DETROIT (Reuters) - Toyota Motor Corp’s safety recalls will hurt U.S. dealer sales in the first quarter but payments from Toyota for the repairs will offset any dealer losses over the rest of the year, two major U.S. auto dealership groups said on Thursday.
The comments from AutoNation Inc and Group 1 Automotive marked the first time that two of Toyota’s major retail partners have detailed the financial impact on dealers of the ongoing recalls by the Japanese automaker.
Sales of Toyota and Lexus-brand sales accounted for 23 percent of AutoNation’s first-quarter new car sales. For Group 1 the total was 38 percent.
Toyota’s ongoing recall and quality crisis has been seen as a risk to both dealership groups. The automaker has recalled more than 8.5 million vehicles for faulty brakes and accelerator-related problems and faces criticism for its handling of the crisis.
The two recalls in the United States -- one for sticky accelerator pedals and the other to address the risk that floormats could trap the pedal -- have disrupted Toyota’s sales in its largest single market since late January.
Shares of AutoNation ended 3 percent lower at $17.69 on the New York Stock Exchange on Thursday, after falling as much as 4.2 percent. Group 1 shares closed 6.1 percent lower at $28.41, after falling as much as 9.5 percent during the day.
“Obviously the sales impact is right now,” AutoNation Inc Chief Executive Mike Jackson told analysts on a conference call after the leading dealership group reported quarterly results.
“The recoupment of that will take more time and come over the course of the next several quarters. I would say all in, they probably offset each other. So for the year it’s a non-event,” Jackson said.
Earl Hesterberg, chief executive of Houston-based Group 1 Automotive, also said he believed warranty claims would offset the loss of new car sales.
“I think over the long term that’s likely to be the case,” Hesterberg said in response to a question.
JP Morgan analyst Himanshu Patel also said the impact on Toyota sales from its recalls would be short in duration. “We think Toyota’s recalls will affect its U.S. market share in the near term, but they are unlikely to have a material impact in the long term,” Patel said in a note for clients on Thursday.
The Toyota recall for sticky accelerator pedals announced in late January was the more disruptive of the two for dealers. Dealers have been prohibited from delivering vehicles covered by the recall to consumers until the cars have been fixed.
Fort Lauderdale, Florida-based AutoNation said it expected to have completed repairs on Toyota vehicles in its inventory over the next week to 10 days. At one point, 56 percent of the company’s inventory of new Toyotas and 22 percent of the used Toyotas it has for sale had been frozen by the recall.
Hesterberg said the sales hold on Toyota vehicles under recall represented about 20 percent of its new vehicle sales and would be a drag on first-quarter results.
“I would guess we lost two-plus weeks, if not three weeks, of some pretty good volume Toyota sales,” Hesterberg said.
U.S. new car sales have been in a four-year decline, slumping to a 27-year low at 10.4 million vehicles in 2009.
But major dealership groups have been sheltered during the decline because parts and service generate far higher margins.
At Group 1, for example, parts and service revenues cover between 80 and 90 percent of fixed costs in a quarter.
While the Toyota recalls will be costly for the automaker, they will be profitable for dealerships, which will charge the repair costs back to Toyota under warranty programs.
For example, the metal shim that dealers will install in Toyota accelerator pedals to keep them from sticking is a 15 cent part, Jackson said. The charge to Toyota for the repair is about $70, he said.
The cost of reshaping an accelerator pedal and the surrounding area to address the floormat recall will be about $250, Jackson said.
Most of the cost of providing the repairs will be labor, both dealership groups said.
Group 1 reported a fourth-quarter operating profit broadly in line with expectations. The company posted a net loss of $2 million, or 8 cents per share. Excluding one-time items, the retailer had an operating profit of 43 cents per share, a penny shy of analyst expectations as tracked by Thomson Reuters I/B/E/S.
AutoNation, which posted earnings that beat analyst expectations for the fourth quarter on Thursday, said it expected that the Toyota recalls would reduce first-quarter earnings by less than a penny per share.
Excluding one-time items, AutoNation reported earnings from continuing operations of 29 cents per share. Analysts on average expected 27 cents.
“February will be a disrupted month from a sales point of view,” Jackson told Reuters in a telephone interview when asked about Toyota.
Sales should hit their “stride again in March, April and in that period of time Toyota should have recovered the majority of share it has lost during this disruptive period,” he said.
Jackson said he expected Toyota to “move aggressively” to support new car sales once the recalls are completed.
“The Toyota brand will not suffer any significant long-term damage to its reputation for quality, safety and dependability,” he said.
AutoNation and Group 1 both said they expected 2010 U.S. industry-wide sales to recover to 11.5 million vehicles.
Reporting by Kevin Krolicki and David Bailey, editing by Matthew Lewis