AutoNation Wildly Profitable While Car Prices Are Grotesquely High

With automobile prices ballooning to egregiously high levels, one might assume that the industry would be in rough shape. But they’d be dead wrong. Supply chain disruptions have actually created a captive market where consumers are desperate to lay their hands on whatever products are available. In the automotive realm, this has allowed retailers to set ludicrous prices and rake in larger profits per transaction. While inflation may eventually catch up to these entities, the gravy train is currently parked at the station and dousing big business with its warm, brown effluence.

Nobody knows this better than the folks at AutoNation. Because the company just released a quarterly profit report that blew its rosiest projections out of the water. Net income its ongoing operations was $361.7 million for Q3 2021, double the $182.6 million witnessed in Q3 of 2020, while revenue rose 18 percent to $6.4 billion.

According to Reuters, analysts had anticipated the company to report a profit of $4.2 per share on net revenue of $6.2 billion. But AutoNation actually ended up closer to $5.12 per share, thanks largely to how high it can now price secondhand vehicles.

From Reuters:

AutoNation, which reported another quarter of record income, said new vehicle inventory remained at historically low levels leading to a marginal rise in new vehicle revenue in the third quarter ended Sept. 30.

Used vehicle revenue, on the other hand, jumped 53 [percent] to $2.32 billion compared to $1.51 billion a year earlier.

AutoNation Chief Executive Mike Jackson told Reuters that tight inventories and high prices are leading some customers to defer buying a new vehicle. However, Jackson said more customers are using AutoNation’s websites to track vehicles the company’s stores have coming to them in the next 30 to 60 days, and reserving a car or truck before it arrives.

“We’re now at the limit of where can take inventories down to,” Jackson said. “This could be the trough on the disruption, and early next year shipments could improve.”

There are no guarantees, however. Supply chains remain upended due to pandemic-related restrictions and manufacturers are still suppressing output due to the chip shortage. There are even claims that the industry is cutting production intentionally to reduce overhead and artificially spur demand to keep prices high — using the chip shortage as a convenient excuse.

Whatever the reality, vehicle demand is likely to remain high for the foreseeable future and businesses are keen to capitalize on that fact. Jackson confessed that “pent-up demand is building” and assumed the hardcore holdouts would eventually return to the dealership once inventories stabilized a bit. Considering people across the globe have only become more interested in private vehicle ownership as the pandemic has dragged on, there’s reason to believe him. But we’ll have to see how things shake down in 2022.

[Image: David Touchtone/Shutterstock]