Bloomberg News

AutoNation Says Japanese Car Supply Rising, May Hurt Margins

October 20, 2011

(Updates with closing share price in eighth paragraph.)

Oct. 20 (Bloomberg) -- AutoNation Inc., the largest U.S. car retailer, said the restocking of dealer lots with new vehicles from Japanese manufacturers will boost demand while lowering profit margins through the end of the year.

AutoNation will take delivery of more than 30,000 vehicles in the fourth quarter from Japan-based automakers such as Toyota Motor Corp. and Honda Motor Co., said Michael Maroone, AutoNation’s president and chief operating officer. Those automakers shipped fewer than 20,000 new cars and trucks in the third quarter, Maroone said today in a telephone interview.

Chief Executive Officer Mike Jackson boosted prices after Japan’s tsunami in March led to car shortages and helped push the seasonally adjusted annual rate of U.S. auto sales below 12 million in May and June. Fort Lauderdale, Florida-based AutoNation’s gross profit on each new vehicle sold increased $460, or 23 percent, to $2,454 in the third quarter.

“We’ll definitely be giving up some margin, but we believe that Q4 is going to be over a 13 million selling rate, so we’ll be just fine,” Maroone said, following the release of third- quarter earnings. “Prices are going to normalize as supply improves. It will be improving all through the quarter, but we won’t get back to normal levels until first quarter 2012.”

Net income rose to $70.7 million, or 48 cents a share, in the third quarter, from $56.9 million, or 38 cents, a year earlier, AutoNation said in a statement. Profit topped the 47- cents estimate that was the average of 12 analysts surveyed by Bloomberg. Sales increased 7.1 percent to $3.51 billion.

Sales Outlook

U.S. light-vehicle sales may be in the mid-12 million range this year for the industry, Jackson said in a telephone interview, repeating a forecast from April. Industrywide deliveries were 11.6 million in 2010, according to Autodata Corp., a Woodcliff Lake, New Jersey-based researcher.

AutoNation bought back $247.7 million in company stock, or 7.2 million shares, from July 1 through Oct. 19, according to today’s statement. The board authorized the repurchase of as much as $250 million more.

AutoNation rose 2.3 percent to $37.95 at the close in New York. The stock has climbed 35 percent this year.

Monetary policy may help the U.S. economy avert a double- dip recession, said Jackson, who was named to the board of the Federal Reserve Bank of Atlanta’s Miami branch in January. Interest rates that Fed Chairman Ben S. Bernanke has pledged to keep near zero until mid-2013 are lowering AutoNation’s costs of carrying inventory and are helping keep credit available and cheap for new-car buyers, he said.

‘Sustainable Recovery’

“There’s a sustainable recovery under way for the overall economy,” Jackson said. “It’s slow, it’s fragile, but if you look at the amount of stimulus from the Federal Reserve, that will most likely inoculate the economy from a double dip.”

More than half of the new vehicles AutoNation sold last year were produced by Japanese carmakers. About two-thirds of those deliveries were assembled in North America, the company said in April.

Japanese automakers will begin “ramping up” incentives and marketing as supply improves, Maroone said.

“It’s going to be a very competitive market, but a rational market,” he said. “I don’t think anyone’s going to come out and run an irrational incentive. I don’t think the Japanese will have sufficient inventories that they need to do that.”

--Editors: Romaine Bostick, Niamh Ring

To contact the reporter on this story: Craig Trudell in Southfield, Michigan at

To contact the editor responsible for this story: Jamie Butters at

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