Should The Big Car Dealers Pay Back Furlough?
In 2020, the world stopped. The government lovingly came to our rescue. They gave businesses, such as car dealers, enough money to ‘furlough’ the workforce and prevent people from losing their jobs. Boris Johnson didn’t create a furlough scheme that discriminated between industries that were badly affected and those that weren’t.
The furlough scheme wasn’t set up as a loan. There is no legal obligation for it to be paid back. For companies that struggled during the height of the pandemic and are now flourishing, that seems absolutely fair. For companies in the small number of industries that flourished in the pandemic, their actions epitomise cold and corporate business.
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Should every firm pay back the money they received?
However, for car dealers, the narrative over the last couple of years has looked a little bit like a roller coaster that only goes up and doesn’t go down, and shows no sign of slowing. During the most volatile times in the 21st century, things are looking peachy in second-hand car showrooms. In fact, second-hand car dealers are having some of their best sales in history by what the Times reports as quite a ‘large margin’.
The increase in profits comes from the absence of new cars due to a semi-conductor shortage. Demand was high because people wanted the ability to travel without going on public transport. Used cars were up close to 30%, with some ‘nearly new’ cars costing as much as new cars.
Britain’s motor dealers experienced record profits through the pandemic, and it doesn’t seem to be stopping any time soon. As a result, commentators are outraged that car dealers haven’t repaid their furlough payments from the treasury. All businesses (including used car dealers) also benefited greatly from business rate relief.
Some big supermarkets returned their rate relief after benefitting from increased demand during the pandemic. Other large companies who claimed on the furlough job protection scheme have given back the funds. So far, no used car dealers have.
The payouts did their job during uncertain times, in 2022, businesses have moved on
Morrisons and Tesco are gave back the savings they made from business rates. Their decision to do so, many will say, is more about PR than morals.
Smaller companies, even those that did well during the height of the pandemic, don’t have the disposable income to write huge cheques back to the government. However much they were given through furlough or grant, or are making post-pandemic, it is reasonable that cash flow would be weakened by having to give back £1000s.
For restaurants, for example, the expectation of paying the money back would be unfair. Life has been tumultuous for restaurants and hospitality owners. They suffered greatly at the expense of several lockdowns but benefitted briefly from the ‘eat out to help out’ scheme. In the end, countless restaurants, bars and pubs have been closed permanently, collateral damage caused by the biggest event experienced in most of our lifetimes.
Some notable figures in other industries did not pay back their furlough payments. JD sports didn’t, their chief executive Peter Cowgill said that the furlough payments had “done what it was intended to do”. He added that it saved jobs and “prevented a large taxpayer burden from unemployment.” Although e-commerce did remarkably well during the pandemic, there’s no doubt that JD’s shops must have suffered. However, most would assume that things evened out profit-wise.
Cowgill has a valid point, the furlough scheme was designed to prevent jobs from being lost, and even though the company itself may have survived (even thrived) without the payouts, they would presumably have had to let in-store sales assistants go. Accepting furlough prevented them from doing that. The unashamedly capitalist outlook of the statement doesn’t sit particularly well with many.
Are companies doing the right thing for the wrong reasons?
Balfour Beatty accepted £19m in furlough job retention grants straight from the taxpayer. Once back on their proverbial feet, they paid the money back in full. Some think Balfour Beatty made the repayment suspiciously near to when they started giving out shareholder dividends and bonuses. Although still a good deed, it’s certainly suspicious.
Giving out bonuses to executives seems strange when you’ve just had to take what is essentially a free bailout from the government. However, we live in uncertain times and it’s impossible to know what is around the corner. Taking the furlough pay may have seemed the right precautionary option at the time. Without a crystal ball business leaders weren’t to know that other than supply chain issues. Other than a brief period in the earliest stages the construction industry was able to carry on operating during the pandemic. Yet, without a crystal ball these business’s leaders weren’t to know that other than supply chain issues they’d be largely unaffected.
Used car companies make record money, forgetting the collateral damage
Soon the motor retail sector will begin reporting its 2021 financial performance. Huge profits will be published, likely to be in the billions.
Second-hand car website Lookers has said it will make record profits of £80 million and took £45 million in a combination of furlough grants and business rate relief. At the time that it was receiving its taxpayer support, it also laid off 1,500 employees. Getting rid of employees while making record profits and receiving government job-retention grants paints a cold, corporate picture.
Stratstone and Evans Halshaw owner Pendragon will also post profits of £80 million, its biggest in history. The story for them is similar to that of Lookers. They took £62 million in furlough payments, but still gave 1,800 employees the bad news at the start of the pandemic.
None of the big motor trade retailers have announced that they intend to pay back any furlough payments or business rates they received, despite sitting on their biggest profits in history, profits that directly benefitted from the pandemic itself. A number have also indicated that they will pay out dividend payments to shareholders in the near future. Meanwhile thousands of their former employees were forced to find a job in one of the most anxiety-inducing times in modern history. Are commentators right to fear that the motor trade industry’s reputation will be negatively impacted in the long term by this hard nosed approach?
