AutoNation Expects Used-Car Price Drop as Volumes Recover

Signage at an AutoNation car dealership
Signage at an AutoNation car dealership in Fremont, Calif. (David Paul Morris/Bloomberg News)

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AutoNation Inc., one of the biggest car dealership chains in the U.S., expects prices for new and used cars to decline this year as manufacturers crank up volumes and offer more incentives to price-sensitive buyers.

The company, which pivoted to selling more used cars than new during the pandemic as chip shortages sapped inventory, has been bracing for lower car prices as auto production recovers.

CEO Mike Manley expects the seasonally adjusted annual rate of light-vehicle sales to be close to 15 million this year, up from 13.7 million in 2022.

“You are going to see improved balance and level of inventory,” he said in a phone interview as the company reported financial results. “You’ll see it progressively more once you get out of the first quarter.”

AutoNation said Feb. 17 that fourth-quarter earnings rose to $6.37 a share, a record for the period and easily beating the $5.82 average forecast by analysts. Revenue increased 2% to $6.7 billion, according to a statement, also surpassing Wall Street projections.

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Shares of Fort Lauderdale, Fla.-based AutoNation jumped 4.8% as of 8:03 a.m. before regular trading in New York. The stock rallied 32% this year through Feb. 16’s close.

AutoNation’s gross profit on each new car sold in the fourth quarter dropped 13% from a year earlier to $5,633, while it was down 10% for each used car. The decline was offset by controlling costs and boosting AutoNation’s parts and service business, which posted a 12% jump in gross profit, Manley said.

Last year, AutoNation acquired CIG Financial to set up a captive finance arm to originate auto loans. It also acquired a stake in car shopping website TrueCar Inc. to enhance its digital capabilities.

“These are things we’ve made sure we continue to improve, because everybody knew that new vehicle margins were progressively going to come down,” he said.

Manley also expects leasing to make a comeback this year as automakers seek to make cars more affordable. The U.S. auto industry should eventually return to its pre-pandemic annual sales rate of about 17 million, because cars on the road are aging and owners will want replacements, he said.

“There’s no doubt in my mind that you’ll get back to a 17 million industry,” he said. But “it for sure is not going to be this year.”

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