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Pendragon hit by new regulation proposal looming over motor retail sector

Broker Liberum said the proposal does not come as a surprise since the sector has been under scrutiny

Lookers PLC - Lookers hit by new regulation proposal looming over motor retail sector
The UK Financial Conduct Authority has proposed to ban certain commission models

Pendragon PLC (LON:PDG) was the biggest casualty in the motor retail sector on Tuesday following a proposal to tighten motor financing regulations.

The car dealer’s shares fell by 2% to 11.70p on Tuesday morning, though peers Lookers PLC (LON:LOOK) and Vertu Motors PLC (LON:VTU) fared slightly better with dips to 54.5p and 35.3p, respectively.

READ: Marshall Motors hikes dividend as it maintains guidance despite tough car market

The UK Financial Conduct Authority (FCA) has proposed a ban on car dealers receiving a commission linked to the interest rates on loans taken out to buy vehicles.

The new crackdown potentially saves British car buyers £165mln a year.

Earlier this year the FCA said the sector has been booming on the back of loans such as the personal contract purchase (PCP) – when the customer pays small monthly instalments but at the end of an agreed period has to pay a “balloon” sum get ownership of the car or return it to the dealer.

Liberum said the proposal does not come as a surprise since the sector has been under scrutiny.

“Most of the larger groups no longer use the models that were originally highlighted, but there may still be some products where changes are required,” the broker added in a note.

It is another blow for the UK motor industry during an already difficult year, as the new car market declined 2.5% in the first nine months of 2019.

Quick facts: Lookers PLC

Price: 49 GBX

LSE:LOOK
Market: LSE
Market Cap: £190.73 m
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