Salem Radio Network News Monday, July 26, 2021

Business

AutoNation tops earnings estimates, expects new vehicle demand to stay strong

By Shreyasee Raj

(Reuters) -AutoNation Inc said it expects strong demand for new vehicles to continue into next year, as low-interest rates and robust demand helped the top U.S. auto retailer trounce quarterly earnings estimates.

The company said on Monday sales of new and used vehicles surged 42% and 37%, respectively, in the second quarter.

“Consumers are buying vehicles before they even arrive at our stores. We expect the current environment of demand exceeding supply to continue into 2022,” Chief Executive Officer Mike Jackson said in a statement.

The global semiconductor chip shortage has depleted vehicle inventories and forced automakers to cut production, prompting consumers to pay more for cars.

In its latest auto-industry forecast released in June, JD Power said the average price of a new vehicle was set to reach a record $38,088 in the first half of 2021, up 10.1% over a year ago when pandemic lockdowns brought the U.S. auto industry to a near standstill. (https://bwnews.pr/3rrjBeP)

“Everyone is comparing (current prices) against the collapse of last year,” Jackson told Reuters on Monday.

A year ago, used vehicle prices were depressed as rental fleets rushed to unload vehicles stranded by the plunge in travel, he said.

Now, AutoNation is stepping up efforts to acquire used vehicles directly from consumers to meet strong demand. A new AutoNation USA used vehicle store in San Antonio was profitable in its first month of operation, Jackson said.

Fort Lauderdale, Florida-based AutoNation’s gross profit per new vehicle jumped 89% to $4,157 in the quarter ended June 30, while the gross profit per used vehicle rose 24% to $2,240.

The company had 14 days of supply for new vehicles in the quarter, compared with 49 a year earlier.

Adjusted net income from continuing operations came in at a record $4.83 per share, easily beating a Refinitiv IBES estimate of $2.81. Record revenue of $6.98 billion was also higher than expectations.

The company said overhead costs in the second quarter were 56.5% of revenue, down from 68.9% a year ago. Jackson said he expects overhead expenses will be at 60% of revenue for the full year, compared to more than 70% before the pandemic, as more than half of customers use the company’s online tools to shop and complete steps of a purchase.

“We are at a good cost place, and digital capability enabled that,” Jackson said.

The company had $1.6 billion of liquidity as of June 30 and said its board had authorized a share buyback worth $1 billion.

AutoNation also said it was on track to open four new stores in the United States in the second half and 12 new stores in 2022.

(Reporting by Shreyasee Raj in Bengaluru and Joe White in Detroit; Editing by Aditya Soni and Bernadette Baum)

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