Autonation (AN) Q1 2016 Earnings Call

posted in: Earnings Call, Notes | 0
Autonation (AN) CEO Mike Jackson said premium car sales hasn’t performed up to expectations.  Maybe Tesla’s Model S successful model launch and large number of pre-orders has impaired the luxury segment for the next couple of years
 
We continue to see declines in our premium luxury business, which represents roughly 20% of our new vehicle unit sales compared to an industry at 9%. The same-store basis, our premium luxury profits declined 13% year-over-year.”


Auto recalls are leaving them with higher than expected inventory on the lots
 
The safety of our customers is a top priority for AutoNation. We will not retail any vehicle with an open recall. Approximately 15% of our used vehicle units are on hold of which 60% have been on hold for more than 30 days.  I will further note, over 60% of our used inventory on hold is related to Takata airbags. The Takata airbag issue is in its early innings of what will be an ongoing issue that the industry faces.  As of March 31, approximately 5% of our inventory was not available for sale due to the open recalls. The held inventory represents approximately 1% of our new vehicle inventory and roughly 15% of our used vehicle inventory.”
Autonation (AN) Chief Operating Officer Bill Berman thinks new car sales are plateauing
 
New vehicles sales leasing penetration was over 30% for the quarter. Industry inventories were elevated with retail day supply outstanding at approximately 80 days. As we indicated earlier this year, the new vehicle market is plateauing.”
Autonation (AN) CEO Mike Jackson expects above 17 million in annual vehicle sales for 2016
 
We continue to expect total new vehicle sales for the industry for 2016 to be above 17 million. Within that though, we fully expect retail sales to be relatively flat. We believe we have the right strategy and the right tools in place to perform in this plateauing environment.  I think when I say I expect the total market to be over 17 million, because I believe the manufacturer are going to get it there one way or the other. In my mind, the 17 million is etched in stone so to speak. And either through incentive activity or fleet, the total industry number will break through 17 million. So I think that’s a safe statement.”
Autonation (AN) CEO Mike Jackson said the auto industry is in far better shape than during the financial crisis
 
So everybody wants to focus on the call at on the challenges, but I think it is important to speak plainly. Now the facts are, the industry is in far better shape than it was in ’08, ’09, from OEM supplier and a retailer point of view. There is absolutely no comparison.  So much productive capacity has been taken out and so many structural cost issues have been addressed and we have this benefited $2 gasoline that shifted to mix towards trucks, which is of some benefit to us, but is of tremendous benefit at the OEM and the supplier level. So all that goes in the plus column.”
Autonation (AN) CEO Mike Jackson said consumers may delay big ticket purchases in an election year
 
I would also point out I have concerns going into an election year. I’ve observed in the past on this very controversial election. And it looks like we are on the road to have one of those this year that consumers sometimes hesitate around big purchases. Usually pick it up after the election, but leading up to election it can be a little bit soft.”