Cost Cutting, 'Clunkers' Help Auto Retailers Avoid Losses
By Sharon Terlep, Of DOW JONES NEWSWIRES
DETROIT -(Dow Jones)- Two of the nation's largest auto-dealer networks
delivered third-quarter profits on Tuesday as deep cost cutting and debt
restructuring helped offset weak sales.
Better-than-expected financial results by Group 1 Auto Inc. (GPI) and Sonic
Automotive Inc. (SAH) come as auto manufacturers and individual car dealers
struggle with the worst sales environment since World War II.
Auto Nation Inc. (AN), the nation's largest dealer chain, reports earnings
results on Thursday. The company, which was profitable in the second quarter, is
expected by analysts to again make money. A profitable quarter also is
anticipated from Penske Automotive Group, Inc. (PAG), which reports Friday.
Dealership chains are racing to slash costs, reduce inventory and restructure
debt. Unlike auto manufacturers, retailers have the advantage of used-vehicle
sales and profitable parts and service departments, which continue to perform
when the new vehicle market slumps.
Group 1 reported third-quarter earnings of $18.3 million, compared with a
prior-year loss of $21.8 million. Sonic reported a $15.6 million profit compared
to a $27 million year-ago loss.
Both companies also benefited from the federal government's "Cash for
Clunkers" program and from tax gains that compared favorably from a year ago. "
We're starting to run a much leaner operation," said Group 1 Chief Executive
Earl Hesterberg. "With the cost reductions, any sales increase has an immediate
and noticeable benefit."
Group 1, the nation's fourth-largest retailer by revenue, saw revenue fall 13%
from a year ago.
The loss was offset by cost reductions - $113 million fewer expenses from the
year-ago quarter - and debt restructuring that reduced non-floorplan debt by $
112 million. The retailer sold 4,874 under the Clunkers program, which offered
buyers cash to trade in old vehicles for newer, more fuel-efficient ones.
Sonic, meantime, avoided losses despite a 6% decline in sales revenue driven
by a 12% decline in new vehicle sales. The retailer cut said it remains on track
to reducing fixed costs by $85 million and overall annual expenditures by $135
million.
Executives at both Sonic and Group 1 said they expect to see some recovery of
the U.S. auto market but likely not until 2010. U.S. auto sales tumbled 23% in
September from a year ago and are down 27% year-to-date.
Auto makers are scheduled to release October sales results on Nov. 3.
Auto-retailer shares were down in recent trading. Group 1 slid 11% to $29.43,
Sonic was down 14% to $10.71. Auto Nation slid 5% to $18.97 and Penske was down
8% to $16.64.
-By Sharon Terlep, Dow Jones Newswires; 248-204-5532; sharon.terlep@
dowjones.com.
(END) Dow Jones Newswires
10-27-091430ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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