As new car prices increase faster than consumers’ paychecks, the nation’s auto dealers are finding they can make more money focusing on used car sales.
Fort Lauderdale, Fla.-based AutoNation announced that it would continue to shift its corporate strategy toward selling, financing and servicing used cars as new-car sales continue to decline.
Over the past five years, the average price for new consumer vehicles has increased from $34,500 to $39,500, and that’s a lot for consumers to absorb, AutoNation CEO Cheryl Miller said by phone Tuesday, shortly after the company held its year-end and fourth quarter earnings call with investors.
Increasing new vehicle prices have steered customers who once bought new into vehicles that were returned to dealers after three-year lease terms, Miller said.
And those used car customers can be lucrative for AutoNation and its growing roster of ventures, such as its repair shops, branded parts stores and warranties, she said. The company also sees potential growth in servicing autonomous vehicles, Miller said.
Despite their increased age, older vehicles are still more and more complex, creating opportunities to make money servicing electric and hybrid components and calibrating all of the cameras, sensors and other technology that makes assistive functions and safety features work correctly, Miller said.
In addition to reporting AutoNation’s strongest-ever earnings per share for the fourth quarter of 2019 — $1.74 compared to $1.02 in 2018 — the nations’ largest auto dealer reported a 21% increase in same-store gross profit from its used vehicle side.
Used car revenue jumped to $5.47 billion in 2019 from $5.12 billion in 2018 and $4.88 billion in 2017, the company’s financial statements show.
By contrast, new car revenue across the company decreased to $11.17 billion in 2019 from $11.75 billion in 2018 and $12.18 billion in 2017.
Gross profits declined 2.4% for new cars in 2019 while increasing 5.9% for used cars.
Nationwide, retail sales of new vehicles declined 1.6% in 2019, which wasn’t as bad as analysts had projected, CNBC reported in January. Analysts foresee another 2 to 3% decline in new vehicle sales in 2020, Miller said.
Used car sales are outpacing new car sales at the nation’s six largest franchise dealers, including AutoNation, Sonic Automotive, Penske Automotive Dealerships, Lithia Motors, Asbury Automotive Group, and Group 1 Automotive, according Cox Automotive. In the third quarter of 2019, combined sales of used cars at the six companies increased nearly 11% while new car sales dropped 0.83 percent.