Is Eddie Lampert Having Second Thoughts About AutoNation As Profits Tumble?

Implications: In March I did an article on billionaire Eddie Lambert's latest investment in the country's largest public dealer group, AutoNation. At the time I questioned the move in light of the U.S. experiencing the worst year in sales since 1998. Today AutoNation reported a drop of 37% in its first quarter earnings.

Analysis: AutoNation reported today that weak vehicle sales in California, Florida and other key markets for the company, dragged down its first-quarter earnings by 37%.

In March, billionaire investor and Sears Holding Corp. Chairman Edward Lampert raised his stake in AutoNation to 37.2%. Lampert has accumulated AN shares as the company's stock has plunged on slow sales and economic concerns.

In the first quarter, AN's new vehicle sales fell about 11% nationally and 15% in California, Florida, Nevada and Arizona-states which represent about 60% of the company's new vehicle business and about 25% of U.S. new vehicle sales.

The company cited the housing crisis as having a significant impact on the retail automotive retail business.

Despite lower sales, AN did fare slightly better than the industry in the states previously mentioned.

The company's gross profit margins per new and used vehicles slid 10.1% and 12.2% respectively. However, average gross profit on the sale of Finance and insurance products increased, surprising, in light of tougher lending issues.

A few other notes: Wholesale gross profit (sale of non-retailed used cars) dropped significantly, perhaps the result of used vehicle appraisers "stretching" (allowing more money on trade-ins) a little to make new car deals. 

AN, along with most of the public dealer groups is trying to reduce the number of domestic dealerships in its brand mix. In this they continue to be successful, The domestics now represent 33.0% of new vehicle revenue, down from 35.1%. Volume imports now represent 41.8% of new vehicle revenue, up from 39.6%. Luxury import numbers remained the same.