Automotive News - May 5, 2008 - (Page 60)

60 • MAY 5, 2008 Penske earnings rise in 1st quarter DETROIT — Penske Automotive Group offset a downturn in new-vehicles sales with a boost in its used-car business, the dealership group said Tuesday, April 29. Penske reported net income of $33.9 million on revenue of $3.20 billion for the first quarter, compared with net income of $14.6 million on revenue of $3.08 billion for the same quarter last year. The retailer attributed the increase to improvements in its used-vehicle, finance and insurance, and service and parts performance, despite a decline in its U.S. new-vehicle sales. Same store sales fell 2.3 percent. WASHINGTON — General Motors is investing in a small company that says it can make ethanol economically from nonfood plant material. The deal with Mascoma Corp., announced here last week, follows a similar investment by GM in Coskata Inc. a few months ago. Mascoma, of Boston, is building a demonstration plant near Rome, N.Y., that will use paper mill waste as feedstock. The deals come amid growing concern that using corn to make ethanol is contributing to global food shortages and higher prices. DISTRESS continued from Page 1 GM auto revenue tumbles $3.6 billion “We’re in a lot of whitewater in the industry right now,” said Mark Fields, Ford’s president of the Americas. The most alarming news in GM’s big earnings decline, announced last week: a $3.6 billion drop in North American automotive revenue (see story, Page 8). Even Ford Motor’s surprise $100 million first-quarter profit masked a $1.4 billion falloff in North American automotive revenue. “The challenge for the industry is from a revenue standpoint,” said Mark LaNeve, GM’s vice president of vehicle sales, service and marketing. “Revenue has disappeared from the truck market declines, higher commodity prices, meeting CAFE and other regulations. So prices are going to have to come up over time, and I believe we’re already seeing it. We’re seeing similar moves from our competition.” April sales declined 6.8 percent. And for the first time in four years, the industry’s average retail transaction price ($27,238 through April 27) declined compared with the same month a year earlier. Asia, Europe brands suffer The doldrums are throwing turnarounds off track and undercutting even Asian and European brands that had been cruising. Toyota Motor Sales said it suffered a fifth straight monthly sales decline when compared with the same number of selling days as April 2007. When April 2008’s two extra selling days are counted, Toyota sales were up 3.4 percent. April marked the first year-to-year monthly sales decline for the redesigned Tundra pickup since its launch in February 2007. So while Toyota’s Prius has less than four days’ supply, Toyota is carrying more than an 80-day stock of Tundras, Carter said. Toyota dealers are pulling out all the stops to promote the big truck (see story, Page 3). Used-car prices are slumping as more vehicles come off lease. One example: Used BMW cars and trucks as a brand are bringing in about $3,000 less than they were projected to be worth three years ago (see story, Page 1). BMW AG said last week that it took a $372 million charge to reflect falling U.S. sale prices. April’s biggest loser: Chrysler, with sales down 23.5 percent. Last week Daimler AG slashed the book value of its 19.9 percent stake in Chrysler by nearly two-thirds to reflect ongoing losses at its former U.S. unit (see story, Page 6). To some overseas observers, the U.S. market looks feeble. Nissan Motor Co. CEO Carlos Ghosn said last week that the U.S. car market won’t recover before 2011. But there are voices of optimism at home. “We still think there will be a recovery in the second half,” said Mike DiGiovanni, GM’s executive director of global market and industry analysis. “Some of the liquidity tightness is out there, but we don’t see a systemic crunch in the credit area. All of these are positive signs. We think we’re in the trough of the downturn in the second quarter.” c RESIDUALS continued from Page 1 Below expectations How current average wholesale prices of 2005model vehicles, by brand, compare with predictions 3 years ago of what the cars and trucks would be worth today BRAND AVERAGE PROJECTED WHOLESALE PRICE RESIDUAL DIFFERENCE GM makes 2nd ethanol deal Prices for used vehicles are lower than expected that a large number of leasing contracts ended in the first quarter of 2008 compounded the situation.” Jan Ehlen, a spokesman for BMW North America LLC, said the number of BMW vehicles that came off lease between September 2007 and March 2008 rose 50 percent from the year-ago period. Ehlen declined to say how many off-lease vehicles BMW expects to send to the U.S. used-car market this year. Sales volume isn’t BMW’s problem. The company sold 34,461 certified used vehicles in the first four months of 2008 — 30.7 percent more than in the same period of 2007. Mercedes BMW Lexus Dodge Toyota $29,733 $25,607 $23,571 $11,482 $13,531 $34,472 $28,618 $24,983 $11,981 $13,671 –$4,739 –$3,011 –$1,412 –$499 –$140 ury SUVs fell 9.3 percent. Automakers typically subsidize lease deals through their finance companies, to moderate monthly payments and keep lease volume high. Car companies can get burned when resale prices fall considerably below predicted residuals. CNW projects the industry’s residual gap this year at about $6 billion. The record gap was about $10 billion in 2001, CNW said. ‘Economy is driving it’ Between March 2007 and March 2008, the value of used luxury and near-luxury vehicles depreciated by 20 to 22 percent, Beggs said. In a good year for the industry, he said, that rate would be 15 to 17 percent. “The overall economy is driving it,” Beggs told Automotive News. Martin Hansberry, general manager of Tulley BMW in Nashua, N.H., said BMW is offering a range of initiatives to stimulate sales of certified used vehicles. They include special finance rates and more money for dealer advertising. “In the last six months they really stepped up their efforts,” Hansberry said. Tim Markel, a BMW, Mini, Land Rover and Jaguar dealer in Omaha, Neb., said he is committed to adding many of the BMW cars and trucks his dealership leased to his used-vehicle inventory. But X5 SUVs account for too many of those vehicles, he said. Compounding his problem, Markel said, is that customers are trading in big pickups and SUVs from other automakers for smaller, more fuel-efficient vehicles. Prices of used full-sized trucks are falling faster than those in other segments, he said. “Either I find a way to retail them, or they go to the auction,” Markel said. “There is pressure coming from two or three directions.” c Source: Black Book Lower prices But those vehicles aren’t bringing the resale prices that were predicted. When BMW’s 2005model vehicles were new, their average residual value — the projected wholesale value after three years — was $28,618, said Ricky Beggs, managing editor of Black Book, a guide to vehicle prices. Like other automakers, BMW generally leases vehicles for 36 months. So the 2005 models are coming off lease and joining the used-vehicle market now. Beggs said those cars and trucks are selling for an average wholesale price of $25,607 — more than $3,000 less than projected. Similarly, Beggs said, 2005-model Mercedes vehicles had an initial 36-month residual value of $34,472. But the current average wholesale sales Group 1’s earnings slip HOUSTON — Group 1 Automotive Inc. said Tuesday, April 29, that first-quarter earnings fell 6.1 percent from the first quarter of last year. But the results beat analysts’ forecasts, as improvements in parts and service offset a drop in newvehicle sales. Net income fell to $16.4 million, from $17.5 million in the first quarter of 2007. AURORA, Ontario — On Thursday, May 1, Canadian auto supplier Magna International Inc. reported lower net income but higher total sales for the first quarter. Magna had net income of $207 million, down from $218 million for the same quarter a year ago. Sales of $6.62 billion were up 3.1 percent from sales of $6.42 billion for the same quarter a year ago. Magna said decreased business in North America was offset by gains in Europe and other parts of the world. Magna profits down; sales rise price of those vehicles is $29,733 — more than $4,700 less. Executives of Daimler AG, Mercedes’ parent company, said last week that the company had “sufficiently covered” the value of its off-lease vehicles. Daimler did not take a charge against firstquarter earnings. The problem is less pronounced for Lexus, Beggs said. Its 3-year-old used cars and trucks are selling for an average wholesale price of $23,571 — about $1,400 less than their projected residuals, he said. Overall, about 2.2 million off-lease vehicles will join the used-vehicle market this year, CNW Marketing Research predicts. About 1.9 million end-of lease vehicles were remarketed in 2007, compared with 1.8 million in 2006 and 1.7 million in 2005, CNW said. The increased supply of used vehicles and a sagging economy are driving down prices. In March 2008, average wholesale prices of used cars and trucks were 2.4 percent lower than in the year-ago month, ADESA Analytical Services said. Prices of luxury cars dropped 2.5 percent, and prices of lux- - RAM Heavy incentives aim at pickup glut continued from Page 1 Not only that, but Ford has a new F-150 arriving at the same time as Chrysler’s 2009. Meanwhile, Toyota and General Motors have relatively new models on sale. Chrysler small cars are hot � 59 the last year of a model cycle, he says. The Ram’s price is higher than the competition’s, “which is why our raw incentives are higher,” Landry says. “It is absolutely tough out there for pickup trucks, both in terms of the competition and some buyers waiting on the sidelines,” he adds. “We have pretty aggressive incentives out there and will remain competitive.” Managing build-out crucial That makes it crucial that Chrysler manage the build-ou http://Edmunds.com

