Sales decline, weak economy hit U.S. car dealers

By Poornima Gupta

DETROIT (Reuters) - Auto retailers swung to a quarterly loss in the third quarter, beaten down by the decline in U.S. car sales, tight consumer credit, and a weakening U.S. economy as well as hurricane-related damages.

But shares rose sharply on Tuesday for Group 1 Automotive Inc and Sonic Automotive Inc after they laid out programs to cut costs and conserve cash.

Sonic, the No. 3 U.S. auto retailer, said on Tuesday that it had stopped various planned showroom-related projects, while Group 1 said it would slash capital spending and detailed a cost-cutting plan to save $35 million (22.5 million pounds) on an annualised basis.

Also supporting the shares of dealers, and U.S. automakers, was a broad stock market rally as investors snapped up beaten-down shares and bet that credit markets would become more flexible.

Group 1, the No. 4 U.S. retailer by sales, said it suspended its 2008 full-year outlook because of the economic volatility in the United States, but forecast a "substantial" drop in near-term revenue. The company also warned that additional cost-cutting actions may be needed, and lowered its acquisition target for the year.

Group 1 said it began cutting costs this month, including personnel reductions, which are expected to produce annual savings of $21 million, and decreased advertising spending, expected to save $11 million a year.

Factors affecting the economy have driven U.S. light-vehicle sales to near 15-year lows.

LENDING STANDARDS TIGHTEN