Here's What AutoNation is Doing to Fight Coronavirus Crisis

Zacks Equity Research

AutoNation, Inc. AN recently announced that the company is furloughing 7,000 employees, slashing executive pay and imposing a hiring freeze, mainly due to the coronavirus pandemic which resulted in a significant plunge in new and used vehicle unit sales including a year-over-year sales slump of about 50% in March. The parts and service business is also operating below full capacity, though auto retailers have been deemed essential services in most of the company’s markets.

Compensation reductions include 50% salary cuts for the executive director, CEO and president, 35% pay cut for executive vice presidents, 30% for senior vice presidents and regional presidents, and 20% for the remaining corporate and regional employees. AutoNation’s board of directors will also temporarily waive their retainer fee.

Further, AutoNation is delaying more than $50 million worth of planned capital expenditures through the second quarter and cutting its advertising expenditures by around 50%, along with reducing discretionary expenses.

It is a constructive step to boost the firm’s cash position and preserve financial flexibility in the face of rising global market uncertainty due to the coronavirus-induced crisis. AutoNation currently has $1.1 billion of liquidity, including more than $400 million of cash and $700 million of availability under its revolving credit facility, which would be used to deal with the downturn caused by shutdowns in production due to the pandemic.

The coronavirus pandemic has adversely impacted AutoNation’s operations, and might keep doing so. The company cited shelter-in-place or stay-at-home orders from federal, state, and local governments across the markets, from which the company derives around 95% of its total revenues, as reasons for the decline in sales.

Meanwhile, government officials and health professionals in the White House Coronavirus Task Force recently rolled out social-distancing guidelines until at least Apr 30, to contain the spread of the coronavirus in the United States. Notably, the number of confirmed coronavirus cases in the nation has crossed 330,000.

AutoNation currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The coronavirus pandemic has become a concern for other global auto biggies as well including Tesla TSLA, Honda Motor HMC, Toyota Motor TM, Volkswagen AG, Goodyear Tire, Nissan, Harley-Davidson and Hyundai Motor. Several automakers have closed their factories and suspended production, while the others plan to change manufacturing processes and cut production levels in their plants, in line with the nationwide campaign addressing the crisis.The pandemic has not only dented consumer sentiment and thwarted vehicle demand but also distorted the supply-chain balance globally.

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