Lookers shares hit seven-year low as watchdog probes sales practices

By Justin George Varghese and Shariq Khan

(Reuters) - Shares in Lookers Plc slid to their lowest in over seven years on Tuesday after the car dealership said Britain's financial watchdog is investigating its sales processes over the last three years.

The Financial Conduct Authority (FCA) had been looking into lending practices in the fast-growing car financing sector since 2017 and said in March that some motor dealers were overcharging customers in interest charges in order to obtain bigger commission payouts for themselves.

The company said last year that it had found "some control issues" in its sales practices during an independent review of its internal control and audit processes launched in December, details of which it then shared with the FCA.

The FCA investigation will examine the company's sales processes between January 2016 and June 2019, Lookers said on Tuesday.

"The FCA will reach its conclusions in due course and, at this stage, the company cannot estimate what effect, if any, the outcome of this investigation may have," the company said.

Shares closed down 24% at 53.5 pence, their lowest since February 2012.

"Our understanding is that this is an administration issue rather than a more fundamental problem with the products or pricing," analysts at Peel Hunt said in a note.

"Clearly, there will be no surety of outcome until the FCA has completed its investigation, although administration issues (which we understand are likely to have been corrected) should be less material than more substantive failings," they added.

The investigation comes as the chain, which sells vehicles for 32 manufacturers including Volkswagen, Ford and BMW, is battling higher costs and weak new car sales.

Consumer spending in Britain is faltering amid uncertainty over its move to leave the European Union, which could end free trade with its biggest trading partner. The car industry also faces particular challenges, including declining diesel vehicle sales, stricter regulations and the costs of developing new technologies such as electric and self-driving vehicles.

Peer Pendragon, which operates the Evans Halshaw, Stratstone and Quickco brands, earlier this month warned of a pretax loss this year, blaming weak demand for new and used cars.

British new car registrations dropped 4.6% in May, an industry body said earlier this month.

(Reporting by Shariq Khan and Justin George Varghese in Bengaluru; Editing by Jan Harvey and David Evans)