More dealers experience financial distress as market contracts

Rising numbers of new and used car dealers experienced “significant” levels of financial distress in the final quarter of 2017.

According to Red Flag Alert research from insolvency firm Begbies Traynor, the number of UK automotive businesses experiencing significant financial distress reached 15,516 in the final quarter of 2017, a year on year increase of 21%.

Levels of significant distress rose for used car dealers (up 34% to 1,851) and new car retailers (up 35% to 1,206 businesses) over the past 12 months.

Companies involved in the renting and leasing of cars also experienced a 26% increase in significant financial distress over the past 12 months, affecting 894 businesses.

Julie Palmer, 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.

“Even those owners looking to upgrade their vehicles are struggling to do so, as a recent glut of second hand cars on the market continues to depress the value of second hand motors while making new vehicles and their hefty price tags even less appealing.

“Looking forward, there are few signs that consumer sentiment and the restricted credit environment will improve any time soon,” he said.

Red Flag Alerts defines companies with “significant” problems as those with minor County Court Judgements (of less than £5k) filed against them or which have been identified by its credit risk scoring system which screens companies for a sustained or marked deterioration in key financial ratios and indicators.