By Mike Spector
AutoNation Inc. said second-quarter profit surged, as the
nation's largest dealership chain rode a car sales boom expected to
reach the highest levels in more than a decade.
The Fort Lauderdale, Fla.-based company reported a
second-quarter profit of $115.1 million, or $1 per share, up more
than 14% from $100.4 million during the same time frame a year
earlier.
AutoNation's revenue rose more than 9% to $5.2 billion amid
rising new vehicle sales and strong results across other business
segments, including used vehicle sales, parts and service and
finance and insurance. The company said net income from continuing
operations hit a record.
Still, AutoNation's results missed Wall Street expectations.
Analysts polled by Thomson Reuters expected AutoNation to earn
$1.02 per share. AutoNation shares fell more than 3% in early
morning trading to below $63.
But the dealership chain's stock has more than tripled since the
worst of the financial crisis in 2008, when auto sales plunged and
some auto makers were forced to take government rescues and seek
bankruptcy protection. "The trend line is what I look at," Chief
Executive Mike Jackson said in an interview.
Mr. Jackson downplayed the fallout from two hackers' public
display this week of their ability to commandeer a moving Jeep's
air conditioning, brakes and engine from a laptop miles away. The
hackers said they aimed to raise awareness of vulnerabilities in
Internet-connected cars. "The industry absolutely has very robust
encryption protection around vehicles," Mr. Jackson said. "I have
no hesitation getting in my cars."
AutoNation's rising profits reflect low interest rates and gas
prices that are spurring a torrid pace for auto sales. Mr. Jackson
said the company expects new-vehicle sales to surpass 17 million
for the full year, a level not seen since 2001. The dealership
chain's new-vehicle sales rose 6% during the second quarter,
bringing in nearly $3 billion in revenue.
Lithia Motors Inc., a Medford., Ore., dealership chain, on
Tuesday reported financial results that beat expectations, further
underscoring the revved-up market for cars in the U.S.
With interest rates low, dealerships are able to offer
longer-term financing, broadening the range of buyers who can
afford a new car. AutoNation also cited broader pent-up demand for
new cars, with the average vehicle on U.S. roads more than 11 years
old. Lower gas prices, meanwhile, are padding consumers'
pockets.
Lower fuel prices are also spurring consumers to buy larger,
less-efficient pickup trucks and sport-utility vehicles that
typically deliver higher margins for auto retailers than passenger
cars. Light-truck sales were up 9% during the second quarter,
according to Wells Fargo & Co. Expensive luxury vehicles, too,
have been selling well, helping boost dealers' bottom lines.
"There is more installed capacity in passenger cars than there
are people to buy them," Mr. Jackson said. He predicts low gas
prices will persist, challenging auto makers that need to sell
fuel-efficient cars to meet stringent government mileage and
emissions regulations. "We're in a new era for a while," he said of
lower fuel prices, adding that the trend makes selling hybrids and
electric cars difficult.
Mr. Jackson said AutoNation completed six months ahead of
schedule the first phase of an online program called AutoNation
Express that allows customers to reserve and put deposits down on
vehicles. More than 20% of the dealership chain's sales were
generated from its own websites during the first half of 2015, he
said.
Mr. Jackson made waves earlier this month when he cut ties with
TrueCar Inc., an online car-buying site. Mr. Jackson hopes to
bolster AutoNation's online shopping capabilities to reduce
reliance on third parties on sales and cut down on time spent in
the dealership.
AutoNation is also on the front lines of widespread safety
problems affecting the U.S. auto industry, especially with vehicles
featuring rupture-prone air bags manufactured by Takata Corp. of
Japan. The dealership chain completed more than 20,000
Takata-related recalls in the second quarter. The company expects
over the next several years to replace an additional 400,000 air
bags at AutoNation dealerships.
Mr. Jackson reiterated his support for the terms of a settlement
between American Honda Finance Corp. and the Consumer Financial
Protection Bureau and U.S. Justice Department on allegations of
discriminatory lending practices. He called the terms, which
involve capping dealers' markup of interest rates, a "workable
template" that other car retailers should follow. "CFPB is here to
stay, this issue is here to say," Mr. Jackson said.
Write to Mike Spector at mike.spector@wsj.com
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