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NINETY EIGHT REGENCY

Group 1: Service income from recalls could offset lost Toyota sales

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Group 1: Service income from recalls could offset lost Toyota sales

Dealer group posts operating gain and sales increase in Q4

Donna Harris

Automotive News -- February 11, 2010 - 8:16 am ET

UPDATED: 2/11/10 1:23 p.m. ET

Group 1 Automotive Inc. said today that Toyota's quality issues will curb the dealer group's new-vehicle sales while recall-related repairs will boost service revenue.

CEO Earl Hesterberg declined to give analysts a specific forecast on the impact of Toyota's quality issues as Group 1 announced a fourth-quarter operating profit. Earlier today, AutoNation Inc. said Toyota's January recall and sales suspension of eight models with faulty gas pedals would reduce first-quarter earnings at the nation's largest dealership group by about 1 cent per share.

“The longer-term impact remains to be seen,” Hesterberg said. “It will take a number of months for all our customers to schedule their repairs,” but service department revenues will “likely offset” lower vehicle sales.

Group 1 estimated that the recalls generate $250 per repair ticket, mostly in labor charges.

The retailer resumed sales on recalled vehicles after performing the necessary repairs to the units it had in stock. Hesterberg said inventory will move reasonably well because Toyota halted production of the vehicles covered by the recalls.

“There's no inventory imbalance,” he said. “But we lost two or three weeks of good-volume Toyota sales, and I don't know how overall Toyota traffic will rebound. February is normally a weak month, and bad weather in some areas is depressing retail activity.”

Other impacts

Group 1 also thinks the recalls could affect used-vehicle revenues. The company's dealerships are seeing trade-in values on used Toyotas dip $500 to $1,000 per vehicle.

Still, Hesterberg affirmed Group 1's commitment to Toyota. Toyota, Scion and Lexus vehicles represented 38 percent of Group 1's new-vehicle sales in the fourth quarter.

Although Hesterberg said the vehicles affected by the Toyota recall represent 20 percent of new-unit sales, he also said Group 1 has “a well-balanced brand portfolio.”

Sales from competing brands that Group 1 sells also could offset lower Toyota sales. Honda and Acura represent 11 percent and Nissan and Infiniti account for 13 percent of Group 1's new-unit sales.

Improved Q4 sales

In its fourth-quarter report, Group 1 said it posted its first increase in same-store sales in years.

The company had a net loss of $2 million, or 8 cents a share, compared with a loss of $57.4 million, or $2.52 per share, a year earlier.

On an operating basis and excluding one-time items, the auto retailer had a profit of 43 cents a share. Analysts expected 44 cents, according to Thomson Reuters I/B/E/S.

Total revenue rose 1.5 percent to $1.15 billion. Sales at stores open more than one year rose 4.1 percent. Analysts had expected revenue of $1.12 billion.

For the full year, Houston-based Group 1 said it posted net income of $34.8 million, or $1.49 a share, compared with a net loss of $48.0 million, or $2.12 a share, in 2008.

The company said it generated total revenue of $4.52 billion in 2009, a 20 percent drop from $5.65 billion in 2008.

Group 1 ranks No. 3 on the Automotive News list of the top 125 U.S. dealership groups, with 2008 new-vehicle sales of 110,705 units.

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20100211/RETAIL07/302119967/1400#ixzz0fGnTQ4nl

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