Car dealerships' stock rises 46% in five years
UK car dealers are holding significantly more inventory than they were five years ago, according to a new analysis by accountancy group UHY Hacker Young.
The research shows that the value of UK car dealerships' inventory has increased to £23.4bn, up 46% from £16.1bn in 2011.
Dealers increased their inventory by 13% in the past year, risking tying up capital and hitting profitability.
The figures are based on an analysis of Companies House data for over 10,400 UK car dealerships.
The research also revealed that the turnover of UK car dealerships increased by only 32% in the five-year period, from £107.9bn to £142.6bn, with stock now accounting for 16.4% of total turnover compared with 14.9% five years ago.
UHY Hacker Young said that car dealerships are being encouraged to add increasing amounts of stock to their balance sheets in order to meet targets set by manufacturers looking to secure greater market share and to reduce their own stock levels after struggling during the recession.
However, this will cause issues for dealerships if sales slow and they are stuck with this excess inventory. They may have to reduce prices or increase incentives to clear, especially as the economic outlook remains uncertain following the EU referendum.
Paul Daly, a partner at UHY Hacker Young, noted that across Europe the production of cars outstrips demand and much of the excess stock ends up on UK dealers' forecourts.
"The UK is a unique market in Europe that traditionally absorbs the oversupply from Europe," Daly explained. "Other European markets suffered deeper economic crises than the UK and traditionally consumer habits in other countries often see less frequent vehicle purchases than would be the case in the UK, all of which makes the UK a prime destination for excess stock."
But weaker exchange rates could see this excess stock head to other European countries.
Consumers in the UK benefit from low interest rates which allow vehicles to be purchased on highly attractive monthly payment plans, however, this can create artificial demand.
"With the impact of Brexit yet to be fully realised, businesses may look to pursue more conservative business models. In the event of any downturn, if the UK has a lower proportion of Europe's stock it would make for a softer landing than in 2008 when vehicle values crashed.
"The fall in the value of sterling since Brexit was announced could make it difficult for dealerships to shift excess stock if it is more expensive in the first place. This could also result in the level of margin of these dealerships squeezed further, putting many more under financial strain."