Automotive News - June 30, 2008 - (Page 38)

38 • JUNE 30, 2008 DEALERS NADA exec: ‘It is not a happy time’ continued from Page 1 dealers who make it are the ones who can sell a few used cars.” NADA compiles financial information from 20 Groups for all brands. The report also uses government data and the association’s quarterly survey of 7,000 new-car dealers from around the United States. Paul Taylor, NADA’s chief economist, blames soaring gasoline and diesel prices, slumping real estate, tight credit and model shortages caused by labor disputes. Those factors offset the Federal Reserve’s series of interest rate cuts, he says. “It is not a happy time,” says Taylor. “This is challenging for dealership management.” Darrow, whose dealership group is based in Menomonee Falls, Wis., said there are several reasons that newvehicle profits are down. “The Internet is a big factor, driving grosses down,” he said. “We are also NADA’s Paul Taylor: Dealers are able to offset new-vehicle losses with profits from used vehicles and service and parts. Portrait of a dealership NADA assembled this profile of an average dealership’s finances for the first four months of this year. The figures are based on financial information from 20 Groups for all brands, government data and NADA’s quarterly survey of 7,000 new car dealers. JAN.-APR. 2008 CHANGE VS. JAN.-APR. 2007 Dealers see red The average new-car department was in the red in 2006 and 2007 and is headed for a steeper slide in 2008. 250 Net profit/loss per vehicle in dollars advertising under pressure for volume. Our holding costs have increased on much harder-to-sell vehicles. Profits are down for everybody because of the sudden change in fuel prices. Dealers are stuck with inventory.” Pretax profit declines Still, dealers are able to offset losses in the new-vehicle department with profits from used vehicles and service and parts, Taylor says. Overall, the average franchised dealership earned a net pretax profit of 1.5 percent of sales through April, NADA says. That was down from 1.7 percent for the first four months of 2007. Taylor says service and parts sales are up 8.1 percent through April, and Total revenue Gross profit Expenses Net profit before tax New-vehicle revenue Used-vehicle revenue Service and parts revenue Advertising expense Rent and equivalent Floorplan interest $10.33 million $1.48 million $1.32 million $155,099 $5.83 million $3.08 million $1.44 million $113,128 $122,586 $21,160 –3.7% –1.5% 0.6% –16.4% –5.9% –4.3% 8.1% –4.1% 8.2% –42.3% Source: National Automobile Dealers Association -50 '03 '04 '05 '06 '07 Source: National Automobile Dealers Association floorplanning costs have dropped significantly as interest rates have declined. Dealers are making a profit on used vehicles, but a lot less than last year. Dealers earned an average of $220 per used vehicle, down from $344 in the first four months of 2007. Taylor says the new-vehicle busi- ness could improve in the second half of the year as automakers boost incentives, such as General Motors’ 0 percent financing and Ford Motor Co.’s employee incentives. But some dealers doubt such incentives will stimulate significant volume. “The year 2005 was a phenomenal year, with unprecedented programs from domestic manufacturers, such as employee pricing. But that was a setup for a fall,” says Chuck Kuertz, vice president of sales for the Beaman Automotive Group in Nashville. “It took a lot of people out of the market and pulled a lot of business forward.” c obituary Dave Fleming DOVER, N.J. — Dave Fleming, vice president and general manager of Toyota Motor Sales U.S.A. Inc.’s New York region, died here June 13 at age 49. Fleming was named vice president of sales for the Toyota Division in 2005 before returning to the New York region, where he had previously worked in his 26 years with the company. In 1982, he joined Toyota as an administrative assistant in the Chicago region. He was named to posts in the Portland, Ore., and San Francisco regions before joining the New York region as sales administration manager and assistant general manager. ■ Acura’s family resemblance Despite heavy masking on this 2009 Acura TL prototype, the grille’s shape is clear and shows its close resemblance to the Acura MDX’s grille. The redesigned TL goes on sale this fall, available with frontand all-wheel drive. The largest engine is expected to be a 3.7-liter V-6, up from 3.5 liters. The 3.5-liter V-6 is expected to become the TL’s base engine. BRENDA PRIDDY & CO. CASH Are Detroit 3 ready to weather storm? continued from Page 1 Ford is in better shape — about $29 billion in cash and $11 billion available through credit lines. Moody’s Investor Service says Ford could exceed a two-year total cash burn of $14 billion by the end of 2009. Chrysler, owned by New York private-equity firm Cerberus Capital Management LP, started 