Insolvencies among UK car dealers have doubled this year, according to a new report

Insolvencies among UK car dealers have doubled this year, according to a new report.

Uncertainties will continue for dealerships long after the UK comes out of the recession, said the report accountant Ernst & Young.

Franchised dealership insolvencies this year to the end of August have totalled 24 - compared with just 12 in the January-August 2008 period, the report revealed.

Plummeting car sales, heavy discounting of new vehicles and lower levels of servicing work have all combined to have a "catastrophic effect" on the automotive retail market in the UK, the report said.

Ernst & Young said that conditions would get worse for dealers before they got better. It added that while the success of the Government's car scrappage scheme would help the industry through the worst of the economic crisis, the most promising indicator of a recovery in new car registrations was likely to be a return to gross domestic product (GDP) growth.

Eric Wallbank, UK head of Ernst & Young's automotive team, said: "A cocktail of falling sales and diminishing profit margins has led to unprecedented levels of dealer closures. But the true extent of distress facing dealer groups is being masked by the closure of many loss-making sites which would have not been reflected in the overall insolvency numbers."

Mr Wallbank went on: "Looking back to the early 1990s recession it is clear that there is a strong correlation between new car sales and GDP growth.

"But even if sales do pick up in line with GDP, it is difficult to see new car registrations returning to the record levels of 2.6 million within the next decade. The sales boom in the years leading up to the 'credit crunch' was driven primarily by the availability of cheap credit, and financial institutions will remain far more cautious over lending for some time to come."

He added: "We expect the number of dealer failures and site closures to accelerate into 2010 as the full effects of the current drop in car sales are felt.

"The franchised dealers best placed to weather the storm will be those able to retain a significant proportion of customers' aftermarket spend and those representing growth brands. This is particularly true of dealers offering a strong line of smaller vehicles, which are proving to be increasingly more attractive to changing consumer tastes."