AutoNation swings to $1.41 billion 3Q loss

AutoNation Inc. said Thursday it swung to a $1.41 billion loss in the third quarter, with customers finding it increasingly difficult to get a car loan and the overall economy heading south.

Fort Lauderdale, Fla.-based AutoNation, the nation's largest automotive retailer, said it lost $1.41 billion, or $7.99 per share, compared with a profit of $72.1 million, or 37 cents per share, a year ago. It recorded non-cash charges for goodwill and franchise impairments of $1.46 billion after-tax.

Revenue fell 21 percent to $3.5 billion from $4.5 billion in the year-ago period.

Analysts polled by Thomson Reuters, on average, expected earnings of 29 cents per share on revenue of $3.88 billion. Those estimates typically exclude charges.

Shares fell 32 cents, or 5.8 percent, to $5.77 Thursday. The stock has traded between $3.97 and $19.59 over the last 52 weeks.

The company said the tough vehicle market and the drop in its share price led to the charges. Excluding those items, AutoNation said it earned $44 million, or 25 cents per share.

Results for the quarter were "negatively impacted by the credit crisis that escalated in September into a full blown credit panic," Chief Executive Mike Jackson said in a news release.

"This created a credit freeze that broke consumer confidence and, along with a continued housing depression, accelerated the decline in the U.S. economy and auto retail market," Jackson said. "We expect the rest of 2008 will continue to be challenging."

Jackson, attempting to quell investor concerns, said AutoNation remains in compliance with all of its financial covenants, and said the company has reduced debt by $589 million so far this year and is planning a further reduction of $500 million.

AutoNation also said it fared better than its peers. Industry wide new vehicle sales fell about 31 percent, while AutoNation's dropped 24 percent, according to data compiled by CNW Research that was cited by AutoNation.

Slowdowns in industry sales have hit automakers hard, forcing jobs cuts and other reductions in hopes of surving the dramatic downturn. Leading automakers say some sort of government funding is necessary to bail out the troubled industry.

AutoNation divided its business into three operating segments - domestic, import and premium luxury - because of changes it saw in the market.

Domestic refers to stores that sell vehicles manufactured by General Motors, Ford, and Chrysler; import, stores that sell vehicles manufactured primarily by Toyota, Honda and Nissan; and premium luxury, comprised of stores that sell vehicles manufactured primarily by Mercedes, BMW and Lexus.

For the quarter, the company said domestic segment income was $23 million compared with $54 million in the year-ago period, with a 36 percent decline in new vehicle sales. Imports declined to $53 million, from $69 million last year, with an 18 percent drop in new vehicle sales. Premium luxury income was $43 million compared with $56 million a year ago, with a 14 percent slip in new vehicle sales.

In a conference call with investors, Goldman Sachs analyst Matthew Fassler asked how higher-priced luxury cars may rebound compared to more moderately priced vehicles.

"We're in a very extraordinary period where you have this most unfortunate combination of a cyclical downturn all of the sudden combined with a credit crisis," Jackson said. "That is a very toxic combination that no segement will be immune from."

AutoNation said it is on-track to meet its planned cost reductions of $100 million a year previously announced in Septmeber. The plan included cutting jobs and selling underperforming stores. It also planned to reduce advertising spending, cut capital expenditures and reduce its vehicle inventory, which is down 6,600 units since the beginning of the year.

Billionaire investor and Sears Holdings Corp. Chairman Edward S. Lampert is AutoZone's largest shareholder with about a 40 percent stake. Lampert stepped down from AutoNation's board in May 2007 to devote more time to his firm ESL Investments and Sears.

Lampert has steadily increased his stake in AutoNation as its shares have plunged on slow vehicle sales and macroeconomic worries.

But recent, major investments by the storied hedge-fund manager, including Sears and AutoNation, have been hard-hit as of late. A spokesman for ESL Investments did not return a message seeking comment.

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On the Net:

AutoNation: http://www.autonation.com