August 1, 2018 / 11:22 AM / a year ago

AutoNation profit gets a boost from used vehicle sales

DETROIT (Reuters) - AutoNation Inc (AN.N), the largest U.S. auto retail chain, on Wednesday reported a quarterly net profit that slightly exceeded analyst expectations, with high margins in its used vehicle business offsetting lower profits in new vehicle sales.

The Fort Lauderdale, Florida-based company said revenue from used vehicle sales in the second quarter rose 8 percent to $1.3 billion, while new vehicle sales revenue rose less than 1 percent to $2.95 billion.

AutoNation Chief Executive Officer Mike Jackson told Reuters the company’s used vehicle segment’s gross profit surged 22 percent in the quarter versus the same period in 2017, in part because the profit per vehicle was higher.

The auto retail chain has focused on a branded approach to pre-owned vehicles, with prices listed online.

“It’s a negotiation-free process for the consumer and the consumer has embraced it,” Jackson said.

But profit margins on the new vehicle side were “very difficult, it was very competitive,” he added.

“The manufacturers’ programs make it very difficult to hold margin,” Jackson said, referring to consumer discounts and rebates offered by automakers.

The rise in used vehicle margins offset a 7 percent decline in gross profit for new vehicle sales, he said.

The U.S. auto industry saw new vehicle sales rise slightly in the first half of the year, buoyed in part by an overhaul of the tax system and a growing economy. But new vehicle sales are expected to dip in the second half of 2018, dragged down by rising interest rates and market saturation after years of strong sales.

AutoNation said premium luxury brands saw the strongest sales growth in the second quarter, rising 5.2 percent.

The auto retail chain recently expanded its partnership with Alphabet Inc (GOOGL.O) self-driving unit Waymo, providing Waymo cars to customers in Phoenix, Arizona, to ferry them around while their own vehicles are serviced by AutoNation.

AutoNation posted second-quarter net income of $97 million, or $1.07 per share, up 10 percent from $88 million, or 86 cents per share, a year earlier. Excluding one-time charges, the company posted earnings per share of $1.14, a penny above the $1.13 expected by analysts.

The company said revenue rose 2.1 percent in the quarter to $5.39 billion, from $5.28 billion a year earlier. Analysts had been expecting revenue of $5.41 billion.

Reporting By Nick Carey; Editing by Bernadette Baum and Meredith Mazzilli

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