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AutoNation CEO on chip disruption: 'we've performed despite shortages'

Yahoo Finance’s Brian Sozzi, Myles Udland, and Julie Hyman speak with AutoNation CEO Mike Jackson about the company’s all-time record quarter.

Video transcript

MYLES UDLAND: All right, let's stay with earnings. Talk about another company out with its latest results. That's AutoNation stock up a little bit in a pre market. We see shares were up about 2%. Mike Jackson, AutoNation CEO, joins us now. Mike, always great to speak with you. Let's start with kind of how you guys are thinking about the business.

And it's notable to me, coming out right at the top of your press release, and comparing first quarter sales to 2019, which indicates to me that you are starting to see this environment normalized to the point where you can think about getting back on to some kind of longer term growth trajectory here.

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MIKE JACKSON: Oh, absolutely. Good morning, good to see everyone. Yes, it was an all time record quarter for the fourth quarter in a row. And first and foremost, I have to thank our 22,000 associates for getting up every morning, put on their mask and coming to our business to take care of our customers. We had on any given day, 95% of our employees came to work through this entire pandemic, which is really quite something.

And yes, if you're look at our results, they were driven by [AUDIO OUT] points and cost, resulting in a tripling of our EPS to $2.79. So really quite something. Remarkable. The environment for auto retail is good, as I've talked and discussed over the past year. I would never wish for this pandemic.

It's a horrific thing, but we felt a seismic shift towards personal transportation all the way back April a year ago. And the American spirit said, you know, I want my own personal vehicle. I want to decide where I go when and who is with me and who's been in this vehicle before me and after me. They want to control their personal space.

You see that in housing and in automotive retail. You combine that with low attractive interest rates and you have a very positive environment for auto retail. You then look at AutoNation, which has a brand from coast to coast, a great customer experience, a digital platform, world class operating performance that we drive this very profitably, it's enabled us, along with our associates, to produce four record quarters in a row.

BRIAN SOZZI: Mike, again, blew it away in terms of used car sales and new car sales. But how sustainable or some of these gains given the chip supply shortage?

MIKE JACKSON: So no question, the chip supply is disruptive to the manufacturer of new vehicles. Now, nothing like closing the plants in the second quarter. I mean, our shipments will be double this year than they were when the plants closed for six weeks. But demand far exceeds supply. And it's going to be that way for some time.

Now once again, AutoNation has demonstrated its resiliency and its adaptability. So when we saw all the restraints and disruption on the new vehicle side, we purchased aggressively on the preowned side, that our customers would have something to choose from. And this led to an increase in our preowned business of 28%. And we source 90% of those vehicles ourselves, rather than buying at auctions. We either take them as trade-in, buy them as off lease, or buy them directly from consumers.

We also, on the new vehicle side, adjusted prices somewhat and front end gross profit went from 4% per vehicle to 6% per vehicle. Considering the shortages, consumers were very understanding under the circumstances. And you combine that with our digital capability and we performed despite the disruption of the shortages created by the chip disruption, which we expect to fully continue for the rest of this year.

JULIE HYMAN: So, Mike, it's Julie here. It's good to see you. So how much did you guys raise prices on average in the quarter? And how much do you think vehicle prices for the full year, especially if this chip shortage is continuing, how much are car price is going to go up this year?

MIKE JACKSON: So the consumer has been selecting larger, more expensive vehicles with greater content through this entire pandemic period. And the same as what you see in the home industry. They want a bigger home, they're spending more time in it, they want to be comfortable. Which, by the way, this duality is a significant part of the chip shortage in that you have this demand for more comfortable, more electronic home, and the same thing in your vehicles.

So the consumer is choosing that. And as I said, on our pricing, it's a 2% increase on our margins, but the price point that the consumer has moved to on new vehicles is approaching $40,000. And on preowned vehicle, we're just over $20,000 on average.

BRIAN SOZZI: Mike, I was surprised by a recent move out of Volvo. They're looking at selling a lot of their, or most of their electric vehicles online or direct to consumer. What do you think of that move? And how can an AutoNation and other dealerships defend against that?

MIKE JACKSON: Well, I don't think there's anything to defend against. And we're excited to be in the electric vehicle business and we're selling everything from the Nissan Leaf through the Porsche Taycan. We're at an inflection point on electrification. We think it's an exciting new chapter. You go to our website and you just click on the electric button and you see everything that's offered by AutoNation.

As far as the Volvo store, I'm not clear exactly what they're doing, and I'm not particularly concerned about it. And a lot of this, like there was a lot of discussion about direct selling, but really, it's like a reservation system with the manufacturer that they then refer the business to us. So I don't see any structural change in how new vehicles are sold.

Now digitally, we're doing more than ever. I mean, 50% of what we retail, the transaction is initiated digitally. And we let the consumer do as much or as little as they would like from that point. So digital capability with strong proprietary tools is a strength of AutoNation. So I have no concerns about some of these other discussions.

MYLES UDLAND: All right, Mike Jackson, CEO of AutoNation. Mike, appreciate the time as always.

MIKE JACKSON: Great seeing everyone this morning. Thank you.

MYLES UDLAND: All right, coming up on the other side of.