AutoNation has a bumpy ride as investors worry about U.S. consumers

People look at vehicles for sale at the AutoNation dealership lot in Cerritos, California December 9, 2015. REUTERS/Mario Anzuoni/File Photo

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April 21 (Reuters) – AutoNation Inc (AN.N) and other brick-and-mortar car dealerships in the United States benefited from a shortage of new and used vehicles in the first quarter, but shares of the No.1 U.S. auto retailer were volatile on Thursday as analysts questioned the outlook for consumer demand.

In a conference call Thursday, analysts asked AutoNation Chief Executive Mike Manley whether consumer demand for new vehicles was slowing and why AutoNation used-car profit margins had shrunk over the past year. first trimester.

AutoNation shares were flat in early trading, having initially risen 4.6% to $110.70 premarket and then fell nearly 5%.

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Rising interest rates, high gasoline prices and general inflation in the US economy are putting pressure on consumers. Manley told Reuters that demand for used and new vehicles remains strong.

“We haven’t seen any decline in our investigation levels,” Manley said. “They are up year on year. The industry is at a level where there is more demand” than supply for vehicles.

Manley told analysts that while the annualized pace of U.S. auto sales has hit recessionary levels, it reflects hits to production from supply chain grunts.

“We have customers for whatever comes along,” Manley said.

AutoNation reported adjusted diluted earnings per share of $5.78, beating estimates of $5.25 per share, according to Refinitiv IBES data. Strong demand for used vehicles and significantly higher profit margins on new vehicle sales drove up profits.

AutoNation and Lithia Motors, two of the largest U.S. auto dealership chains with hundreds of stores each, both beat investor expectations from January through March. Online used-car retailer Carvana, however, reported a bigger loss on Wednesday than analysts had expected and its shares fell before the market opened.

Lithia’s chief financial officer, Tina Miller, also told Reuters that “demand continued to outstrip supply” even as vehicle prices rose, pushing average monthly payments to around $450 from around $300 before the start. pandemic.

Lithia announced on Wednesday that it had doubled its first-quarter net profit from a year earlier, as revenue rose 54%.

AutoNation said its average gross profit on new vehicles sold more than doubled in the first quarter from a year earlier, reaching $6,112.

AutoNation’s used vehicle sales increased 47%, but average gross profit on used vehicle sales fell 10%.

Manley said the company became concerned about price and sales trends for certain used vehicles during the quarter and decided to eliminate inventory. “We started using the data we had. We corrected very aggressively during the quarter,” Manley said.

AutoNation, Lithia and other U.S. car dealerships built on traditional showrooms are rapidly expanding the ability to sell and finance vehicles online, while developing highly profitable repair operations that online dealerships such as Carvana n don’t have. AutoNation reported gross profit margins of 45.9% on parts and service in the first quarter. Services revenue increased by $1 billion, up 18% from a year ago.

AutoNation’s net income was $362.1 million, or $5.78 per share, for the quarter ended March 31, compared with $239.4 million, or $2.85 per share, one year earlier.

Revenue rose 14.4% to $6.75 billion, above estimates of $6.48 billion.

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Reporting by Ashwini Raj in Bengaluru and Joseph White; Editing by Amy Caren Daniel, Tomasz Janowski and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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