THE UK car market shuddered this week as its second-biggest listed automotive retail group, Pendragon, announced it would have a huge 20 per cent drop in its 2017 profits.

It ricocheted through the industry, hitting Inchcape plc – parent of Australia’s Subaru, Peugeot-Citroen distributor and the Trivett retail network – shaving four per cent off its share price.

The cause of the malaise has been a new-car market drop of almost 10 per cent in September triggered mainly by a plunge in consumer confidence over government plans for diesel vehicles.

Dealers, as a result, have been struggling to clear a build-up of pre-registered cars. Selling these vehicles at a significant discount to new-car prices had reduced margins, mainly in premium brands.

The Society of Motor Manufacturers and Traders (SMMT) this week said UK vehicle registrations fell 9.3 per cent in September; for the sixth consecutive month. The fleet sector fell 10.1 per cent.

The SMMT said: “Confusion surrounding air quality plans has inevitably led to a drop in consumer and business demand for diesel vehicles which is undermining the rollout of the latest low-emission models and thwarting the ambitions of both the industry and government in meeting challenging carbon-dioxide targets,”.

“If new diesel registrations continue on this negative trend, UK new-car average CO2 levels could actually rise this year, the first time such an increase would have occurred since average CO2 readings were recorded in 2000.”

Pendragon said it expected its underlying profit before tax for 2017 to fall more than 20 per cent – from £75.4 million ($A127.4 million) in 2016 to £60 million ($A101 million) by the end of the year.

This was despite a 6.7 per cent revenue growth for the year-to-date and used-vehicle revenue growth of 21.1 per cent, the company said in a statement.

The London Evening Standard reported on Pendragon’s gloomy profit outlook, saying it could be an indicator that the “bottom just fell out of the UK car industry”.

The Guardian newspaper, in reporting that shares in Inchcape had dropped by four per cent in early trade, said it showed “that traders believe Pendragon’s woes are part of a wider malaise in the UK economy.”

Pendragon’s report said that as consumer confidence waned in the third quarter of this year, the business had been exposed to significant market pressures.

The reversal of form has precipitated a strategic review of Pendragon’s premium franchises in which the company will evaluate the ongoing potential of each manufacturer to contribute to its bottom line.

The review would also evaluate the level of capital being made by manufacturers to invest in facilities and the potential for achieving adequate returns on the investments being demanded.
The company said that capital will only be invested where Pendragon sees “strong future prospects for reliable returns”.

By Neil Dowling