Sales of Alfa Romeos and Lamborghinis are falling sharply as City bankers hit by the credit crunch cut back luxury spending, an upmarket car dealer said today, adding to the bad news for the ailing car industry.
HR Owen, which has eight dealerships across London and specialises in Bugattis, said significant falls in sales over the past two months would see it tumble into the red in the second half of the year.
It said it hoped to break even for the full year, but warned that trading was expected to remain "severely depressed" throughout 2009.
"Customers are delaying purchasing decisions and the lack of available credit at affordable rates remains a serious obstacle to the completion of vehicle sale transactions," said chief executive Nicholas Lancaster.
"The recent reduction in VAT rate to 15% has not yet had any noticeable impact on sales levels. Sales have fallen off in the second half of this year and the last quarter has been absolutely dramatically bad."
He said many buyers who had placed orders for cars were delaying their purchases until next year to gauge a better picture of the economic outlook.
Lancaster said there was still demand for Bentleys and Rolls-Royces from wealthy international businessmen based in the UK. A new Rolls-Royce two-door convertible sells for around £330,000, before additional features such as personalised number plates and interior wood veneers.
There was also grim news from Lookers, one of the UK's leading car dealers. It issued a profit warning citing tough trading conditions in the new and used-car markets. The warning follows similar alerts in recent days from rivals Inchcape and Pendragon, reflecting the increasing struggles of the car industry.
Production in Britain's car plants slumped by a third in November, marking the worst month for carmakers since 1987.
Lookers, which has over 100 dealerships across the country selling cars ranging from Aston Martins to Vauxhalls, said it now expects full-year profits for 2008 to be less than half last year's level, at around £10m.
This is well below analysts' predictions of between £15.6m and £18m and compares with a profit of £24.5m in 2007. It also said it was scrapping its final dividend.
Sales across the UK were down by 23% in October and 37% in November as fears over a deep recession and rising unemployment have intensified in recent months.
Lookers said the value of used cars have fallen sharply in the second half of the year, and the firm was not expecting prices to stabilise until 2009. The falling prices of used cars are usually seen as a feature of a market in decline.
Shares in both firms took a big hit following the news. Lookers shed over 10% to 20.5p, while HR Owen lost a hefty 22.1% in value to 56.5p. Shares in Lookers have plunged about 90% over the past 18 months.
Lookers said it was well ahead of its restructuring programme, which it hopes will bring in large cost savings. By the end of the year, 21 of its business units will have closed which, along with other cost-cutting measures, is expected to save around £7.5m a year.
Car retailers struggle greatly during an economic downturn since car purchases are one of the first things households cut back on. High fixed costs of dealerships, such as building rentals and overheads, mean they rely on the high margins from sales to boost profits.
"When sales are falling as sharply as they have, it is very hard to contend with," said Lancaster.
Car manufacturers are urging the government to intervene with a plan to rescue the industry. The government is in intensive talks over a bail-out for Jaguar Land Rover. General Motors and Chrysler are in similar talks with the US treasury.
