Car Dealer Stocks Now Look Like Lemons

Washington DC June 20, 2008; The AIADA newsletter reported that starting in the mid-1990s, some of America's biggest car dealer chains went public. And for a while, the likes of AutoNation, Asbury Automotive Group, and Lithia Motors did investors proud —with the best performers doubling their value between 2003 and the middle of last year.

But now, according to BusinessWeek, public dealerships' stocks are plummeting: of the six publicly traded companies, all have watched stock prices plunge 24 percent or more in the past year.

"This is the first major downturn since they have gone public," says Standard & Poor's equity analyst Efraim Levy. "Let's see them perform in a downturn and we'll believe [their sales pitch]." It won't be so easy. Tight credit and $4-a-gallon gasoline have overturned many of the rosy assumptions of yesteryear. Consumers are buying smaller vehicles, which generate less profit. And to buy them, Americans are trading in gas-sucking SUVs that are harder to sell than snow tires in August.

Analysts say the stocks are so beaten down that some are a good buy. And profits should improve as the chains cut costs. But much depends on what happens to new car sales - and with credit still tight, many industry watchers are predicting a prolonged drought.

CLICK HERE for the full story.