AutoNation Inc., the largest U.S. dealership group, posted its biggest profit of the year and said it would boost spending by 65 percent next year to update and buy stores.
The net income of $65 million compares with a $1.4 billion net loss in the previous third quarter.
“We are optimistic for the long-term prospects of the auto industry based on the successful restructuring of the domestic auto industry, the move to a demand-pull system and the rationalization of the dealer network,” CEO Mike Jackson said today in a statement.
AutoNation said its board of directors had approved $150 million in capital expenditures in 2010, a 65 percent increase, along with $250 million for repurchasing company stock.
“Investing in our facilities, investing in our stores through process and technology, repurchasing shares and making strategic acquisitions reflects the board's and senior management's continued confidence in AutoNation's financial strength,” Jackson said.
The eventual mix of share repurchasing and acquisition spending will be based on price, Jackson said today on a conference call with investors.
“If there is a precipitous drop in the price of the stock, we will go after it,” Jackson said. And if a desirable store is available at a good price, “We will do what it takes to get it.”
‘Backlog of sellers'
AutoNation wants to sell every major brand in all of its markets and is not at that point yet, Jackson said. But the company is willing to wait to make purchases until the price is right, he said.
“There's a backlog of sellers that are waiting, but we think there needs to be more movement on price before we're ready,” Jackson said. “The seller still has this idea that everything's going to go back to the way it was.”
To start, AutoNation said earlier this week it has signed agreements to buy a Honda store and an Acura store in Spokane, Wash. AutoNation stores already sell Toyota, Chevrolet, Subaru, Volkswagen, Audi, Mazda, Scion and Mitsubishi vehicles in Spokane. AutoNation currently has 203 stores in 15 states.
The company also repurchased 3.7 million shares of its stock last quarter at an average of $17.81 and has repurchased 1.2 million shares this month, CFO Mike Short said. The stock ended the day unchanged at $18.09 a share on triple the average daily trading volume.
Third-quarter revenues fell to $2.9 billion from $3.4 billion in the same period in 2008. Revenue declined in every category, including new and used vehicles, parts and service, and finance and insurance.
AutoNation said U.S. new-vehicle sales remain at depression levels and would remain that way through 2010. Jackson forecast a challenging fourth quarter and light-vehicle sales of just over 11 million next year.
“While much improved over 2009's sales level, it's still depression levels,” he said. “We expect to welcome recession-level sales in 2011.”
The company estimated the government's cash-for-clunkers program, which sent August U.S. sales to their first year-over-year gain since October 2007, added about seven cents per share to its third-quarter earnings. AutoNation has about 178 million shares outstanding. Cash-for-clunkers deals made up 23 percent of third-quarter sales, COO Mike Maroone said.
AutoNation is the top U.S. dealership group, with sales of 255,843 new units in 2008. It has posted profits for four straight quarters. Its $1.4 billion loss in the third quarter of 2008 reflected a $1.46 billion after-tax charge for the diminished value of its dealerships amid the U.S. recession and auto sales that were sliding to their lowest levels since the early 1980s.