AutoNation Inc. shrugged off a sales decline to post record profit in the second quarter as US prices for new vehicles soar.
The nation’s largest auto dealer chain said earnings were $6.48 a share during the period, up 34% from a year earlier and beating analyst estimates. Revenue fell 2% to $6.9 billion and just missed the consensus forecast.
High prices, instead of robust sales, are driving profit for US dealers and automakers. An ongoing semiconductor shortage has limited production, putting vehicle sales on track to fall to the lowest level in a decade. But with lean inventories and no discounting, profits remain strong.
“Our industry is in a very unusual situation,” AutoNation Chief Executive Officer Mike Manley said in an interview. He said the annualized selling rate at the end of June indicates 2022 vehicle sales of about 13 million.
“That’s normally a recession for the industry — but because we don’t have tons of vehicles parked on the ground, we can maintain our performance because of pricing,” Manley said. “That will continue for the balance of the next year.”
AutoNation’s new vehicle gross profit per vehicle was $6,106, up 47% from the year-ago period. In June, the average new vehicle sold by all dealers in the U.S. surpassed $48,000 — a record, according to Cox Automotive.
The story is a bit different for used vehicles, Manley said. That market likely peaked last year and prices have softened for used models selling under $20,000. More expensive used cars remain pricey and sales are strong, but buyers of older models are likely more sensitive to rising interest rates, he said.
For AutoNation, gross profit per used vehicle sold was $1,915. That’s down 14% compared to a year earlier, but up 22% from first quarter. That’s because AutoNation sold more in-demand, higher priced used cars.
Manley said he sees profit and pricing remaining strong for the rest of the year. “Unemployment is still incredibly low and demand is robust,” he said.
— By David Welch (Bloomberg)