Vertu battles margin squeeze as ZEV Mandate shakes car market

Significant pressure on new and used car margins due to the ongoing impact of the Zero-Emission Vehicle (ZEV) Mandate has forced Vertu Motors to warn that full-year pre-tax profit will be substantially below market expectations.

Despite active cost-reduction measures and despite having outperformed market trends in battery electric vehicle (BEV) sales and like-for-like retail volumes, the group said in a trading update that its lacklustre performance has been hit by record fleet sales which have significantly impacted gross margins.

“The Government’s ZEV Mandate is causing severe disruption to the UK new car market,” said Robert Forrester, chief executive of Vertu Motors. “The consumer environment is subdued, yet our team has delivered significant market share gains in BEVs in the final quarter of the year.”

The group pointed out that heavy manufacturer discounting aimed at stimulating BEV demand, registrations still fell short of the government-mandated 22% target, reaching only 19.6% of total sales.

This shortfall, coupled with an 8.7% decline in private market sales, will place further pressure on new car margins especially since the industry is bracing for further disruption as the ZEV Mandate increases the required proportion of BEV sales to 28% in 2025.

Forrester called for government and industry collaboration to address market distortions, stating, “The UK automotive sector needs urgent support to return to its role as an economic growth driver.”

Used Car Market

Vertu’s used car operations have performed better than new car sales, with year-on-year profitability improvements. However, anticipated gross margin expansion was lower than expected due to subdued consumer confidence and the impact of new car discounting.

“The used car market remains resilient, but the pricing environment is challenging,” noted Forrester. “With manufacturers offering aggressive incentives on new models, particularly BEVs, nearly-new vehicles face stiff competition, affecting our margins.”

Despite these challenges, Vertu said its strategy has helped sustain used vehicle profitability, particularly as wholesale supply constraints have kept trade values stable.

The group said it was also facing cost headwinds from the Autumn Budget, which will add approximately £10 million in labour costs due to increases in National Insurance contributions and the National Minimum Wage.

To fully offset these expenses, Vertu has implemented cost-cutting initiatives, including reducing headcount, technology-driven productivity improvements, closure of most retail operations on Sundays and consolidation of all dealerships under the Vertu brand by April. An exceptional restructuring cost of up to £4 million is expected in FY25 as part of these measures.

Share Buyback Expansion

In response to stock market inefficiencies, the board has also authorised a £12 million capital return through an expanded share buyback programme, marking the company’s largest annual buyback allocation. This follows £4.1 million spent on share repurchases earlier in FY25 and £7.5 million in FY24.

“The Board believes our shares are trading at a material discount to intrinsic value,” Forrester stated. “This expanded buyback programme underscores our confidence in the company’s long-term value and ensures remaining shareholders benefit from increased ownership.”

Since January 2011, Vertu has returned over £94 million to shareholders through dividends and buybacks. The company said its strong balance sheet, with over £320 million in freehold and long leasehold property, will remain central to its financial stability during market turbulence.

Looking ahead, Vertu anticipates further pressure on new car volumes and margins due to the ZEV Mandate, with broader economic uncertainty weighing on consumer confidence. However, the company said it remains committed to navigating these challenges through strategic cost management, operational efficiencies, and capital allocation measures.