Welcome to BRR Media. I'm joined by Robert Forrester, who's the CEO of Vertu Motors. Good morning to you, Robert.
Morning, Scott.
Now, Robert, your pre-close trading update came out this morning. It's a complex set of market dynamics at present. Maybe you could talk us through the current used car dynamics in the market and what it means for Vertu.
For sure. I mean, it's quite a lengthy statement this morning, and it's lengthy for a good reason. We want to give our shareholders a complete assessment of the different areas of the business. In December, we obviously alerted the shareholders to the fact that there was a once-in-a-decade event going on, which was quite a considerable decline in used car values quite quickly. And we guided that we thought by the time we got to March, that would have worked its way out, and normality would have come through. Now, it was clearly costly and painful, there's no question about that, but it has actually played out as we expected. So in recent weeks, the supply dynamics and demand dynamics have got back to more normalized.
We've seen from our part an increase in sales, a considerable reduction in stock. So we've actually reduced our stock by around GBP 40 million, which in declining markets is what you need to do, and clearly, that's gone straight into the bank. So we have again guided this morning that our net debt will be considerably lower than market expectations, at around GBP 60 million-GBP 65 million, which I'm sure will please people. Obviously, it reduces future interest payments. So the used car market is now back, I think, to some sense. Our margins have recovered back to more normalized levels. And I think that that has played out as broadly as we expected, actually, and we're back to a sensible used car market. In fact, to be honest with you, values have come down probably 12%, 15%, probably over a six-month period.
Accelerated from October to December, clearly, and actually values are now starting to slightly increase. And actually cars, used cars are now more affordable because they're lower in price, and I think we're now starting to see a movement of customers from new cars into used cars because used cars look far more attractive. So actually, the portents for the used car market are actually looking pretty positive, especially with the advent of, potentially lower interest rates, which will then reduce finance payments. So I think we're, we're pretty happy actually with where used cars have got to. We're certainly happy with our stock levels, and things look fairly set fair.
So you obviously talked about the used cars. Talk us through the current new car market dynamics.
Yeah, I mean, new car markets is very complex, and that's because the government has got involved in the new car market, which I suspect is never an overly positive thing for a market. We are seeing robust demand in the fleet sector, robust demand in Motability, particularly, and a lot of that is driven by battery electric vehicle demand. It's all going through the fleet sector. There are incentives to people to have electric vehicles, salary sacrifice schemes, where you get a car and don't pay any tax. And generally, fleets are wanting to, for ESG reasons, to have battery electric vehicles. So that is growing. The fleet market has rebounded.
It rebounded slower after the pandemic than the retail market, but I think fleet is pretty robust, and we're a big fleet and van retailer in those segments, so that's clearly good news for us. On the retail demand side, I think this is where now the uncertainty and complexity now resides. We have seen demand coming off in the new retail segments. January was down year-over-year. We've actually said in the statement today, our March order take is down compared to this time last year. I think we've got to bear in mind that in the past few years, with supply constraints, we've had large order banks. It's taken months for cars to come, so I guess you could assume that there's definitely an element of that.
There is definitely, I think, an element where customers faced with higher interest rates, faced with lower part exchange values, 'cause obviously used values have come down, faced with, I think, still relatively high prices for new cars, particularly battery electric vehicles, are going, "Mm, now is not the time. I'll have a used car." I just think there is that segment problem, and particularly actually around retail demand for battery electric vehicles, which is very muted. And now we've been saying that for over six months. It hasn't changed. There are no incentives in place for consumers in the retail market to buy an electric vehicle.
Now, bear in mind, the complexity also rises from the government legislation, which is now called VETS, Vehicle Emission Trading Scheme, which brings the old CAFE regulations and the zero emission vehicle rules into play and has absolutely stringent fines for manufacturers if they don't sell the right percentage of battery electric vehicles. Complex bit of legislation, only arises and measured at the end of the year in December, but has all the hallmarks of of uncertainty and volatility around the size of the new car market, and also, as people push battery electric vehicles to avoid GBP 15,000 per unit fines, could impact margins.
We're certainly seeing higher discounting going on in battery electric vehicles, and you could get to the stage where actually the supply of ICE or traditional internal combustion engine vehicles is choked off to try and get to the percentages. So I think there's a lot of uncertainty, actually, and I being a retailer is one thing. I certainly wouldn't want to be a manufacturer at the moment, having to handle that level of complexity.
So moving on to the aftersales business, how's that performed in the period?
I think aftersales has actually performed well. We have continued to reduce the number of vacancies in technicians. We've got more technicians than we've ever had actually in the core business, which is good because there's plenty of demand out there. The customers are clearly, in some cases, keeping their cars longer. If the new market is off, that means there's more older cars out there, clearly. We are not short of work in our service businesses. We have been impacted, and we said this in December, by parts issues, either logistics issues, the manufacturers, or the impact of Russian sanctions, and I still think that's impacting and affecting efficiency, because the car comes in, we identify it, the part's not there. Take it off the ramp, stick it on the roof. So I still think there's a little bit of dislocation in our service businesses of that, and that's probably held us back from where we could have got to. But we're pleased with the overall performance in aftersales. Accident Repair Centers continue to be very good. Smart Repair is strong, and there's plenty of opportunity in aftersales.
Finally, Robert, what is the outlook for the new financial year?
We enter our new financial year in March with our acquisitions all integrated with management stability with a very, very strong balance sheet with net debt very much down. We're a cash generative business. I think the used car market is set for some degree of stability. If anything, now we're moving into it's hard to buy cars. Again, that can switch, as we know, but that's where we are currently. Aftersales, I think we're gonna have a good time. I think we've got good levels of colleague stability and high levels of technicians, and that's good news.
I think our uncertainty is around the new retail market. March is clearly a very, very important month. It's the biggest month for registrations in the U.K. in the new vehicle market, and I think we'll. It'll be interesting to see how these next months play out. I think there's all to play for. The manufacturers will be keen to drive volume. I think there'll be support on the table for consumers to buy new vehicles, and I think by the time we get to our final results in May, we'll know a lot more about the direction of travel in the new retail market.
Well, Robert Forrester, CEO of Vertu Motors, thank you for your time today.
Thank you.