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AutoNation's 2Q net income jumps on higher prices

AutoNation's 2Q net income jumps on higher prices

July 28th, 2011 by MICHAEL FELBERBAUM, AP Business Writer in News

RICHMOND, Va. (AP) - AutoNation Inc.'s second-quarter net income jumped 52 percent on higher new and used vehicle prices despite lower new-vehicle sales caused primarily by shortages from Japanese manufacturers.

The nation's largest auto dealership chain said Wednesday that it earned $71.9 million, or 48 cents per share, for the period ended June 30. That compares with $47.2 million, or 29 cents per share, in the same quarter last year.

Revenue increased nearly 8 percent to $3.34 billion.

Excluding one-time items, AutoNation earned 49 cents a share. Analysts expected earnings of 46 cents a share on revenue of $3.37 billion.

Shares fell $1.01, or 2.5 percent, to close at $38.96 Wednesday.

AutoNation, based in Fort Lauderdale, Fla., said new-vehicle sales at dealerships open at least a year fell 4 percent and were flat overall at 51,824 units. Total U.S. industry new-vehicle sales fell 2 percent.

AutoNation's used-vehicle revenue rose 12 percent.

The company's results "demonstrated our ability to execute in a tough market that had been disrupted with massive production shortages and finding a way to produce an outstanding result regardless of the challenges," CEO Mike Jackson said in an interview with The Associated Press.

Concerns about the weak economy continue to hang over the industry. Unemployment remains high, incomes are flat and consumer confidence - an important measure of whether cars will sell - slipped to a seven-month low in June before rising slightly in July.

Overall U.S. sales also were hurt by shortages from factories damaged in the earthquake and tsunami in March in Japan.

Americans also are still holding onto cars and trucks longer than they did before the recession, which has created a tight supply of used vehicles. So few used vehicles are on the market that prices recently rose to their highest in at least 16 years.

AutoNation said gross profit per new vehicle rose 26 percent, helped by incentives on premium luxury vehicles it previously sold. Gross profit per used vehicle grew 11 percent.

Jackson said he continues to be optimistic about the long-term recovery for the U.S. auto market and believes the new-vehicle market will begin to normalize in the fourth quarter. For the year, Jackson said he expects industry new-vehicle sales, excluding heavy-duty trucks, in the "mid-12 million (unit) range."

"I think there was demand for over 13 million units, but with the significant disruption of the Japanese production, I don't think we're going to be able to get there," he said.

Jackson said he believes margins on vehicles from Japanese manufacturers like Toyota and Honda will be lower in the third quarter.

The company said domestic segment income was $46 million compared with $42 million last year, with a 14 percent increase in new-vehicle sales. Income from imported vehicles fell to $66 million from $52 million last year, with a 12 percent decline in new-vehicle sales. Premium luxury income was $57 million, compared with $49 million a year ago, with a 10 percent increase in new-vehicle sales.

Average price per new vehicle climbed by $1,747 during the quarter, while the average price per used vehicle rose by $969 - an increase of about 5.5 percent for both.

AutoNation estimated that overall shipments from Japanese manufacturers were about 40 percent below planned levels in the quarter.

"We had the traffic and demand for higher sales, but we didn't have the product. And customers said rather than compromising on what they will buy, they'd rather wait to get exactly what they want," Jackson said. "Those customers are waiting on the sidelines waiting to come back into the marketplace later this year."

AutoNation owns 250 new-vehicle franchises in 15 states.