Business

Slumping auto sales hit Smith's Sonic chain

Sonic Automotive reported a 59 percent drop in second-quarter profits Tuesday, and executives said revenue from new vehicle sales and parts, maintenance and related operations this year will be worse than initially forecast.

The Charlotte-based company – one of the nation's largest auto retailers – posted a net income of about $10.8 million for the quarter, down from almost $26.4 million a year earlier. Some of that loss was from discontinued operations, including the closure of a Cadillac franchise in California.

Although the results beat analysts' estimates, Sonic – whose chairman and CEO is billionaire Bruton Smith – continues to see declines in new vehicle sales from last year.

Company executives said Tuesday that they expect high gas prices and low consumer confidence to hurt demand for new vehicles, leading Sonic to lower its outlook in that area from a decline of 4.5 percent to one of 7.2 percent this year.

“Looking back on things, our initial guidance for 2008 was fairly aggressive,” said David Cosper, the company's chief financial officer, during a conference call with analysts.

Shares in Sonic closed Tuesday at $10.69, up $1.18, or more than 12 percent, from Monday but down more than 60 percent from early last August – the high point in the past year.

Sonic also lowered its outlook for fixed operations, which includes sales of replacement parts and the company's maintenance, warranty, paint and repair services. After projecting growth of 3.5 percent earlier this year, executives said Tuesday they expect a decline of 0.5 percent in 2008.

Used vehicle sales remain a bright spot, with revenues up 8 percent from last year's second quarter. In the first six months of 2008, used vehicle revenues were up almost 12 percent.

Sonic executives don't expect growth in used vehicle sales to remain that strong all year, noting Tuesday that dealerships were getting fewer trades than in previous months. In addition, the value of sport-utility vehicles and trucks has plunged as gas prices have soared.

Still, Sonic boosted its outlook for used-vehicle sales from 3 percent growth this year to 4.4 percent. In addition, the board of directors declared a regular quarterly dividend of 12 cents – the same as in the previous quarter.

Once known for buying dealerships from coast to coast, Sonic doesn't plan any big acquisitions in the near future, said Scott Smith, the company's president and chief strategic officer.

Smith didn't give an update during the conference call on Sonic's plan to buy Beck Imports of Charlotte, one of the Carolinas' leading Mercedes-Benz dealers.

Shortly after Sonic and Beck Imports announced an agreement in February, Mercedes-Benz USA said Sonic couldn't buy another Mercedes-Benz dealership until it fixes design and appearance problems at other locations. Sonic then sued Mercedes-Benz USA, claiming the firm broke N.C. law by blocking the deal.

Smith said in April that the lawsuit could be settled within two months. Sonic executives didn't take media questions during the call, and messages left at the company's office weren't returned Tuesday

Instead of acquisitions, Scott Smith said on the conference call, the best investments for Sonic right now are training employees and buying existing locations that are currently being leased.

“We are building for the long term,” he said.

Sonic Automotive reported a 59 percent drop in second-quarter profits Tuesday, and executives said revenue from new vehicle sales and parts, maintenance and related operations this year will be worse than initially forecast.

The Charlotte-based company – one of the nation's largest auto retailers – posted a net income of about $10.8 million for the quarter, down from almost $26.4 million a year earlier. Some of that loss was from discontinued operations, including the closure of a Cadillac franchise in California.

Although the results beat analysts' estimates, Sonic – whose chairman and CEO is billionaire Bruton Smith – continues to see declines in new vehicle sales from last year.

Company executives said Tuesday that they expect high gas prices and low consumer confidence to hurt demand for new vehicles, leading Sonic to lower its outlook in that area from a decline of 4.5 percent to one of 7.2 percent this year.

“Looking back on things, our initial guidance for 2008 was fairly aggressive,” said David Cosper, the company's chief financial officer, during a conference call with analysts.

Shares in Sonic closed Tuesday at $10.69, up $1.18, or more than 12 percent, from Monday but down more than 60 percent from early last August – the high point in the past year.

Sonic also lowered its outlook for fixed operations, which includes sales of replacement parts and the company's maintenance, warranty, paint and repair services. After projecting growth of 3.5 percent earlier this year, executives said Tuesday they expect a decline of 0.5 percent in 2008.

Used vehicle sales remain a bright spot, with revenues up 8 percent from last year's second quarter. In the first six months of 2008, used vehicle revenues were up almost 12 percent.

Sonic executives don't expect growth in used vehicle sales to remain that strong all year, noting Tuesday that dealerships were getting fewer trades than in previous months. In addition, the value of sport-utility vehicles and trucks has plunged as gas prices have soared.

Still, Sonic boosted its outlook for used-vehicle sales from 3 percent growth this year to 4.4 percent. In addition, the board of directors declared a regular quarterly dividend of 12 cents – the same as in the previous quarter.

Once known for buying dealerships from coast to coast, Sonic doesn't plan any big acquisitions in the near future, said Scott Smith, the company's president and chief strategic officer.

Smith didn't give an update during the conference call on Sonic's plan to buy Beck Imports of Charlotte, one of the Carolinas' leading Mercedes-Benz dealers.

Shortly after Sonic and Beck Imports announced an agreement in February, Mercedes-Benz USA said Sonic couldn't buy another Mercedes-Benz dealership until it fixes design and appearance problems at other locations. Sonic then sued Mercedes-Benz USA, claiming the firm broke N.C. law by blocking the deal.

Smith said in April that the lawsuit could be settled within two months. Sonic executives didn't take media questions during the call, and messages left at the company's office weren't returned Tuesday

Instead of acquisitions, Scott Smith said on the conference call, the best investments for Sonic right now are training employees and buying existing locations that are currently being leased.

“We are building for the long term,” he said.

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