AutoNation Wildly Profitable While Car Prices Are Grotesquely High

Matt Posky
by Matt Posky

With automobile prices ballooning to egregiously high levels, one might assume that the industry would be in rough shape. But they’d be dead wrong. Supply chain disruptions have actually created a captive market where consumers are desperate to lay their hands on whatever products are available. In the automotive realm, this has allowed retailers to set ludicrous prices and rake in larger profits per transaction. While inflation may eventually catch up to these entities, the gravy train is currently parked at the station and dousing big business with its warm, brown effluence.

Nobody knows this better than the folks at AutoNation. Because the company just released a quarterly profit report that blew its rosiest projections out of the water. Net income its ongoing operations was $361.7 million for Q3 2021, double the $182.6 million witnessed in Q3 of 2020, while revenue rose 18 percent to $6.4 billion.

According to Reuters, analysts had anticipated the company to report a profit of $4.2 per share on net revenue of $6.2 billion. But AutoNation actually ended up closer to $5.12 per share, thanks largely to how high it can now price secondhand vehicles.

From Reuters:

AutoNation, which reported another quarter of record income, said new vehicle inventory remained at historically low levels leading to a marginal rise in new vehicle revenue in the third quarter ended Sept. 30.

Used vehicle revenue, on the other hand, jumped 53 [percent] to $2.32 billion compared to $1.51 billion a year earlier.

AutoNation Chief Executive Mike Jackson told Reuters that tight inventories and high prices are leading some customers to defer buying a new vehicle. However, Jackson said more customers are using AutoNation’s websites to track vehicles the company’s stores have coming to them in the next 30 to 60 days, and reserving a car or truck before it arrives.

“We’re now at the limit of where can take inventories down to,” Jackson said. “This could be the trough on the disruption, and early next year shipments could improve.”

There are no guarantees, however. Supply chains remain upended due to pandemic-related restrictions and manufacturers are still suppressing output due to the chip shortage. There are even claims that the industry is cutting production intentionally to reduce overhead and artificially spur demand to keep prices high — using the chip shortage as a convenient excuse.

Whatever the reality, vehicle demand is likely to remain high for the foreseeable future and businesses are keen to capitalize on that fact. Jackson confessed that “pent-up demand is building” and assumed the hardcore holdouts would eventually return to the dealership once inventories stabilized a bit. Considering people across the globe have only become more interested in private vehicle ownership as the pandemic has dragged on, there’s reason to believe him. But we’ll have to see how things shake down in 2022.

[Image: David Touchtone/Shutterstock]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • EBFlex At the summer property putting boats in the water, leveling boat lifts, cleaning the lots for summer, etc. Typical cabin stuff in the most beautiful place on the planet
  • Lou_BC I've I spent the past few days in what we refer to as "the lower mainland". I see Tesla's everywhere and virtually every other brand of EV. I was in downtown Vancouver along side a Rivian R1T. A Rivian R1S came off as side street and was following it. I saw one other R1S. 18% of new vehicles in BC are EV'S. It tends to match what I saw out my windshield. I only saw 2 fullsized pickups. One was a cool '91 3/4 ton regular cab. I ran across 2 Tacoma's. Not many Jeeps. There were plenty of Porches, Mercedes, and BMW's. I saw 2 Aston Martin DBX707's. It's been fun car watching other than the stress of driving in big city urban traffic. I'd rather dodge 146,000 pound 9 axle logging trucks on one lane roads.
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  • The Oracle Been out on the boat on Lake James (NC) and cooking up some hella good food here with friends at the lake place.