Entering 2023 hot on the heels of another very strong performance for most in 2022, there was a prevailing expectation that transactional activity would remain buoyant. Still enjoying strong profits and cash balances, many businesses wanted to further consolidate their market area or expand with new brands. Although there were forecasts of a YoY downturn in profitability, returns were anticipated to be strong compared with pre-Covid times.
2023 saw agency become a reality with the launch of models within the Volvo and Mercedes networks. The latter encountered well-publicised issues, including system issues and customer pushback, which is expected to lead to disappointing 2023 results. This has prompted reflection across the industry, with several OEMS contemplating a delay to the introduction of agency. Could some even be considering abandoning the model altogether?
Deal numbers and values
Following consistent deal numbers in 2021 and 2022, increased activity was expected for 2023. This was not the case. Although the number of dealership locations changing hands will be record-breaking, with Lookers, Pendragon and Jardine Motors all changing ownership across an estimated 360 locations, the number of individual transactions was slightly down, from 32 to 28.
Valuations remained consistent over the period, with premium businesses and well-positioned, profitable regional groups with good franchise mixes, such as Kia, Toyota, Hyundai, Suzuki and Renault, attracting a premium.
As we entered the back quarter of 2023, sentiment began to shift due to the rapid adjustment in the used car market and increasing cost pressures on businesses. However, this is expected to be a temporary momentum shift and we envisage continued transactional activity in 2024, with plenty of good opportunities remaining.
The outlook for 2024
Further consolidation
The theme of sector consolidations, ongoing since Covid-19 is expected to intensify. Certain OEMs are expected to implement plans consolidating market areas under common ownership, such as VWG, who are looking to implement their Ideal Network Plan. Some brands may also seek to reduce network points, with certain OEMs terminating all partners and re-issuing agreements over the next couple of years.
General economic outlook
While 2023 presented some challenges, profitability is expected to revert to YoY levels for most and we shouldn’t lose sight that the overall results remain positive compared to pre-Covid levels. Profitability has been artificially high for a period and would always correct itself when supply issues began to ease and OEMs force the market. With interest rates stabilising and likely to reduce in 2024, coupled with lower inflation forecasts, we expect 2024 will deliver a good return for well-run dealerships, with transactions continuing to play a pivotal role as the year evolves.
Distressed opportunities
We may see some distressed opportunities as we head through 2024, with rumours circulating regarding certain businesses losing money. Those that haven’t had tight controls in place and adjusted their businesses to deal with the reduced margins and increased supply may encounter challenges. Vigilance over the all-important cashflow, which hasn’t been an area of concern for some time now, along with a focus on cost control, will become key areas for dealers.
What is to come as we move through 2024?
With numerous deals in progress and market rumours circulating, 2024 will no doubt be another busy year for the sector. While challenges will arise, well-managed businesses with good controls will continue to succeed and will be in a position to take advantage of the opportunities around them.
Some big questions remain, such as will Inchcape remain in the UK? Will Vertu remain listed? And what level of involvement will certain OEMs take to influence change?
As ever, it is never a dull day in the UK automotive market and, after some astonishing moves in 2023, we remain intrigued as to what is instore for 2024.
Read more of our predictions
For more of our predictions from our experts, download our 2024 Automotive Outlook to read their take on many of the key issues impacting the sector and the challenges and opportunities that lie ahead.
