A recovering auto industry still needs its garages to shake-off the recessionary blues.
AutoNation, the Fort Lauderdale-based chain of auto dealerships that is the nation’s largest auto retailer, announced a 14 percent spike in profits Thursday morning, thanks in part to a 12 percent increase in revenue from vehicle sales from the year before. Earnings per share hit a record, beating analysts’ expectations.
But while the number of cars sold continues to grow, the number of cars in AutoNation’s service pipeline is expected to hit a post-recession low this year, executives said.
“That business still has yet to come back strong,’’ President Mike Maroone said of AutoNation’s service division, which drives the bulk of the publicly-traded company’s profits. “It’s still in a low point.”
The lag in a service rebound suggests more profits down the road as a spike in auto sales eventually concides with more cars heading into AutoNation garages for tune-ups and other work. And spending on service was up in the first quarter: profits in service grew 8 percent thanks to higher maintenance bills, versus a 6 percent increase in profits from selling cars.
AutoNation reported a 9 percent increase in the number of cars sold in the first-quarter, with the overall tally hitting 117,000 vehicles. The gap between a booming showroom and a relatively slow service department helps explain why the auto industry’s recovery still hasn’t fully erased the damage done by a recession that bankrupted two of three major car makers in America.
Sales dropped so sharply during the dark days of 2009 that AutoNation still sees a gap in the number of cars that would normally be coming in for lucrative tune-ups and repairs.
“Right now, we would be servicing cars sold in 2009. But in 2009, sales collapsed,’’ CEO Mike Jackson said. “There are 7 million cars missing from the streets we would be maintaining.”
Thursday’s first-quarter earnings report from AutoNation shows why a company best known for selling cars actually relies on maintaining them for much of its profits.
For every dollar a customer spent buying a new car in the first three months of 2013, AutoNation kept 6.2 cents as profit. But for every dollar a customer spent servicing a car in the same time period, AutoNation kept 43 cents as profit, according to earnings data released Thursday.
In fact, the $272 million made by the service and parts segment of the business accounted for 41 percent of the company’s gross first-quarter profit of $664 million, compared to 23 percent for the finance department and 21 percent for new-vehicle sales.
Profits from service posted an 8 percent gain compared to the prior year, an increase that executives took as another sign that consumers continue to be bolder in their spending.
End-of-life repairs typically go to cheaper garages, while dealerships rely on the profits from regular tune-ups and scheduled maintenance from cars bought within the last five years. During the recession, new-car sales tanked as consumers put off big purchases and continued paying mechanics to keep their current vehicles running. And dealerships also found they couldn’t convince car owners to pay for non-essential repairs, such as fixing a dent or a $200 flush of a fuel system.
But with a declining supply of serviceable cars, the extra $22 million in first-quarter profits from AutoNation’s garages suggested those thrifty days were ending. And AutoNation sees the damage from the recession finally giving way to a steady stream of new purchases. By the end of 2013, Maroone said AutoNation’s supply of cars sold within the last six years — the sweet spot for service revenue — growing for the first time since the recession started.
Revenue for AutoNation hit $4 billion in the first quarter, up 12 percent from the prior year. That’s still lower than the $4.3 billion AutoNation reported in the first quarter of 2007, the year the recession began, and well below the $4.7 billion reported in 2006, when the economy seemed strong.
Thanks to AutoNation buying up shares over the years, profits-per-share hit a record in the first quarter, at 68 cents a share, when calculated from continuing operations. The company, which owns the former Maroone chain in South Florida, is in the process of converting local brands from its 262 outlets across the country in favor of the AutoNation name.