An 'extraordinary' slump in car sales in Hong Kong and Europe has caused a sharp fall in the profits of international distribution group Inchcape. Further evidence of sluggish demand in the territory emerged yesterday with January retail sales reported 13 per cent down to $19.10 billion. Inchcape, which confirmed the immediate resignation of its chief executive, Charles Mackay, said it was embarking on an overhaul of the company, which would leave it focused even more heavily on the region. Profits slumped 36 per cent to GBP146.80 million (about HK$1.74 billion) with cars profits falling 34 per cent to GBP97.40 million and marketing profits diving 24 per cent to GBP50.60 million. After taking into account exceptional losses of GBP129.40 million, profits had crashed 92 per cent to GBP17.40 million, compared with GBP228.4 million. Philip Cushing, former Inchcape managing director, who will replace Mr Mackay, said there were plans to divest testing services and insurance operations this year. This would mean the region's contribution to group turnover was expected to rise considerably from its current 50 per cent. It is also moving the management of the group's marketing team to the region and is searching for local minority partners to buy into group marketing operations. Mr Cushing said: 'It comes from the view that we need to be able to react much faster than we have historically.' Inchcape Pacific, which covers the group's operations in Hong Kong, China, Macau, Taiwan and the Philippines, also saw its pre-tax profits fall, five per cent to $858 million, despite an extraordinary $343 million profit from the sale of its Quarry Bay Crown Motors depot. Stripping out the Quarry Bay sale, profits before tax and interest had slumped 39 per cent to GBP574 million. Mr Cushing said the group's car operations in Hong Kong had suffered from 'the most extraordinary market shrinkage, that we haven't experienced anywhere else'. Last year, the territory's total vehicle market shrank by 31 per cent, with the private car market dropping 35.3 per cent. He expected improvement, as vehicle manufacturers increased product ranges, with 76 new models expected in 1996-97, as well as a better exchange rate environment. Most of Inchcape's vehicle dealership franchises are for Japanese manufacturers, including Toyota and Mazda. The group has suffered through the recent strength of the yen, which has made exports uncompetitive. Mr Cushing said manufacturers were now globalising their processes, which would serve cut production costs and end-prices. He said the group wanted to add other sources of profits to the existing Japanese franchises and sell more vehicle accessories, parts and financial services. The group is building its distribution capability in China, selling consumer products in more than 25 mainland cities and industrial products in 40 cities. Inchcape Nanjing Development, its consumer product marketing joint venture, now distributed Kellogg's cereals and Nivea skin-care products, he said. Divestments of Inchcape's insurance brokerage, Bain Hogg, which is the largest in Britain and Asia, and a de-merger of its testing operations are now planned by the end of the year.