AutoNation Inc. today said its net income increased 13 percent in the third quarter on a 14 percent rise in revenue. Sales of new and used vehicles were up by double-digit percentages, and revenues rose for all operations.
The country's largest auto retailer's net income was $92.6 million last quarter, on revenue of $4.47 billion.
The results were "driven by gross profit growth in all of our business sectors," CEO Mike Jackson said in a statement.
Much of that growth was the result of rising volumes. AutoNation's new-vehicle unit sales rose 13 percent in the quarter, well ahead of the industry's 9 percent U.S. gain. Used-vehicle sales climbed 15 percent. Together, new- and used-vehicle sales were the highest for any quarter since the third quarter of 2006, the company said.
Per-vehicle margins squeezed
But gross profit per vehicle retailed fell from year-earlier levels for both new and used vehicles. In contrast, gross profit per vehicle retailed rose for finance and insurance operations.
AutoNation's gross profit per new vehicle retailed in the quarter fell 5 percent to $2,020.
President Mike Maroone told Automotive News the decrease was a direct result of intense competition in the mid-sized car segment among vehicles such as the Toyota Camry, Honda Accord, Nissan Altima and Ford Fusion.
"It's not across all lines. It's very specific sectors, very specific brands and almost entirely imports," he said of the per-new vehicle gross margin decline.
"There's a big share fight and there are a lot of new products in mid-sized, whether you're talking about the Camry, the Altima, the Accord or the Fusion. It's intense competition, there's a lot of production, and a lot of pressure in the market place."
'Irrational'
He said the increased competition creates "irrational behavior" among some retailers.
The average gross profit per used vehicle in the quarter slid 4 percent to $1,527. Maroone called the decline "relatively insignificant."
In contrast, gross profit from F&I operations per unit retailed rose 5 percent to $1,350 in the third quarter.
Jackson said the main driver of earnings in the quarter was the company's customer-care efforts -- the company's term for its parts and service business. Gross profits for the quarter were up a little over 6 percent among stores open for at least one year and 10 percent on a total store basis.
"To be able to grow that relationship business at a high margin is critically important to the business," Jackson said.
Acquisitions
AutoNation also said it expects to complete the acquisition of two Chicago-area dealerships in the fourth quarter. The dealerships -- O'Hare Honda and O'Hare Hyundai -- have combined annual revenue of $85 million on sales of about 3,100 new and used vehicles annually. Once the purchases are complete, AutoNation will have 230 stores.
The dealership purchases are the latest in a burst of acquisitions for AutoNation. Last December, the company bought six Texas dealerships that generate $575 million in annual revenue, but one store was later sold.
Earlier this year it bought Honda and Hyundai stores in Phoenix and a Dallas Toyota dealership with combined annual revenue of $250 million.
