Unfortunately for its long-suffering shareholders, the Automotive Holdings Group Ltd (ASX: AHG) share price has crashed lower on Friday morning.
In morning trade the automotive retail and logistics group's shares have plunged 12% lower to $1.57.
This means that the company's shares have now lost almost 55% of their value over the last 12 months.
Why is the Automotive Holdings share price crashing lower?
This morning the struggling company announced that it expects to recognise a non‐cash impairment of approximately $226 million in its half year results which will be released next Friday.
Management advised that the impairment charges relate to the company's Franchised Automotive business and its Refrigerated Logistics business and reflect a more conservative view of its balance sheet given current market conditions.
The $147 million write‐down in the Franchised Automotive business follows a review focused on the carrying value of its automotive retail franchises, goodwill and intangibles. While the charge was made largely to reflect the soft market conditions across the automotive retail sector, it also relates to some underperforming brands and locations.
The Refrigerated Logistics business will recognise a $79 million non‐cash impairment charge.
The company's managing director, John McConnell, explained: "The combined effects of regulatory changes to automotive finance and insurance, the negative wealth sentiment in property prices, particularly in Sydney and Melbourne, and the increased and wider tightening of lending practices have all affected the automotive sector."
Before adding: "A number of acquisitions and investment decisions made in the last decade reflected where the market was at the time. In the current market a number of these investments are not delivering the earnings required to support the carrying value. We are writing these investments back to market and focusing on getting the dealership business match‐fit for when the market cycle inevitably turns."
Should you buy the dip?
As Mr McConnell says above, the market cycle will inevitably turn and make Automotive Holdings, AP Eagers Ltd (ASX: APE), and Carsales.Com Ltd (ASX: CAR) great investment options.
However, I'm not convinced that this will be in the near term, so I would suggest investors hold back from making an investment today and wait for signs that trading conditions have improved before acting.
