The nation’s largest publicly traded auto retailers are optimistic U.S. vehicle sales will continue to recover after plummeting double digits since mid-March due to the coronavirus pandemic.
“I’m comfortable sitting here today and declaring the automotive recovery is underway,” AutoNation CEO Mike Jackson said Monday during CNBC’s “Squawk Box.”
AutoNation, the nation’s largest new-vehicle retailer, reported a net loss of $232.3 million for the first quarter earlier in the day. That compares to net income of $92 million during the first three months of 2019. Revenue for the company fell 6.3% to $4.7 billion compared to a year earlier.
AutoNation is the latest dealer group to report Covid-19 devastated earnings and sales. Sonic Automotive, after writing down the value of its franchised dealership business by $268 million, reported a net loss of $199.3 million for the first quarter.
Sonic CEO David Smith told investors during a quarterly earnings call on April 30 that the company has “the financial resources in place to manage these near-term challenges, and to quickly recover when normal commerce resumes, as early as the third quarter of this year.”
Shares of Sonic are down about 29% in 2020. AutoNation’s stock, after increasing roughly 3% Monday, remains down about 19% this year.
Penske Automotive Chairman and CEO Roger Penske, in a statement on April 25, said he was “optimistic about the remainder of the year.” The company reporting an 8% decline in net income to $99.2 million for the first quarter.
Shares of Penske, the country’s second-largest vehicle retailer, are down about 29% this year, while Group 1 and Asbury shares have slid more than 40% in 2020.
Shelter in place
AutoNation’s Jackson as well as other executives have said their operations were hurt by “shelter in place” or “stay at home” orders, which urged consumers to remain in their homes to prevent the spread of coronavirus.
“Shelter in place was not in any of our business plans” Jackson told CNBC. “We had the most rapid decline in business, far exceeding the Great Recession or anything else, where the business collapsed and literally, in a matter of days, we were down 50% on vehicle sales.”
As of Friday, stores that represent about 51% of AutoNation’s revenue were in states that remain under such orders, according to the company. Its largest markets are Florida, Texas and California.
J.D. Power reported last week that 25 states, which represent 43% of 2019 retail sales, were allowing dealerships to remain open. The other half of states, which represent 56% of retail sales, are allowing only online or remote sales.
Saving cash, cutting jobs
The drastic decline in sales forced dealer groups into survival mode. To cut costs, they furloughed or laid off tens of thousands of workers, ceased or reduced capital spending and cut executive pay, amid other actions.
Penske Automotive furloughed approximately 15,000 people, or 57% of its worldwide workforce, and initiated pay cuts for executives. Penske told investors last week that the company believes the actions will save the company at least $8 million or $9 million a month “coming out” of the crisis.
“I think there’s $75 million to $100 million worth of cost saves that we’ll have, as we come out of this which would be on an annualized basis,” Penske said.
AutoNation furloughed 7,000 employees, slashed executive pay and postponed more than $50 million of capital spending. “We had to take action to protect the company to assure that we would be on the other side of the crisis,” Jackson said.
Sonic, in an effort to save $14 million to $15 million a month, reduced its employee headcount by a third through roughly 1,200 terminations and 3,000 furloughs, among other cash-savings moves.
Group 1 furloughed 5,800 employees, including 3,000 in the U.S. It also reduced the compensation of executives and board members and slashed advertising and capital expenditures.
“The personnel actions were especially regrettable, but were unfortunately necessary to preserve capital during this unprecedented economic event,” Group 1 President and CEO Earl Hesterberg told investors during a call last week.
The company, according to Hesterberg, expects to recall about 500 furloughed workers by June, however that will be based on demand.
“We can see some level of pent-up demand especially in service, but it’s not yet possible to quantify what that might be over the course of the coming months,” he said.