Major dealers see revenue rise even as new-car market shrinks

Even though the number of American consumers planning to buy a new vehicle is at a 43-year low, some of the major auto retailers are likely to report their strongest sales in two years this month.

AutoNation, the largest auto retailer, is expected to report more than $3 billion in sales for the second quarter, while analysts forecast Penske Automotive Group and Sonic Automotive, which rank second and third, will report second-quarter results of $2.61 billion and $1.75 billion, respectively.

One of the factors driving the increases is the hundreds of dealers whose franchises were terminated by Chrysler, Ford and General Motors. Sales that would have gone to these smaller dealerships are going to dealers owned by large organizations. So, even as the terminated dealers continue to attempt to gain reinstatement, the major players are seeing a significant rise in business. More dealer cuts are in the offing as Ford winds down its Mercury brand and forces consolidations among its Ford and Lincoln franchisees. It’s unclear how many of the terminated GM dealers will be offered reinstatement, the majority of dealers cut by Chrysler will not be returning to its dealer ranks; of 789 dealers cut, only 30 have won their cases in arbitration. Another small group of dealers, said to be around 50, were offered reinstatment outside of the arbitration process.

Another factor is that both AutoNation and Penske receive only a relatively small percentage of their sales from mass-market domestic brands. After five years of reducing its domestic-brand franchises, AutoNation gets about 33% of its sales from Chrysler, Ford and General Motors products. Penske gets far less, about five percent, because it focuses on import and luxury marques. (Of course, Penske is also the U.S. distributor for Smart, proving that even foreign cars are no guarantee of success.)

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