A MAJOR shake-up in dealership operations at Pendragon helped the contract hire to car sales group fend off losses last year, despite residual values taking their toll. The group, which runs 160 dealerships, is claiming success after weathering the storm of residual value falls in the past year, which saw pre-tax profits tumble by £15.1 million.

Pre-tax profits at the firm were £4.1 million during 2000, down from £19.2 million in 1999, on turnover down from about £1.8 billion to £1.4 billion over the same period. The key to the fall was uncertainty over car pricing, which damaged new car sales, pushed down residual values on used stock and in turn hit profits. Business at the contract hire division, including Pendragon Contracts, was turned on its head, with a £1.9 million profit in 1999 becoming a £1.9 million operating loss last year, all caused by the fall in residual values.

A £1.5 million provision has been included to offset the lower value of the fleet, which stands at 8,993 cars, compared to 10,820 at the end of 1999. Buying back vehicles provided to disabled drivers through Motability Finance also cost Pendragon heavily, with a £2.5 million provision for losses.

A total of 44 businesses were sold during last year, including all Fiat, Peugeot, Nissan, Volkswagen and Audi dealerships. However, the firm also carried out aggressive expansion, including the acquisition of 32 franchised dealerships and four bodyshops from Lex Service £82.5 million. A joint venture with Ford to run dealerships from Pendragon's acquisition of Evans Halshaw is being examined after both sides lost £4 million on the venture last year.

One of the group's year 2000 highlights was Car Fleet Control, the specialist in software for vehicle-related systems. This outperformed its operating profits of £1.2 million from 1999 to achieve £1.7 million profit last year. The cost of Pendragon's internet venture, tins.co.uk, was £1.1 million compared to £100,000 in 1999. It is now investing in a joint car retailing venture with Microsoft, called Carview.co.uk, which will launch in March.