Profits fall 15 per cent at Phoenix amid pressure on sales of cars

Owned by entrepreneur John McGuire, Phoenix recorded £125 million turnover in the latest year, down seven per cent on the £135m achieved in the preceding period.

Phoenix has sites in Paisley and Glasgow. It operates eight dealerships selling new cars under marques such as Hyundai, Mitsubishi, Suzuki, Kia and Honda. The company also sells used cars and has a service department.

In the accounts directors noted a decline in private new car sales in the second half of the year.

“New car sales were down 10 per cent from 4,222 in 2016 to 3,830 in 2017, seven per cent of the decline being accounted for by the loss on the Mazda new car franchise,” wrote the directors.

They added: “An increase in the mix of less profitable Motability and Fleet sales from 31 per cent to 36 per cent of the volume and the introduction of lower fixed margin models by some manufacturers resulted in grosses decreasing from £1,007 a unit in 2016 to £972 a unit in 2016.”

The increase also had impacts on the group’s finance income and manufacturer rebates.

Directors said the used car market was very competitive, with two large used car supermarkets opened recently near the group’s site in Paisley.

Phoenix increased digital marketing spend in response.

Used car volumes fell 7.5 per cent. However, profit margins increased to £1,093 from £1037.

Service revenue fell by one per cent annually but profit margins increased to 63 per cent from 62 per cent.

Overheads fell by £900,000 as the company felt the full benefit of cost reduction measures introduced in 2015.

The average monthly number of employees fell to 308 from 325.

Directors said the group had made significant investment in staff training. It restructured sales employees’ remuneration to move from the traditional low basic high commission model to help attract quality staff and to provide a more secure basic level of earnings.

In July last year the group increased the basic wage by 50 per cent and reduced contracted hours by eight weekly. It increased commissions on sales of extended warranties and service plans.

Total directors’ remuneration at The Phoenix Car Company fell to £439,384 in the latest year from £549,176 in the preceding period.

The highest paid director earned total emoluments of £125,454, down from £180,009.

The accounts cover a period during which car dealers had to grapple with the challenges posed by a drop in consumer confidence and pressure on wages resulting from increased inflation.

The uncertainty triggered by the Brexit vote last summer may have made some businesses reluctant to invest.

Sales of new cars have fallen in the UK for seven months running according to the Society of Motor Manufacturers and Traders.

On Monday the trade body said just over 158,000 new cars were registered in October, down 12.2 per cent on the same month last year.

It blamed the fall on a drop in confidence among consumers and businesses. The challenges faced by traders were compounded by confusion regarding Government policy about diesel.

The Government recently announced plans to ban the sale of all conventional diesel and petrol cars by 2040 in a bid to meet European Union limits on harmful nitrogen dioxide pollution.

It is considering introducing a new tax on diesel vehicles.

Last month People’s Ford owner Brian Gilda warned Philip Hammond “not to tie the industry’s hands” by announcing unrealistic emission targets or penalising motorists with increased taxes.

He said then: “Selling cars is easy. It’s making money that’s difficult.”

His company saw profits fall ten per cent to £6.3m profits in spite of achieving record turnover of £277m in 2016.

The Bank of England has expressed concern about the amount of finance that has been made available for consumers in the UK to acquire cars. In August agents of the bank highlighted the scale of the credit risk assumed by manufacturers and finance houses.