AutoNation, Penske Buying Outlets as ’13 Tax Changes Loom
AutoNation Inc. (SAH), the largest U.S. retailer of new vehicles, joined competing dealership groups including Penske Automotive Group Inc. (PAG) in snapping up stores ahead of potential changes to the nation’s tax policy next year.
AutoNation acquired six stores in Texas that generate about $575 million of annual revenue, the Fort Lauderdale, Florida-based company said yesterday in a statement. Penske said in November and October that it bought dealerships in Wisconsin and California that will contribute about $255 million of revenue.
Acquisitions by public U.S. auto retailers, including AutoNation and Penske, plunged 55 percent in this year’s first half to $103 million, the most recent data available from Presidio Automotive, an advisory firm. The pace is accelerating as some dealers opt to sell their outlets ahead of potential increases to U.S. tax rates next year.
“The fourth quarter has shown a significant uptick in activity,” Alan Haig, a managing director for San Francisco-based Presidio, said yesterday by telephone. “That could be due to dealers wanting to exit in 2012 for tax reasons, to lock in the current capital gains tax rate.”
Taxes are scheduled to rise and U.S. budget cuts will occur if President Barack Obama and congressional Republicans don’t reach an agreement on fiscal matters by Dec. 31.
Spending on acquisitions probably fell further behind last year’s pace through the third quarter, said Haig, who oversaw acquisitions for AutoNation before joining Presidio.
AutoNation said it purchased Volkswagen AG (VOW) namesake brand stores in Dallas, Richardson and McKinney, Texas; and Audi and Porsche outlets in Plano, Texas. Chief Executive Officer Mike Jackson also bought a Chrysler Group LLC dealership in Houston that AutoNation said is the automaker’s top seller in Texas and No. 4 in the country.
“We have quite a number of deals in discussion that we would very much like to do,” Jackson said in a telephone interview on Oct. 25 after the company reported quarterly earnings. “There’s still a gap between sellers and buyers that has to be bridged.”
Penske acquired two dealerships selling Toyota Motor Corp. (7203) vehicles in Madison, Wisconsin, according to a Nov. 13 statement. The Bloomfield Hills, Michigan-based retailer also said in October that it purchased Bayerische Motoren Werke AG (BMW) brand stores in Ontario, California.
“It’s good fishing time for the public retailers” looking to acquire dealerships, Roger Penske, CEO of Penske Automotive, said Nov. 2 on a conference call with analysts. In addition to tax reasons, discussions about deals are becoming more frequent because of an improving real estate market and rising industry sales, Anthony Pordon, a company spokesman, said yesterday.
Lithia Motors Inc. (LAD), the Medford, Oregon-based dealer group, said Oct. 26 that it acquired a Toyota store in Missoula, Montana, in a deal that it expects to add $45 million in annual revenue. AutoNation, Penske and Lithia didn’t disclose the terms of their acquisitions in their respective statements.
AutoNation had forgone acquisitions this year after spending $64.2 million on purchases through last year’s first nine months, the company said in its Oct. 25 quarterly earnings statement. Penske said cash used in acquisitions and other investments, net of cash acquired, was $137.8 million through Sept. 30, down from and $232.1 million a year earlier, according to a Nov. 2 regulatory filing.
Presidio, which advises sellers of dealerships, wasn’t involved in the AutoNation transactions announced yesterday. Owners of dealerships who are considering sales may be particularly concerned about an increase in capital gains tax rates, Haig said.
“We do see some pickup in activity,” he said. Presidio is “busier now than we have been all year.”
AutoNation climbed 1.9 percent to $39.36 yesterday in New York. Penske rose 1.7 percent to $29.70, while Lithia slipped 0.5 percent to $36.47.
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