# AutoNation gets a bumpy ride as investors worry about U.S. consumers
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-04-21
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: AutoNation and U.S. Dealerships Exploit Vehicle Shortages
Meta Description: AutoNation Inc and other U.S. auto dealerships profit from vehicle shortages in Q1, but analysts question outlook for consumer demand and used car margins.
URL: https://financedigest.com/autonation-gets-a-bumpy-ride-as-investors-worry-about-u-s-consumershtml

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By Joseph White

(Reuters) -AutoNation Inc and other brick-and-mortar auto dealerships in the United States turned shortages of new and used vehicles to profitable advantage in the first quarter, but the No. 1 U.S. auto retailer’s [shares were volatile Thursday as analysts questioned the outlook](https://www.financedigest.com/asia-shares-creep-higher-wary-on-fed-and-boj-outlooks.html "Asia shares creep higher, wary on Fed and BOJ outlooks") for consumer demand.

During a conference call Thursday, analysts pressed AutoNation Chief Executive Mike Manley on whether consumer demand for new vehicles is slowing, and why AutoNation’s used car [profit margins](https://www.financedigest.com/inflation-boosts-jeronimo-martins-q4-profit-but-dents-margins.html "Inflation boosts Jeronimo Martins’ Q4 profit but dents margins") declined during the first quarter.

AutoNation [shares were flat in early trading](https://www.financedigest.com/social-trading-is-the-new-way-that-gen-z-are-getting-their-share-of-the-pie.html "Social Trading is The New Way That Gen Z Are Getting Their Share of The Pie"), after initially rising by 4.6% to $110.70 in premarket trading, then falling by nearly 5%.

Rising [interest rates](https://www.financedigest.com/hotel-investors-should-they-be-worried-about-a-potential-economic-pause-delving-into-inflation-interest-rates-recession-etc.html "‘Hotel Investors – should they be worried about a potential economic pause?’ delving into inflation, interest rates, recession etc"), high gas prices and broader inflation in the U.S. economy are [putting pressure on consumers](https://www.financedigest.com/cybercrime-misconceptions-putting-uk-consumers-risk.html "Cybercrime misconceptions putting UK consumers at risk"). Manley told Reuters that [demand for used and new vehicles](https://www.financedigest.com/adoption-of-autonomous-underwater-vehicles-market-to-surge-during-the-forecast-period-owing-to-increased-consumer-demand.html "Adoption of Autonomous Underwater Vehicles Market to Surge During the Forecast Period Owing to Increased Consumer Demand") remains strong.

“We haven’t seen any drop-off in our inquiry levels,” Manley said. “They are up year over year. The industry is at a level where there is more [demand” than supply](https://www.financedigest.com/oil-rises-on-tight-supplies-trade-choppy-on-demand-worries.html "Oil rises on tight supplies; trade choppy on demand worries") of vehicles.

Manley told analysts that while the annualized pace of U.S. auto sales has been running at recession levels, that is a reflection of the hits to production from [supply chain](https://www.financedigest.com/ges-investors-seek-solutions-to-renewable-energy-supply-chain-challenges.html "GE’s investors seek solutions to renewable energy, supply chain challenges") snarls.

We have [customers for everything that’s coming,”](https://www.financedigest.com/doing-nothing-is-not-an-option-when-it-comes-to-the-customer-experience.html "Doing nothing is not an option when it comes to the customer experience") Manley said.

AutoNation reported adjusted diluted earnings per share of $5.78, [beating estimates of $5.25 per share](https://www.financedigest.com/spending-drive-knocks-spotify-shares-after-q1-beat.html "Spending drive knocks Spotify shares after Q1 beat"), according to Refinitiv IBES data. Robust demand for used vehicles and sharply [higher profit](https://www.financedigest.com/polish-e-commerce-firm-allegro-eyes-higher-q1-profit.html "Polish e-commerce firm Allegro eyes higher Q1 profit") margins on new vehicle sales lifted profits.

