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Car industry in crisis as giant dealer Pendragon tumbles

Pendragon has alarmed the market with a sudden admission that too many cars are being made and consumer confidence has stalled: Getty Images
Pendragon has alarmed the market with a sudden admission that too many cars are being made and consumer confidence has stalled: Getty Images

A hefty profit warning from Britain’s biggest car dealer sent shares crashing nearly 20% and raised fears about the state of one of the nation’s most important industries.

Pendragon alarmed the market and City analysts with a sudden admission that too many cars are being made and consumer confidence has stalled.

Chairman Mel Egglenton is leaving for “personal reasons” to be replaced by Chris Chambers. The company said it had launched a “strategic review”.

Pendragon, which owns the Evans Halshaw and Stratstone brands, saw shares plunge 17% to 24p.

Rival dealers Inchcape followed suit, down 4.5% to 784p, as did Lookers, down 4.6% to 103p.

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The warning will cause concern at banks, regulators and in government. There have been growing fears since at least last Christmas that car sales are based on loans that some consumers will simply never repay.

Talk of a new financial crisis based on a car debt bubble has increased.

In the wake of Brexit, leading UK car makers have been pondering a shift in production to the EU. The future of the Vauxhall factory, now owned by Peugeot-PSA, at Ellesmere Port is of particular concern.

Pendragon says profits this year will now be £60 million rather than the £75 million promised earlier. Chief executive Trevor Finn says an oversupply has “become more acute because there’s been a waning of demand”. He added: “There is a degree of uncertainty in buyers’ minds.”

This latest profit warning from UK plc will add to fears that the country is heading to a recession.

There were 75 profits warnings in the last quarter, up from 45 between April and June. Official figures show UK car sales have been falling for six months, with a 9.3% dip in September.

But the car sector was booming until recently.

It had collective turnover of £77.5 billion in 2016, employing 814,000 people in what are regarded as solid manufacturing jobs that pay decent salaries.

In June, Mike Hawes of the trade body the SMMT said the car industry’s success was “driven by massive investment, in new models, plants, innovation and one of the world’s most skilled workforces. However, for UK auto manufacturing to continue to thrive, we need clarity on the future, post-Brexit, to encourage ongoing investment and growth”.

Pendragon’s attempt to explain itself to the City today was not helped by a confusing conference call during which Finn was repeatedly interrupted by technical hitches.