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A softer landing? Not so much
AutoNation’s CFO Thomas Szlosek went to Morgan Stanley’s Laguna Conference and delivered the kind of update that makes investors squint at their spreadsheets. The message was clear: Q3 isn’t shaping up to be a victory lap.
Service and financial products do the heavy lifting here — they make up about 80% of AutoNation’s profit — so any wobble in those lines matters a lot more than it would for a typical car dealer. And wobble is the right word. Management said parts-and-service growth should be more modest because customers are getting pickier about maintenance spending, while warranty comparisons are getting tougher too.
The profit engine is sputtering a bit
The new-vehicle side isn’t helping. AutoNation expects gross profit per unit to fall about 10% sequentially in Q3, citing model-year changeovers, affordability pressure, and more pricing concessions. That’s a lot of dealer-speak for: buyers are bargaining harder, and AutoNation is giving a little more ground.
There’s also the EV wrinkle. Penetration has slid to the low single digits from roughly 8% to 9% before federal incentives expired. In other words, the electric car gravy train got a little less gravy.
One bright spot, but not enough to patch the whole tire
Customer Financial Services is also seeing some near-term softness, with management guiding for a roughly $50 million to $100 million sequential decline in unit profitability after weaker July and August attachment rates. The one offset is AutoNation Finance, whose portfolio is approaching $3 billion and has reached about 18% penetration of financed vehicles.
That helps, but it doesn’t exactly erase the concern. The stock was down 3.69% to $168.43 at the time of publication, and the broader message for investors is simple: when the highest-margin parts of the business cool off at the same time, the Street starts reaching for the tissue box.
Big picture: AutoNation isn’t broken, but this update suggests the margin party is getting less fun. If you own the stock, the next earnings report is now less of a formality and more of a stress test.