Table of Contents Feed for the Digital Edition of Automotive News - May 5, 2008

Automotive News - May 5, 2008 Dodge dealers battle to bust Ram logjam Used-car price slump slams luxury makes INDUSTRY IN DISTRESS Tesla opens first dealership in L.A. Los Angeles Top auto execs to talk marketing at seminar Nader and the Corvair: GM edition tells whole story Dealers take Tundra to the people UAW official expects American Axle buyouts Ford plans more UAW buyouts at 2 plants Honda to some dealers: Upgrade or else Hyundai: Powertrains will take us halfway to mpg target Diesel dynamo Daimler cuts Chrysler value, again Ford domestic dealer count dips below 4,000 Seems like old times: More cash on the hood Toyota sister car poses a challenge for Subaru Suzuki to offer standard navigation in $16,000 car Mpg plan fuels states-rights battle Kerkorian interest buoys Ford stock Henderson: GM will keep tight rein on inventory Is it real, or is it just temporary? Ford Motor must stay focused on recovery 'Have you lost your mind?' Dealers are victims of Axle strike Federal oversight? Good heavens, no Geoff Polites: A salute Save a board seat for the UAW A car for everyone or cut, cut, cut, cut? Think of Buick as part of B-P-G Costs up in China, but bargains still abound Mexico sales fall 17% in March Obituary Hyundai reworks Sonata sooner rather than later Nissan's Dominique gets to the big dance Dana seeks new business with Japanese companies ZF will supply Nissan Certified Tool closes a plant German engineering company plans Ala. factory Dealers A Lexus colossus Used-vehicle leasing boosts showroom traffic Certified buyers opt for extended service contracts Repossessed vehicles offer dealers a profit opening Prepaid plans spark service visits beyond oil changes Key to managing floorplan costs: Be realistic Long-term loans: Convenience or bad deal? Dealers hunt upside-down buyers with leases, incentives and long-term loans Where have all the investors gone? Dealer rebounds from contract mess Dealers must choose: Reynolds, GM — or start over AutoTrader.com makes big pitch to bump up new-vehicle sales CAW, Ford reach extensive early labor deal Infiniti asks: Do you smell something? Sure, Nissan GT-R is impractical — but what a rush Faurecia: We'll break even in N.A. Suppliers join carmakers' charge into Russia Chrysler small cars, Jeep crossovers are hot A dreary April in Detroit Penske earnings rise in 1st quarter Lithia posts $1.9 million loss GM makes 2nd ethanol deal Group 1's earnings slip Magna profits down; sales rise AIADA picks dealer of the year Vox(wagen) populi — plus a sales pitch Wagoner's pension shift: More earlier, less overall COMMENT: Bargaining barbs will sting for a long time Bugging the boss: Who's listening to Porsche CEO? New models from the post office Critics have kind words for Pontiac's G8 Ford can't picture kids at design studio

Automotive News - May 5, 2008

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