Automotive News - August 12, 2024 - 26

26 * August 12, 2024
SUPPLIERS
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quickly the EV landscape is changing. Other suppliers
also are lowering their financial guidance
targets.
Suppliers at risk
Quick shifts in electrification plans could leave
many suppliers financially exposed, particularly
those that were banking on high EV production
to justify high capital spending on new or retooled
factories. While large Tier 1 suppliers
should be able to handle changing market conditions,
smaller companies in lower tiers are at risk,
said Sam Fiorani, vice president of global vehicle
forecasting at AutoForecast Solutions.
" Those companies invest in the near term, " he
said. " And if that near-term plan included electric
vehicles and it doesn't anymore, that could be
very costly for these small companies. "
Magna said it expects about $2 billion less in
2026 revenue from EV parts sales than it originalGROUPS
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from Page 3
AutoNation said during its second-quarter
earnings call. The dealership
group previously said the shutdown
would reduce its Q2 2024 earnings
by $1.50 per share.
For Sonic, the CDK software outage
cut second-quarter net income by
about $22.2 million, including pretax
charges of $11.6 million for extra compensation
paid to employees related to
the CDK outage.
Still, analysts said the numbers beat
expectations.
J.P. Morgan, in an Aug. 6 note, said
the CDK ransomware event impacted
earnings per share by roughly 12 percent
on average, on a non-generally
accepted accounting principles basis.
But the six companies on average
beat J.P. Morgan's earnings per share
estimates by about 7 to 8 percent. Sonic
and Lithia were the most ahead of its
earnings consensus; AutoNation and
Asbury the least, J.P. Morgan said.
The investment bank Jefferies Group
said in an Aug. 5 note that Sonic and
Asbury in particular faced " a significant
volume of headwind " from the
CDK outage. Jefferies noted, however,
that both are posting better-than-forecast
new gross profit per unit sold despite
higher inventory and rising incentives.
Jefferies
also said the six dealership
groups likely won't be dealing with
longer-term fallout.
" We expect this environment of
healthy but moderating [gross profit
per unit retailed] and recovering volumes
should be an industry tailwind
into [2025], while noting [the second
half of 2024] still sees growing incentives,
macro concern and continued
RAM
continued from Page 3
products that we have today, their capabilities,
and then a short glimpse into the products that
we're going to be bringing to market here over
the next 12 months or so and understanding how
those products can best fit in their portfolio and
better serve their needs, " Ken Kayser, Stellantis'
vice president of North American commercial
vehicle operations, said in a July 30 interview at
the company's North America headquarters in
Auburn Hills, Mich. " Through those conversations,
and helping to build those relationships,
we're gaining invaluable insights into how we
can best bring those products and services to
market to make them more efficient, to make
them more profitable in their business. "
Asbury Automotive
Beyond Asbury's depressed earnings
per share, the CDK outage caused lost
business and one-time expenses including
overtime.
Asbury's service and parts business
was particularly affected. Same-store
service and parts gross profit rose 3.6
percent to $299.9 million during the
second quarter, but it had been on
pace for 8 percent growth during April
and May, Asbury told investors.
The company's wholesale parts and
collision business particularly suffered
because of the CDK outage, Dan Clara,
Asbury's senior vice president of operations,
said on an Aug. 2 earnings call,
though he did not elaborate.
CEO David Hult said during the call
that many of the customers whose efforts
to shop or have service work were
disrupted by the outage would return
and complete the transaction.
However, Hult also said Asbury had
a software workaround to sell vehicles
in CDK's absence, and said on the
earnings call that he believed Asbury's
sales volume issues during the quarter
" had more to do with the [Asbury]
brand mix than the outage. "
Asbury, of Duluth, Ga., ranks No. 5
on Automotive News' list of the top 150
dealership groups based in the U.S.,
with retail sales of 149,509 new vehicles
in 2023.
AutoNation
CEO Mike Manley said the company
experienced widespread disruption
from the cyberattacks.
" Virtually all of our business processes
including CRM, deal processing,
financial services, inventory manly
expected, a figure that includes between $800
million and $900 million in additional combustion
engine-related business.
