AutoNation (AN) will not be discounting new vehicles as the nation's largest car-dealer chain contends with production challenges brought on by the Covid-19 pandemic, the company's top executive said.
CEO Mike Manley made the announcement during the company's analysts call, pointing to all the learning through the pandemic and supply and demand dynamics that we've recently seen and the clear messages coming from the manufacturers."
'Excessively High Inventory Levels'
"We will not return to the excessively high inventory levels that depressed new vehicle margins for both the dealers and the (Original Equipment Managers) OEMs," he said, according to a transcript of the call.
"Significant discounting and high incentives can also damage a brand, Manley continued, "which is another reason for our industry to balance appropriately supply and demand and another reason why we may expect higher new vehicle margins than we have historically seen pre-Covid."
Car prices have soared in the last year. Eighty-two percent of car buyers are paying above sticker price for new vehicles, CNBC reported, citing research from Edmunds.com, compared with 2.8% a year ago and 0.3% in early 2020.
Prices that are up 12% year over year amid the ongoing computer chip shortage.
Since the pandemic and in the face of strong demand while inventories are tight, automakers and dealers have improved their margins by selling cars above conventional prices. The situation has been perpetuated with the shortage of chips which has forced certain manufacturers to temporarily suspend and cut production at certain plants.
AutoNation reported adjusted fourth-quarter earnings were $5.76 a share, beating estimates for $4.96. Revenue totaled $6.6 billion, up 14% a year ago and beating the FactSet consensus estimate of $6.37 billion.
'One of the Biggest Variables'
Revenue growth was driven by used cars, which were up 55% from a year ago, while new car revenues fell 7%. Over 50% of AutoNation unit sales originated on its digital channels for the full year 2021.
AutoNation's Chief Financial Officer Joe Lower said the company expects "demand to continue to achieve supply well into 2022."
"In addition, many consumers have shifted to used vehicles due to limited availability of new, which has been very beneficial as we continue to demonstrate exceptional growth," Lower said.
Manly described new vehicle margin as "one of the biggest variables."
"When Covid is behind us, we'll see the emergence of additional mobility models and choices," he said. "We'll see changes in the way customers approach vehicle ownership and usage. And we will progressively see changes in how dealers and OEMs are traditionally competed.
Manley added that "this is an exciting time and offers many more opportunities and downsides."
