AutoNation gets top estimates on high demand for used cars

AutoNation gets top estimates on high demand for used cars

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

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Feb 17 (Reuters) – No.1 U.S. auto retailer AutoNation Inc (AN.N) beat Wall Street estimates for fourth-quarter profit and revenue on Thursday on robust demand for used vehicles boosted by the consumer preference for personal transportation due to the COVID-19 pandemic.

Shares of the company rose 5% in premarket trading.

The results cap a year of meteoric profit growth for the auto retail industry, with sales surging as cash-strapped consumers scramble to buy cars at record prices.

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“We expect consumer demand for personal vehicle ownership to remain strong for the foreseeable future,” Mike Manley, who took over as CEO of AutoNation on Nov. 1, said in a statement.

Manley told Reuters that AutoNation’s results reflected a structural improvement in the profitability of its finance and insurance and aftermarket operations. The company also benefits from its approach to the used-vehicle market, he said.

AutoNation now acquires 90% of the used vehicles it sells through trade-ins or by buying vehicles from consumers, allowing the chain to largely circumvent price volatility at auto auctions, Manley said. The company said it plans to open 12 more AutoNation USA used vehicle stores over the next 12 months.

AutoNation also has “an active M&A interest” in adding new vehicle franchises to its portfolio, Manley said.

Rising interest rates, which increase monthly payments for consumers who buy on credit, are “certainly something we’ll be watching,” Manley said. But now Manley said: “We have a degree of pent-up demand that will be met.”

Strong consumer demand during the pandemic coinciding with vehicle production cuts forced by semiconductor shortages drove average vehicle transaction prices to record highs this year, according to auto industry consultants. last.

AutoNation said incoming new-vehicle inventory, for the most part, has already been pre-ordered by customers.

The company said retail gross margin per used vehicle was $2,063 in the quarter, up 32% from the year-ago quarter, while retail gross margin per new vehicle was $6,450, up 132% from a year ago.

Excluding items, it earned $5.76 per share, beating estimates of $4.96 per share, according to Refinitiv IBES data.

The Fort Lauderdale-based company said revenue from used vehicle sales increased 55% from a year earlier.

However, retail unit sales of new vehicles fell 20% in the quarter ended Dec. 31.

Net income reached $387.1 million, or $5.87 per share, in the quarter, compared to $151.5 million, or $1.73 per share, a year ago.

AutoNation’s revenue rose 13.8% to $6.58 billion. Estimates were $6.37 billion.

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Reporting by Kannaki Deka in Bengaluru and Joseph White in Detroit; Editing by Amy Caren Daniel and Mark Porter

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