FORT LAUDERDALE, Fla. — After enjoying three consecutive financial quarters above the $1,600 per-copy mark, AutoNation Inc. dipped to a $1,569 average in the fourth quarter of 2016.

In a Feb. 3 conference call with investors, the executive team from the nation’s largest auto retailer reported gains in revenue, gross profit and operating income. They painted a rosy picture for 2017, despite the effects of the ongoing Takata airbag recall and the looming threat of a Trump administration-ordered border tax on vehicles manufactured in Mexico and sold here.

Chairman and CEO Mike Jackson countered the prevailing wisdom that pent-up demand from the Great Recession has been completely spent. He noted that the average age of a U.S.-registered vehicle remains above the 11-year mark and that American consumers remain “pretty optimistic, pretty robust” in their economic outlook.

“So there’s still a genuine replacement need,” Jackson said. “You still have this very genuine consumer preference for trucks, and trucks are priced higher, and the consumer has the willingness to spend more [going] forward, and credit is readily available and attractively priced.”

Jackson and recently appointed President and COO William “Bill” Berman reported companywide gains in revenue (4%) and gross profit (2%) in 2016. In comparing the fourth quarter of 2016 with the prior-year period, they found a corresponding increase in revenue (3%), but gross profit for the quarter was “nearly flat,” dropping to $809 million from $812 million in the fourth quarter of 2015.

AutoNation reported sales of 78,900 new units in the fourth quarter (down 4% year-over-year) and an average gross profit of $1,967 per unit sold. That’s a 5% decrease from the prior-year period. Pre-owned sales came in at 51,400 units (flat), with the group averaging $1,291 in gross profit per unit sold. That represents a 12% decrease from the prior-year period.

On a same-store basis, at the aforementioned per-copy average of $1,569, F&I total gross profit for the quarter fell $5 million from the prior-year period to $205 million (a 2% decrease).

The executives pinned much of the blame for the downticks on the Takata airbag recall. The recall has frozen much of their pre-owned inventory and, as recalls are performed, older inventory is returned to the lot with lower expectations for profit on the front or back end.

“Right now, we currently have 7% of our total used-car inventories on hold,” Berman said. “That obviously fluctuates on a day-to-day basis as inventory comes in and different recalls are called out.

“And we still have a little bit of a hangover on inventory that had aged out prior to the retraction of the recall policy,” he added, in reference to a late-2016 decision to hold recalled units for which no replacement parts are available or sell them with a full disclosure.

Responding to a question about the repeal of the North American Free Trade Agreement (NAFTA) — a campaign promise President Donald Trump shows no signs of backing away from — Jackson said any border tax on Mexican-built vehicles would cause a “significant impact” on manufacturers and higher prices for car buyers.

“I think that is almost politically impossible to impose on the United States and would lead to price increases from everything from clothing to smartphones, to cars, et cetera, et cetera,” he said. “It’s just unimaginable, a pure 20% border tax that acts like a tariff.”

Jackson did note, however, that a promised reduction in corporate tax rates could add as much as $1 per share to the company’s stock price.

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Tariq Kamal

Tariq Kamal

Associate Publisher

Tariq Kamal is the associate publisher of Bobit Business Media's Dealer Group.

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