Used-car momentum only beginning for AutoNation

FORT LAUDERDALE, Fla.  - 

AutoNation opened three standalone used-car stores in 2017, rolled out its fourth in January and has plans to open its fifth AutoNation USA location — this time in Las Vegas — by the end of this quarter.

What’s more, the retailer is making additions on the wholesale side of pre-owned, too, with plans to open an AutoNation Auto Auction in Atlanta by the end of the quarter, the fourth auction facility for the dealership group.

This used-car momentum discussed by AutoNation management during its latest earnings call comes on the heels of what was a strong fourth quarter in pre-owned.

Total used-vehicle retail revenue was up 2.4 percent in the fourth quarter at $1.14 billion, with retail used gross profits up 7.7 percent at $75.2 million. AutoNation retailed 55,944 used cars during the quarter, up 1.3 percent from Q4 of 2016.

Wholesale revenue, however, was down 34.4 percent at $69.7 million, but gross profits there climbed to $2.8 million, up from a loss of $4.4 million a year earlier. 

During the Q&A portion of the call with analysts, AutoNation chief executive Mike Jackson was asked about AutoNation’s used-to-new retail sales ratio – estimated by the questioner to have softened year-over-year to 0.6-to-1— and whether the retailer could pivot to used to counterbalance what could be slower new-car sales for the industry.

“In pre-owned, you know, I’ll take a quarter like this the rest of my career, but I don’t think I’m going to get it,” Jackson said. “We had an increase in gross profit all-in in our pre-owned business, same-store sales, of 16 percent. Now every quarter is going to be a little different where you find the optimal line between margin and volume. Also we were much more effective in … our wholesale operations.

“Very good operational execution, combined with finding the optimal line between volume and profits, led to an outstanding result. I think over time, you’ll see our pre-owned business is growing faster than our new business, but in this particular quarter it went the other way, but the results all in are outstanding and I wouldn’t change a thing,” he said.

One thing that is changing, both at AutoNation and industrywide, are the growing presence of standalone pre-owned outlets.

Chief financial officer Cheryl Miller said it’s still too early to gauge the success of AutoNation USA, quite yet.

“We’re really talking about four or five stores at this point. (It’s) challenging to compare the early results, because two of those stores were in Texas. And so when you look at the impact of the hurricanes in Corpus and Houston, certainly you can’t extrapolate those trends from the early results. But stay tuned there,” Miller said. “But I’d say from a materiality standpoint, currently the AN USA stores are not material to the overall volume.” 

However, one area of the AutoNation USA business that is already starting to show some positive results is the customer-pay service initiative.

Scott Arnold, who is AutoNation’s executive vice president of customer care and brand extensions, said: “We are starting to see customer-pay traffic come into the store. We’re seeing that coming off of the used cars that are being sold. 

“We offer a maintenance program at no cost to the consumer when they purchase a vehicle. And so that customer is now starting to come back in to the earlier USA stores and showing up as a customer-pay customer,” he said. “So, yes, we are starting to see the traffic build. It will build slowly at first, but consistently and continue to move up.”

 

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