AutoNation Inc. said today that its bottom line took a beating after a 15 percent drop in new-vehicle sales caused second-quarter profits to slip by a third.
The dealership group said it earned $51.8 million in the second quarter, down from $77.3 million from the same quarter in 2007.
Revenue from new-vehicle sales was $2.17 billion in the quarter, down from $2.58 billion in 2007.
Despite the fact that this past quarter was the most challenging automotive sales environment any of us have encountered, AutoNation delivered solid profitability, CEO Mike Jackson said in a statement.
For the first half of 2008, AutoNation reported revenue of $4.37 billion, off 12.6 percent from $5.01 billion for the same period in 2007. Net income was $102.5 million, down from $154.9 million during the same half of 2007.
Sales of cars now account for 58 percent of AutoNations sales, compared with 49 percent from a year ago. The plummeting value of trucks has brought average gross profit per vehicle to about even for cars and trucks, Jackson said in a conference call with analysts.
Decades from now, when I hang up my shoes, I still will never forget this quarter, Jackson said. When $4 gas arrived, the consumer was absolutely shocked.
The company says it saved $25 million in the first half of the year as part of a cost reduction plan that is expected to reduce costs by $100 million a year. For 2008, AutoNation expects to reap $75 million in savings through the plan.
The plan includes cutting $30 million in advertising spending, 1,300 dealership jobs and 5,000 units in new vehicle inventory. It also calls for shedding an unspecified number of stores, primarily those selling domestic franchises.
We expect over time that these domestic franchises will now constitute about 20 percent of our new vehicle revenue, Jackson told analysts in the call.
The company also said it would lower its U.S. new-vehicle sales forecast for the industry to the low 14 million-unit level. The industry should stabilize and recover in 2009, the company says.
Said Jackson: While todays economic uncertainty may compel potential buyers to put off their purchase decisions until a later date, their needs remain. Once consumers begin to sense that their own economic situation has stabilized, they will be ready to commit to purchase big-ticket items, like vehicles.
AutoNation shares climbed 11.1 percent, closing the day at $10.43 per share.
The companys stock price has risen 28 percent since closing at $8.36 a share on Monday, July 21. Microsoft Corp. co-founder Bill Gates and his charitable trust disclosed after the close of trading Monday that they acquired a 5.5 percent stake in the nations largest auto dealership group.
Jackson did not comment Thursday about the acquisition in his conference call with analysts.
AutoNation, of Fort Lauderdale, Fla., has 321 vehicle franchises in 15 states with a range of U.S., Asian and European automobile brands. The group ranks No. 1 on the Automotive News list of the top 100 dealership groups in the United States, with retail sales of 328,963 new vehicles in 2007.