The automotive retail sector is being reshaped on multiple fronts at once: regulatory pressure from the zero-emission vehicle (ZEV) mandate, the knock-on effect that has on manufacturer pricing and dealership margins and the rapid advance of Chinese brands.
For Vertu Motors chief executive Robert Forrester the task is less about trying to predict every twist in policy and more about controlling what can be controlled: to run the business as efficiently as he can, sell more vehicles across a wider spread of price points, keep capital disciplined and stay ready to move when the acquisition cycle turns.
At the heart of his outlook is a view that the current ZEV mandate framework is distorting the market and shrinking the overall profit pool.
“The biggest issue facing both manufacturers and retailers is the ZEV mandate,” he told AM at the dealer group’s latest trading update.
“For cars it’s extremely difficult, and for vans it is particularly challenging.”
ZEV mandate pressure reshaping retail
The practical problem, Forrester argues, is that demand and supply have been pushed out of alignment by regulation. “We’re in some sort of capitalist destruction process,” he says. “Demand and supply is out of kilter due to government regulation, and that is putting pressure on everybody.”
The distortion is most visible in pricing. In order to hit battery electric targets, manufacturers have leaned on discounting that depresses the profitability of the new car channel for everyone involved.
And in vans, he sees an additional headwind emerging that could slow adoption further: major funders are become increasingly wary of holding too many battery-electric vehicles – particularly vans – on their balance sheets. If funders pull back, he believes, it will slam the brake on electric van adoption.
Forrester’s expectation is that politics will eventually catch up with reality. “The government will change the targets and reduce them,” he predicts, arguing the UK will align itself more with the European Union, and get back to the policy based on “reality rather than delusion.”
If the cadence is eased, he says, the immediate benefit would be felt first by manufacturers – through healthier ICE profitability and less forced EV discounting – and then by retailers through an improved profit pool.
Crucially, he is careful to separate criticism of the pace from opposition to electrification itself. Vertu already has meaningful scale in EV stock and expects that to grow.
“It’s not that we won’t sell battery electric vehicles,” he says. “There are really good battery electric vehicles out there now and we will sell more and more battery electric vehicles over the next 10 years. It’s just the pace of change.”
Operational efficiency, AI investment
With policy uncertainty unlikely to disappear overnight, Vertu’s immediate response has been operational: take costs out and push volume. The group has already identified and delivered a £10m cost efficiency programme across around 35 areas ahead of the new financial year. “We’ve reviewed every area of the business,” Forrester says.
The next layer is technology-led, and he expects the biggest gains to come from central functions rather than the front line.
“We’re deploying AI in a number of different areas,” he says, adding that he has “just taken another five AI engineers on”. The broader point is that while some change is possible within dealerships, there remains significant scope to rethink work in back-office and support functions through automation and smarter systems.
Vertu Motors’ new used car strategy
The second lever is growth and here Forrester is clear that it won’t come solely from chasing the same used car sweet spots as everyone else.
From April, Vertu will introduce a used car sales programme aimed at a segment that is often underplayed by franchised retailers: vehicles aged seven to 14 years.
It’s a deliberate attempt to capture more value from cars the group already takes in as part-exchanges but doesn’t always retail.
“We’ve got these cars today,” he says. “It’s just we’re not retailing them.”
The strategy comes with operational rules designed to make it scalable without creating friction in the dealerships. These older cars will be marketed separately because the group has to be clear to set a buyer’s expectations. Many visitors to a franchised dealership expect stock to be prepared to approved used levels.
“We need to segregate them from a marketing perspective, because there are differences in cosmetic standards,” he explains.
And unlike younger used stock that can be moved around to meet demand, Vertu plans to keep these cars local: “We’re not allowing those vehicles to be sold by any other site than the car is actually sat at. So we’ll not be moving cars up and down the country.”
Sourcing, he believes, is straightforward. When asked how Vertu will feed the programme especially with the market anticipating pressure at the younger end of that target age range – due to the Covid and chip-shortage hangover – his answer is simple: “Part exchange. We’ll have no problem sourcing.”
