FORT LAUDERDALE, Fla. -

AutoNation explained to Wall Street observers on Thursday a strategy many dealers likely are employing nowadays. If a trade-in can be retailed, it’s going to be through any means available.

In fact, president and chief operating officer Michael Maroone said the company transported 10,000 used units from one store to another during the second quarter. The strategy helped AutoNation retail 46,236 used models during Q2; a total that was 7.9 percent higher year-over-year.

“We are working hard to source the vast majority of our inventory internally through acquiring trades and purchasing off-lease vehicles. In addition we continue to move used vehicles from originating stores to a more optimal locations,” Maroone explained during a conference call as AutoNation revealed its second-quarter financial report.

“We moved 10,000 vehicles last quarter. I think that speaks to the size and scale we have as a company,” he continued.

Several questioners during Thursday’s call asked about AutoNation’s used business, which posted a 6.8-percent gain in second-quarter used revenue but suffered softening used gross margins in both the retail and wholesale channels.

Wringing the most out of a trade-in is why AutoNation has 27 of what it calls “vehicle value outlets” to turn older, high-mileage inventory. Maroone also noted the company is testing a concept it’s dubbed a “premium vehicle value outlet” to further enhance what units are coming on the lot after a new or late-model vehicle is sold.

“We’re seeing cars with higher mileage. We’re seeing older cars, which I think reflects the pent-up demand and the replace needs (chairman and chief executive officer) Mike Jackson speaks to. For our part, we’re just finding more ways to retail those cars rather than wholesale them.” Maroone highlighted.

But one analyst wondered if AutoNation is handing out more cash for a trade to get a deal done even though Maroone said the company is keeping its used supply “lean,” at about 31 days’ supply as of the end of the second quarter.

“We clearly are very aggressive trying to win trades,” Maroone acknowledged. “We do that full knowing that we can move that trade to another location that will allow us to generate more revenue and a higher gross profit margin. We’re competing vigorously. We made a conscious attempt to not be a big auction buyer so that’s not the source of product.

"We know when we create that transaction, even if we have to step up to that number to get that nice trade, we create that transaction and give ourselves an opportunity to have several other transactions both on the F&I side and the used side of the business and ultimately in our customer care owner base," Maroone added.

“We also are very careful what we keep in trade and what our balances in inventory,” he went on to say. “Staying lean really makes sure that we don’t have a surprise coming around the next corner. We’re very aware of the valuations and I think our critical mass really helps us.”

AutoNation executives didn’t fret about their used Q2 gross profit dipping a bit year-over-year. The figure settled at $77.1 million, 1.5 percent lower than a year earlier as AutoNation determined its gross profit on retailed used units ticked down to $1,624 from $1,800.

“We’re very focused on the used-car business. The change is more in the recovery in the new-car business,” Maroone emphasized. “I think the used-vehicle business is still a great opportunity. The margins do seem to fluctuate a little bit quarter to quarter.”

Update on AutoNation Direct

Continuing on the topic of used vehicles, investment analysts wanted more details about AutoNation Direct, the company’s online sales site.

As part of its nationwide launch back in March, AutoNation Direct unveiled a campaign to sell more than 25 vehicles for half price through eBay Motors. Those vehicles were offered 50 percent off MSRP and included units from Ford, General Motors and Nissan within the 2011–2013 model year range.

Then in June, Avis Budget Group rolled out a new program to move late-model off-rental units directly to the public through AutoNation Direct. Auto Remarketing published details about the program here.

“AutoNation Direct has been very successful for us,” Maroone said during Thursday’s call. “What we really use it for is to test different concepts in retail and to try a number of different ideas in pricing and serving customers. It’s really showing us that our size and scale does work.

“As we build these affinity relationships, which is the basis of AutoNation Direct’s customer flow, it allows us to serve customers in a very alternative way,” he continued. “It’s quite a unique opportunity and we’re really pleased with it. We’re learning a lot from the AutoNation Direct business.”

A call participant then asked Maroone if retails and rental companies joining forces to move used vehicles would have negative industry consequences.

“I don’t see it as a threat,” Maroone responded. “I see it as very few rental companies have an appetite to open a large number of retail locations. I think the Avis test and its early in the test, shows maybe there’s an opportunity there for retailers to partner with rental companies to find ways to innovate. We’re excited to go down those roads.”

Company’s Overall Q2 Performance

Discussing the overall performance during the period, officials said the company’s second-quarter revenue totaled $3.9 billion, compared to $3.3 billion in the year-ago period, an increase of 17 percent that was driven primarily by stronger retail new-vehicle unit sales.

AutoNation’s retail new-vehicle unit sales increased 29 percent. Jackson, the chairman and CEO, mentioned CNW Research data that determined total U.S. retail new-vehicle unit sales increased 15 percent.

“We delivered solid double-digit growth in operating income in the second quarter, driven by improved gross profit in our new vehicle, parts and service, and finance and insurance business sectors, as well as significantly improved operating leverage. We are very pleased with our strong year-over-year growth in these areas of our business,” Jackson said.

“We continued to see a strong new-vehicle selling environment in the second quarter, supported by genuine replacement demand, a healthy credit environment, and accelerated product offerings. We are expecting industry new vehicle sales to reach mid-14 million units in 2012,” Jackson added.

Jackson on Stair-Step Incentives and Inventory Levels

During Thursday’s call’s Jackson also touched on a pair of issues Auto Remarketing highlighted in this report — Edmunds.com and Manheim on the use of stair-steps incentives as well as Tom Webb’s view that automakers are getting away from “bad practices.”

“Stair-steps are still used by certain manufacturers,” Jackson pointed out. “They are definitely an old-school practice that wreaks havoc with customers. And with margins, they seed a lot of distrust in the marketplace. They really have no reason to be in today’s marketplace but we have to struggle and deal with them.

“The inventory situation compared to five years ago, we’re in an entirely new world,” Jackson added later in the call. “When something is not selling, the manufacturers stop making it rather than putting on additional shifts. The quality of the inventory as far as its configuration is dramatically higher. Manufacturers are really trying to produce exactly what people would like to buy and the levels of inventory are acceptable.”