U.K. Franchise Operator Halts U.S. Acquisitions

Pendragon, the largest independent operator of franchised car dealerships in the U.K., issues a profits warning and says it is halting acquisitions in the U.S.

The unscheduled update slashes this year’s pretax profit forecast to £60 million ($78.7 million) from £75 million ($98.4 million).

The London Stock Exchange-listed company also announces chairman Mel Eggerton has stepped down. He is replaced by Chris Chambers, a non-executive director since January 2013 and the senior independent director since November 2014.

CEO Trevor Finn says a strategic review of the U.S. Motor Group has determined Pendragon will make no further acquisitions in the U.S.

“The board considers that it would be appropriate in the light of our capital allocation priorities to assess the ongoing value of this business to the group,” he says.

Pendragon, founded in 1989, expanded into the U.S. in 2000 with the acquisition of Bauer Jaguar, the country’s third-largest Jaguar dealership. It later acquired other California-based dealerships.

It has nine franchise locations in Southern California, including Jaguar, Land Rover and Aston Martin.

Changes could now also be coming on the home front.

“We are conducting a strategic review of the premium brands, to evaluate by manufacturer the investment appeal of their franchise proposition,” Finn says. “We will review capital requirements by manufacturer and only allocate capital where we see strong future prospects for reliable returns.”

Pendragon’s Stratstone group represents a number of luxury-car and motorcycle manufacturers, including Aston Martin, BMW, Ferrari, Harley-Davidson, Jaguar, Land Rover, Mercedes-Benz, Mini, Morgan, Porsche, Smart and Triumph.

Explaining the lower forecast profit, Finn cites a decline in demand for new cars and the consequent used-car price adjustment.

“In the premium sector we have experienced unprecedented pressure on new-vehicle margin caused by certain manufacturers continuing to force vehicles into the market despite softening demand,” he says.

“We expect the new-car market to continue to decline this year and the first half of next year as car manufacturers continue to adjust to the reduced level of demand for new cars. We anticipate resumption of growth in profits in 2018.”