Surviving Rising Costs in the Motor Trade

A practical guide to protecting profits when stock, finance, and overheads climb

Introduction

The past two years have tested even the strongest motor dealers.

Vehicle purchase prices are higher than ever, finance and stocking costs have jumped, energy and wage bills continue to rise, and customers still expect competitive deals.

Across the UK, both franchised and independent dealerships are asking the same question:

How can we stay profitable when everything around us is getting more expensive?

The answer: take control of what you can manage — your numbers, your cash flow, and your decisions.

This guide from Hammond & Co – Specialist Motor Trade Accountants shows how proactive accounting, forecasting, and smarter financial habits can help you survive — and even thrive — through rising costs.

The Reality on the Forecourt

Dealer reality is familiar:

“Fuel bills up 30%, wages rising, but customers still expect the same deals they got last year. We’re selling cars, but it feels like we’re working twice as hard for half the margin.”

Pressure comes from multiple fronts:

✅ Higher stock prices – auction and wholesale values remain elevated, particularly for low-mileage used cars.
✅ Rising finance costs – floorplan and stocking charges are cutting into margins.
✅ Energy and overheads – heating, lighting, workshop, and valeting costs are up.
✅ Staff and retention costs – pay rises, recruitment, and training expenses.
✅ Insurance, compliance, and software – premiums and subscriptions climbing.

While these costs feel outside your control, better visibility and proactive planning allow you to make smarter, faster decisions — protecting your margins.

Why Margins Are Eroding

Many dealers don’t notice the gradual erosion of profit per vehicle:

🚗 Stock inflation outpaces retail pricing – vehicles cost more, but customers resist higher prices.
💸 Finance interest accumulates silently – slow-moving stock increases floorplan charges.
🧾 Workshop and prep costs rise – labour, materials, and energy climb faster than recon charges.
📉 Fixed overheads spread across fewer sales – small dips in sales reduce margin per unit.

By the time cash flow shows stress, the damage has often already occurred.

Early Actions to Protect Profitability

Forward-thinking dealers act quickly:

1️⃣ Track the real cost per vehicle

Record every expense: purchase price, transport, valeting, MOT, workshop hours, recon parts, advertising.
Compare true cost vs sale price to see genuine margin.

2️⃣ Shorten stock-holding days

Review stock ageing reports regularly.
Discount or re-market slow movers to reduce interest and depreciation costs.

3️⃣ Review finance and stocking arrangements

Ask lenders for rate reviews or flexible terms.
Split stocking lines across providers to balance exposure.

4️⃣ Tighten energy and overhead monitoring

Track lighting, heating, and workshop efficiency.
Monitor monthly costs vs turnover to spot trends early.

5️⃣ Revisit pricing strategy

Small adjustments based on accurate cost data can recover margin without losing competitiveness.

6️⃣ Introduce rolling cash-flow forecasts

Forecast 12 months ahead, including VAT, slower sales months, and finance renewals.
Plan ahead rather than react to shortfalls.

The Role of Specialist Accounting

Accounting shouldn’t just record history — it should guide the future.

A motor trade specialist accountant understands the moving parts of a dealership: stock, finance, warranties, VAT margin rules, and unpredictable cash flow.

Working with Hammond & Co gives you:

✅ Real-time visibility of profit per unit and department
✅ Accurate VAT margin treatment
✅ Forecasting tools showing how rising costs affect the bottom line
✅ Support to restructure costs and plan for seasonal dips

When your accountant speaks your language — floorplans, part exchanges, recon, manufacturer bonuses — you save time and protect profit.

How Forecasting Stabilises Cash Flow

Rising costs make proactive forecasting essential.

A rolling 12-month forecast helps you see ahead:

✅ Predict when cash tightens and act early
✅ Avoid emergency overdrafts or missed payments
✅ Identify strongest months for reinvestment
✅ Understand the true cost of every car, including finance days
✅ Decide whether to expand, hold, or streamline

When your accountant updates forecasts every VAT quarter, you stay in control.

Real-World Example: Maintaining Margins During a Cost Surge

A mid-sized used car dealer in Derbyshire worked with Hammond & Co after energy and stocking costs doubled.

The problem:

Annual turnover: £3m+
Profit per unit down 15%
General accountant reported “healthy” balances, but VAT and cash flow dips were frequent

Our findings:

Floorplan costs buried in general interest expenses
Energy and valeting costs not linked to departments
No analysis of prep costs per unit

Our solution:

Rebuilt management accounts showing profit by department
Created live cash-flow forecasts synced with Xero and Dext
Introduced profit-per-unit dashboard
Quarterly review meetings to track trends

Result: Margin increased by 5% within six months, even with high costs.

Profit Watch Checklist

Review these five numbers monthly:

1️⃣ Gross margin per vehicle – actual margin after recon and finance costs
2️⃣ Average stock-holding days – shorter times reduce interest and depreciation
3️⃣ Total overhead % of turnover – monitor creeping costs
4️⃣ Finance and stocking interest – keep within plan
5️⃣ Cash-flow forecast balance – plan ahead, don’t react

Regular monitoring turns guesswork into control.