With the plodding economy and tighter credit slowing car sales to a crawl nationwide, Charlotte-based Sonic Automotive on Tuesday reported a third-quarter loss of more than $25.3 million, a roughly $50 million swing from a profit of more than $26 million a year earlier.
Revenue at Sonic, a Fortune 500 company and one of the nation's largest auto retailers, fell nearly 16 percent to less than $1.8 billion, with sales down across the board. Even used-vehicle revenue – a strength earlier this year – was down almost 7 percent, reflecting how much the economic downturn has curbed car buying.
Automakers have reported big drops in September sales, with Chrysler, Ford, Nissan and Toyota posting declines of more than 30 percent, and General Motors a dip of 16 percent. Between tougher loan requirements and sinking consumer confidence, people have cut back significantly on spending, sending ripples through the automotive industry – from manufacturers to suppliers to dealers.
Looking ahead, Sonic projected fourth-quarter results below the estimates of analysts, citing uncertainty about the economy. The usual bump in luxury car sales at the winter holidays likely won't happen, executives said during a conference call with shareholders and analysts Tuesday.
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The latest financial report came after shares in Sonic tumbled more than 90 percent from roughly $25 last October to about $2 on Monday. Sonic executives spent much of Tuesday's call discussing business strategies and how they are managing expenses in the tough economy.
“Despite what the current market is saying, I remain convinced that the automotive retailing model works,” said Scott Smith, Sonic's president and chief strategic officer, adding that the company has realigned its regional management team and cut advertising and personnel.
“There are more of these levers we can pull as we move forward,” Smith said. “Cost control is an area we pay attention to every day.”
Shares in Sonic closed Tuesday at $2.75, up 73 cents. Founded by Bruton Smith – Scott Smith's father and the company's chairman and chief executive – Sonic has 169 franchises across the country.
Dealerships in California account for 30 percent of new-vehicle revenues, but that market has been much softer than the rest of the U.S., said Jeff Dyke, an executive vice president at Sonic. Texas accounts for about 26 percent, he said, but Hurricane Ike shut down dealers in the Houston area for several days last month.
More than half of the third-quarter loss – almost $14 million – was from discontinued operations. Sonic wrote down the value of franchise assets assigned to some dealerships and dropped or revised plans for several facilities.
Sonic remains in compliance with all of its debt covenants, said David Cosper, the company's chief financial officer. The company also has about a dozen of its dealerships on the market, Cosper said, and has sold a few already, generating additional cash.
Although the outlook for new and used vehicle sales remains rocky, Smith said Tuesday that Sonic doesn't plan any big departures in strategy, and that getting through the downturn without stumbles could be tough.
“If we're not making mistakes,” he said, “then we're not swinging at the ball.”