IntroductionThe severity of the credit crunch and the speed with which the UK moved into recession in the second half of last year resulted in a rapid detoriation in new vehicle registrations and led to heavy discounting, contributing to a slump in used car residual values. This impacted dealer profitability, as evidenced by an increase in insolvencies.
Furthermore, it was not just small dealers that were being impacted: insolvencies spread from exclusively small operators in 2007 to a combination of small and medium dealerships in 2008 as the downturn worsened. Although the situation for dealerships appeared to have stabilised somewhat in early 2009, we believe that this was only a temporary respite.
The most striking feature of this downturn in comparison to what the industry faced in the early 1990s is that in the lead up to the previous recession, dealers were reporting higher profit levels than they are now.