AutoNation’s Profit Jumps as Car Prices Soar

The company, a chain of new-vehicle franchises, has been able to cut back on discounts as the chip shortage limits the inventory of cars.

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AutoNation’s profit jumps as prices for cars soar.

Customers browse cars at an AutoNation car dealership in Fremont, California, in February.Credit…David Paul Morris/Bloomberg

Oct. 21, 2021, 7:00 a.m. ET

While the global shortage of computer chips has wreaked havoc on auto production, it is also helping to pump up the bottom lines of auto retailers.

The latest example came on Thursday, when AutoNation, a chain of more than 350 new-vehicle franchises, reported its profit doubled to $362 million in the third quarter. The result, the company’s sixth consecutive record quarter on a per-share basis, stemmed mainly from higher prices and rising sales of used cars.

Because of the chip shortage, automakers have had to idle plants for weeks at a time, leaving consumers with fewer new cars to choose from. The lack of inventory has pushed up prices and allowed both manufacturers and dealers to cut back on profit-eating discounts and incentives they once had to offer to move cars off the lot.

“This is a result of the pandemic and then the chip shortage,” Mike Jackson, AutoNation’s chief executive, said. “There’s not enough supply to meet demand. Vehicles come in and they go out right away.”

At the end of September, AutoNation had about 5,000 new vehicles in inventory. At the same point in 2019, it had 56,000.

Mr. Jackson estimated about 60 percent of the vehicles AutoNation orders from manufacturers are earmarked as sold before they even arrive at its dealers. That is a far cry from the past, when cars sometimes sat unsold for six months or more.

The tight supply of new vehicles has caused many consumers to turn to used models. In the third quarter, AutoNation sold more than 77,000 used cars and trucks, a 20 percent rise from the same period in 2020.

The rush for used cars has also pushed up prices and left dealers rushing to acquire pre-owned cars and trucks. AutoNation has even begun approaching owners who post for-sale notices on eBay, AutoTrader, and other websites. “If you put a car up for sale, you’re going to hear from us,” Mr. Jackson said.

Dealer inventories will likely remain tight well into 2022 even if the chip shortage abates, Mr. Jackson added. “There’s tremendous pent-up demand, so it will take time before the manufacturers can build up dealer inventory,” he said.

Mr. Jackson, 72, won’t be around to see it, however. He is about to retire as AutoNation’s chief executive after holding that position for most of the last 22 years. He will be succeeded on Nov. 1 by Mike Manley, the former chief executive of Fiat Chrysler.

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