The UK's biggest car dealership Pendragon yesterday said the falling price of new cars would leave profits short of expectations.
Shares in the firm tumbled 30 per cent as it warned that full-year operating profits in 2007 would miss market expectations by £12 million.
And it added to the woe by revealing that due to an "uncertain economic outlook" it was slashing its profit forecast for 2008 by £18 million.
Pendragon, which operates the Evans Halshaw and Stratstone brands, said a competitive UK new car market had been driving down prices.
This has boosted new car sales, but has led to falling used car prices which has eaten into the margins on second-hand car sales.
Pendragon, which also lowered profits guidance in June, stressed it had maintained "activity levels in used car sales" although this had not compensated for the loss of used car margins.
The company said: "Used car margins have shown a positive trend over recent months, but this recovery is too late to recoup lost profits from earlier this year.
"Consequently, we expect our operating profits for the group to be behind market expectations by £12 million this year.
"In considering the uncertain economic outlook we are being more cautious on the outlook for next year and have reduced our expectations by £18 million."
The company, which has nearly 400 UK franchises, said its business in North America has also been hit due to the recent forest fires which ripped through California.
Pendragon has nine dealerships in California which, it said, have experienced a drop in business "due to US economic uncertainties and very recently serious bush fires".
Nottinghamshire-based Pendragon confirmed its intention to pay a final dividend of 2p despite the "lower trading performance" as it said it expects borrowings to be in line with market expectations.