Motor dealership Pendragon has crashed with a 51% drop in profit as car prices fall.

Rising interest rates during 2007 had a negative impact on car prices, making life tough for vehicle dealerships. The tough markets are illustrated by Pendragon significant drop in earnings.

Not only did revenue stay flat at £5.1 million, but lower car prices for new vehicles pulled down margins on used car sales. This resulted in annual pre-tax profit dropping to £46.5 million.

Pendragon incurred major restructuring costs last year as it axed small sites and added 19 former Dixons dealerships. The company first highlighted growing competition in the new car market in April of last year.

Chief executive Trevor Finn said: 'We acted early, closing poorly performing sites and, as a result, are better placed to face the challenges in what remains an uncertain market in 2008.'

It responded to the tougher conditions in 2007 by targeting lower price used cars and reducing its exposure to nearly new cars where values were adversely affected by deflationary pressure from lower new car prices.

Shares in the group fell 4% to 33.5p in early trading on Wednesday.