Profit dip prompts Dagenham cost-cutting drive

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Dagenham Motors, Britain's biggest Ford dealer, yesterday pledged to undertake a root and branch cost-cutting drive after reporting its first drop in profits since 1992.

The news, and the warning of a similar downturn in the second half of this year, sent Dagenham's shares diving by slightly more than 10 per cent from 137.5p to 123.5p. The company also suggested the improvement in consumer confidence had had less impact on the car market than previously thought.

David Philip, Dagenham's chairman, said management changes were being made at some of its 15 car and truck dealerships after sales targets set by Ford had been missed, which meant the company failed to win bonuses from the manufacturer.

It was only after the end of August that Dagenham realised disappointing June sales figures meant it had not done enough to qualify for the extra cash bonus payments from Ford, which are based on three-month sales targets.

This alone cut profits by pounds 500,000 in the first six months of the year, an average of about pounds 100 for each of the 5,748 vehicles sold.

The problems meant Dagenham's profit margin on new car sales crashed by 20 per cent, whereas earnings from used cars increased by 14 per cent. Half-yearly pre-tax earnings slid by 6.4 per cent to pounds 2.35m despite a 5 per cent increase in sales to pounds 147m.

"This is the first glitch we've had since coming out of recession," said a clearly disappointed Mr Philip, who added that August, which accounts for about a quarter of car sales, had also been worse than expected.

Ford's national market share in the first P-registration month fell from 21 per cent to just over 18 per cent as the manufacturer did less than usual to boost its figures by "pre-registering" cars with dealers.

Mr Philip said: "We didn't make as much money in August this year but I don't know how much yet. The downturn in the first half of the year looks like continuing in the second half."

He said he was confident cost-cutting measures, including some reduction in the firm's 1,200-strong workforce through natural wastage, would restore profits next year.

One target for cost-cutting was the pounds 3m Dagenham spends each year on storing and distributing cars to its dealer network. The company said there had been no hostility from Ford over the workings of the car maker's bonus promotions. Several new or revised Ford models were due in showrooms which should reduce the reliance on cash bonuses.