AutoNation Net Loss Tops $1 Billion

(MoneyWatch)  A third auto dealer chain, the nation's largest, reported a third-quarter net loss. Like the others, AutoNation Inc. cited a "toxic" combination of the downturn in U.S. auto sales, the credit crunch, falling consumer confidence, and a big write-down on the value of its Detroit 3 domestic franchises.

AutoNation on Nov. 6 reported a net loss of $1.4 billion in the third quarter, versus net income of $72.1 million in the year-ago quarter. Without the effect of a $1.46 billion charge, net income from continuing operations was $44 million.

Mike Jackson, AutoNation chairman and CEO, said the company now expects U.S. auto sales this year to fall to the low 13-million range, the lowest in 18 years. For 2009, he didn't make his own prediction, but cited "the most conservative industry forecast" of around 12 million units.

In response to the slowdown, Jackson said the company plans to pay down debt and cut expenses by $100 million a year. In a conference call, despite the net loss for the quarter just ended, he insisted the company can still make a profit at even lower volumes of new-car sales. Unlike the auto factories, car dealerships can rely on used cars, plus service and parts business, even when new-vehicle sales are slow.

"This is what we've always planned for, and that's how we're going to manage through it. Ever since I came here (in 1999) we've been talking about managing through a 10-million-unit industry," Jackson said.

Like other publicly traded U.S. dealer chains, AutoNation is less dependent on Detroit 3 franchises than the U.S. auto industry average. Nationwide, the domestic franchises have a market share of 51.3 percent, according to AutoData Corp. Since they can pick and choose franchises, the publicly traded groups have concentrated on the more profitable and growing import and luxury franchises.

For the first nine months of 2008, AutoNation got only about 35 percent of its revenue from domestic franchises, down from 38 percent in the year-ago period, the company said. However, that's a higher proportion of domestic-brand sales than some rival groups, such as Penske Automotive Group, which gets only about 5 percent of its sales from domestic brands, or Group 1 Automotive, at about 18 percent. Group 1 and Sonic Automotive reported net losses late last month.

Also like the other chains, AutoNation, with headquarters in Fort Lauderdale, Fla., is more dependent on Sunbelt markets like Southern California and Florida than the national average. That was good when those markets were booming, but today, not so much.

"Northern California, you're starting to see some stability. Southern California is still in distress," said Mike Maroone, AutoNation president and COO. "Florida is in a lot of distress. I would say it's probably one of the most challenging markets we have today."