Shares of Gateshead-based Vertu Motors plc fell more than 20% after it published a trading update for the three months ended November 30, 2023, that revealed its profits for the financial year ending February 29, 2024, will be below current market expectations.

Vertu shares remain about 25% up year to date.

“The period has witnessed a material change in the used vehicle market with UK wholesale values experiencing a significant reduction in October and November,” said Vertu.

“This arose due to higher supply into the wholesale markets, in conjunction with retail demand being affected by the combination of higher interest rates and high vehicle prices impacting affordability.

“At the start of the period, used car values in the UK were approximately 20% higher than in January 2021 and had been resilient since the pandemic.

“CAP have reported that values have fallen on average 4.2% in both October and November, representing record levels of monthly decline.

“There has been greater weakness in higher-end premium product values, which the group started to experience in September. CAP reports that the largest drops of 7% -11% per month arose in the premium brand segment.

“The group adapted to these changing market dynamics, applying its Vertu Insights pricing algorithm to ensure vehicles were priced effectively, to ensure increased stock turn and thus a reduction in group inventory levels.

“Group like-for-like used vehicle volumes fell 2.0% in the period, an improvement on the 5.7% reduction in the first half of the financial year. Gross profit generation from used car sales were, however, below those anticipated.

“The board consider that UK used vehicle values are likely to continue to weaken above historic norms in the near term. Once the current pricing correction has eased, used car prices in the UK will be more affordable to the consumer and margins should stabilise.

“Reducing interest rates in the medium-term would also aid affordability and provide a further stimulus to a market benefitting from increased supply …”

In its outlook, Vertu said: “The current consumer environment remains volatile, and the board remain cautious.

“In the light of the external negative market factors highlighted above, the board anticipate that profits for the financial year ending 29 February 2024 will be below current market expectations.”

Vertu CEO Robert Forrester said: “The current consumer environment remains volatile and recent trends of sluggish new car retail demand and weakness in used car pricing are likely to persist for some months.”