AutoNation Finance originations up 74%

AutoNation Finance ’s origination volume jumped 74% sequentially in the fourth quarter as the retailer launched captive financing at nearly all its franchised stores by yearend 2023 and saw improved aftermarket product sales. AutoNation’s captive, formally CIG Financial , originated about $110 million in loans, up from $63 million in Q3, Chief Financial Officer Tom Szlosek said during today’s earnings call. AutoNation Finance’s portfolio stands at about $450 million, he said. AutoNation Finance projects originations “could double” in 2024, Szlosek said. “In addition to fully supporting all AN USA stores , we now have AutoNation Finance present in nearly all franchise stores,” he said. “The AutoNation Finance business continues to improve in all dimensions, including penetration in our stores, profitability and delinquency rate.” Delinquencies decreased by about 200 basis points (bps) through the end of January compared to a rate of about 7.5% in Q3, Szlosek said. The company continued integrating its captive finance arm across its entire portfolio during the quarter, AutoNation Chief Executive Mike Manley said on the call. In Q4, the retailer also opened AutoNation USA stores in Fort Myers, Fla., and Plano, Texas, which followed openings in Jacksonville, Sanford and Wesley Chapel, Fla. earlier in 2023, he said. AutoNation operates more than 300 locations nationwide, according to the retailer’s website. F&I GPU ticks down AutoNation’s F&I revenue was nearly flat YoY in Q4: F&I revenue tallied $347.4 million, up 0.7% YoY; Full-year F&I revenue decreased 1.3% YoY to $1.4 billion; F&I gross profit per unit was $2,674 in Q4, down 1.1% YoY; and F&I revenue accounted for 5.1% of AutoNation’s total revenue and 28.6% of total gross profit in Q4, according to the release. F&I gross profit per vehicle retailed was partially offset by the “shifting of economics related to AutoNation Finance lending,” Szlosek said. “The upfront fees previously received from non-recourse, third-party lenders are now deferred over the life of the AutoNation Finance loan.” Leasing also picked up at AutoNation, rising to 23% of new-vehicle sales in Q4 compared with 13% a year prior, Szlosek said. Aftermarket profits up AutoNation’s product attachment rates increased on new vehicles, according to the presentation. Aftermarket product sales generated $540 million in gross profit, up 12.7% YoY, while after-sales revenue increased 11% YoY to $1.1 billion, driven by higher repair order volume and elevated value per repair order, according to the presentation. After-sales gross profit market rose 70 bps YoY to 47%. Aftermarket sales represented about 44% of AutoNation’s total gross profit for the quarter, Szlosek said. “Customer pay, warranty and internal all experienced double-digit year-over-year growth,” he said. “This high-margin business is a key part of our continued engagement with our customers, and we're focused on capacity utilization technician development to support the continued growth of the business.” For the full year, after-sales gross profit reached $2.1 billion, up 13% YoY, according to the release. Floorplan interest expense rises The retailer’s floorplan interest expense jumped 136% YoY to $46.5 million in Q4 and soared 249.5% YoY for the full year to $144.7 million, according to the release. The increase is a “reflection of higher rates and inventory levels,” Szlosek said. “Used-vehicle sales and profitability continue to be a big area of focus for us as we emphasize effective sourcing, pricing and speed while optimizing customer satisfaction,” he said. AutoNation sold 64,748 new vehicles in Q4, up 7.8% YoY, while used-vehicle sales ticked down 3.6% YoY to 65,151 units. “Mix between price bands is normalizing,” Manley said. “As a result, we've seen lower demand on higher-priced used vehicles partly because of affordability and because new vehicles are becoming more available with a lower net transaction price, which is often accompanied by subsidized lending rates, which makes new product more compelling for a number of our customers,” Manley said. New-car days’ supply sat at 36 in Q4 compared with 19 a year prior, while used-vehicle supply rose to 39 days compared with 31 days a year earlier. “Inventory levels are expected to continue to grow in 2024,” Manley said. Shares of AutoNation [ NYSE: AN ] were trading at $147.82 as of market close in New York today, down 3.94% from market open. AutoNation has a market capitalization of $6.3 billion. Early-bird registration is now available for the second annual Auto Finance Summit East 2024 , May 1-3 in Nashville, Tenn., which gathers lenders, dealers and fintech innovators in an event designed to bring the power of technology to a cross-section of industry players. Early-bird pricing ends March 15. Visit AutoFinance.Live to learn more.

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