Other suppliers also pointed to slowing EV
business as a roadblock forward and detailed
plans to address it. BorgWarner Inc. said it wants
to save $100 million in the next couple years by
cutting head count and spending in its e-products
division as part of a restructuring plan that
started in June. The supplier, whose net income
rose more than 40 percent to $317 million in the
quarter compared with the same period a year
earlier, reduced its full-year sales outlook by $400
million because of lower production and slow
battery-electric vehicle sales growth.
" A lot of our combustion products go into hybrids
and are a key element of making the combustion
side of hybrid lean and efficient, " CEO Fred Lissalde
said on a July 31 earnings call. " When you think
about BorgWarner, I don't think you should try and
split combustion, hybrid and BEV. "
Likewise, Lear Corp. pinned its guidance cut in
part on slower EV sales growth and changes to
affordability headwinds alongside
persisting tight used supply, " it said.
customers' EV plans. Lear, which reported modest
gains in second-quarter net income and revenue,
now expects adjusted net income of between
$630 million and $760 million on the year,
down from its previous projection of between
$730 million and $840 million.
" Our adjustment to the second-half outlook is
greater than we had anticipated, " CFO Jason
Cardew said. " That really reflects the ramp-up in
announcements, and also our extrapolation of
what that may mean into the fourth quarter, particularly
on electric vehicle platforms. "
Lower production
Suppliers cautioned that global new-vehicle
production is likely to be lower than previously
expected in the second half of the year, causing
some to alter their outlooks for the rest of 2024.
Mirror supplier Gentex lowered its full-year
revenue outlook to between $2.4 billion and $2.5
billion, down about $50 million. CEO Steve
Downing pinned the company's 21 percent yearover-year
drop in net income in the second quaragement,
after-sale systems and accounting
are tied one form or another
to the CDK platform and therefore we
were all immediately impacted, " he
said on the company's earnings call.
" We manually processed close to
60,000 repair orders during the outage
and you can imagine this slowed
things down tremendously, " he said.
" Our daily focus is on fully rebuilding
the momentum that we lost and regaining
any share that we lost, particularly
in that last period of June, " he
added.
AutoNation, of Fort Lauderdale, Fla.,
ranks No. 2 on Automotive News' list
of the top 150 dealership groups based
in the U.S., retailing 244,546 new vehicles
in 2023.
Group 1 Automotive
Group 1 Automotive estimates it lost
$17 million in pretax income in the
quarter because of the CDK outage.
That figure does not include an additional,
one-time pretax payment of
$5.9 million to compensate employees
for lost wages.
CDK restored Group 1's DMS on
June 26, just over a week after the outage
began. Most dealers were down for
about two weeks.
The early return of Group 1's DMS
was in part because of the auto retailer's
good relationship with CDK,
CEO Daryl Kenningham said on a
call with investors and analysts July
24. The technology in Group 1's customer
contact center, digital retail
options and back-office processes also
helped the retailer recover quickly,
he added.
The company didn't say anything directly
about how CDK impacted sales.
Group 1, of Houston, ranks No. 4 on
Automotive News' list of the top 150
Ram is using a " multi-energy, pick your power "
approach, Feuell said, and sees growth potential
in the electrified segment among commercial
customers. She called the Ramcharger, with its
onboard gasoline generator helping to create a
690-mile range, the " perfect bridge between ICE
and going full BEV. "
Sweet spot
Feuell said that while Stellantis developed the
Ramcharger and REV, it kept in mind that range
and charge time are critical factors in adoption
of electrified products. But the company also
understood that commercial customers look
closely at attributes such as payload and towing.
Feuell
said she thinks Ram has found the performance
sweet spot with both the REV and
ter on reduced production in North America, Europe,
Japan and Korea.
" The quarter began with sales coming close to
forecast for both April and May, but then saw a
significant change in June that left us well below
our forecast for the quarter, " Downing said on a
July 26 call with investors.
Still, some suppliers reported strong second-quarter
earnings, even in the face of the industry's
headwinds. Tech supplier Aptiv said its
net income surged to $943 million in the quarter
ending June 30, more than three times what it
made in the same period a year earlier, even as its
revenues slipped. That largely reflects the company's
improved profit margins, which returned
to pre-pandemic levels, CEO Kevin Clark said on
an Aug. 1 call with analysts. Aptiv reported an adjusted
earnings margin of 15.6 percent on the
quarter, up from 14 percent a year earlier.
