UPDATE: Group 1 To Speed Cost-Cuts, Cut Vehicle Orders
February 19 2009 - 5:18PM
Dow Jones News
Auto retailer Group 1 Automotive Inc. (GPI) said Thursday it
will slash orders for new cars and trucks following a $44.5 million
fourth-quarter loss, a move that bodes poorly for Detroit's
beleaguered auto makers.
General Motors Corp. (GM) and Chrysler LLC are pleading with
dealers to keep ordering new vehicles in hopes of slowing a revenue
slide that's pushed the auto makers to the brink of bankruptcy.
But dealers, many of whom are saddled with costly excess
inventory amid a dramatic sales decline, are pushing back.
"We are stuffed full with probably twice as much as what we
need," Group 1 Chief Executive Officer Earl Hesterberg said
Thursday. "It's not a matter of stretching just a little bit
further. We are so overstocked, it's just not responsible to be
adding."
That's bad news for GM and Chrysler as they scramble to convince
the U.S. government they can survive without continual federal aid.
The auto makers, which received $17.4 billion in federal loans and
are asking for as much as $16.6 billion more, have until March 31
to prove they are on the path to becoming viable. If they fail to
make the case, they could lose the funding they already
received.
Both auto makers have asked their dealers, many of whom are
saddled with costly excess inventory, to keep ordering new cars and
trucks to keep revenue flowing into the companies as they work to
sway government officials.
Hesterberg said Chrysler has held "numerous" meetings with
dealers in recent weeks to push more vehicle orders.
"We're receiving pushback, and Chrysler is clearly more
aggressive than General Motors," he said.
The company plans to reduce inventory by around 20%, or $150
million, in the first quarter, he said.
AutoNation Inc. (AN), the nation's largest retail chain, also
plans to reduce vehicle orders.
The Houston-based retail chain was hit last year by slumping
vehicle demand and charges associated with declining store
values.
"It's no surprise consumer confidence has fallen to historic
lows and consumers are staying out of showrooms," Group 1 Chief
Executive Officer Earl Hesterberg said during a conference call
with analysts. "I can no longer tell you that there is any brand
that is appreciably better than another. It's bad across all
regions and all brands right now."
Consumers, hit by rising unemployment, tight credit availability
and economic turmoil that's draining retirement funds and driving
down home values, are steering clear of vehicle showrooms.
Despite the loss, Group 1's operations were profitable,
excluding charges, and exceeded analysts' expectations for the
previous quarter.
Group 1's loss, of $44.5 million, or $1.96 a share, comes
following a year-ago profit of $5.5 million, or 24 cents a share.
The results include $67 million in noncash charges to write down
lost value of dealership acquisitions and a $21 million gain from a
debt repurchase. The company for the full year lost $31.5 billion
compared to a profit of $68 million in 2007. Revenue fell 8% in
2008 to $5.7 billion.
Not including those items, the company's had operating profits 8
cents a share, compared to 5 cents a share forecast by analysts
polled by Thomson Reuters.
Group 1 plans to cut annual operating expenses by $100 million,
substantially more than the initial plan to cut $35 million.
Reductions will include salary reductions, job cuts and reductions
in advertising. The company will also suspend its dividend.
Group 1 shares closed down 45 cents, or 5.7% at $7.42
Thursday.
-By Sharon Terlep, Dow Jones Newswires; 248-204-5532