Car Dealers Last In, First Out of Recession

(MoneyWatch)  When it comes to recessions, car dealers are a lagging indicator going in and a leading indicator coming out.

That puts big dealerships like AutoNation (AN), Penske Automotive (PAG), Asbury Automotive Group (ABG), Group 1 (GPI), and Sonic Automotive (SAH) in a position to recover from the current downturn faster than the car companies they serve.

AutoNation last week reported a profit of $198 million for 2009, versus a net loss of about $1.2 billion in 2008. Other groups will report earnings in the coming weeks.

It bears repeating that the U.S. car dealer groups have a significantly different business model from auto manufacturers.

As noted in recent posts here, General Motors is successfully charging higher prices for some of its newest models, an achievement it hopes to repeat as it replaces more and more cars. Chrysler and Ford (F) hope to follow the same pattern.

That benefits the dealers, too, but another trend - rising used-car prices - provides a much more direct benefit for the dealers. Retail used-car sales are a big profit center for new-car dealers, but not for the manufacturers themselves.

In addition, the car dealers can simply drop a slow-selling franchise and pick up a hot-selling one, much faster than the car companies can roll out hot-selling new models. Almost all the biggest U.S. auto dealer chains get most of their revenues from luxury and import franchises - around 95 percent for Penske Automotive, for instance.

The retailers can also cut costs much faster than the factories, and survive on used-car sales, parts-and-service business, and on the profits from acting as a middleman in auto loans and leases. The car companies can't survive long without bread-and-butter new-car sales.

In all, the big auto retail chains for the most part weren't hurt as badly as smaller dealers, or as badly as Chrysler and General Motors, which went bankrupt last year.

Mike Jackson, AutoNation chairman and CEO said his company expects U.S. auto sales of about 11.5 million in 2010. That's still low by recent standards, but a decent increase from 10.4 million in 2009.