AutoNation Profit Slumps

AutoNation Inc., the largest operator of dealerships, reported a 16% drop in its fourth-quarter profit as car incentives—offered primarily by luxury auto makers—eroded profitability and forced the company to initiate cost-cutting measures.

Chief Executive Mike Jackson has put auto makers on notice that U.S. consumers aren't buying medium and small cars. They want sport-utility vehicles and pickup trucks. If auto makers don't curtail their car output, they risk igniting a pricing war which will hurt them and the dealers, Mr. Jackson has warned.

Fiat Chrysler Automobiles NV is already responding. The smallest of the Detroit auto makers said Wednesday it plans to phase out production of the Chrysler 200 sedan and Dodge Dart compact car in the U.S. over the next 18 months so it can use all of its plants to churn out nothing but pickup trucks and its Jeep SUVs. Whether the 200 and Dart will be dropped from the vehicle portfolio altogether is still undecided.

For the quarter, AutoNation's net income fell to $97.5 million, or 87 cents a share compared with $116.7 million for the same period a year earlier. Excluding one-time costs, the company earned 96 cents trailing analyst estimates of $1.03. Revenue, however, rose 6% to $5.3 billion helped by service bay work.

Some luxury car makers offered higher incentives, especially in December, amid a glut of its car products which failed to sell as much as they had hoped in the days leading up to Christmas. Discounting reduced AutoNation's new and used vehicle margins by 11% or $217 per every vehicle sold.

Meanwhile, Mr. Jackson's mandate to not sell any vehicles with open recall issues resulted in 6% of the company's inventory being put on hold. The inventory hold represented about 2% of new cars and 16% of used cars.

Write to Jeff Bennett at [e-mail]

(END) Dow Jones Newswires

January 28, 2016 07:55 ET (12:55 GMT)

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