Accountancy firm ASE has warned dealers face ‘increasing cash strains” on business through to the close of the first quarter in 2021.
ASE chairman Mike Jones told Motor Trader in the August digital issue that dealers with weak balance sheets will come under pressure.
“Cash flow is going to be a big issue as we go through the course of the next 12 months.”
Jones argues that businesses are weaker now than they would have been without the pandemic and dealers would normally be getting a big Q2 bonus, which will not be forthcoming. And dealers will be picking up an increasing percentage of furloughed staff costs.
“There are going to be increasing cash strains on businesses as we go through the next six to 12 months. I am predicting those challenges are going to increase as we move forward. And the pinch point is going to be in the second half of the year rather than directly in the furlough period,” he said.
“Car manufacturers across the board as we went into lockdown were deferring payments, extending credit for the retailers to try and keep them going during the lockdown. That period of increasing credit risk is going to come to an end over the course of the next three months, and retailers are going to have to find the cash in order to be able to pay for those vehicles on that extended credit. This is going to run all the way through until the end of Q1 next year, the date for the payment of the VAT bill that was missed from the start of this year.
“We’re already seeing a number of manufacturers being really quite bullish with regards to that predictions for the volumes for the second half of this year. I absolutely hope that they are right. And if that is the case, they’re going to be looking for dealers now to start to sell cars in volume and for them not to be extending credit.”
What will be dealers’ top priorities over the coming year, following the lockdown? For jones safety comes first. No safety translates into no confidence and reduced sales. Dealers need to generate confidence for both staff and customers and communicate clear messages
“We need to make sure that we communicate what we’ve done to keep people safe and increase the level of confidence to get people to come back into showrooms. We have seen that there is there is demand there. But people need to feel comfortable.”
Jones also thinks dealers have used the lockdown to look afresh at the shape of their business. And they will do more of the same in the coming year. Already dealers are using the furlough to work off notice periods for some staff. They are also looking at their physical structure to make cuts. Pendragon and Lookers are among those who have announced the closure of non profit sites. And they are becoming increasingly digital businesses.