REG Vardy shares went into reverse gear yesterday, despite the company reporting it was on track to meet market expectations.

The group, based in Sunderland, saw its shares fall 4p to 564p as the City showed its concern about the state of the car dealership sector.

The industry is expected to see a period of consolidation as rival groups fight it out for a greater share of the market.

Anthony Grezo, analyst at stockbrokers USB Laing and Cruickshank Ltd, in Newcastle, expects Vardy to be on the acquisition trail.

"I think Vardy will be a buyer rather than a target," he said.

"The smaller franchises keep being gobbled up, making this a very interesting sector."

Vardy said that favourable conditions for selling new and used vehicles was driving growth.

It has enjoyed improved profitability in all sectors of its business since January, except in sales of specialist new vehicles. Competition had forced it to cut margins on prestige marques, including Jaguar and Aston Martin.

Positive trading had continued at its contract hire section that leases cars to companies on 36-month deals, with several new additions to its fleet.

The company had also made gains on selling older vehicles from its hire car division, taking advantage of stronger prices for used cars in the period.

"Due to a strong trading performance, the group expects pre-tax profits to be in line with market expectations," the company reported.

Analysts are forecasting annual profits of up to £41m, compared with £38.8m a year ago, which included gains on a number of property sales.

Reg Vardy operates dealerships from Aberdeen to Reading, and sells most major brands, including BMW, Land Rover and Mercedes Benz.

The group has 90 sites across the UK and said it was on track to meet its target of 100 dealerships.

Showrooms opened at Stockton, Redditch, East Kilbride and Motherwell during the year and were performing in line with expectations.

The company has benefited from robust consumer confidence since the beginning of last year.