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AutoNation Continues Living Above $1,600 Per-Copy in Q3

November 1, 2016

FORT LAUDERDALE, Fla. — For the third time this year, AutoNation's F&I department topped the $1,600 per-copy mark. During the dealer group’s third quarter earnings call, company executives reported that AutoNation had realized an F&I per-copy average of $1,617, a 4% improvement over the same time last year.

This per-copy improvement, along with a record-setting $338.1 million in gross profit generated by the dealer group’s parts and services department, were two of the only bright spots for AutoNation during the period.

"Certain manufacturers continued disruptive marketing and sales incentives, which resulted in multi-tier pricing and were unfair for consumers as well as retailers,” said Mike Jackson, chairman, CEO and president of AutoNation. “In the third quarter, these incentives had a significant negative impact on new-vehicle volume and gross profit per new vehicle retailed."

New-vehicle retail sales fell 6.2% from a year ago to 81,559 units. Average gross profit per new vehicle sold also fell 6.8% from a year ago to $1,805. Total gross profit generated from new-vehicle sales fell 12.6% from a year ago to $147.2 million for the quarter.

The company’s used segment told a similar story, however, for a slightly different reason.
“As of Sept. 30, approximately 14%, or 5,400 units, of our total used vehicle inventory was on hold due to the Takata airbag recall,” said AutoNation COO Bill Berman. “The Takata airbag recall negatively impacted our net income from continuing operations by $6 million after-tax, or $0.06 per share.”

The self-imposed stop sales on Takata airbag-equipped used vehicles resulted in 6.9% fewer sales compared to last year, with the group posting used-vehicle sales of 51,472 units. Similar to the new segment, total used gross profit experienced a double-digit year-over-year decline, falling 10.7% to $72.8 million. However, unlike the new segment, the used segment realized a year-over-year improvement on a per-vehicle basis. For every used vehicle sold, the dealer group produced $1,543 in gross profit, a 1.7% increase over the year before.

And due to the waning retail sales, total F&I gross profits suffered. So while the group realized a year-over-year improvement on a per-copy basis, total F&I gross profit fell 2.9% from a year ago to $215.1 million.

All this amounted to $780.3 million in total gross profit for the dealer group, a 3.7% decline compared to the same time last year. 

Looking Toward the Future

During the dealer group’s third-quarter earnings call, company executives also disclosed that AutoNation will begin opening used-only dealerships in 2017. These stores would be called AutoNation USA stores.

“Our plan is to open five AutoNation USA stores in 2017. We've also identified 20 additional sites over the next several years within our existing markets,” Berman said. “Customers will have the opportunity to purchase an AutoNation certified vehicle and service that vehicle at any AutoNation USA store."

Berman said the new stores will utilize AutoNation Express, the company's digital retail platform. These stores will also feature negotiation-free pricing on vehicles, with sales associated paid on noncommission-based pay plans, according to AutoNation. When questioned whether this new initiative might hurt the company’s profits going forward, Jackson offered an optimistic outlook.

“We expect no change on volume or pricing is our working premise, but having happier customers and happier associates and taking cost and complexity out of the transaction and to be able to put in place a different play plan and an associate with a different skill set,” he said.

Berman added that some initiatives, like the company’s one-price initiative, have already been rolled out to the dealer group’s current stores and that they’ve had a good response.

“The response from the field has been overwhelmingly positive, both from our associates, management and even most importantly from our customers," Berman said. "To Mike's point, we have seen no degradation in our volume or on our PVRs and in a lot of cases we're actually seeing a little bit more productivity out of our salespeople because they're not having to kind of do the back and forth on the used vehicles and the transaction times have come down significantly."

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