As Car Dealerships Disappear, Auto Nation Pulls Through

The automotive retailer Auto Nation (AN), Thursday reported a 2008 third quarter net loss from continuing operations of $1.40 billion or $7.95 per share. In the quarter, the Company recorded non-cash charges for goodwill and franchise impairments of $1.46 billion after-tax. After adjusting for the impairment charges and certain other items disclosed in the attached financial tables, net income from continuing operations for the 2008 third quarter was $44 million or $0.25 per share, compared to $73 million or $0.37 per share in the prior year. (Call Transcript)

Third quarter 2008 revenue totaled $3.5 billion, compared to $4.5 billion in the year-ago period, driven primarily by lower new vehicle sales. In the third quarter, total U.S. industry new vehicle retail sales declined 31%, based on CNW Research data. In comparison, in the third quarter AutoNation's new vehicle unit sales declined 24%.

Here is CEO Mike Jackson on the numbers.

Other recent dealers reports:
Sonic Automotive (SAH), the number three auto retailer which operates only in the United States, posted a loss of $25.3 million, or 57 cents per share during the quarter, compared with a profit of $26.1 million, or 58 cents, a year ago.

The company lost 24 cents per share from continuing operations. Revenue fell nearly 16 percent to $1.78 billion.

Group 1 Automotive (GPI) Chief Executive Earl Hesterberg said on a conference call with analysts that the global financial crisis, which affected consumer confidence, and lenders raising credit standards had hurt showroom traffic in the latest quarter. He said some lenders were turning down loan applications, and higher down payments and interest rates were making other customers reject the financing being offered.

Group 1, the #4 auto retailer operates in the United States and UK. The UK market accounts for 1.7 percent of its new vehicle unit sales.

Group 1 posted a net loss of $20.6 million, or 91 cents per share, compared with earnings of $20.8 million, or 90 cents per share, a year earlier. Income from continuing operations was 42 cents per share, one cent higher than analysts' average expectations.

Now, you have heard (read?) here many times that AutoNation will pick up market share simply by surviving this environment. But, just how many dealerships are going away? Here it is in graphical terms...

The National Automobile Dealers Association estimates 700 new-car dealerships will close this year, up from 430 last year, and taking with them an estimated 37,100 jobs. The country has roughly 20,700 dealerships.

Now, this is a really good earnings report as AN is still the only one in the black operationally. It is as bad as it can get and the company is pulling through it just fine. It is painful... but things will be just fine.

Jackson also refuted rumors swirling last week that the company was in danger of being in violation of debt covenants. He said they have paid down $600 million in debt to date and will do another $500 million next year.

Disclosure: Long AN

Comments

[fcharlie:]

Todd.

AutoNation's share buyback is limited to roughly 50% of income. Does the GAAP loss of $1+ Billion mean they cannot repurchase shares, or is the restriction in regards to operating income and they voluntarily chose not to repurchase any?

2008 Nov 09 11:28 AM

[Billyspeed:]

Auto Nation might be a suvivor but that is hardly an investment recommendation. The business model is clearly broken and nobody can predict the dramatic consequences the bankruptcy of any or all of the (former) Big 3 will have on the dealership count. The number of dealers will continue to contract significantly and Auto Nation will gain share but it's only a temporary gain as the way we buy cars is quickly changing. The notion of a vast lot of cars visited by customers being financed by dealers and manufacturers is a quaint 20th century business model. It will disappear. Bottom line: Most of the dealer groups will be gone along with the business model.

2008 Nov 10 10:38 AM