DETROIT, Feb 11 (Reuters) - Low prices for oil and gasoline were seen as a key reason for record U.S. auto sales last year, but they have begun to pressure sales in the oil patch of Texas and Oklahoma, particularly for luxury models, Group 1 Automotive Inc said as it reported fourth quarter earnings on Thursday.
The No. 3 U.S. auto dealer group reported a decline in fourth-quarter adjusted net income of 12 percent despite a revenue increase of 5 percent. Margins per new vehicle fell 6.6 percent, or $130 per vehicle.
“While we delivered a record year in total for revenue, gross profit, and adjusted diluted earnings per share, our fourth quarter results were significantly hampered by the negative impact of continued oil and gas price decreases on the economy in our prime markets,” said Earl J. Hesterberg, company chief executive.
Those key markets, he said, were Houston, where the company is based, as well as Texas in general and its northern neighbor, Oklahoma.
Group 1 Chief Financial Officer John Rickel said in an interview that inventories of BMW and Daimler AG’s Mercedes-Benz were particularly high. There were 88 days of supply of BMW models on Group 1’s U.S. lots as of the end of the fourth quarter, compared with 58 days a year earlier. Mercedes-Benz supply was 61 days versus 49 days a year earlier.
Rickel said the strength of the U.S. dollar has led the two luxury automakers to divert shipments to the United States from China, swelling the inventory.
Two weeks ago, AutoNation Inc Chief Executive Mike Jackson also said low oil prices were pressuring sales in Texas, where the company has a strong presence. Jackson said the No. 1 U.S. auto dealer group would cut its new vehicle orders to reduce stocks of unsold inventory, in part because of the slowdown in Texas.
For the fourth quarter Group 1 reported adjusted net income of $35.7 million, or $1.51 per share, compared with $40.7 million, or $1.67 per share a year earlier. The $1.51 per share compares to Wall Street expectations of $1.80, according to Thomson Reuters I/B/E/S.
Group 1 took a fourth-quarter non-cash charge of $72.8 million primarily because of goodwill of its Brazilian operations, partially offset by a $4.4 million gain on real estate transactions. (Reporting by Bernie Woodall)