Working through supply chain problems " took
a little time, " Clark said. " The reality is we've gotten
through that, and it's reflected in our results
last quarter. "
dealership groups based in the U.S.,
retailing 175,566 new vehicles in 2023.
Lithia Motors
Lithia's same-store service and parts
revenue fell 1.4 percent during the second
quarter to $778.1 million, a decrease
DeBoer said on the Aug. 1 earnings
call was " primarily related to
CDK, which drove aftersales down almost
40 percent during the 12 days of
the outage. "
He said Lithia still managed to keep
most of the June service and parts
business disrupted by the CDK outage
scheduled within the second quarter.
Some work was pushed into July, but
would help boost that month's numbers,
he said.
Nevertheless, DeBoer estimated
" less than the majority " of Lithia's outage-related
loss of $1.10 of earnings
per share was recoverable - possibly
as low as just 10 to 20 cents.
Lithia had a shot at keeping the service
business, DeBoer said. For some
consumers, the group might be the
only option, particularly the 40 percent
of Lithia stores in isolated markets,
he said. But he said the auto sales
Lithia lost during the outage were
probably gone for good, captured by
the retailers who don't use CDK.
" Customers don't typically wait
around for 12 to 15 days to buy another
car, " DeBoer said.
Lithia, of Medford, Ore., ranks No. 1
on Automotive News' list of the top 150
dealership groups based in the U.S.,
with retail sales of 314,116 new vehicles
in 2023.
Penske Automotive
Penske Automotive's franchised
dealerships in the U.S. and U.K. do not
use CDK Global's DMS and were not
Ramcharger. Each truck, she said, is a " no-compromises
solution. "
The ProMaster EV van was designed with input
from Amazon, which will use it for last-mile deliveries.
The van has a targeted range of 162 miles
in city driving.
Amazon has a " few demo vehicles that they're
driving and testing, " Feuell said. She expects Amazon
to start taking delivery of its first batch of
ProMaster EVs this year.
Ram's push to build up its commercial business
joins similar efforts at General Motors and Ford
Motor Co. GM Envolve, created in 2023 to simplify
the sales process and help businesses manage
their fleets, hosted hundreds of potential customers
in Las Vegas this spring to pitch its offerings.
Ford, the only one of the Detroit 3 to report
its commercial unit profits separately, said Ford
impacted by the cyberattacks.
Penske Automotive's Premier Truck
Group uses CDK's system, but quick
action helped minimize the cyberattacks'
temporary impact on truck customers,
Rich Shearing, Penske's COO
for North American operations, said
on the company's July 31 earnings
call.
" Our teams quickly implemented
our incident response plan and alternative
processes to keep operations
open, " Shearing said.
Penske Automotive, of Bloomfield
Hills, Mich., ranks No. 3 on Automotive
News' list of the top 150 dealership
groups based in the U.S., retailing
229,942 new vehicles in 2023.
Sonic Automotive
Sonic kept the cyberattacks from
making a more significant impact,
CEO David Smith said in a statement
issued with the company's Aug. 5
earnings call.
" Overall, the Sonic Automotive team
continues to execute at a high level,
despite operational challenges in the
last 12 days of the second quarter as a
result of the previously announced
CDK software outage, " Smith said.
Sonic said operational disruptions
continued through July, however, relating
to functionality of some " CDK
customer lead applications, inventory
management applications and related
third-party applications integration
with CDK. "
Sonic, of Charlotte, N.C., ranks No. 6
on Automotive News' list of the top 150
dealership groups based in the U.S.,
retailing 107,257 new vehicles in 2023.
John Huetter, Paige Hodder,
Gail Kachadourian Howe and
Julie Walker contributed to this report.
Pro earned $2.6 billion in the second quarter
with 15.1 percent margins.
Joining the party
At Ram, one truck option that found a niche catering
to entry-level and commercial customers
is on its way out of the lineup. Production of the
Ram 1500 Classic, a long-running pickup that
launched in 2008 and continued to be produced
after the next generation arrived in 2018, will
conclude at the end of the year, Feuell said.
When the Classic, which starts at $40,700 with
shipping, disappears, the Ram lineup will start at
$42,270 for the freshened Tradesman trim. The
Classic lacks some of safety and connected-vehicle
technologies that are on the latest truck.
" There's a big difference between the two trucks
and the technology, " Feuell told Automotive News.
Automotive News - August 12, 2024

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