Virus impact dents big automotive names
In the second of his articles looking at the car industry’s struggles, Mark Taylor assesses the damage the downturn has done to some well known automotive brands.
The automotive industry has been hit by a double-whammy of coronavirus and Brexit, suppressing both production and sales in an industry worth £82bn to the UK economy.
The UK’s largest manufacturer, Jaguar Land Rover (JLR), posted a pre-tax loss of £413m for the quarter ending on 30 June. Highlighting the “very uncertain” outlook for the rest of 2020, the Tata-owned firm is trying to save £2.5bn this year, up £1bn from its original cost savings plan.
JLR is in talks with the government over a £1bn support loan, as Brexit volatility, stricter emissions rules and falling exports to its biggest market in China have taken their toll. All of these factors were biting even before the pandemic hit.
“The news that JLR is seeking financial support from the government will do little to allay the fears of a worsening slowdown for the sector, and while consumers remain conscious of their expenditure and increased remote working lessens the need for commuting to work, the road ahead for the sector will be rocky,” said Begbies Traynor insolvency partner Julie Palmer.
Aston Martin restatement
Another iconic British name, Aston Martin, said reported revenues down by more than two-thirds in the half-year to June due to the coronavirus pandemic and some accounting irregularities uncovered by its new owners.
Canadian billionaire Lawrence Stroll oversaw a refinancing of the group and took over as executive chairman in April with Tobias Moers, formerly with Mercedes, now chief executive. The new team discovered an accounting wrangle dating from the firm’s IPO in 2018 which led the luxury carmaker to understate last year’s losses by £15.3m.
After restating its results, Aston Martin, whose classic cars are a feature of the James Bond movies, made a loss last year of £70.9m compared with the £55.6m originally reported.
EY assessed the latest results for the firm, as in January 2019, KPMG said it would not re-pitch for the audit of the luxury carmaker just months after its £4bn stock market float.
“Prestige marques such as Jaguar Land Rover, Bentley and Aston Martin are likely to be hardest hit as people become more price and environment-conscious and err on the side of ethics over style,” said Rick Smith, managing director of business recovery consultancy Forbes Burton.
The gloom extends to car dealerships, with closures likely to increase. Zeus Capital’s latest research made a “conservative” estimate of a 20% loss in capacity this year as the virus accelerated showroom closures.
“We know Lookers and Pendragon have planned dealership closures in place, with many smaller private groups potentially not surviving in the long term,” said Zeus analyst Mike Allen.
Embattled dealership Lookers, which said last month it was cutting 1,500 showroom jobs, has repeatedly postponed publishing its full-year results after uncovering a potential fraud.
Last week the firm said it would correct its accounts after auditors Grant Thornton found it had overstated profits by £19m over several years. The auditor’s draft report found evidence of suspected fraudulent expense claims and weak financial controls between 2016 and 2019, which are being probed by the Financial Conduct Authority.
The Society of Motor Manufacturers (SMMT) said consumers were confused about the prospect of a government incentive scheme and were delaying purchases as a result, adding to the headaches for manufacturers.
A 2009 government scrappage scheme increased sales of small cars and it has floated a similar plan for use by the end of 2020. But industry analysts point out that the main beneficiaries were smaller models made outside the UK.
“We would prefer something that benefits the entire market, but we want to see the natural level of demand first,” said SMMT chief executive Mike Hawes. “You can only do it once, and it has to be at the right time.”
Experts said the crisis could encourage the government to jumpstart a green vehicle revolution.
“The petrol vehicle is going the way of the horse,” said John Bell, senior partner and founder of insolvency firm Clarke Bell.
“This crisis is only likely to have accelerated the change that is coming anyway. Green is the way forward, although the government needs to put in a full electric (and hydrogen-powered) infrastructure to encourage the sector.”
He said the public had noticed the improvement in air quality and reduction in noise during lockdown, and this would likely be remembered after the crisis passes with further calls for fundamental change in pollution levels.
Much will depend on how willing the government is to back initiatives to encourage consumers to buy green cars, added Smith.
“The road to recovery will be long and hard,” he said. “It’s not quite in terminal decline, but the whole industry needs to look at their proposition realistically. There needs to be a bigger shift to greener cars as both governments and consumers demand it.”