AutoNation’s net profits rise by 83% in third quarter

Boosted by new car shortage, higher prices for used cars

As the U.S. economy bounced back from the COVID-19 spring shutdown, consumers found new cars in short supply and opted instead for used cars at higher prices.

Increased demand and higher used-car prices boosted net profits for Fort Lauderdale-based mega-dealer AutoNation by 83% in the third financial quarter of July 1 to Sept. 30, the company reported Wednesday.

For the quarter, AutoNation reported $183 million in net profits from continu

ing operations, compared to $100 million in the third quarter of 2019.

The improvement brought record earnings for shareholders. Adjusted earnings per share from continuing operations was a record $2.38 — a 102% increase over the previous year’s $1.18.

The result included a $28 million charge related to the company’s closing of its collision parts business.

AutoNation’s share price on the New York Stock Exchange was up 7.6%, to $67.83, in mid-morning trading on the news.

“In the third quarter, we saw solid demand and a strong pricing environment due to low-interest rates and increased interest in vehicle ownership from consumers,” CEO Mike Jackson said in a prepared statement. “With increased demand and tight inventory, we adjusted pricing and were

able to grow our margins.”

Revenue dipped slightly, from $5.46 billion to $5.4 billion, and overall car sales declined by 7,186. Revenue from new-car sales declined by $126.4 million, but that was mostly offset by a $114 million increase in used-car sales.

Gross profit increased by 41% for new-car sales and 59% on used-car sales.

Same-store gross profit per new vehicle sold through retail stores increased $966 or 28%, while same-store gross profit per used vehicle sold through retail stores increased $602, or 43% compared to the previous year.

AutoNation owns and operates more than 325 locations across the United States.

Faced with fewer new vehicles from manufacturers beset by COVID19-related production slowdowns, AutoNation beefed up efforts to acquire used-vehicle inventory.

The company’s “We’ll Buy Your Car” campaign resulted in the company

buying more than twice as many used vehicles — more than 12,000 — compared to last year. Seventy-five percent of used vehicles sold through retail channels were purchased from customers, the company said.

Buying from customers helps reduce average vehicle acquisition costs and boosts profit margins.

Cost of sales, which includes selling, general and administrative expenses, was 64.4% of gross profit during the quarter, compared to more than 70% the year before and well below the company’s running goal of 68%.

With used-vehicle sales continuing to grow as a share of AutoNation’s business, the company affirmed its intention, announced earlier in the year, to build more than 100 AutoNation USA used-vehicle stores, with more than 50 completed by the end of 2025. The first two will be opened in Texas, in Austin and San Antonio, by the end of 2020.