AutoNation and Lithia Motors, two of the largest U.S. auto dealership chains with hundreds of stores each, both outperformed [investor expectations](https://www.financedigest.com/wave-of-lawsuits-over-ftx-expected-but-investors-will-face-legal-hurdles.html "‘Wave’ of lawsuits over FTX expected, but investors will face legal hurdles") in the January to March period. Online used car retailer Carvana, however, on Wednesday reported a wider loss than analysts had forecast and its [shares fell before the market open](https://www.financedigest.com/asia-shares-bank-on-eventual-china-opening-oil-gains.html "Asia shares bank on eventual China opening; oil gains").

Lithia Chief Financial Officer Tina Miller also told Reuters “demand has continued to outpace [supply” even as vehicle prices](https://www.financedigest.com/oil-prices-rise-as-china-eases-covid-curbs-u-s-storm-fuels-supply-worries.html "Oil prices rise as China eases COVID curbs, U.S. storm fuels supply worries") have risen, pushing average monthly payments to about $450 from the roughly $300 level before the pandemic.

Lithia on Wednesday [reported it doubled its first quarter net income compared to a year earlier as revenue](https://www.financedigest.com/chinas-tencent-reports-first-revenue-drop-as-gaming-regulations-and-covid-19-bite.html "China’s Tencent reports first revenue drop as gaming regulations and COVID-19 bite") rose by 54%.

AutoNation said its average gross [profit on new vehicles it sold more than doubled in the first quarter compared with a year earlier](https://www.financedigest.com/portuguese-airline-tap-swings-to-profit-earlier-than-expected.html "Portuguese airline TAP swings to profit earlier than expected"), rising to $6,112.

AutoNation’s sales of used vehicles rose by 47%, but average gross [profit on used vehicles sales](https://www.financedigest.com/apples-weak-iphone-sales-drive-first-profit-miss-since-2016.html "Apple’s weak iPhone sales drive first profit miss since 2016") fell by 10%.

Manley said the company became concerned about pricing and [sales trends](https://www.financedigest.com/why-sales-enablement-is-the-trend-to-watch-out-for-in-2023.html "Why sales enablement is THE trend to watch out for in 2023") for certain used vehicles during the quarter, and moved to clear out inventory. We started to use the [data we had available](https://www.financedigest.com/intersystems-announce-worldwide-availability-of-unified-iris-data-platform.html "InterSystems announce worldwide availability of unified IRIS Data Platform") to us. We corrected very aggressively in the quarter,” Manley said.

AutoNation, Lithia and other U.S. auto dealerships built on traditional showrooms are rapidly building the capability to sell and finance vehicles online, while expanding highly [profitable repair operations](https://www.financedigest.com/ikea-stores-owner-ingkas-annual-operating-profit-rises-9.html "IKEA stores owner Ingka’s annual operating profit rises 9%") that online dealers such as Carvana do not have. AutoNation reported 45.9% gross profit margins on [parts and service](https://www.financedigest.com/how-hyperconverged-infrastructure-is-driving-digital-transformation-in-the-financial-services-sector-part-1.html "How hyperconverged infrastructure is driving digital transformation in the financial services sector (Part 1)") during the first quarter. [Revenue for service](https://www.financedigest.com/adding-revenue-through-rd-tax-relief-service-2.html "Adding Revenue through R&D Tax Relief Service") rose $1 billion, up 18% from last year.

AutoNation’s net income was $362.1 million, or $5.78 per share, for the quarter [ended March](https://www.financedigest.com/tennis-panic-attack-ends-tsurenkos-indian-wells-as-raducanu-marches-on.html "Tennis-Panic attack ends Tsurenko’s Indian wells, as Raducanu marches on") 31, compared with $239.4 million, or $2.85 per share, a year earlier.

Revenue rose 14.4% to $6.75 billion, above [estimates of $6.48 billion](https://www.financedigest.com/electric-kick-scooter-market-is-projected-to-reach-6-5-billion-by-2031-and-estimated-to-grow-at-11-5-cagr-between-2021-and-2031.html "Electric Kick Scooter Market is Projected to Reach .5 billion by 2031, And estimated to grow at 11.5% CAGR between 2021 and 2031").

(Reporting by Ashwini Raj in Bengaluru and Joseph White; Editing by Amy Caren Daniel, Tomasz Janowski and Jonathan Oatis)


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