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Sonic Knocks At Door of $1,000 F&I Club; Looks To Join Group 1, Lithia

August 23, 2002

Despite an F&I scandal at two of its Florida dealerships and a decline in factory lender bonuses, Sonic Automotive raised its F&I earnings to the "elite" level of nearly $1,000 per unit in the second quarter.

The Charlotte, N.C.-based consolidator, second in gross income only to AutoNation, Inc., in addressing its F&I adversities turned to menu selling at all its 130 stores and boosted its average F&I per-vehicle yield to a record $954 from $903 a year ago.

In the $900-$1,000 range, Sonic joined the top F&I performers -- Lithia Motors and Group 1 Automotive -- among publicly owned megadealers. Lithia, headquartered in Medord, Ore., chalked up a $995 average, taking the segment lead away from Houston-based Group 1's $990.

Among F&I trainers, like Ron Martin of Fort Wayne, Ind., $1,000 a unit out of the finance office is regarded as a "target constantly to be aimed at." Lithia and Group 1 have consistently held close to the $1K mark for F&I sales since going public five years ago.

In a media and analyst conference call, Sonic Automotive's president, B. Scott Smith, said acquisition of the 16 Don Massey dealerships in the second quarter contributed substantially to the company's F&I gains. Twelve of the Massey stores, whose headquarters is in Plymouth, Mich., are high F&I performing Cadillac dealerships.

Smith said that Sonic had decided to maximize F&I performance after its Clearwater Toyota and Mitsubishi stores in the Florida Gulf Coast city near Tampa had been accused of F&I "packing" practices. Sonic also reported declines in factory lender subventions of F&I loans and leases.

Just as three of the six major networks were clustered in the $900-$1,000 per unit category, the remaining three were grouped between $700 and $800. Each of the "bottom half," however, reported increases in per-unit averages and total revenues from the first quarter and the year-ago period, adding that emphasis on F&I results remains a top priority for each of their stores.

AutoNation raised its per-unit F&I yield to $763, compared to $735 in the first quarter and $692 in the June period of 2001. UnitedAuto Group to $745 from $721 and $708, and Asbury Automotive to $726 from $709 and $665. On the revenue side, all consolidators except Sonic found their F&I departments generating more income than they did a year ago.

AutoNation's 278 dealers, handling 374 franchises in 17 states, brought in 9.2 percent more F&I income as the quarter's revenues of $113.4 million accounted for 2.7 percent of total revenues of $5.0 billion. CEO Michael J. Jackson boosted his full-year outlook for the Fort Lauderdale, Fla.-based company to $1.15-$1.17 a share.

The 130 Sonic dealerships experienced a revenue decline from $53.0 million to $48.7 million, although the sales-per-unit number advanced. Sonic joined the other mega-retailers in raising its earnings per share estimates for 2002 to $2.56-$2.60 a share, growing to $2.95-$3.05 next year. Sonic's total revenues for the quarter amounted to $1.9 billion.

Detroit-based UnitedAuto weighed in with a 23 percent boost in its F&I revenues to $46.5 million, which amounted to 2.4 percent of total income of $1.6 billion. UAG has 124 franchises in the U.S. and 68 overseas in the United Kingdom, Brazil and Puerto Rico. The U.S. dealer count is 84. UAG Chairman Roger S. Penske said his forecast of an earnings per share rise to $1.80-$1.86 for 2002 was buoyed by the second-quarter results.

At Asbury Automotive, based in Stamford, Conn., F&I income advanced 13.8 percent from a year earlier to $29.5 million out of total revenues of $1.1 billion. Asbury President/CEO Kenneth B. Gilman predicted earnings per share of $1.57-$1.59 this year from its 91 dealerships, which handle 127 franchises.

In a rare statement for consolidator executives, who normally sound as deferential to their manufacturer vehicle suppliers as possible, Gilman concluded his second-quarter media conference remarks by declaring: "We continue to believe that automotive retailers, particularly those with a great brand mix such as Asbury, are not prone to the same economic pressures the manufacturers face."

Asbury's stock, first issued last March at $17.50 a share, sagged to $10.50 in August after briefly spurting to a high $22.45. The stocks of the other five consolidators, all listed on the New York Stock Exchange, all soared to record highs last spring before falling back in the summer recession.

Group 1 Automotive's 72 dealerships and 109 franchises accounted for $39.2 million in F&I revenue in the June quarter, up from $35.0 million last year. Total revenues were flat at $1.0 billion, but CEO B.B. Hollingworth, Jr. confirmed a guidance earnings range of $2.75-$2.85 a share for full 2002.

The leader in F&I sales per unit, Lithia Motors, reported a 25 percent revenue increase to $22.8 million from $17.8 million as income overall jumped 26 percent to $584.3 million. Sidney B. DeBoer, chairman and CEO of the Medford, Ore.-based Lithia, forecasts a "modest" boost in earnings per share for the rest of 2002, which he said should range from $1.83-$1.88. Lithia has 68 stores and 130 franchises in 10 western states.

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