AutoNation Reports $1.4b Q3 Loss

AutoNation’s third quarter 2008 financial release is more grim news. The US’ largest automotive retailer reported “a 2008 third quarter net loss from continuing operations of $1.40 billion or $7.95 per share.” Total sales revenue was down 22%, driven by a new vehicle unit sales decline of 24%. Overall industry unit sales for the period were down 31%, a set of numbers consistent with the observation that smaller dealerships are going belly up. As one of the big boys, AutoNation is doing a little better than the averages. We know that the small, and some not so small (Bill Heard, groan) dealerships are dropping like proverbial flies. AutoNation’s press release provides commendable detail on the domestic brand, import brand and premium luxury business segments. No real surprises there. Domestic brands got whacked with a 57% revenue decline while import brands and “premium luxury” both dropped 23%. The usual suspects of tight credit markets, high fuel costs and scarred silly non-buyers are duly noted. Operations wise, AutoNation squeezed out a $159 million profit for the quarter compared to $226 million in 2007’s equivalent period, a 29% drop off largely inline with the revenue hit. Why then the huge reported loss?: Value of the company’s domestic branded franchises. These dealerships were bought from small groups and owner-operators over the years. When purchased, the amount of the purchase price in excess of the real estate, inventory and any other hard assets of the business was booked as “goodwill and/or franchise” value. Today market value for a domestic branded car dealership is zero, so AutoNation had to write off $1.46 billion in recognition of the new reality. If and when those values ever go back up, AutoNation will be able to book an upside … but let’s not hold our breath.