Pendragon cuts dividend as buyers steer clear of new cars

A massive slump in car sales – especially gas guzzling four-wheel-drives – has decimated the profits of the leading motor dealer Pendragon, forcing it to slash its dividend.

The company sees no let-up in conditions and is predicting tough trading well into next year. Its shares, which closed at 9.25p, have lost 88 per cent of their value over the past year, leaving the company capitalised at just £61m.

Pendragon, which operates more than 330 franchised dealerships under the Stratstone and Evans Halshaw brands, reported profits for the half year to 30 June down from £32.7m to £13.4m. Sales fell by more than £170m to £2.48bn.

The firm, which has sold several loss-making dealerships and axed 500 jobs, is cutting the interim dividend from 2p to 0.5p.

The retrenchment will generate savings of £30m a year by 2009, but the chief executive, Trevor Finn, is also planning further disposals, including the sale of £56m of unwanted properties, to bring down debt that is likely to be £267m by the end of the year.

Mr Finn denied that the measures were because of concerns over breaching its banking limits. He said: "There are no current issues over our banking covenants that are keeping me awake at night."

He added: "The UK motor retail sector has faced a challenging six months through weak demand and rising vehicle ownership costs. We have reacted quickly to the market changes, improving our competitiveness in used cars, cutting our cost base and reducing borrowings."

He said private sector registrations fell 4.9 per cent in the first half of the year and were down nearly 12 per cent in June, while wholesale used car prices suffered their biggest monthly fall in over five years. "Large executive and off-road vehicles were the hardest hit," he said. "These market pressures are causing volume and margin pressure."

Sales at Stratstone, which sells upmarket vehicles including Mercedes and Maserati, fell by 9.7 per cent, while at its sister dealership, Evans Halshaw, operating at the volume end of the market, revenue dropped by 6 per cent.

An increasing number of people worried about their jobs and facing increased household bills are delaying buying new cars.

The glut of used cars now available is also driving prices sharply lower. "We expect that the current price correction in the used car market has some way to go, although we anticipate that it will have run its course by the end of the year," Mr Finn added.

Pendragon expects to finish the year in profit – although the figure will be sharply down on the £46.5m made last year.

Mike Allen, from the broker Panmure Gordon, downgraded his full-year forecast from £38m to £20m and cut the 2009 likely outcome from £47m to just £25m. Mr Allen feels that prospects in the motor trade "are likely to get worse before they get better" and sees the shares going no higher than 10p.