Car dealers hit by sales decline, weak economy
Auto retailers swung to a quarterly loss in the third quarter, beaten down by the decline in U.S. car sales, tight consumer credit, and a weakening U.S. economy as well as hurricane-related damages.
But shares rose sharply on Tuesday for Group 1 Automotive Inc (GPI.N: Quote, Profile, Research, Stock Buzz) and Sonic Automotive Inc (SAH.N: Quote, Profile, Research, Stock Buzz) after they laid out programs to cut costs and conserve cash.
Sonic, the No. 3 U.S. auto retailer, said on Tuesday that it had stopped various planned showroom-related projects, while Group 1 said it would slash capital spending and detailed a cost-cutting plan to save $35 million on an annualized basis.
Also supporting the shares of dealers, and U.S. automakers, was a broad stock market rally as investors snapped up beaten-down shares and bet that credit markets would become more flexible.
Group 1, the No. 4 U.S. retailer by sales, said it suspended its 2008 full-year outlook because of the economic volatility in the United States, but forecast a “substantial” drop in near-term revenue. The company also warned that additional cost-cutting actions may be needed, and lowered its acquisition target for the year.
Group 1 said it began cutting costs this month, including personnel reductions, which are expected to produce annual savings of $21 million, and decreased advertising spending, expected to save $11 million a year.
Factors affecting the economy have driven U one hour loan.S. light-vehicle sales to near 15-year lows.
LENDING STANDARDS TIGHTEN
Group 1 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 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.
Sonic Automotive, 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.
Sonic now estimates it will earn 10 cents to 20 cents per share from continuing operations in the fourth quarter.
Filed under: legal by TheDoor