Buoyed by robust sales at its AutoNation USA used vehicle stores, its parts and service business, and its consumer finance services unit, AutoNation reported record financial results for its fourth quarter and entire year ending Dec. 31.

AutoNation is also “aggressively looking” at adding a captive finance company, said chief executive officer Mike Manley during the company’s Feb. 17 earnings conference call.

AutoNation operates 10 AutoNation USA used vehicle stores and plans to add 12 more over the next 12 months, Manley said. The company’s previously announced aim to operate over 130 AutoNation USA stores by the end of 2026, remains on track, he added.

Considering the company’s plans and aspirations, especially as it relates to enlarging its AutoNation USA footprint, it is “absolutely appropriate” for AutoNation’s executive team to look at the opportunity of adding a finance company, Manley said.

“I think it’s important for the largest auto retailer in the country to be able to offer finance through a captive where we can tailor-make services, where we can make sure that the relationships that we build with our customers are deep, where we can be flexible to make sure we account for different cycles, different changes in buying habits,” he said. “So I’m strongly in favor of that.

“I think this is an area where, let me say, aggressively looking is probably as close as I would put it right now because it’s something I think really could add value in multiple ways not just from a profit contribution perspective.”

Net income and revenue grow

In the fourth quarter that ended Dec. 31, AutoNation’s net income of $387.1 million was up 156%, and for the entire year, its net income of $1.37 billion represented a 260% increase.

Also in that three-month period, the company’s revenues increased 13.8% to $6.6 billion  buoyed by its combined wholesale and retail used-vehicle revenue that rose 55.1% to $2.3 billion. Conversely, its new-vehicle revenue in the quarter dropped 6.7% to $2.9 billion, as a result of the worldwide chip shortage.

For the entire year, the company’s revenues increased 26.7% to $25.8 billion. In that 12-month period, its combined retail and wholesale used-vehicle revenues were up 54.2% to $8.6 billion while new-vehicle revenues were up 16% to $12.1 billion.

AutoNation’s new unit sales for the quarter fell 20.4% to 57,601 and its used unit retail sales increased 21.0% to 74,442 compared to the year-ago quarter.

For the entire year, the retailer increased its new unit retail sales 5.1% to 262,403, and its used unit retail sales increased 26.2% to 304,364.

The company’s F&I revenue grew 19.5% in the fourth quarter to $353.6 million compared to the fourth quarter of 2020 and was up 30.7% to $1.4 billion for the entire year compared to the entire year of 2020.

It’s F&I gross profit per vehicle retailed grew 21.2.% in the quarter to $2,678; for the entire year it increased 13.2% to $2,443.

In the fourth quarter, AutoNation’s parts and service revenue rose 14.6% to $961.1 million and for the year was up 13.8% to $3.7 billion. The retailer also refers to is parts and service business as after-sales.

Consumer sourced used vehicles

In the fourth quarter, AutoNation sourced 90% of its used vehicles from trade-ins on its new- and used-vehicle sales and directly from consumers through the company’s “We Buy Your Car” program, Manley said.

“I was pleased with that profile because typically, vehicles sourced from there carry a better margin — not huge — but a better margin than” vehicles purchased in a competitive auction environment, Manley said.

Manley said he expects used-vehicle prices to decline in the future but it won’t be a “devastating drop” for the company because AutoNation is focused on increasing its penetration of ancillary, value-added products such as GAP insurance and interior and exterior protection.

“I think these things that we can focus on really are immaterial to what’s been happening with prices and that’s what has driven our improvement, I think, in our F&I income,” Manley said.

Joe Lower, the company’s CFO and who was also on the call, said 70% of the company’s F&I income “is coming from products, not from financing per se.”

Expanding physically and digitally

Manley said AutoNation is going to expand its omnichannel digital platform while also expanding its AutoNation USA physical footprint. He pointed out that brick-and-mortar centers provide necessary infrastructure where vehicles can be refurbished and can be sent to be made available to customers who want to shop in-person.

But, the company still has some hurdles with its digital platform such as “too many clicks and touch points” and there is a need to get full acceptance of digital signatures for certain documents, such as those related to finance and titling, he said.

The struggle, he said, is combining digital intent to get everything done and sorted in a virtual world with — depending which state you’re in — the need for physical documents to be signed.

“What we need to do is work very closely with the various authorities to try and reduce all those different friction points and points of frustration along the way,” Manley said.

Manley also said 75% of AutoNation stores will have electric vehicle charging capabilities by the end of 2022. AutoNation USA stores will have EV charging facilities too, however, Manley did not give a timetable for those locations.