AutoNation posts profit gain, warns on disruptions from Japan crisis
Mike Jackson: "We see significant reductions in vehicle shipments from Japanese manufacturers."
DETROIT -- AutoNation Inc., the nation's largest auto retailer, posted a 26 percent increase in first-quarter profit while lowering its forecast for U.S. industry sales this year because of vehicle-supply disruptions after last month's earthquake in Japan.
Net profit rose to $69.4 million from $55.2 million in the first quarter a year ago. Revenue increased 17 percent to $3.31 billion.
The company reduced its forecast for industry light-vehicle sales this year to the "mid-12 million" unit range from 12.8 million previously.
That will result in lower incentives, higher used-car prices and higher dealer payments for trade-in vehicles, AutoNation CEO Mike Jackson said.
"We do not have the supply," Jackson said. "The Japanese are not going to be back in full stride until the end of the year."
U.S. automakers and European brands are not expected to benefit significantly from the situation and increase their market share, AutoNation said.
"They do not think they can produce more -- that is why I took down our sales forecast for the year on a supply-constrained basis," Jackson said. "This is an unprecedented situation -- we have the demand but we do not have the supply."
Toyota Motor Corp.'s Lexus brand will be affected by the parts shortage, but the overall luxury market cannot produce more because "everyone to a certain extent is getting parts from Japan," Jackson said.
"Mercedes-Benz and BMW will probably hit their production targets but they will probably have configuration issues on the way," Jackson said. "None of them have told us they can increase production beyond original plans considering the global supply situation."
Jackson said the Japanese auto industry will lose between 600,000 and 700,000 units of production designated for the United States.
"You will begin to see it in the marketplace in May, and by June or July there will be significant shortages of everything Japanese," he said.
In response, automakers will lower incentives. "There will be a mitigation of incentives, not a slashing of incentives," Jackson said.
At retail, dealers will see a slight increase in new vehicle margins of "just a couple hundred dollars," per vehicle, he said.
Used-car prices will continue to rise and record prices are being set for trade-ins, said Mike Maroone, president of AutoNation. "We are competing very aggressively for those trade-ins."
Because of rising gasoline prices, AutoNation has seen a shift to cars -- with about 52 percent of vehicles sold in March passenger cars.
U.S. consumers also are downsizing from mid-sized to compact vehicles, from V-8 to V-6 engines and from V-6 to four-cylinder powerplants, Jackson said.
"There is a migration toward fuel-efficiency. It is not a panic. It is not a stampede. It is not a freakout like in the summer of '08,' he said.
"Inventories are there to meet it. Every manufacturer has a fuel-efficient offering, so it is a very orderly migration toward fuel efficiency."
Maroone said profitability won't necessarily drop as consumers shift into smaller vehicles because buyers are adding content.
"There is a tremendous demand for small cars and there is limited availability. There is margin opportunity," he said. "We work really hard to price our new and used vehicles to market and the data we see says the marketing is rising."
Last year, 11.6 million light vehicles were sold in the United States, up 11 percent from 27-year lows recorded in 2009.
AutoNation said its new-vehicle unit sales rose 23 percent in the first quarter, compared with an industrywide gain of 20 percent. Same-store new-vehicle sales rose 20 percent.
AutoNation had a significant rise in first-quarter sales from U.S. automakers, with Ford up 30 percent, GM 27 percent and Chrysler 50 percent.
Toyota sales were up 19 percent, he said.
During the quarter, AutoNation said revenues rose 22 percent for new vehicles, 14 percent for used vehicles, 16 percent for finance and insurance operations, and 6 percent for service and parts.
Bloomberg contributed to this report.
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