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S&P puts AutoNation on credit watch

Standard & Poor's has put the nation's top dealership group on credit watch, citing the U.S. economy and falling auto sales.

AutoNation Inc., of Fort Lauderdale, Fla., has a BBB- investment grade from S&P, one step above a junk corporate credit rating. The credit watch status, issued on Friday, Sept. 19, in a memo from New York analyst Nancy Messer, reflects "conditions that could pressure already weak credit measures well into 2009."

The memo also cited "increased uncertainty" about the length of the auto industry's struggles and U.S. economic woes.

AutoNation’s corporate credit rating dropped to BBB- in April 2006. S&P changed the company’s outlook last November , from “stable” to “negative,” which indicates a one in three chance S&P will lower the credit rating in the future, Messer said in an interview.

But the decision to put the company on “credit watch” indicates a 50-50 chance S&P will decrease the credit rating after credit rating officials meet with AutoNation executives in the next 90 days to discuss the company’s financial plans.

AutoNation’s leverage and cash flow are weaker this year than in previous years, Messer said.

As of June 30, AutoNation had total balance sheet debt of $1.5 billion, not including floorplan debt, the memo said. In the second quarter of 2008, AutoNation reported the number of new vehicles sold in individual dealerships dropped 12.8 percent from the same quarter in 2007, to 73,545 units.

AutoNation ranks No. 1 on the Automotive News list of top 125 U.S. dealership groups with retail sales of 328,963 new vehicles in 2007.

AutoNation shares closed Friday down 2 cents to $13.32.

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