He said it's 'entering a new chapter.'

By Reuters
January 6, 2016

The head of the largest U.S. auto dealer group warned on Wednesday that automakers and dealers must avoid the problems in the years immediately following 2000, when lofty incentives kept sales volume high but cut profits.

AutoNation an Chief Executive Officer Mike Jackson said in an interview that the industry was “entering a new chapter” where underlying demand for new vehicles, particularly cars, is weakening.

Jackson expressed concern that high incentives could cut into automakers’ and dealers’ profits.

“We really have to watch the quality of volume,” he said. “We have to find the right balance between price and volume.”

Jackson said the industry was not about to collapse after a record 2015, when about 17.4 million vehicles were sold. He said 2016 sales would top 17 million but did not give a specific projection. Some industry analysts have put the figure at 18 million.

U.S. sales for December rose 9%, but Jackson said that was a quirk of the calendar. Excluding the additional weekend for 2015, last month’s sales were essentially flat with a year earlier.

AutoNation shares fell as much as 14.5% on Wednesday morning after the company said it expected to report $250 to $300 less gross profit per vehicle for the fourth quarter.

At midday, AutoNation shares were down 11.6% at $50.12 after hitting $48.50, their lowest since October 2014.

“The fourth-quarter industry sales environment was more push versus pull,” Jackson said in a statement early on Wednesday.

In recent years, the U.S. auto market has shifted away from traditional cars, which include sedans and hatchbacks, and toward SUVs, crossover vehicles and trucks.

“Cars are the problem,” Jackson said, while “trucks are beautiful” when it comes to recent sales performance.

He said he was not pointing to any automaker when it comes to layering on incentives to push sales.

But he warned that the whole industry must avoid raising incentives to artificially inflate sales, as it did in the early years of this century.

The 17.4 million in U.S. auto sales for 2015 eclipsed the former record of 17.35 million vehicles set in 2000.

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