Major Car Dealerships' Sales May Hit Two-Year High as Ranks Dwindle

United States car retailers might post the highest sales in nearly two years after General Motors and Chrysler shut down thousands of smaller auto dealerships.

AutoNation Inc., the biggest group of dealers, could post $3.06 billion in second-quarter sales tomorrow when it announces its earnings, according to the average estimate of a Bloomberg survey of seven analysts. That figure would be the highest since the third quarter of 2008. Penske and Sonic Automotive, the second- and third-biggest auto retailers respectively, could also post the highest earnings in two years when they announce their results on July 29, analysts say.

GM and Chrysler said that they would close roughly 2,800 dealers as they moved toward bankruptcy in 2009, enabling larger dealerships to sell more cars at higher prices. Ford has also shut down certain locations in urban regions.

While regulators questioned some dealer closings this week for contributing to unemployment, dealerships groups claim they eliminated ailing locations.

“We're seeing the remaining stores do significantly better,” explained Greg Young, Sonic's VP of finance. “In markets where other Cadillac or Chevy dealers closed, our Cadillac or Chevy stores are doing much better.”

Sonic is expected to post $1.75 billion in sales for the second quarter, according to the average of five analysts.

Penske Automotive could post $2.61 billion in sales for the second quarter, according to the average of six analysts. That would be the best quarterly revenue for Penske in nearly two years. When the Michigan-based company posts its results, its profits are expected to be 29 cents per share.

Penske Vehicle Brands

The Penske group concentrates on luxury and import brands, with just five percent of its new-vehicle sales deriving from traditional American brands. The dealer intends to maintain that mix because there are still too many dealerships selling American cars and light pick-up trucks, according to spokesman Tony Pordon. The retailer also receives over a third of its revenue from foreign countries.

“We still believe there are too many domestic brand dealerships across the United States right now,” Pordon wrote in an email. “There needs to be a further culling.”

Based in Fort Lauderdale, Florida, AutoNation generates roughly a third of its revenue from American brands. The dealer group has pared domestic-brand locations for the last five years and now maintains approximately 200 locations in the United States, according to spokesman Marc Cannon. During the automakers’ restructurings, AutoNation lost eight Chrysler and GM stores total.

AutoNation should report a profit of 36 cents per share in tomorrow’s results, according to a Bloomberg survey of ten analysts.