Low interest rates and strong demand helped AutoNation beat quarterly earnings estimates, and the company expects strong demand for new vehicles to continue into next year.
Sales of new and used vehicles increased by 42 percent and 37 percent, respectively, in the second quarter, according to the company.
In early afternoon trading, shares of the company were up 4.4 percent to $107.03.
“Consumers are buying vehicles before they even arrive at our stores. We expect the current environment of demand exceeding supply to continue into 2022,” Chief Executive Mike Jackson said in a statement.
Vehicle inventories have been depleted as a result of the global semiconductor chip shortage, which has forced automakers to cut production, forcing consumers to pay more for cars.
JD Power’s most recent auto-industry forecast, released in June, predicted that the average price of a new vehicle would hit a new high of $38,088 in the first half of 2021, up 10.1 percent from a year ago, when pandemic lockdowns brought the US auto industry to a halt.
On Monday, Jackson told Reuters that “everyone is comparing (current prices) to the collapse of last year.”
Used vehicle prices were depressed a year ago, he said, as rental fleets rushed to unload vehicles stranded by the drop in travel.
To meet strong demand, AutoNation is now stepping up efforts to acquire used vehicles directly from consumers.
The gross profit per new vehicle at AutoNation, based in Fort Lauderdale, Florida, increased by 89 percent to $4,157 in the quarter ended June 30, while the gross profit per used vehicle increased by 24 percent to $2,240.
In the third quarter, the company had 14 days of new vehicle supply, compared to 49 days a year ago.
Adjusted net income from continuing operations hit a new high of $4.83 per share, easily beating the $2.81 consensus estimate from Refinitiv IBES. The $6.98 billion in revenue was also higher than expected.
Overhead costs were 56.5 percent of revenue in the second quarter, down from 68.9 percent a year ago, according to the company. As more than half of customers use the company’s online tools to shop and complete steps of a purchase, Jackson expects overhead expenses to be at 60% of revenue for the full year, compared to more than 70% before the pandemic.
“We are at a good cost place, and digital capability enabled that,” Jackson said.
As of June 30, the company had $1.6 billion in cash on hand, and its board of directors had approved a $1 billion share repurchase program.
AutoNation also stated that it planned to open four new stores in the second half of 2018 and 12 new stores in 2022 in the United States.
