AutoNation Inc (AN) is one of the largest automotive retailers in the United States, operating a network of 325 new vehicle franchises from 243 stores across the country, predominantly in major metropolitan markets in the Sunbelt region. The company offers a diverse range of automotive products and services, including new vehicles, used vehicles, parts and service, and automotive finance and insurance products.
Company Background and Growth
Established in 1996 through the consolidation of several regional automotive dealership groups, AutoNation has grown to become a leading player in the highly competitive automotive retail industry. The company's strategic focus on operational excellence, digital customer experience, and diversified revenue streams has allowed it to navigate the evolving landscape and deliver consistent financial performance. In its early years, AutoNation faced significant challenges in integrating its acquisitions and unifying the disparate dealerships under a common brand and operating model. The company had to overcome differences in local market practices, employee cultures, and technological systems across its growing portfolio of stores. To address these challenges, AutoNation invested substantial time and resources into streamlining operations, implementing common processes, and building a cohesive identity for the company.
During the 2000s, AutoNation expanded beyond traditional new and used vehicle sales, building out its parts, service, and collision repair capabilities, as well as its finance and insurance offerings. This diversification strategy helped reduce the company's reliance on the cyclical new vehicle sales business and build a more stable, recurring revenue stream. The addition of these complementary business lines also improved customer retention and loyalty.
In the 2010s, AutoNation successfully navigated industry challenges such as the Great Recession, manufacturer supply chain disruptions, and the growth of online car buying platforms. The company responded by further optimizing its operations, investing in digital capabilities, and focusing on providing a superior customer experience. AutoNation also made strategic acquisitions to expand its geographic footprint and enhance its brand portfolio.
Business Model and Operations
Today, AutoNation operates a diversified automotive retail business, selling 31 different new vehicle brands through its Domestic, Import, and Premium Luxury segments. The company has also developed additional revenue streams through its parts and service operations, finance and insurance products, and specialized businesses like AutoNation USA used vehicle stores and AutoNation Mobile Service. These initiatives have helped AutoNation weather industry cycles and deliver consistent financial performance over the years.
AutoNation operates primarily in the Sunbelt region of the United States, with a concentration of stores in Florida, California, and Texas, which accounted for approximately 64% of total revenue in 2024. The company also operates 52 AutoNation-branded collision centers, 24 AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, 3 parts distribution centers, a mobile automotive repair and maintenance business, and an auto finance company.
Financials
In 2024, AutoNation reported total revenue of $26.77 billion, a slight decrease from $26.95 billion in 2023. However, the company's net income from continuing operations increased to $692.20 million in 2024, up from $1.02 billion in 2023. The decrease in revenue was primarily due to a decline in used vehicle sales, which was partially offset by growth in new vehicle sales and the company's parts and service operations.
AutoNation's financial performance is underpinned by its diversified business model, which includes revenues from new vehicle sales (49% of total revenue in 2024), used vehicle sales (29%), parts and service (17%), and finance and insurance (5%). This diversification helps the company mitigate risks and capitalize on opportunities across different segments of the automotive industry.
One of the key drivers of AutoNation's success has been its focus on operational efficiency and cost management. The company's selling, general, and administrative (SG&A) expenses as a percentage of gross profit improved to 68.2% in 2024, down from 63.4% in 2023, demonstrating the company's ability to leverage its scale and streamline its operations.
In the most recent quarter (Q4 2024), AutoNation reported revenue of $7.21 billion, a 7% increase year-over-year, driven by a 12% increase in new vehicle revenue. Net income for the quarter was $186.10 million, which decreased year-over-year primarily due to higher interest expense and one-time costs related to the CDK outage.
AutoNation's total gross profit for 2024 was $4.79 billion, with new vehicle gross profit of $775.5 million, used vehicle gross profit of $438.5 million, parts and service gross profit of $2.21 billion, and finance and insurance gross profit of $1.36 billion.
Segment Performance
AutoNation operates through four reportable segments: Domestic, Import, Premium Luxury, and AutoNation Finance.
The Domestic segment, which sells new vehicles manufactured by Ford, General Motors, and Stellantis, generated $7.14 billion in revenue in 2024, accounting for 27% of the company's total revenue. The segment's income was $254.9 million.
The Import segment, selling new vehicles from manufacturers like Toyota, Honda, Hyundai, Subaru, and Nissan, generated $8.16 billion in revenue, or 30% of total revenue. The segment's income was $476.6 million.
The Premium Luxury segment, which includes brands such as Mercedes-Benz, BMW, Lexus, Audi, and Jaguar Land Rover, generated $10.14 billion in revenue, accounting for 38% of total revenue. This segment's income was $675.7 million.
The AutoNation Finance segment, the company's captive auto finance company, generated $118.4 million in interest and fee income, with a segment income of $9.3 million.
Digital Strategy and Customer Experience
Another important aspect of AutoNation's strategy is its investment in digital capabilities and the customer experience. The company has been actively enhancing its omnichannel retail platform, allowing customers to seamlessly navigate the car-buying process both online and in-store. This focus on the digital customer experience has helped AutoNation maintain its competitive edge and adapt to the evolving preferences of car buyers.
AutoNation Finance
In 2024, AutoNation also made significant progress in the growth of its captive finance company, AutoNation Finance. The division originated $1.1 billion in loans during the year, up from $336 million in 2023, as the company continued to increase its finance penetration rates at its franchise stores. AutoNation Finance's portfolio quality has also improved, with delinquency rates dropping to just 2.6% at the end of 2024. The company expects AutoNation Finance to become profitable on a run-rate basis by the end of 2025.
Liquidity and Capital Allocation
The company's capital allocation strategy has been a key driver of shareholder value. In 2024, AutoNation repurchased $460 million worth of its own shares, representing a 7% reduction in the number of outstanding shares. This, combined with the company's strong free cash flow generation, has allowed AutoNation to maintain a healthy balance sheet, with a leverage ratio of 2.45x EBITDA at the end of 2024.
As of December 31, 2024, AutoNation had a debt-to-equity ratio of 3.52, cash and cash equivalents of $59.80 million, and a $1.90 billion revolving credit facility, which was fully available. The company's current ratio stood at 0.74, and its quick ratio was 0.21.
Future Outlook and Challenges
Looking ahead, AutoNation faces a number of challenges and opportunities in the evolving automotive retail landscape. The company must navigate the ongoing shifts in consumer preferences, including the growing demand for electric vehicles and the rise of e-commerce platforms. Additionally, the company's parts and service business, which accounts for a significant portion of its profitability, will need to continue adapting to changing customer expectations and technological advancements in the industry.
For 2025, AutoNation expects moderate unit growth in new vehicles in the first half of the year, with less growth in the second half. The company anticipates moderation in new vehicle unit profitability to support unit growth, continued stabilization in used vehicle unit profitability, resilient Customer Financial Services (CFS) volumes and unit profitability, and growth in the after-sales business of around mid-single digits. AutoNation also targets over 100% conversion of adjusted net income to cash.
Despite these challenges, AutoNation's strong market position, diversified business model, and focus on operational excellence position the company well to capitalize on the industry's transformation. The company's consistent financial performance, innovative digital capabilities, and prudent capital allocation strategies suggest that AutoNation is well-equipped to navigate the changing landscape and deliver long-term value for its shareholders.