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Auto Dealers See Mixed Results

October 29, 2003

Shares of megadealer Sonic Automotive Inc. dropped 21 percent on Oct. 28 after its third-quarter earnings declined on poor sales at its Ford and Chrysler franchises, according to a Reuters report.

The news was better for another megadealer, Lithia Motors Inc., as its third-quarter earnings rose 21 percent on additional stores selling more new vehicles, services and financing, Reuters said.

Sonic and Lithia, along with other auto dealer groups, have seen their shares rise for much of this year as U.S. auto sales remained strong due to automakers' rebates and financing incentives, and low interest rates lowered costs and boosted financing income. But shares have fluctuated widely in recent weeks on profit concerns, Reuters noted.

Sonic said it earned $17.5 million, or 41 cents a share, in the quarter, down from $31.6 million, or 73 cents a share, in the same period in 2002. The results from this year's quarter included $9.3 million, or 23 cents a share, in costs related to debt buyback and issuance of new bonds, Reuters said.

The news pushed shares of the North Carolina-based company down $5.66 to $21.18 in afternoon trading on the New York Stock Exchange.

O. Bruton Smith, Sonic's chairman and chief executive, said while the company's import and luxury brand sales were strong, its dealerships selling domestic Ford and Chrysler brands "sharply underperformed," Reuters reported.

Both Ford Motor Co. and DaimlerChrysler AG's Chrysler arm have suffered declining U.S. market share this year, thanks to a drought of new models. In August, Chrysler was outsold by Toyota Motor Corp. for the first time ever.

Sonic President Theodore Wright said in a conference call that two mistakes had led to the problems at its Ford and Chrysler dealerships. One was cutting its inventory of 2003 model year domestic vehicles too low, leaving Sonic "not competitive in the marketplace."

The other, Wright said, was promoting salespeople into import or luxury dealerships, where Sonic saw more opportunities for growth, Reuters noted.

"We have unintentionally starved our domestic brand dealerships of the best quality people," Wright said, according to Reuters.

Wright said inventories would be rebuilt during the fourth quarter but that personnel issues would linger until early next year, Reuters reported.

Lithia Has a Different Take

Lithia Chairman and CEO Sidney DeBoer said Lithia's Chrysler stores had not suffered large sales declines in the quarter, according to Reuters. While Chrysler's overall sales were down 15 percent in September, DeBoer said Lithia's Chrysler sales were up 0.3 percent, Reuters reported.

Lithia said it earned $12.9 million, or 69 cents a share, in the quarter, up from $10.7 million, or 59 cents a share, in the same period a year ago. Revenues rose 6 percent to $728 million.

Lithia said new vehicle sales increased 10 percent while parts and service sales increased 13 percent and F&I sales increased 17 percent.

Much of those increases came through acquisitions, as Lithia has 9 more stores and 17 more new-vehicle franchises than it did a year ago. Same-store sales were down 0.6 percent, according to Reuters' report.

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