2008 with slightly less than $10 billion in cash. On June 18, Bloomberg News reported that Chrysler will burn through $2.5 billion this year and would end the year with $7.7 billion in cash. A Chrysler spokesperson disputed that estimate Friday. “Chrysler has a stronger-thanplanned cash position,” said Chrysler CFO Ron Kolka. CEO Bob Nardelli said Chrysler will hold capital spending at current levels this year. Based on 2006 estimates, that would be $3.7 billion. “Cerberus has a model that is buy, fix and hold,” said Cerberus spokesman Peter Duda. “If someone comes along and offers us a great price, we would, of course, consider it, but we are not under pressure to sell any time soon.” Chrysler last week drew down a $1.5 billion credit line from former owner Daimler AG. The credit line was set up last August when Cerberus bought 80.1 percent of Chrysler from Daimler. Which company is most at risk? Chrysler. Cerberus says the company is meeting financial targets, but Chrysler relies on slow-selling light trucks for about 66 percent of sales. Edmunds.com predicted Chrysler will suffer a 31.2 percent drop in North American unit sales this month compared with June 2007. General Motors CEO Rick Wagoner says GM has enough cash for this year and numerous options after that. GM spokeswoman Renee Rashid-Merem said GM can preserve cash by cutting structural costs, selling noncore assets such as Hummer and retiming or changing production plans. Rashid-Merem said GM could go to the capital markets with a debt or equity offering. But she added that the company has nothing to announce and that GM has untapped lines of credit. In May, Ford CEO Alan Mulally said the company has enough cash to get through the next two years even if industry light-vehicle sales fall below 15.0 million units for both years. Ford has a potential investor in the wings in Kirk Kerkorian. The billionaire has scooped up about 6.5 percent of Ford’s common shares in the past few months. Ford could offer him preferred stock or other equity to raise money in a pinch. Will Chrysler declare bankruptcy? Rumors were so rampant last week that Chrysler was compelled to deny them. “This rumor is false and without any merit whatsoever,” a Chrysler statement said Friday. “It is not reflective of the facts of our financial situation, nor is it a measure we are considering.” Cerberus has deep pockets. But will the private-equity firm put more money in? With its puny stock market value, is GM a takeover target? The stock price fell below $12 a share last week, and its market capitalization is nearing $7 billion. Eight months ago it was over $20 billion. So GM might seem ripe for a hostile takeover. But analysts have said GM’s costly restructuring makes it unattractive. In an interview with The Wall Street Journal last month, GM director George Fisher cited GM’s debt load as a barrier to takeovers. How can GM and Ford leverage their profitable and rapidly growing international operations? Dave Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., says General Motors is exploring an initial public offering to sell a piece of international operations to investors. “Cash is the big problem right now,” Cole said. “They all have to explore anything to generate enough to keep their businesses running.” On Friday, a GM source said the company is not considering that move. A source said Ford has no such plans for its overseas units. What brands can the Detroit 3 sell to raise money? At Chrysler, that would be Jeep. In early 2007, when Chrysler was still part of DaimlerChrysler, Londonbased auto analyst Adam Jonas of Morgan Stanley estimated the Jeep brand could fetch $5.3 billion. But Jonas said those estimates no longer apply: “Obviously, the world has changed too much over the past 18 months. Chrysler is smaller and worth far less.” In a June 10 CNBC interview, Nardelli said Chrysler will not sell Jeep, calling it “a crown jewel” of the company. India’s Mahindra & Mahindra Ltd. was interested in buying Jaguar and Land Rover but lost that race to Tata Motors Ltd. Mahindra, which wants an SUV brand, could be a buyer for Jeep or GM’s Hummer, which GM has said it might sell. Some inside GM would like to sell Saab, but that brand likely has little value. Mark LaNeve, GM’s sales and marketing boss, recently said Hummer is the only brand GM is considering selling. European news media last week reported that Ford was in talks to sell Volvo to a Chinese buyer. But Ford leveraged Volvo to get its $23.4 billion financing package. The company would have to use proceeds of a sale to pay back the obligation tied to the Volvo assets. So a sale price would have to be large enough to justify that payback and still give Ford significant additional cash. c Amy Wilson contributed to this report http://Edmunds.com

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