Whether 2008 will see a downturn in the UK economy is hard to say, but the media is doing a brilliant job of talking up a recession. With 30% of motor trade employees under 30 years old, and a further 50% between 30 and 50 years old, there are probably not too many in the business old enough to remember the last severe recession in the early 90's. The lessons learned back then are surely applicable today - don't put all your eggs in one basket and act quickly to cut back overheads at the first sign of trouble.

The severity of the fall in new car sales was the most surprising aspect of the recession of the early 90's with new car sales plummeting almost overnight. The result was a fall of over 400,000 in the annual new car market between 1990 and 1991, and it was 1996 before the market recovered. Partly because of this, almost one-fifth of franchised dealership sites disappeared in the six years from 1990 to 1996 - an attrition rate nearly twice as high as subsequent years.

We say “partly” because the damaging fall in new car sales (and used car sales) was, for franchised dealers, followed by a 'black hole' in aftersales. This was caused by falling new car sales knocking on to a decline in the four-year car parc - the traditional customer base for dealer aftersales. And with motorists seeking cheaper ways of getting their cars serviced and repaired during the recession, franchised dealers lost over ten per cent of the service and repair market to the independent sector. The body repair market was hit too as many motorists moved from fully comprehensive to third party insurance.

Today the retail motor industry could be in better shape than in the early 90's. The number of retail sites - franchised dealers, independent garages, bodyshops, etc - has fallen considerably since the early 90's, and this has benefited those which remain. Thinking about franchised dealers, the average dealer now sells one-third more new and used cars compared to 1996 with only 15% more staff. And while dealers have exited body repairs in great numbers, service and parts operations are reaching owners of older cars thanks mainly to three-year warranties.

The only question mark for dealers is the heavy reliance of new car sales on fleet and business users, which could be much higher than the SMMT data indicate; dealerships which endured in the recession of the early 90's were those with a spread of revenue streams.

Another difference between the early 90's and now is the domination of dealer groups with 70% of franchised dealers now in groups compared to just over 50% in 1996. Of course this is no guarantee of financial robustness in the face of recession, as recent group failures have demonstrated, but it could mean better financial controls and the ability to cut back quickly if and when problems arise.

(This first appeared in Chris Oakham's April 2008 column in Auto Retail Bulletin. For a FREE trial copy of Auto Retail Bulletin go to www.auto-retail.com or e-mail: francis@auto-retail.com.)