Struggling Car Industry Affecting Vertu Motors

Vertu Motors, a popular UK car dealer, issued a trading update prior to its annual general meeting. In the announcement, the company revealed that fragile demand from UK consumers has placed additional pressure on its new and used car markets.

Other contributing factors mentioned included the earthquake in Japan and the “continued devaluation of Sterling.”

These events led private consumer new car sales to drop 6.6 percent and like-for-like used car deals dropped 5.8 percent during May and June. Gross margins dropped from 11 to 10.3 percent within the used car division and from 7.9 to 7.4 percent for new cars.

However, not all was bad, as like-for-like margins in aftersales rose to 43.1 percent from 40.1 percent.

Following the news from Vertu, house broker Panmure Gordon downgraded its forecast. Pretax profits for 2012 are now resting at £8.4 million, down from £8.9 million and earnings per share of 3.3p are predicted for 2012.

Things look a bit better for 2013, with pretax profits predicted to be £9.3 million, though this is less than the £9.5 million previously estimated. In 2013, Panmure Gordon expects that Vertu earnings per share will be 3.5p.

Shares in Vertu are currently trading at 30.25p. The company is challenged by the changing consumption patterns of car buyers resulting from the struggling industry. Vehicle owners are keeping their cars much longer or making the difficult decision to sell their autos due to restricted budgets.

New car sales are suffering in particular, due to high unemployment and rising food prices.

Many UK consumers are hesitant to take on expensive car finance because they are unsure about the security of their jobs. As prices for basic goods and services rise, more of their income is going toward these necessary items.

For now, financial experts are retaining a hold rating for Vertu stock but are hoping that things will soon change.