AutoNation to Expand Operations; Profit Falls
October 28 2016 - 8:40AM
Dow Jones News
AutoNation Inc. plans to spend as much as $500 million to expand
its footprint in the U.S., as the nation's largest dealership group
by sales confronts softening light-vehicle demand and increased
earnings pressure.
The Fort Lauderdale, Fla.,-based retailer said Friday that
income from continuing operations fell 9% in the third quarter.
AutoNation's expansion plan includes the creation of a line of
stand-alone used-car stores dubbed "AutoNation USA" that will
compete with CarMax Inc. and a crop of internet startups in the
hotly contested segment when outlets begin opening next year.
AutoNation also will expand its lucrative parts, service and
collision operations in the coming years.
In the third quarter, AutoNation recorded earnings from
continuing operations of $108 million, or $1.05 a share, compared
with $119 million, or $1.05 a share, a year ago. Revenue rose 4% to
$5.6 billion amid continued strength in truck and sport-utility
segments.
Analysts expected earnings of $1.15 a share on $5.6 billion in
revenue. The company said the continuing Takata Corp. air-bag
recall hurt results because about 14% of its used inventory can't
be sold until fixed, leading to a $6 million charge.
AutoNation Chief Executive Mike Jackson has been working to
offset several headwinds in recent months, including a decline in
demand for sedans and small cars because of lower gasoline prices
and changing consumer tastes. While U.S. light-vehicle volumes are
up for the market as a whole, retail sales to individual customers
at dealerships are struggling to keep pace with year-ago levels,
forcing auto makers to rely more heavily on fleet sales and leading
their dealers to look for other pockets of growth with potential
for higher margins.
The company added or acquired four new-car stores and a
collision center in the third quarter, representing a potential for
nearly $500 million in new revenue.
Used vehicles typically deliver higher margins than new units,
however, so the capstone of Mr. Jackson's expansion plan is opening
five AutoNation USA pre-owned vehicle sales and service centers in
the U.S. next year. The retailer has identified an additional 20
sites in its existing markets in coming years.
Mr. Jackson has complained about certain auto makers employing
irrational sales techniques, including offering deep sales
incentives that erode brand cache and deplete margins. By opening
new businesses not dependent on the sale of new vehicles,
AutoNation could lessen its exposure to the cyclical nature of the
car business by operating units that do well even when the economy
softens.
While CarMax is the best-known company in the used-car
dealership business, other major dealer groups, including Sonic
Automotive Inc., have expanded with stand-alone used-car stores.
Many startups, meanwhile, have abandoned the brick-and-mortar
approach and sell only via mobile apps or the internet.
AutoNation's new effort will feature no-haggle pricing by
employing salespeople who don't work on commission, a strategy that
follows the company's drive to create a timesaving and hassle-free
experience for buyers increasingly interested in buying cars
online.
Used vehicles sell for about $19,000 on average in the U.S.,
compared with $33,400 for new vehicles, according to the National
Automobile Dealers Association. In the best years, new
light-vehicle volumes equal about 17 million, while used volumes
exceed 40 million. The supply of good-condition used cars is
expected to grow in coming years as new-vehicle leases expire,
potentially pressuring margins but also offering more revenue
potential for sellers.
AutoNation also plans to open or acquire at least 18 new
AutoNation-branded collision centers and open four additional
AutoNation-branded auctions over the next two years. In addition,
it will offer a line of branded precision parts and automotive
accessories.
(END) Dow Jones Newswires
October 28, 2016 08:25 ET (12:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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