Is cash still king for car dealers?

Back in 1987, following the stock market crash, Volvo’s then CEO famously coined the phrase: “Cash is king.” The message resonated strongly across the automotive retail sector - an industry built on high volumes, significant stock levels and large financing exposures. For decades, finance teams across UK dealerships mastered the art of fine-tuning sales processes and stock funding to maximise cash flow and protect the bottom line.

Fast forward to 2026, and the question remains: is cash still king or has the game changed?

From surplus to squeeze: the cash flow cycle is shifting

In the immediate aftermath of the pandemic, many dealers found themselves in an unexpected position, sitting on substantial cash reserves. Reduced vehicle volumes, manufacturer bonuses, furlough support and tight cost control helped preserve cash, despite widespread disruption.

But that environment has changed.

New car supply has improved significantly, and volumes are climbing. The SMMT now forecasts 2.012 million new passenger vehicle registrations in 2025 and 2.032 million in 2026, continuing the recovery from recent years. Electrified vehicles are driving much of this momentum, with BEVs expected to account for 23.3% of the market in 2025 and rising to 28.2% in 2026.

Battery Electric Vehicles (BEVs) now account for 21.5% of new car sales, up from 16.8% in 2024. Plug‑in Hybrids (PHEVs) are also gaining momentum. While this growth is helping to drive turnover, it is also increasing working‑capital demands - particularly as some used EV values have fallen by as much as 70% since 2022, with early‑generation models hit hardest by rapid model updates and weakening residuals. The result is heightened margin risk for dealers carrying used EV stock, making accurate valuation and faster stock turn more critical than ever.

Corporate identity upgrades are back on the agenda, with multiple OEMs expecting dealership refits and investment in brand environments. These can be significant cash outflows if not planned for.

Agency is unlikely to help. Originally positioned as a way to ease working capital strain, the agency model rollout has been far from smooth. “Agency is dead,” said one dealer group executive in early 2025 - a sentiment echoed across the industry as brands including Stellantis, Mercedes-Benz, JLR, Ford and Volkswagen paused or restructured their strategies. While the model may evolve, dealers should not rely on agency to ease working capital pressures in the near term. Instead, a robust approach to cash flow forecasting and cost control remains essential.

How can dealers stay cash-smart?

While profitability remains broadly resilient, buoyed by strong used car margins and digital lead conversion, dealers face growing pressure from EV discounting, regulatory targets and rising operational costs. A disciplined approach to cash flow and forecasting is more important than ever.

While revenue growth grabs headlines, sustainable profit often comes from controlling the cost base. Staffing costs, compliance and vehicle prep are rising again. A regular rhythm of monthly cost reviews can help catch creeping overheads early and protect margin.

Below are key areas where we see opportunities for UK dealerships to drive efficiency:

Dust off old disciplines. Assess which processes are still in place across the business. If day-to-day disciplines have slipped, now is the time to revisit and reinforce them.
Review the full working capital cycle from the purchase of vehicles through to their sale and eventual cash collection to identify opportunities for greater efficiency. Common areas where improvements can be made include vehicles in stock that have missed funding opportunities, delays in the liquidation of trade stock, suboptimal timing and processes around securing customer retail finance and weak credit control over fleet debts.
Headcount discipline. Rebuild annual budgets from a clean slate rather than applying “last year plus inflation.” Ensure every role - particularly in central overhead - delivers measurable commercial value.
Stock target setting. Define and monitor specific vehicle stock targets at the business unit level to reduce excess inventory and cash tied up in unsold vehicles.
VAT planning. VAT remains a major driver of cash flow. Consider whether your VAT quarter-end aligns with your operational cash peaks. From April 2025, HMRC have introduced stricter late payment penalties, so ensuring timely returns and full MTD compliance is essential.
Used car profitability starts with buying discipline. Ensure purchase decisions are made by experienced managers and part-exchange appraisals are quality checked.
Technician efficiency. Invest in accurate labour reporting and challenge inefficiencies. It’s a key area where small changes in productivity yield major returns.
Write-down discipline. Daily tracking of stock turn, prep times and sold-not-delivered vehicles can reduce unnecessary depreciation.
Digital journey optimisation. Recent buyer behaviour studies indicate that a majority of car purchases now involve a blend of online and inperson channels - refining the lead conversion process can improve sales velocity and reduce pipeline leakage.
Group purchasing power. Leverage buying clubs or procurement reviews to cut back on recurring costs like oil, finance commission structures, energy and consumables.

Working capital tips:

scrutinise the full working capital cycle from vehicle acquisition to final payment
actively manage slow-moving or unfunded stock
consider VAT quarter-end timing - it still plays a big role in cash pressure
set and monitor vehicle stock targets at a unit level.