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AutoNation Battles a Weak Economy

By Mike Seemuth   |   Wednesday, 25 May 2011 02:07 PM

The nation's biggest owner of auto dealerships, AutoNation Inc. (AN), does more to sate the American appetite for cars than any of its rivals. The Fort Lauderdale, Fla. auto dealership group is driving a downsized business model, though.

AutoNation had 209 dealership locations in 15 states at the end of March, down from 257 at the end of 2006. Revenue dropped each year from 2006 through 2008 as the company trimmed its dealer network and retained the most profitable lots.

Then came a turnaround in 2010, when AutoNation rolled up $12.4 billion of revenue, compared with $10.6 billion in 2009. Net income also increased to $226.6 million last year from $198 million in 2009.

Unit sales of new and used vehicles rose to 366,582 last year from 316,150 in 2009. More than 90 percent of the new vehicles that AutoNation sells are manufactured by Toyota, Ford, Honda, Nissan, General Motors, Mercedes, BMW, and Chrysler.

Wall Street has a largely neutral opinion of AutoNation, though. Most securities analysts who follow AutoNation had hold ratings on its stock after the company announced first-quarter net income of $69.4 million, up from $59 million in the same period last year.

The company also reported greater first-quarter revenue and gross profit, compared to the same period last year, in all of its major lines of business, including new vehicles, used vehicles, parts and service, and finance and insurance.

Beyond the first quarter, the rest of 2011 could be a rougher ride for AutoNation, especially if the devastating March 11 earthquake and tsunami that struck Japan leads to scarce inventories of Japanese-made vehicles.

The disaster led AutoNation to trim its 2011 forecast of new vehicle sales in the U.S. to “mid-12 million" units from 12.8 million.

"We see significant reductions in vehicle shipments from the Japanese manufacturers through the end of the year, with the resumption of normal shipment levels in early 2012," Mike Jackson, chief executive officer of AutoNation, said April 26, on the company's quarterly conference call with stock analysts.

Rough ride

Marketing information services provider J.D. Power and Associates reported May 19 that retailers like AutoNation face an array of sales obstacles.

In a company statement, Jeff Schuster, executive director of global forecasting at J.D. Power, said "high gas prices, lower incentive levels and some inventory shortages" were hurting spring sales at dealerships and "putting pressure on the 2011 outlook."

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The nation's biggest owner of auto dealerships, AutoNation Inc. (AN), does more to sate the American appetite for cars than any of its rivals. The Fort Lauderdale, Fla. auto dealership group is driving a downsized business model, though. AutoNation had 209 dealership...
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