Broker Zeus Capital is forecasting “modest levels” of organic growth for dealers in 2016.
It said increased new car sales and stronger margins in aftersales would be offset by rising labour and property costs and pricing pressures on used cars.
Analyst Mike Allen said he expects “further consolidation” amongst the dealers as the operating environment continues to favour larger groups.
“We believe that the market is in a stable mid cycle phase, and expect the new car market to continue to grow through 2016.
“The primary driver behind this remains the volume push from manufacturers aided by a robust UK consumer,” he said.
Allen warned that the used car market will come under pressure as the supply of vehicles up to three years old increases but said a bigger used car parc will be a boost for aftersales.
“We see opportunity for dealers to drive profits through increased volume. The ongoing growth of the UK car parc should continue to support the aftersales market, where we see opportunities to increase group margins,” he said.
“We believe that our assumptions applied across the board are conservative as we pencil in modest levels of organic growth through 2016.
“This reflects our belief that profit growth is likely to slow during 2016 as we also acknowledge cost pressures like rising labour and property costs.
“Balance sheets across the sector are strong and the highly fragmented nature of the market is likely to drive further consolidation,” he said.
