Car manufacturers could force Pendragon to jettison some of the CD Bramall franchises due to a grey area under the new block exemption regulations, according to industry sources. Pendragon might also face questions from the Office of Fair Trading, if the OFT believes the acquisition gives the enlarged group anti-competitive market share with any of its manufacturer partners.

The block exemption ruling stating a dealer can sell the franchise together with the dealership is unenforceable, says one senior retail executive, if the purchaser does not already hold that particular franchise. In Pendragon's case, carmakers including Audi, Peugeot, Citroen, Alfa Romeo and Saab could veto any part of the CD Bramall deal involving their outlets as it did not previously have their franchises.

None of the carmakers are willing to speculate on their possible actions, with Audi issuing a “no comment”, citing legal reasons.

Peugeot, meanwhile, told AM that the rules regarding block exemption were not totally clear when it came to deciding who must be allowed to join a franchise. “The only really clear bit is that you can't stop franchise transfers within the existing network,” says a spokesman. “We will judge every application or takeover on its own merit and proceed accordingly.” Pendragon, which will bulk up its representation with Ford (55 outlets), MG Rover (21 outlets) and Vauxhall (24), posted record pre-tax profits for 2003, up 24 per cent on the previous 12 month to £44.3m.

Turnover dipped slightly from £1.88bn to £1.84bn, although like-for-like was up 4%. Basic earning per share rose 40% to 24.5p, prompting Pendragon to propose a final divided of 3.8p, the same as the interim period, making a full-year total of 7.6p compared to 6.88p in 2002.

“Focusing on high quality businesses in prime locations, while developing long-term manufacturer relationships, is enabling us to deliver increasing returns,” says Pendragon chief executive Trevor Finn. He is confident the group will retain all the franchises it wants.