Sector Snap: Auto Dealers

NEW YORK (AP) — The "auto retail ecosystem" has changed significantly, said a Goldman Sachs analyst, raising earnings estimates on three auto dealers while downgrading AutoNation Inc.

The impact of Chrysler LLC and General Motors Corp. cutting their ties to dealers and the possible "cash for clunkers" legislation will boost Sonic Automotive Inc., Group 1 Automotive Inc. and Penske Automotive Group Inc., said Goldman Sachs analyst Matthew Fassler.

Meanwhile, he downgraded AutoNation Inc. to "Sell" from "Neutral," saying his prior sales forecast was too high, and a recovery in auto sales will boost the company's earnings less than it will its competitors. AutoNation will also feel the heaviest initial impact on its sales from the restructuring and cutting of ties to dealers of auto makers General Motors Corp. and Chrysler LLC, Fassler said.

Last week, Chrysler asked a bankruptcy court to end its franchise agreements with 789 dealers, while GM gave notice to 1,100 dealers that it wouldn't renew their contracts.

However, the net impact of likely dealership closures will be positive for the auto retailers, he said, and they will likely make gains in market share. The big publicly traded dealerships are "likely to retain higher proportions of their domestic stores than privately owned dealers, as access to public capital typically implies firmer viability for these retailers....this factor outweighs prospective loss of franchises."