Group 1 Automotive Inc., laying out steps it's taking to respond to the "dramatic decrease" in business as a result of the coronavirus pandemic, will furlough 3,000 U.S. employees for at least 30 days, slash executive salaries and close stores in the U.K. and Brazil.
The Houston-based retailer is the first of the six publicly traded dealership groups in the U.S. to share details about its response.
Group 1 said that U.S. vehicle sales volumes are down 50 to 70 percent from a typical March and that "[b]ased on discussions with our OEM partners, this sales decline is consistent with that experienced by other dealers." Nearly all of Group 1's U.S. dealerships are located in markets that are affected by shelter-in-place or similar restrictions. The company's service facilities remain open, and no Group 1 store in the U.S. is completely closed.
While sales departments have closed in some U.S. stores, others continue to operate with a "dramatically reduced staff level," the company said. Group 1's Acceleride online sale platform has correspondingly seen increased use.
All of Group 1's stores in Brazil have closed, and the company is in the process of shuttering all locations in the U.K., per government orders.
At the same time, Group 1 is furloughing 3,000 U.S. employees for a 30-day period, with an option for a second 30-day period. About 2,800 employees in the United Kingdom are being furloughed for an initial period of 21 days.
Group 1 also is reducing U.S. marketing expenses by more than 75 percent.
"The sudden impact of this medical and human emergency is clearly disrupting most businesses," CEO Earl Hesterberg said in a statement. "This is requiring us to take many severe and regrettable actions to resize our business to minimal activity levels in the near term. I believe that the swift and decisive actions that we are taking will enable us to recover quickly when the market recovers as it undoubtedly will."
Salaries are being reduced for several corporate positions. Hesterberg's salary is being cut by 50 percent, and U.S. and Brazil operations President Daryl Kenningham's salary is being reduced by 35 percent. According to the company's 2018 proxy statement, the most recent available, Hesterberg's and Kenningham's salaries were $1,150,000 and $624,000 in 2018, respectively, not including additional bonuses, awards and other compensation.
Elsewhere in the group, salaries are being reduced for senior vice presidents by 20 percent, for corporate vice presidents by 15 percent and for other corporate and field support personnel by 10 percent.
Cash payments to all members of the board of directors, including the chairman and committee chairs, have been eliminated, the company said.
Shares in Group 1 rose 3 percent to close at $51.16 on Wednesday. Broader U.S. markets surged more than 5 percent.
AutoNation Inc., the nation’s largest new-vehicle retailer, said it has adjusted hours at stores, shaving off one hour daily. But its dealerships remain open coast to coast and there have been no layoffs, Chief Marketing Officer Marc Cannon said.
Lithia Motors, of Medford, Ore., anticipates sizable executive compensation cuts following sales slowdowns and partial closures at its dealerships.
All of Lithia’s 188 stores are open, though 30 percent are located in states that have temporarily prohibited vehicle sales, deeming them non-essential business activities, according to CEO Bryan DeBoer. The group employs about 14,000 people.
“I don’t think we planned for a recession to occur at this speed. But we expect a strategy to be adjusted accordingly to add density to our net worth,” DeBoer said. “We’re built for this.”
Staff-reduction decisions have already begun, but those decisions are made at the store level, DeBoer said. So far, those cuts land in two categories — employees let go because of staffing and/or performance issues and furloughs based on volume.
Furloughed employees may avail themselves of the Coronavirus Aid, Relief and Economic Security Act or the Families First Coronavirus Response Act, which includes paid sick leave, free testing and expanded unemployment benefits.
Lithia plans to compensate furloughed workers whose incomes exceed the act's $75,000 threshold. Employees earn $60,000 on average per year at Lithia, he said.
“We’re the least leveraged in the sector by far. We just renewed our credit lines at the banks for five years,” DeBoer said. “Growth is coming, but it will come in the second half of the year.”
Last week, Sonic Automotive Inc. CEO David Smith told Bloomberg that the nation’s fifth-largest new-vehicle retailer had to lay off “a whole bunch of people in northern California in our sales departments” and that the company would “have to reduce staff, without a doubt nationwide, if only temporarily.”
It was unclear Thursday how many of Sonic’s 95 franchised and EchoPark used-vehicle only stores nationally, including nearly two dozen in California, were impacted by the coronavirus outbreak.
California Gov. Gavin Newsom’s stay-at-home order is allowing service departments to remain open, but sales are not part of the order. The California New Car Dealers Association has recommended that its 1,400 members not operate physical showrooms during the indefinite shutdown.
Smith, when asked whether its showrooms were shut in California, told Automotive News on Thursday that the situation is fluid and state, local and federal orders are rapidly changing.
“The playing field changes all the time; I can tell you one answer today and that could literally change tomorrow,” Smith said. “It could change later today.”
Smith said Thursday that Sonic believes auto retailers are essential businesses and the company is taking numerous steps to ensure its employees and customers are safe from the virus. Sonic also is offering deliveries and pickups for sales and service, Smith said.
Asbury Automotive Group, which backed out of a planned $1 billion acquisition, has declined to comment on virus-related cost-cutting, though it has a closed a Honda store in Frisco, Texas, after a employee tested positive for the coronavirus.
Jackie Charniga and Melissa Burden contributed to this report.