AutoNation Continues to Benefit from Dealership Closures

Apr.13.09 | About: AutoNation Inc (AN)

More good news for AutoNation (NYSE:AN) shareholders.

From the WSJ:

In the first quarter of the year, 271 auto dealers in the U.S. went out of business, according to the National Automobile Dealers Association, as car buyers stayed away from showrooms and credit remained tight.

At the end of the quarter, there were 19,738 auto dealers in the U.S., the dealer group said, down from 20,009 at the end of last year. It said it expects about 1,200 dealers, mostly sellers of domestic brands, to go out of business in 2009, roughly 20% more than last year.

Many dealers closed as their lenders tightened terms and costs outstripped revenue, while some consolidated stores or closed up shop voluntarily. Light-vehicle sales in the first three months of the year were down 38%, with sales of domestic brands down 46%, compared with declines of 31% for Asian auto makers and 27% for European brands.

General Motors Corp. (NYSE:GM) said 198 of its dealers closed in the first quarter, bringing its total to 6,177 at the end of March.

Chrysler LLC said it shaved dealer numbers by 82 during the first quarter to about 3,218 at the end of March. In the last quarter of 2008, Chrysler, majority-owned by Cerberus Capital Management LP, lost 74 dealers. In its viability plan in February, Chrysler estimated that 27% of its dealers were in financial trouble.

Ford Motor Co. (NYSE:F) declined to provide the number of dealers the company had at the end of March. Last year, 269 dealers of all of Ford's brands closed, bringing the company's total at the end of December to 3,787.

Some brands are expanding their dealer networks even in the current depressed environment. BMW AG's Mini, for instance, plans to open 13 outlets this year.

Already the largest U.S. auto dealer, AutoNation's market share continues to grow as the decimation of the dealer ranks continues. The industry is already at about a 9 million annual unit number now. The longer it holds here, the worse the damage will be for dealers.

It is also an unsustainable number. Most information I see has just the basic replacement number of vehicles that need to be sold each year at 13 million. That means there is tremendous growth down the road for the industry as a whole. That growth will most likely not come from Detroit and AutoNation has been ahead of the curve there as they are well on their way to having Detroit account for about 20% of sales. For those who do not know, AutoNation is the #1 Mercedes dealer in the U.S. and a top BMW dealer.

Will the market growth happen this year? Probably not until the end of it at the earliest. The key point to take away is that it does have to eventually climb back to those levels and when it does, AutoNation is going to be sitting at the table with a much larger share of the pie than it currently does.

Disclosure: Long AN