UnitedAuto Redefines Its Operating Strategy
22 December 1998
UnitedAuto Redefines Its Operating Strategy to Outsource Auto Finance Servicing Operations
NEW YORK--Dec. 22, 1998--Company Transfers a Portion of Auto Finance Servicing Operations
to Premier Auto Finance; Company to Incur Estimated Pre-Tax
Charge in the Fourth Quarter of 1998 in the Range of $13.0 to
$15.0 Million
Excluding Special Pre-Tax Charge Company Expects Earnings Per
Share from Dealership Operations for FY 1998 to be in Line with
Expectations
UnitedAuto Group, Inc. , the nation's second largest publicly-traded automotive retailer, today announced that it has redefined its operating strategy to outsource its auto finance operations to a group of strong regional and national retail lenders and has transferred certain of its UnitedAuto Finance servicing operations to Premier Auto Finance, Inc., a wholly owned subsidiary of Aon Corporation , an insurance services holding company that comprises a family of brokerage, consulting and consumer insurance companies. Premier Auto Finance manages and services retail automotive loan and lease portfolios for over 100 automotive retail groups throughout the United States.
Under the terms of the agreement, Premier has assumed operational responsibility for loan originations and dealer service at the UnitedAuto Finance Fairport, NY headquarters. As a result, UnitedAuto Finance will no longer engage in the purchase or sale of automotive loans; however, the unit will continue to service its securitized portfolio of approximately $160.0 million of automobile loans. The Company said that UnitedAuto Finance has sold a total of approximately $150.0 million of its unsecuritized auto loan receivables to third parties.
The Company added that it will incur an estimated pre-tax charge in the range of $13.0 to $15.0 million, or an estimated $0.35 to $0.40 per diluted share after-tax, in the fourth quarter of 1998. Excluding the estimated pre-tax charge, the Company expects earnings per share to be in line with the expectations of six analysts for FY 12/98, according to First Call Corporate Monitor as of December 14, 1998.
The pre-tax charge to be incurred in the fourth quarter consists of:
(i) $2.0 to $2.5 million related to the write-off of deferred
financing fees, losses associated with exiting interest rate
management transactions and the closure of UnitedAuto
Finance's warehouse lines.
(ii) $7.0 to $7.5 million related to adjustments to loan portfolio
assets, including (a) the reversal of gains, recorded
previously per standard accounting practices, on sales of
approximately $150.0 million of retail paper into UnitedAuto
Finance warehouse lines that, upon repurchase and subsequent
sale to third parties, would no longer be realized since
future income would be earned by the buyers and (b)
provisions to reflect a decreased capacity to recover certain
other receivables.
(iii) $4.0 to $5.0 million, primarily related to operations at the
Fairport, NY facility, including lease and systems-related
expenses, employee severance and other administrative
expenses as well as the write-off of certain fixed assets.
The Company said that the cash portion of the charge is approximately $2.4 million but that it expects to realize an estimated $20.0 to $25.0 million in cash over the next 24 months principally from its retained securitized portfolio.
Marshall S. Cogan, Chairman and Chief Executive Officer, said, "The decision to outsource our automotive finance operations reflects the need to focus our main attention on the sale and servicing of new and pre-owned vehicles where we have done well in 1998. We will continue to be a reliable resource for customer automotive financing in a manner that allows us to develop the economic benefits from a focused infrastructure of retail lenders, including Premier. Building on the operational progress we've made this year under Sam DiFeo's leadership, we will concentrate further on enhancing the profitability of our dealership network."
Mr. Cogan reiterated that the Company is pleased with the progress achieved in 1998 by other profit centers in UnitedAuto's dealership operating strategy, including UnitedAuto Care extended service contracts and service operations. For the third quarter 1998, same-store dealership gross profit, which includes retail sales and service gross, excluding divested stores, increased 6.3 percent versus the prior year for dealerships owned for the entire third quarter of 1997.
UnitedAuto, which has pursued a strategy based on internal growth from its existing dealerships as well as from strategic acquisitions, operates franchises representing 30 brands in Arizona, Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Nevada, New Jersey, New York, North Carolina, Puerto Rico, South Carolina, Tennessee, and Texas. UnitedAuto dealerships sell new and used vehicles and market a complete line of aftermarket automotive products and services through UnitedAuto Care, Inc. and UnitedAuto Care Products, Inc.
This press release contains forward-looking information, and actual results may materially vary from those expressed or implied herein. Factors, including, economic conditions, manufacturer approvals and acquisition risks, that could affect these results are described in the Company's Prospectus filed with the Securities and Exchange Commission on December 10, 1997.