Margin dynamics are also supportive, he argues, even if headline pounds-per-unit are lower. “The percentage margin will be very strong,” he says, “because the sales price is lower.”
Chinese car brands gather momentum
Alongside these internal moves, Vertu is adapting to a shifting brand landscape. Forrester expects the advance of Chinese manufacturers to continue and sees them as impossible to ignore at scale.
“They’ve clearly got an appetite,” he says. “They’ve got a strategy to get representation points, and they’ve got an appetite to sell volume”.
The product proposition, he adds, is strong and increasingly well matched to consumer sentiment. “The cars are excellent,” he says. “With the cost-of-living crisis, people are looking at value and these cars are exceptionally good value in terms of technology.”
He also notes that many Chinese brands aren’t pure-EV plays, with ranges that include hybrids and ICE in some cases.
Vertu’s approach is selective: it will choose the Chinese brands that it thinks will “be there at the end”, hence its choice of heavyweight contenders such as BYD, Geely and the addition of Leapmotor into some Stellantis dealerships later this year.
In aftersales, Vertu is seeing the benefits of a technician recruitment cycle that is finally easing. Two to three years ago the business was missing around 100 technicians; today the shortfall is closer to 45.
Forrester links this, in part, to the reshaping of the dealership landscapebwith a lot of dealerships in the UK having closed and technicians seeking another job which Forrester says was “broadly predictable.”
Even so, he is wary of building excess capacity. “We have to achieve a balance between putting extra capacity in, but at the same time being mindful that electric vehicles might reduce the number of hours we need,” he says.
Rather than chase numbers, Vertu is therefore targeting better utilisation: “I’d much prefer to change the channel mix,” he says, “increase the efficiency of technicians and sell more while keeping the resource level where it is.”
Capital discipline, buybacks
Capital allocation is being handled with similar pragmatism. In the current environment, Forrester sees buybacks as offering compelling value.
“I like share buybacks,” he says, noting the group has bought back more than 20% of the company since 2018. “We can buy our shares back at less than the tangible net asset value and therefore it is a very good use of capital.”
That preference also reflects a pause in appetite for large-scale acquisitions while ZEV-driven pressure continues to weigh on the new car channel: “Acquisition activity,” he says, “will be relatively muted while we have the mandate on an escalator putting pressure on new car profitability.”
Property, meanwhile, remains a source of flexibility – both to release cash and to keep the network right-sized. If a freehold site is underperforming and ultimately closed, property disposal can be a meaningful cash generator.
“If you close the dealership and it’s a freehold property, then you’re effectively creating more cash by taking the stock of that dealership and the freehold property and selling it,” he explains.
The decision framework is, in his words, a mathematical exercise: what cash will the site generate over the next five years versus the cost of capital, and how does that compare to alternative uses? That logic also applies to acquisitions – cash generation versus price.
When it comes to industry consolidation, Forrester expects it to keep moving – but with timing dependent on visibility and confidence, suggesting that in the short term groups will continue to be more focused on optimisation rather than transformational deals.
Consolidation is still happening in another form, he notes, with the demise of many smaller dealerships closing, creating a scramble for showrooms, driven by the number of Chinese brands coming in.
Muted near-term M&A prospects
Vertu’s readiness, he argues, comes down to two things: capability and firepower. Two things which Vertu is not short of.
“We need to have the right management capability to run a bigger group,” he says, pointing to the decision to appoint two managing directors in January. Box ticked.
In balance sheet terms, he believes the group has significant room to manoeuvre due to its low gearing and high asset backing. Box ticked.
The opportunities, he says, are already visible. “We tend to see most potential acquisitions in the industry because people normally put us on the buying list.”
He insists though that the discipline is in selection and moving when the economics make sense.
That blend of cost control, broader used car participation, disciplined property management and a measure, strategic approach to acquisitions is how Vertu plans to keep progressing through a market which Forrester describes as being distorted, albeit not without opportunity.
In that context, he argues, delivering expected FY26 results and building to a modest improvement in FY27 would represent a meaningful outcome in itself.
For Vertu, the priority is clear: keep executing the levers within its control while waiting for the policy environment to catch up with market realities.