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By Kristine Owram, The Canadian Press

TORONTO – The Canadian automotive retail sector was much stronger in the third quarter than in the first six months of 2009, but dealerships continue to take a beating from tight credit markets and vehicle sales incentives, according to AutoCanada Income Fund (TSX: ACQ-UN.TO).

In a conference call with analysts Tuesday, the dealership firm said overall Canadian sales of new vehicles were down six per cent in the third quarter, compared with a decrease of 18.3 per cent in the first six months of the year.

However, AutoCanada chief financial officer Tom Orysiuk said difficulty in selling financing and insurance to consumers, as well as declines in per-unit revenue, are hurting dealership owners like AutoCanada.

In the third quarter, AutoCanada’s same-store finance and insurance revenue declined by $2.1 million or 16.4 per cent due to a 5.9 per cent decrease in the number of units financed and a 12.1 per cent decline in the average finance and insurance revenue per vehicle.

“This decrease is mainly due to tighter lending conditions due in part to the economic downturn, which has lowered our ability to sell additional finance insurance products,” Orysiuk said.

“The tighter lending conditions have also resulted in a higher amount of cash deals, which directly affects our finance and insurance revenue.”

Edmonton-based AutoCanada used to get its financing from Chrysler Financial, which was forced to wind down due to a lack of capital after Chrysler LLC filed for bankruptcy protection in the United States in April. The fund now gets its financing from General Motors’ financing arm, GMAC.

Dealerships have been hit particularly hard by the tightening of credit markets that followed the financial meltdown last year since they rely on credit to finance inventories as well as to lend to consumers.

Although Orysiuk acknowledged that credit markets are loosening a little bit, he said “it’s not where it was a year ago or a year and a half ago by a long shot.”

In addition, AutoCanada’s same-store new vehicle revenues decreased by 3.3 per cent or $3.5 million due to a decrease in the average selling price of new vehicles of $1,109 or 3.5 per cent.

“The decrease is mainly a result of continued higher manufacturer incentives and/or reductions to manufacturers’ suggested retail prices,” Orysiuk said.

AutoCanada, which owns 22 dealerships across the country, including several Chrysler outlets, said inventory shortages also continued to be a problem in the third quarter as a result of decreased vehicle production in the first six months of the year.

On the used vehicle side, Orysiuk said fewer used vehicles sold led to a decrease in same-store used vehicle revenues of 3.4 per cent. This was partially offset by an increase in the average selling price of used vehicles of $873 or 4.1 per cent.

Used vehicle prices have been rising steadily throughout 2009 as a decrease in supply from fleets and leased vehicles combines with growing demand.

Last week, AutoCanada Income Fund said it earned $5.1 million or 26 cents per share in the third quarter compared with a loss of $38.3 million or $1.89 per share a year ago.

Revenue totalled $212.9 million, down from $216.7 million in the third quarter of 2008.

The fund plans to convert to a corporate structure because of the tax changes coming for income trusts. Unitholders will vote on the conversion at a meeting Dec. 17.

Orysiuk said Tuesday he anticipates that AutoCanada will declare a “modest” dividend in 2010, but its first goals are to pay down debt and take advantage of acquisition opportunities.