Do AutoNation results provide a flicker of hope for Detroit?
AutoNation earned, excluding items, 23 cents per share. Revenue dropped 36 percent to $2.47 billion. The bottom line beat analyst estimates for earnings of 16 cents per share on $2.74 billion in revenue. And showing that it can be done, the massive online network of car dealers reduced debt by about $500 million in the quarter and exceeded its cost savings objective.
As for sales and the state of the sector, AutoNation says new vehicle sales fell 43 percent in the quarter. Still, CEO Mike Jackson said the company expects U.S. industry sales to improve in the second half of the year.
It is this last remark that has many excited and hopeful, given the otherwise dreadful news coming out of Detroit.
Only on Wednesday, the bomb was dropped that General Motors (GM) is planning to default on a $1 billion June 1 debt payment. Of course, GM execs said that's because the automaker expects to be in the process of restructuring its debt through a voluntary exchange or bankruptcy court by that point, which is also the deadline it has from the government to present a new restructuring plan. Either way they tried to spin it, though, the fact is that GM won't be making a payment and will need to do a lot of convincing of bondholders.
Meanwhile, the automaker also announced it plans to idle most of its plants for about two months this summer -- four times its usual two-week summer break -- as the company races to cut costs and production to keep pace with sinking demand.
Another automaker living off government bailout is Chrysler, which is trying hard -- very hard -- to stay alive.
Then there is Ford (F), which hasn't taken any government bailout money, and may continue to resist even as it prepares to announce its largest first-quarter loss in 17 years. Analysts have issued positive reports on Ford, including Wednesday's Goldman Sachs upgrade to Buy.
The question is whether AutoNation's Jackson is right, and if he is right, can it still make a difference to American automakers?
While industry execs, Federal Reserve officials and some economists see early signs of improvement, or at least bottoming, almost everyone agrees unemployment will continue to grow for quite some time, peaking at over 10 percent. How can auto sales then, at least on the consumer side, improve? Or if they do, with what other forms of market deterioration? Already prime mortgages are seeing higher default rates because of the harsh environment in the labor market. Similarly, more car loans could start going bad even as sales improve.
And, besides, a sales improvement later this year doesn't help GM and Chrysler now. If one goes bankrupt (in whatever structure), it will further cripple the overall industry, which is so reliant on vertical networks of suppliers.
It's certainly encouraging to hear from one of the few semi-healthy American car companies -- even if it is just a virtual network of brick-and-mortar dealers -- that it sees some hope on the horizon. But for some in the ailing industry, it may already be too late.
Disclosure: Long Ford.