Reg Vardy blames the decline in its operating margins on the impact of interest rate rises on retail confidence, which is leading buyers to delay their next purchase.

“We hope the first quarter of 2005 will see increased business as interest rates have settled down considerably,” says Robert Forrester, Reg Vardy finance director.

Interim results published recently for the six months to October 31 show a drop in operating margins before goodwill and exceptional items to 2.38% from 2.67% year on year.

Half-year pre-tax profits before goodwill and exceptional items also fell to £17.6m against £19.1m in the corresponding period last year. However, turn-over increased to £849.6m from £794.6m.

This month the Sunderland-based dealer group has taken a step closer to its target of operating 100 dealerships by the end of its financial year on April 30 with the acquisition of an MG Rover dealership from Priory Motor Group.

That outlet, in Newcastle, becomes Vardy’s 96th site and its fifth location representing the British carmaker. The group is now expected to target the East and West Midlands and the South for further expansion as the board admits it is “under-represented” in these regions.

“The proven growth strategy has been one of acquiring, for little to no goodwill, asset backed, under-performing dealerships, which are turned round using the proven Reg Vardy model,” says chief executive Sir Peter Vardy.

Around a third of Vardy’s dealerships fit this genre, and the company predicts strong returns in the short to medium term when the outlets begin to achieve margins similar to the core business.

Forrester believes the group’s results will be supported by investment in its ancillary businesses, such as contract hire and sub-prime finance.

Vardy is also predicting growing interest in short-term personal leasing and is planning to tap into this area.