Autonation (AN) Q2 2016 Earnings Call

Autonation (AN) President Will Berman said manufacturers are offering a high level of vehicle incentives in order to sell automobiles 

“Industry retail sales were down 2% while incentives were up 13%, and new vehicle leasing penetration, again, was over 30%.  Manufacturer volume-based incentive programs with high sales’ target should continue to create irrational behavior in the marketplace.”

Used vehicle prices are starting to soften

“Used vehicle retail sales were 52,300, down 6%. Used vehicle gross profit was $1,548 on a per retail basis, a decrease of $150 or 9%. As of June 30th, 6,900 units or roughly 20% of our total used vehicle inventory was on hold.”

Autonation (AN) CEO Mike Jackson complimented GM and dissed Ford 

“There is a diversion in manufacturer behavior. For instance, I would compliment General Motors, and you certainly look at their results, and you see if you find the right balance between supply and demand with a good disciplined approach and really marketing that’s focused on the long-term, you can be quite successful. On the other hand, we have other manufacturers who are still very aggressive in their plans, and if you want to look at Ford Motor Company, where we have targets for the third quarter, that a significant number of our stores have targets that are 15%, 20%, 25%, up to 40% higher than prior year. Well, that’s just not going to happen, it’s totally unrealistic and we’re not going to chase it, but it is disruptive in the marketplace and causes irrational behavior, and there’s a price tag for that. And if you look at Ford’s total incentives being up 28% in the second quarter, I don’t think they got a return on that approach.”

Autonation (AN) CEO Mike Jackson sees the industry selling 16-17 million cars for the next couple of years

“If something else happens in the world that hammers the US with recession, I suppose that can happen, but I don’t see a significant recession that would decline sales by 10% to 15%. So, my outlook is high industry sales, high 16 million, or just over 17 million for the next several years.”

Such a high percentage of leased vehicles is dangerous and causes a day of reckoning when the vehicle comes off of lease

“I agree with you, leasing is the same thing. You’re selling the seeds of a day of reckoning that you really don’t want, namely, that you have so many vehicles coming back that are based on a residual value that’s going to be higher than what the marketplace can handle. Now, that – all those risks are at the OEM level not at the retail level, but we all know if you’re basically pulling business forward now, that means that when the day of reckoning comes, the disruption is great. And I’d just rather see the business manage more rationally with stability now so that this plateau period is more sustainable.”

Autonation (AN) CEO Mike Jackson on the millenials generation 

“My view is that millennials will buy cars, I think. I have to check, but I think they could have bought more cars than any other generation. They, the millennials, came of age with the great recession. They went back to school and doubled down on education and student debt. They’re now entering the workforce. They have to pay down that student debt. But their fundamental desires to marry, have children, have a home, have a car are there. You have to do business with them differently. You have to communicate with them differently. You have to know how to market to them differently. But those drivers are there. That’s in principle are what we believe.”