AN AutoNation Inc

By Jeff Bennett 

AutoNation Inc. Chief Executive Mike Jackson warned Wednesday that a glut of car inventory--especially in the high-end luxury segment--is beginning to erode the profit margins dealers and auto makers have enjoyed amid the sizzling pace of U.S. auto sales.

"December was not the month everybody thought it was," Mr. Jackson said. "The industry has a hard time spotting changes so I am acting as the canary in the coal mine here. We are entering a new chapter. Yes, sales will still be above 17 million this year, but the quality of those sales in terms of lower incentives are now a challenge."

December sales for the nation's largest dealership operator rose 9% to 35,962 vehicles compared with the same period a year earlier. However, Mr. Jackson said the 9% is misleading since the boost was propped up by "significant retail discounts" within the high-end luxury vehicle segment and a few more selling days. Subtract those two elements and year-over-year sales were flat.

Auto makers such as BMW AG and Daimler AG bet December would be a strong month, with customers wanting to go big on holiday gifts. But after the hype and discount, BMW branded U.S. sales dropped 16.6% while Daimler AG's Mercedes-Benz brand posted a small 0.6% sales increase.

AutoNation dealers had to offer more cash on the hood to close the deals, Mr. Jackson said. The move reduced the company's per-vehicle gross profit for new and used vehicles by as much as $300 in the fourth quarter of 2015 compared with the same period a year earlier. A total figure wasn't provided.

Mr. Jackson intends to cut back car orders and fill his dealership lots with more pickup trucks and sport utility vehicles.

On Tuesday, the U.S. auto industry posted a record year with 17.5 million new vehicles sold in 2015. Those results eclipsed the last sales peak of 17.4 million set in 2000. The average transaction price--the amount customers are paying to buy--also hit a record of more than $34,000. Trucks and SUVs accounted for 55.7% of U.S. sales last year while cars were at 44.3%, according to Autodata Corp.

Despite the celebration, there were some signs that not everything was right. The industry's seasonally adjusted annual selling pace fell to 17.3 million in December from 18.2 million the month before. It was the first time since August the selling rate had failed to come in above 18 million.

AutoNation shares dropped as much as 10% early Wednesday. The stock was hovering in the mid-$51 range in late morning trading.

Write to Jeff Bennett at jeff.bennett@wsj.com

(END) Dow Jones Newswires

January 06, 2016 13:26 ET (18:26 GMT)

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