its financial pressures.

President George Bush announced a $17.4bn loan to General Motors and Chrysler on Friday, on condition the companies are restructured.