AutoNation's Falling Profits Bad News For Big 3 Automakers

Includes: AN, DDAIF, F, GM
by: Jonathan Liss

Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:

Unsold cars rile mega-dealer [Detroit Free Press]

Summary: On the brink of a World Series loss, Motown woke up to another piece of devastating news this morning: mega auto dealer AutoNation will be ordering 30% less vehicles in the fourth quarter from the Big Three auto manufacturers. Owner of 333 dealerships nationwide (186 of which are for Big Three vehicles), Auto Nation is an important determinant of how many cars Detroit can produce. AutoNation blamed the Big Three and the way they "under-report inventory" for its poor performance during the recent quarter. The Big Three have defended the way they report inventories as "accurate." None-the-less, all three have announced cutbacks in production for the upcoming quarter due to an undeniable inventory glut. For the quarter, Auto Nation said net income fell 30% to $85 million, or 40 cents a share, from $121 million, or 45 cents a share, a year earlier. It also reported that higher interest rates increased the cost of carrying extra inventory - most of it from the Detroit auto makers - by $14 million. Revenue fell 2.2% to $4.96 billion; shares finished down 0.62% in composite trading on the earnings news.
Related links: AutoNation Q3 2006 Earnings Conference Call [Audio] • Autonation: Detroit Needs To Get Real • TXU, NewsCorp, AutoNation Top List of Hedge Fund Pullouts in 2Q'06 • AutoNation Profit Falls as New Car Sales Dip [MarketWatch] • AutoNation to Slash Detroit Orders [WSJ]
Potentially impacted stocks and ETFs: Auto Nation (NYSE:AN), Ford (NYSE:F), General Motors (NYSE:GM), DaimlerChrysler (DCX), United Auto Group (NYSEARCA:UAG)

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