Penske Automotive Group Inc. posted a fourth-quarter net loss today of $510 million, the dealership group's first quarterly net loss since 1998.
Most of the loss stemmed from one-time charges and adjustments. But excluding those, the second-largest U.S. auto retailer still lost $2.0 million from continuing operations. In the fourth quarter of 2007, the company earned $29.4 million.
Penske, which has 156 franchises in the United States and 148 outside the country, said new-vehicle sales fell 30.3 percent last quarter to 31,387 units. Fourth-quarter U.S. light-vehicle sales dropped 34.7 percent amid demand levels not seen since 1982.
Penske said its annual new-vehicle sales slipped 11.1 percent from 2007 to 171,872 units, compared with an 18 percent U.S sales decline industrywide.
The fourth quarter was one of the most challenging periods on record, CEO Roger Penske said in a statement.
The lack of liquidity in worldwide credit markets and resulting economic effects caused a decrease in consumer confidence, Penske said. New-vehicle sales in the fourth quarter dropped 27 percent in the United Kingdom, where Penske Automotive owns most of its international dealerships, he said.
Shares decline 17.8%
The company's shares closed today at $5.97 a share, down $1.29 or 17.8 percent, on the New York Stock Exchange.
The group, which ranks No. 2 on the Automotive News list of top 125 U.S. dealership groups, lost $411.9 million in 2008, compared with a profit of $127.7 million in 2007.
The dealership group is compliant with all its debt covenants and has about $330 million in cash and long-term credit agreements, the CEO said. The company reduced worldwide employment 10 percent in 2008, and accelerated cost-cutting actions will result in annual savings of $100 million.
But the company, which is based in suburban Detroit, said it could not project earnings for 2009 because of volatility in auto and credit markets.
Fourth-quarter results included $502.4 million in after-tax charges related to asset impairment, dealership consolidation and work force severance costs. Revenue in the quarter fell to $2.2 billion, from $3 billion a year earlier. Annual revenue dropped to $11.65 billion, from $12.79 billion in 2007.
Product mix remains the same
The size of the asset-impairment charges was surprising, considering Penske's brand mix, said Wachovia analyst Rich Kwas in a note to investors. In 2008, Penske maintained its mix of two-thirds premium, 30 percent foreign and 5 percent domestic brands.
Penske's product mix heavy in import and luxury brands had propped up earnings in the past. But sales have slumped even for brands once thought to be recession-proof.
As part of its cuts, Penske also stopped matching employees' 401k contributions, Roger Penske told analysts. The group also lowered capital expenditures 70 percent. It divested dealerships with combined annual revenues of $400 million.
If the group need to cut more, the savings could come from combining back-office functions for dealerships in common markets; consolidating brands into one location per market where possible; and reducing inventory. The company is monitoring salesforce productivity.
"We know what an average salesperson should sell and if the market stays at this level, more human capital could come out," Roger Penske said.
Meantime, the company intends to beef up parts and service business, which has held its own in the company's most challenging quarter. Roger Penske said the shops will promote vehicle safety inspections to find additional repair needs. The company also will promote service and parts sales using the Internet, a medium Penske is emphasizing as it cuts back on other forms of advertising.
Roger Penske said he believes dealerships will pick up service business in the depressed economy as mom-and-pop shops go out of business.
Reuters contributed to this report