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The UK dealer network is set for further consolidation as foreign investors and large groups expand their businesses.
A new Cox Automotive Insight Report produced with Grant Thornton charts the wave of consolidation that took place in the UK following the financial downturn in 2008.
“Dealer transactions, including management buy-outs, increased as the UK exited the recession with a high level of consolidation in 2013.
“Some of this could be the result of pent-up demand following the downturn as well as the restructuring of a fragmented industry,” it said.
But the rate of consolidation has slowed over the past two years, possibly due to the postponement of investment decision due to Brexit fears.
“Both 2017 and 2018 have seen lower numbers of transactions and although not proven this could be related to the EU referendum which took place in 2016 with groups delaying purchases because of Brexit uncertainties.
“Many of the largest dealer groups by turnover have grown significantly in recent years through acquiring businesses with the view to make them earnings enhancing as soon as possible.“
The report said that consolidation had been driven by brand strategies, including the Mercedes-Benz introduction of its market area approach in 2002 and the more recent JLR overhaul of the Jaguar and Land Rover networks with common ownership of the two brands in the majority of market territories.
The report noted that the purchasing activity of the listed plc companies had slowed, because of weaker share prices.
“Although the rate of consolidation has slowed this year we expect it to increase as PLCs and a growing number of overseas investors move to achieve even greater critical mass through strategic acquisitions aimed at strengthening geographical and brand representation.
“Meanwhile, overseas investors, wary of the risks presented by Brexit, are now starting to view acquisitions here as long-term investments, so we anticipate more activity on this front over the coming months,” said Owen Edwards, associate director, corporate finance, Grant Thornton UK LLP.
(Graph: Zephyr Research)