AutoNation Earnings: New Vehicle Profit Declines Show Signs of Stabilizing

AutoNation finished 2024 with a strong fourth quarter and adjusted diluted EPS of $4.97 beating the $4.26 LSEG consensus. We are leaving our fair value estimate unchanged but will review all modeling assumptions when we roll our model for the 10-K. We don’t see the stock falling 3% the morning of earnings as justified, but it’s possible the market is concerned over US tariffs or continued year-over-year declines in new vehicle gross profit in 2025 following inflated levels in 2021-23 from the chip shortage. Although year-over-year fourth-quarter new vehicle gross profit per unit fell 18.7% to $2,969 while gross margin fell by 140 basis points to 5.6%, GPU increased from third-quarter 2024 by 5.9% and gross margin was flat. This fact suggests that management’s prediction in its earnings presentation of new vehicle margins normalizing higher than historical levels is reasonable. Fourth-quarter 2019 new vehicle metrics, for example, were GPU of $1,850 and gross margin of 4.5%.