Pendragon warns Ukraine conflict could further hit new car supply

Car dealership Pendragon has warned the Ukraine conflict may further hit new motor supply this year as it revealed a return to annual profit.

The Evans Halshaw and Stratstone owner said the shortage of new cars is expected to continue throughout 2022, with the potential for the Ukraine crisis to compound supply woes and send costs rising even higher.

It posted pre-tax profits of £73.3 million for 2021 against losses of £29.6 million in 2020 after it benefited from the lifting of Covid restrictions and as car shortages sent vehicle prices surging.

Underlying pre-tax profits hit a record £83 million, up from £8.2 million in 2020.

The figures come after it was reported at the weekend that Pendragon recently rejected a secret £400 million takeover approach from Swedish car retailer and major shareholder Hedin Group.

It is thought that Hedin may be lining up another bid for the business, with the speculation sending shares surging higher earlier this week.

But shares eased back by 4% on Wednesday as the group said it would not pay a final dividend for 2021 and cautioned it will face higher costs in 2022 amid pressure to increase staff wages, soaring energy bills and the impact of business rates reverting to full levels.

Bill Berman, chief executive of Pendragon, said: “We expect existing supply chain constraints to continue in the current year, and we are mindful of the potential for further disruption to new vehicle supply chains as a result of the conflict in Ukraine.”

Car showrooms were impacted by lengthy delays to the delivery of new motors last year amid a global shortage of microchips used in vehicle electronics and due to wider supply chain disruption.

Manufacturers pulled back on supplies and orders for microchips after sales fell in the early stages of the pandemic and were unable to keep up as car production ramped up again when demand recovered.

There are fears Russia’s invasion of Ukraine could knock chip supply further, as Ukraine supplies around 70% of the critical gas used in microchip production.

But in a boost for dealerships, motor prices have jumped due to demand outstripping supply, with used car values also rocketing.

Pendragon said trading in the first two months of 2022 has been good, with underlying profit in January and February ahead of 2021 as higher prices have supported margins.

But it said: “Both new and used margins are expected to reduce during the course of 2022 from extraordinary levels achieved in 2021.”