Profits warning hits car dealers

SHARES IN in car dealerships were badly affected by a severe profits warning yesterday from the Car Group, a "nearly new" car supermarket operator which warned of "recessionary conditions" in some areas of the country.

Car Group shares plunged 44 per cent to 85.5p after the company said it had been hit by depressed demand in the used car market and an "exceptional two-month price fall". Peter Floyd, the company's finance director said prices on some models had fallen by 10 per cent in the last two months.

Car Group said its results for the year to August would be significantly affected, prompting analysts to cut their profit forecasts from pounds 7.6m to between pounds 4.5m and pounds 5m. The warning led to downgrades on rival car dealers such as Quicks. Analysts said that others such as Arriva, the former Cowie Group and Dixon Motors might also be vulnerable. Car Group's shares were priced at 138p when the company came to the stock market in November 1996.

The Car Group pioneered the concept of car supermarkets in the United Kingdom. All its sites, which trade under the National Car Supermarket name, are in the Midlands or the North and Mr Floyd said its base in Britain's manufacturing heartland was a factor in its problems. He said: "The strong pound has hit manufacturing industry and that is where we trade. The strong pound has also enabled manufacturers to offer good deals on new cars which may have affected demand on older models."

The company reduced stock levels but now feels prices might be settling and so has resumed normal purchasing patterns.

Car supermarkets are a growing phenomenon in the UK. A rival group CarLand launched to great fanfare in January. It is spending pounds 25m developing indoor car supermarkets. Most of Car Group's are outdoor sites.