Surprising reason why car dealerships are failing revealed

PUBLISHED: 16:31 02 October 2019 | UPDATED: 10:47 03 October 2019

The SLM Hyundai site. Insert: Martyn James. Picture: GoogleMaps/Martyn James

The SLM Hyundai site. Insert: Martyn James. Picture: GoogleMaps/Martyn James

GoogleMaps/Martyn James

The reason car dealerships are struggling has been revealed – and surprisingly it’s because drivers are buying more expensive cars.

Dingles Garage, Attleborough, dated 1921. Picture: ArchantDingles Garage, Attleborough, dated 1921. Picture: Archant

It was revealed this week that SLM Group is closing its Hyundai franchise in Norwich at the end of next month, instead choosing to use the showroom for more profitable parts of the business.

The group brought out company - formerly Dingles - in 2017, and the family-run business would have marked its 100th anniversary this year.

But the decline in car showrooms is not due to fewer motors on the roads, according to consumer rights expert Martyn James.

MORE: Car dealership set to close making five people redundant

"What's happening in the motoring industry is that people have £5,000 to spend outright on a car," he explained. "But because of PCP - formerly personal finance hire - people can afford to spend more money over a longer period of time."

According to the Finance and Leasing Agency, the amount of trade generated by PCPs in 2017 was £44 billion.

But despite people spending more money, the delays PCPs are causing in cash flow are causing issues for the businesses themselves.

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"It's a hugely complicated process," said Mr James. "But the franchise will have to get the deal, wait for the payment to be made, wait for it to be processed by the credit company, and so on.

"In an industry with tight profit margins even a couple of late payments can damage the solvency of the business."

Mr James, who also works for complaints support company Resolver, said that consumer confidence regarding car buying will not be hugely knocked because of Brexit.

"I can't see Brexit having a massive impact because people see their cars the way they see energy and water. Cars are seen as an essential - perhaps less so in cities but definitely across the majority of the public," he added.

Elsewhere in Norfolk dealerships are suffering similar difficulties.

Pewtree and Back is a Ford dealership in Great Yarmouth, which published a "challenging year" for 2018 when it released its latest company accounts in August.

In 2017 the group made a profit of nearly £600,000 before swinging to a loss of £92,000.

Bosses said car sales had been "satisfactory" but that disruption to car parts delivery had caused margin squeezes.

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