AutoNation Plans to Expand Business after Net Income Drop

October 28, 2016, 7:46 PM UTC
A CarMax dealership.
Photograph by Bloomberg via Getty Images

AutoNation reported a 9% decline in third-quarter net income on Friday, and said it will launch a multi-year effort to expand its business beyond new vehicle sales.

The U.S. auto retail chain said it will spend least $500 million over the next several years on the expansion, including opening standalone used-vehicle stores that would compete with used-car specialist Carmax.

The company said it had identified 25 markets where it could open the used-vehicle stores under the AutoNation USA brand, and expects to open five stores next year.

“We want to be able to grow independent of the new vehicle” sales cycle, AutoNation Chief Executive Mike Jackson told Reuters.

These stores will offer services to customers whose vehicles are no longer covered by manufacturer warranties, and sell a new line of AutoNation-branded replacement parts, the Ft. Lauderdale, Florida-based company said in a statement.

The largest U.S. new car dealership chain faces slowing growth in the U.S. car and light truck market, and increasing pressure on profit margins for new vehicle sales.

The company will also expand its collision-repair business, and plans to build or buy at least 18 new collision-repair operations over the next two years. AutoNation currently operates 70 body repair stores in the United States.

AutoNation‘s reported profit margins on vehicle repair services and used vehicle sales are higher than those for new car sales.

In a related move to capture more revenue from a car’s life cycle, AutoNation said it will open four more AutoNation vehicle auction operations over the next two years, adding to a wholesale used vehicle auction it operates in Southern California.

Revenue rose 4 percent to $5.6 billion in the quarter.

AutoNation said net income per share remained flat at $1.05 a share, reflecting share repurchases. That was below the $1.15 consensus forecast according to Thomson Reuters I/B/E/S. The company said its board has approved another $250 million in common stock buybacks.


Problems with recalls weighed on AutoNation‘s results in the third quarter, as they have all year.

AutoNation said its third-quarter profit was cut by $6 million as it could not sell 14 percent of its used-vehicle inventory because the cars have recalled Takata airbag inflators that have not been replaced.