The coronavirus and its recession had nothing on the three biggest U.S. auto retailers in the third quarter.
Thin inventory and strong demand sent gross profits soaring on both new and used vehicles for AutoNation Inc., Penske Automotive Group Inc. and Lithia Motors Inc., all of which reported record results with bottom-line increases topping 80 percent.
"We do not have the inventory on the new side or the pre-owned side to meet the demand that's out there," AutoNation CEO Mike Jackson told investors last week. "So we've adjusted pricing to balance the situation."
After the shock of forced shutdowns over much of the country — cushioned for many privately held dealers by forgivable federal loans — retailers reduced head count and streamlined processes to become more efficient.
"This earnings trend started in Q2 results and initially it seemed counter-intuitive," David Whiston, an analyst with Morningstar, wrote in an email to Automotive News. "But it makes sense" because of dealers' "massive" cuts to selling, general and administrative expenses.
Asbury Automotive Group Inc., Group 1 Automotive Inc. and Sonic Automotive Inc. officially report results this week; all have said that profits will rise sharply.
AutoNation, the largest new-vehicle retailer in the U.S., had an average of 43 days' supply of vehicles on its lots at the end of September, down 12 days from last year. Automakers have missed every inventory target since the spring, Jackson said, adding that he doesn't see availability improving before the first quarter.
Dealerships have struggled to maintain inventory of new cars and trucks after U.S. vehicle assembly plants — and many others around the world — were idled this spring to slow the spread of COVID-19. As a result, dealers and customers relied more heavily on used vehicles to satisfy demand, depleting those inventories as well.
Penske CEO Roger Penske told investors and analysts on a call last week that short supplies will likely strain the retailer into 2021, particularly when it comes to premium luxury vehicles, which made up 71 percent of its vehicle sales revenue in the third quarter.
"The thing is to get the right mix of the vehicles that we can sell. But there's no question overall that trucks and SUVs are certainly still really hard to get," Penske said. "And those are the premium vehicles that we make our money on."
Penske's supply of new vehicles shrank 30 percent to 45 days at the end of September compared with a year earlier. For used vehicles, supply dropped 7 percent to 40 days.
Lithia Motors felt pressure from a lack of vehicle supply in the third quarter, but the group's inventory has since rebounded, CEO Bryan DeBoer told investors last week.
The average total gross profit per vehicle on same-store sales — a figure that includes finance and insurance profits — rose over $1,000 in the quarter, "largely attributed to high levels of incentives from our OEM partners and a perceived inventory shortage in the country," DeBoer said.
Lithia's average days' supply for new vehicles was 50 in the third quarter, 27 days lower than where it was a year earlier. Used-car supply was 64 days, down just three days from the prior year.
