Auto Dealerships Battered, But Better Off than Chrysler and GM
Three of the nation’s largest auto retailers were profitable in the third quarter despite lower new-car sales, but profits were down, and it took a lot of doing for dealerships to make up for lost revenue.
The results illustrate that even though their fates are tied to the auto manufacturers, dealerships can respond much faster to a downturn in sales by cutting costs and dropping unprofitable operations. Unlike Chrysler and General Motors, none of the nation’s biggest retail chains has been forced into bankruptcy.
Unlike the manufacturers, dealerships can also rely on their traditional standbys in hard times — used-car sales plus parts-and-service business.
Another significant difference is that the biggest U.S. retail auto chains over the years have deliberately loaded up on import and luxury dealerships, and relatively speaking avoided buying dealerships representing the U.S. domestic brands.
Like the manufacturers, dealerships also got a third-quarter boost in sales from the U.S. government’s Car Allowance Rebate System, better known as Cash for Clunkers. The program, which ran from late July through most of August, paid consumers an incentive of up to $4,500 to trade for a more fuel-efficient car or truck.
Mike Jackson, chairman and CEO of AutoNation, the nation’s largest retail automotive chain, estimated that Cash for Clunkers boosted AutoNation earnings by about 7 cents per share, or about 19 percent.
“Cash for Clunkers was a highly effective stimulus program that provided a much needed lift in auto sales and has set the stage going forward for a gradual recovery of new vehicle sales,” Jackson said in a written statement.
Even without Cash for Clunkers, Jackson said the outlook for the rest of the year is for “gradual recovery” in auto sales.
AutoNation today reported third-quarter net income of $65 million, down about 52 percent from the year-ago quarter. Also reporting this week were Asbury Automotive Group and Sonic Automotive.
Chart: Sonic Automotive
Jim Henry has been writing about the auto industry from a business perspective for more than 20 years. He is also a member and past president of the New York-based International Motor Press Association.
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