Fuel-efficient vehicles boost U.S. dealership profits
(Reuters) - U.S. dealership groups reported higher-than-expected first-quarter profits, helped by Americans' need to replace older cars and trucks with more fuel-efficient models as prices at the pump approached record highs.
Rising fuel prices typically hurt vehicle demand, but dealers sold more vehicles at higher prices during the quarter in contrast with previous times when gas prices spiked, AutoNation Inc (AN.N), Penske Automotive Group (PAG.N) and Lithia Motors Inc (LAD.N) told analysts during conference calls on Wednesday.
Consumers were willing to pay a premium for fuel-efficient cars and trucks if it meant saving money on gasoline down the line, executives and analysts said.
The new models available in showrooms are, on average, 20 percent more fuel-efficient than vehicles introduced five years ago, AutoNation Chief Executive Mike Jackson said. The average age of U.S. vehicles is nearly 11 years old.
"We had an alignment between what the industry was producing and what consumers wanted," Jackson said. "So $4 a gallon gasoline was, paradoxically, supporting sales rather than having a negative impact."
U.S. auto sales in the first quarter were up 13 percent from a year ago while the national economy is growing at a rate of about 2.5 percent, Jackson said.
During the quarter, automakers refrained from offering consumer discounts that spur sales but reduce profits and resale values. AutoNation President Mike Maroone said he expects automakers to maintain that strategy for the rest of the year.
"We think it's going to be a pretty stable incentive market throughout the summer months and into fall," Lithia President Bryan DeBoer told analysts.
CHRYSLER PUSHES DEALERS
Chrysler Group LLC (FIA.MI), the No. 3 U.S. automaker, reported a 36 percent increase in sales during the first three months of the year, nearly triple the jump in overall auto sales.
The outsized gains were partly due to the automaker's use of dealer incentives. These programs are used to encourage dealers to sell more cars and trucks, and are not the same as consumer incentives that lower the price of a vehicle.
"They're all focused on having every dealer sell a lot more cars, and all the incentives reward you to do that," said Lithia CEO Sid DeBoer. The majority of Lithia's sales come from two of Chrysler's brands, Ram and Jeep.
"We're getting the most lift in Chrysler, and I think a lot of it comes from dealer incentives," DeBoer said.
Lithia's Chrysler-brand sales rose 88 percent. Lithia said sales of Chrysler cars were driven by sales to fleet customers, rather than consumers, particularly for the 200 sedan.
"Chrysler itself, a lot of that was fleet," DeBoer said. "The 200, they do a lot with fleet."
AutoNation reported a profit from continuing operations of 56 cents per share, up from 46 cents a year earlier. Analysts expected AutoNation to earn of 53 cents per share, according to Thomson Reuters I/B/E/S.
About half of AutoNation's earnings increase could be chalked up to aggressive share buybacks and the rest to better business, Jackson said.
AutoNation shares ended regular trading, down 1 percent, at $33.23. Penske shares rose 1.1 percent to 26.84, while Lithia shares shot up 7.6 percent to $26.91.
Penske reported earnings from continuing operations of 55 cents per share, besting the 47 cents expected by analysts.
Lithia's net income rose to 63 cents per share, from 33 cents per share a year ago. Excluding items, Lithia earned 60 cents per share, higher than the 42 cents that analysts expected.
(Reporting by Bernie Woodall and Deepa Seetharaman in Detroit; Editing by Dave Zimmerman and Steve Orlofsky)
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