(Adds details on industry sales, inventories, paragraphs two, five and seven)
By Michael Ellis
DETROIT, Dec 20 (Reuters) - Lithia Motors Inc. and Asbury Automotive Group Inc. on Friday became the latest car dealership groups to cut earnings estimates due to slowing sales of new vehicles and falling profit margins on used cars and trucks.
Sales of new cars and trucks in the United States hit their lowest level in four years in October and only rebounded slightly in November. Industry executives have said recently that December's sales started slow, but had gained some momentum in recent days thanks to aggressive incentives.
Medford, Oregon-based Lithia said fourth-quarter earnings would be as much as 30 percent lower than expected. Asbury Automotive, based in Stamford, Connecticut, cut its planning target for 2003 earnings per share by about 8 percent.
"I think maybe their previous guidance was a bit aggressive," said analyst Domenic Martilotti of Bear Stearns. "In a period of declining (used car and truck) prices, their margins are under pressure."
Automotive analysts generally expect light vehicle sales to fall from this year's levels of about 16.7 million to 16.8 million to between 16 million and 16.5 million next year. After the slowdown in October and November, new-car inventories have swollen, increasing carrying costs for dealers.
Prices of used vehicles have fallen due to a growing glut of used cars and trucks, and high incentives on new vehicles that push prices down across the spectrum.
Sonic Automotive Inc. and Group 1 Automotive Inc. also cut their earnings estimates over the past two weeks. While new vehicles account for a large portion of revenues at dealer groups, they often provide a much smaller share of profits; other dealer businesses, such as service and financing, produce much higher profit margins.
Lithia shares closed down 51 cents or about 3 percent at $15.04 on the New York Stock Exchange. Asbury shares closed up 48 cents, or about 6 percent, at $8.46 on the NYSE.
Lithia, which sells 25 brands of new cars through 71 stores and 133 franchises in 10 western states, cut its forecast to the range of 31 cents to 34 cents per share from its earlier estimate of 42 cents to 44 cents per share.
Lithia Chief Financial Officer Jeff DeBoer said the company's aggressive push to boost market share at all costs, to gain loyal customers who will service their vehicles there in the future, was hurting its profit margins.
"Internally, we've taken the decision to sell cars, no matter what," DeBoer told Reuters in an interview. "We're willing to sacrifice the margins in the short-term in order to get that long-term business."
For 2003, Lithia said it now expects its profit to range from $1.83 to 1.95 per share, as much as 14 percent lower than the $2.00 to $2.12 per share it had estimated previously.
Asbury, whose 130 franchises selling 36 different brands produced $4.3 billion in revenue in 2001, said on Friday that it was cutting its full-year 2002 earnings per share to a range of $1.37 to $1.40 from a previous estimate of $1.50. It also cut its 2003 earnings per share target to $1.65 to $1.75 from a previously announced target of $1.80 to $1.90.