As Car Sales Plunge, Auto Dealers are Not Amused

Thursday, August 3, 2017
By Paul Martin

by Wolf Richter
WolfStreet.com
Aug 2, 2017

Automakers’ efforts are “chaotic for retailers and confusing for consumers.”

AutoNation, the largest automotive retailer in the US with about 280 franchise locations – and thus a sampling for auto dealers in general – reported second quarter earnings this morning, upon which its shares (AN) fell 7%, and are down over 40% from two years ago. It took Ford shares three years to fall 40%.

AutoNation’s new vehicle revenues in the second quarter fell 4.6% year-over-year to $2.93 billion; used vehicle revenues fell 4.6% to $1.2 billion. It booked revenue gains in its high-margin areas – Parts & Service, Finance & Insurance, and Other – but that wasn’t enough to make up for the slide in new and used vehicle sales. So total revenues fell 3% to $5.28 billion.

Selling, general, and administrative expenses rose 4.5%. Net income plunged 22% to $87.7 million, which once again missed consensus earnings expectations, continuing a series of missed earnings expectations that commenced last year.

This isn’t just about a sales decline. Profit margins also declined. The profit margin on new vehicle sales fell to 4.7% in Q2 from 5.3% a year ago – not totally unexpected, given the problems in new vehicle sales across the country.

But the profit margin on used retail sales plunged. Dealers sell some used vehicles to other dealers or via auctions to get rid of these units. At AutoNation, these wholesales fell 49% to $70 million. Excluding these wholesales, used retail volume was about flat year-over-year at $1.13 billion. But gross profit on these units plunged 14.6% to $74 million.

CEO Mike Jackson blamed the debacle on the “implementation challenges with our centralized One Price strategy during the quarter.”

Confusingly, this “One Price” no-haggle strategy was rolled out with great fanfare in October last year.

“The consumer is craving a fair, transparent price,” Jackson proclaimed at the time. “They really have had enough of the negotiated process and the lack of transparency around pricing.” And he promised, “We will have a bigger piece of share of the pre-owned market.”

The Rest…HERE

One Response to “As Car Sales Plunge, Auto Dealers are Not Amused”

  1. So even with Fords manufactured in Mexico with black tar heroin smuggled into the US inside each car — profits still are declining. It seems Ford executives should revisit Henry Ford’s idea that they should pay American workers enough so they can afford to buy American made Fords.

    #3310427

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