Sales hit two-year high despite heavy cull of dealerships

US auto retailers may post the highest sales in almost two years after General Motors Co and Chrysler Group LLC closed thousands of dealerships.

AutoNation, the largest dealer group, may post US$3.06 billion in second-quarter sales when it reports earnings, the average estimate of seven analysts surveyed by Bloomberg.

That would be the highest revenue since the third quarter of 2008. Penske Automotive Group and Sonic Automotive, the second- and third-largest retailers, may post the highest sales in two years when they report results on July 29, analysts estimate.

Chrysler and GM had said they would shut about 2800 dealerships as they headed toward bankruptcy last year - allowing surviving stores to sell more vehicles at higher prices. Ford Motor Co has also closed some locations in urban areas.

While a government watchdog this week criticised some closings as adding to unemployment, dealer groups say they cut ailing stores.

"We're seeing the remaining stores do significantly better," said Greg Young, Sonic's vice-president of finance.

Sonic is expected to generate US$1.75 billion in second-quarter sales, the average estimate of five analysts.

Penske Automotive Group may post US$2.61 billion in second-quarter sales, the average of six analysts' estimates. That would be the highest quarterly revenue in almost two years. Penske focuses on imports and luxury brands, with only 5 per cent of its new-car sales coming from traditional US brands. The retailer planned to keep that mix constant because there still was an excess of dealers selling US cars and light trucks, said Tony Pordon, a spokesman. The company also generates more than a third of its revenue outside of the United States.

"We still believe there are too many domestic brand dealerships across the United States right now," Pordon said. "There needs to be a further culling."

AutoNation, based in Fort Lauderdale, Florida, gets about one-third of its revenue from US brands. The dealership group has trimmed domestic brand outlets for five years and now has about 200 US locations, said Marc Cannon, a spokesman. The company lost a total of eight GM and Chrysler stores in the restructurings.

AutoNation is expected to report profit of 36 cents a share, the average estimate of 10 analysts surveyed by Bloomberg. The retailer's sales still would trail levels from before 2008. The nation's 9.5 per cent unemployment rate and weakening consumer confidence have restrained spending.

AutoNation's sales in the second quarter of 2007 were US$4.56 billion, 49 per cent higher than the estimate for the same period this year.

New light vehicle demand remains near a historic low. The percentage of Americans who said they planned to buy a new car tumbled to 3.7 per cent in June, the lowest since records began in 1967, according to the Conference Board's June confidence index.

US vehicle sales slowed to an 11.1 million annualised rate in June from 11.6 million in May. Last year, consumers bought 10.4 million cars and light trucks, the fewest in 27 years.

Sonic, based in North Carolina, was focusing on repair services and used-car sales to drive profit as new-vehicle sales weakened, Young said.

Used-car volume had jumped 20 to 30 per cent, he said.

GM had 5100 dealers and Chrysler had 2315 on June 30. Ford had 3553 at the start of the year, the latest figure the carmaker has provided. Toyota has about 1500 US stores for its namesake brand and Lexus luxury vehicles.

Toyota had the highest average sales per store in the first half of 2010, with 564, according to by Bloomberg. GM stores averaged 212 sales, Chrysler had 228 and Ford had 277.

US new car and truck dealers fell to 18,200 as of July 1, a 12 per cent decline from two years ago, according to the National Auto Dealers Association.

GM may have trimmed 400 locations by the end of the year after the company said it would reinstate 600 of the 2000 stores it planned to cut.

About 500 of the franchises GM still plans to close have gone to arbitration to be reinstated. Those cases have now been completed, said Ryndee Carney, a GM spokeswoman, without saying how many dealers won.

Chrysler planned to shut down 789 dealers, and 30 have won arbitration cases.

US President Barack Obama's administration push to speed up the GM and Chrysler dealership closings may have added tens of thousands of workers into unemployment, said Neil Barofsky, special inspector general for the Troubled Asset Relief Programme.

"Such dramatic and accelerated dealership closings may not have been necessary and underscores the need for Treasury to tread very carefully when considering such decisions in the future," Barofsky said.

- BLOOMBERG