Pendragon Contracts has said despite difficult trading conditions it will increase its lease fleet this year.

Parent company Pendragon Plc – Britain’s largest car dealer group - made a pre-tax loss of £201m last year.

Pendragon Contracts' operating profits slipped back from £10.3 milion in 2007 to £8.7 million last year, but the business retained its operating margins at just below 22% despite a big fall in revenue from £47.2 million to £39.6 million.

The divison, just many other leasing operations was affected by the decline in used car values late last year.

In 2007, Pendragon’s leasing business, which now concentrates on supplying fleets of up to 1,000 vehicles, had a fleet in excess of 17,600 vehicles.

This fleet is now down to 15,500 vehicles.

However, Pendragon Contracts managing director, Neal Francis told Fleet News that business is improving.

“We are actually doing quite well with new business acquisitions,” he said.

“As a result, I would expect this to rise again, our order bank is very healthy.

"There is business out there to be won and we are picking up new business that makes us confident that we will continue to grow.”

Unlike most other lease companies, Pendragon Contracts has not been encouraging its customers to extend their contracts.

“We have a policy to get people into new cars,” said Francis.

“We have been very active since mid-January getting people into new vehicles.”

As well as helping its dealer parent to shift new cars at a time when sales are at an all-time low, this policy could also reward the lease company.

"When it de-fleets these vehicles in three years time, it is predicted that there will be a significant shortage of such cars in the used car arena as the impact of the current sales slump ripple through.

However, the business has been hit during the recession.

Late last year, the company began reducing its fleet size at possibly the worst period in recent years for off-loading ex-fleet vehicles, with used values plummeting.

“The impact of lower used car values in the latter stages of 2008 significantly reduced our underlying profits from vehicle disposals,” the company’s 2008 preliminary results statement confirmed.

“During 2008, particularly the second half of the year, values of used cars fell dramatically resulting in certain stock suffering an exceptional loss in value compared to its realisable value.

“These conditions have also had a knock-on impact in our contract hire business where the repurchase commitments in respect of vehicles at the end of the contract life have resulted in the need for an impairment provision of £6.3m in respect of the vehicles which are classified in fixed assets.”

Francis said the fleet supply side of the business will be reduced this year as the company cuts the number of vehicles it supplies into competing lease companies and short-term rental providers from some 75,000 in previous years to between just 45 and 50,000 this year.

He said Pendragon will no longer be supplying “low margin or non-profitable” businesses in the future.