AutoNation acquiring CIG Financial to form captive

AutoNation has announced an agreement to acquire CIG Financial for $85 million to launch a captive finance arm. The transaction is expected to close within 90 days, AutoNation Chief Executive Mike Manley said Thursday during the company’s earnings call, noting that CIG provides the Fort Lauderdale, Fla.-based retailer with technology and captive financing capabilities, and the move allows for further geographic expansion within the U.S. AutoNation will retain CIG’s 160 employees and tap into the Irvine, Calif.-based lender’s existing network of dealers, Chief Financial Officer Joe Lower said on the call, adding that AutoNation will roll out the captive program within the U.S. over the next six to 12 months. “CIG has everything we need to scale and improve our financial performance with modest upfront investment and little risk,” Manley said. “While this is an important addition to our growth strategy, we have no present intention to displace or replace existing captive financing with our OEM partners.” AutoNation historically has relied on third-party lenders to finance vehicle purchases and add-on products, receiving commissions for loans and leases financed on its products. [caption id="attachment_56409825" align="alignnone" width="2560"] (c) Can Stock Photo / Apriori [/caption] Manley first announced AutoNation was pursuing a captive in February and by the end of the first quarter shared plans to purchase its captive. Asbury Automotive and Penske Automotive announced similar intentions within the past year to establish captive financing. Vroom also acquired subprime lender United Auto Credit in February to establish a captive finance business. CIG originated about $195 million in loans in 2021, AutoNation’s Lower said, noting receivables stand at about $325 million, with $300 million already securitized. “We were not looking to acquire a big book of existing business,” he said, adding CIG “has a strong, proven record in underwriting and servicing.” The acquisition is in line with AutoNation’s plan to expand to more than 130 stores in the U.S. by the end of 2026, Lower added. F&I revenue ticks up AutoNation’s finance and insurance (F&I) revenue increased 1% sequentially but dipped 0.38% year over year to $367.6 million in Q2, accounting for 5.4% of the retailer’s total revenue, according to the earnings release. F&I gross profit per vehicle rose 16.5% YoY to $2,724. Gross profit per new vehicle increased 47% YoY to $6,106, while gross profit per used vehicle decreased 14.5% to $1,915. AutoNation sold 57,890 new vehicles and 77,080 used vehicles in Q2, a decrease of 25% YoY and 4.4% YoY, respectively. New-vehicle inventory improved sequentially, landing at 11 days’ supply in Q2 compared with nine days’ supply in Q1, but was down from 14 days’ supply during the same time a year ago. Used-vehicle inventory remained flat sequentially at 40 days’ supply, up from 34 days a year ago. “Strong consumer demand and tight new-vehicle inventories continue to support new-vehicle margins in the second quarter,” Lower said. “We expect demand to continue to outpace supply into the back half of 2022.” Floorplan interest expense increased 11.5% sequentially but decreased 12.1% YoY to $5.8 million. Lithia Motors’ F&I profit jumps 22% YoY Meanwhile, Lithia Motors’ F&I revenue increased to $330.4 million in Q2, up 5.5% sequentially and 22.6% YoY in Q2, accounting for 4.6% of the retailer’s total revenue, according to the earnings release. F&I gross profit per vehicle rose 19% YoY to $2,206. New-vehicle sales totaled 68,752 for the quarter, an 8.6% decrease YoY. Used-vehicle sales finished at 81,026 in Q2, a 15.3% YoY increase. About one-third of Lithia’s new vehicles are pre-sold, Chief Executive Bryan Deboer said during Wednesday’s earnings call. “There is still good demand for vehicles, and I think it's important to remember that when people are buying new vehicles, their used cars are so highly valued that the delta between the trade-in and the vehicle they're buying when the new vehicle is capped at [manufacturer’s suggested retail price], and the used vehicle is uncapped, is quite lucrative for consumers,” he said. Lithia’s floorplan interest expense dropped 22.5% sequentially and 40.6% YoY to $3.8 million due to low supply, according to the earnings release. New-car inventory sat at 32 days’ supply, up five days sequentially and nine days YoY. Used inventory rose two days sequentially and four days YoY to a 62-day supply, according to the earnings release. Shares of AutoNation [ NYSE: AN ] were trading at $117.07 at market close today, up 0.06% from market open. AutoNation has a market capitalization of $6.8 billion. Shares of Lithia Motors [NYSE: LAD] were trading at $264.47 at market close today, down 2.4% from market open. Lithia has a market capitalization of $7.7 billion. Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 26-28 at the Wynn Las Vegas. To learn more about the 2022 event and register, visit www.AutoFinanceSummit.com .

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