AutoNation Inc (AN.N) on Tuesday reported quarterly adjusted profit that almost tripled from last year as the U.S. auto retailer benefited from higher earnings per vehicle, amid a global chip shortage that has forced automakers to cut production and raise prices.
Low interest rates and consumers’ preference for private vehicles over public transportation has helped demand at U.S. auto dealers during the COVID-19 pandemic, while a semiconductor chip shortage has created a supply crunch.
“Demand continues to exceed supply for new vehicles, and we expect this to continue throughout 2021, in part due to the production disruption,” Chief Executive Officer Mike Jackson said.
AutoNation’s gross profit per new vehicle at stores that have stayed open for at least a year jumped 61% to $2,739 in the first quarter from a year earlier. The company’s gross profit per used vehicle jumped 17% to $1,744.
At the same time, Jackson said AutoNation kept overhead costs down using digital sales systems. Overhead costs were 62.7% of revenue, down 11.2 percentage points from a year earlier.
So far, Jackson said, reduced inventories were not cutting into sales. Instead, automakers are cutting production of slow-selling vehicles, and those vehicles that arrive at AutoNation stores “are going right out the door,” Jackson said.
“For first time there’s conversation with manufacturers that this may be a better way to run the industry,” Jackson said.
AutoNation said during the first quarter, it bought 11 stores and a collision center from Peacock Automotive Group, adding $380 million in annual revenue. Jackson said he expects more consolidation among U.S. auto dealers as more vehicle purchases move online.
“Only the biggest groups can build proprietary digital tools. That’s tough to compete against,” Jackson said. “You’re going to see quite a number of acquisitions ..not just by us.”
Fort Lauderdale-based AutoNation’s quarterly adjusted net income from continuing operations jumped 183.7% to $233.8 million, or $2.79 share, in the first quarter, compared with $82.4 million, or 91 cents per share, a year earlier.
Revenue rose 26.5% to $5.90 billion. The company said it had $2.1 billion of liquidity as of March 31.