AutoNation Q1 2025 Earnings Report

AutoNation EPS Results

• Actual EPS: $4.68
• Consensus EPS: $4.35
• Beat/Miss: Beat by +$0.33
• One Year Ago EPS: $4.49

AutoNation Revenue Results

• Actual Revenue: $6.69 billion
• Expected Revenue: $6.53 billion
• Beat/Miss: Beat by +$156.27 million
• YoY Revenue Growth: +3.20%

AutoNation Announcement Details

• Quarter: Q1 2025
• Date: 4/25/2025
• Time: Before Market Opens
• Conference Call Date: Friday, April 25, 2025
• Conference Call Time: 9:00AM ET

AutoNation (NYSE:AN), through its subsidiaries, operates as an automotive retailer in the United States. The company operates through three segments: Domestic, Import, and Premium Luxury. It offers a range of automotive products and services, including new and used vehicles; and parts and services, such as automotive repair and maintenance, and wholesale parts and collision services. The company also provides automotive finance and insurance products comprising vehicle services and other protection products; and indirect financing for vehicles, as well as arranges finance for vehicle purchases through third-party finance sources. It owns and operates new vehicle franchises from stores located primarily in metropolitan markets in the Sunbelt region, as well as AutoNation-branded collision centers, AutoNation USA used vehicle stores, AutoNation-branded automotive auction operations, and parts distribution centers. The company was formerly known as Republic Industries, Inc. and changed its name to AutoNation, Inc. in 1999. AutoNation, Inc. was incorporated in 1980 and is headquartered in Fort Lauderdale, Florida.

AutoNation Q1 2025 Earnings Call Transcript

Key Takeaways

• AutoNation delivered strong Q1 performance with same-store new vehicle sales up 7% (premium luxury +14%, domestic +6%, import +2%), used-vehicle profitability up 13% to $16.62 per unit, and record aftersales gross profit with margins expanding 140 bps.
• AutoNation Finance originated $460 million of loans in Q1, achieved profitability ahead of plan, saw average FICO scores rise to 690 and delinquencies fall to 2%, and is preparing its inaugural ABS funding program.
• Capital allocation remained robust, with $225 million of share repurchases at an average $165/share in Q1 (reducing share count 4% YTD), a $70 million acquisition of two Denver stores, and leverage at a conservative 2.56× EBITDA.
• A pull-forward in March boosted demand ahead of proposed tariffs, but the ultimate SAAR impact remains unclear; management expects cross-shopping and strength in non-tariff businesses (used, CFS, parts & service) to cushion any market contraction.

Presentation

[Operator]

Good morning, and welcome to the AutoNation Incorporated First Quarter twenty twenty five Earnings Call. My name is Harry, and I will be your operator today. All lines are currently in listen only mode and there will be an opportunity for Q and A after management's prepared remarks. I would now like to hand the conference over to Derek Viebig, Vice President of Investor Relations. Thank you. The floor is yours.

[Derek Fiebig, VP - Investor Relations at AutoNation]

Okay. Thank you, Harry, and good morning, everyone. Welcome to AutoNation's first quarter twenty twenty five conference call. Leading our call today will be Mike Manley, our Chief Executive Officer and Tom Slozic, our Chief Financial Officer. Following their remarks, we'll open up the call for questions.

[Derek Fiebig, VP - Investor Relations at AutoNation]

Before beginning, I'd like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued today and in our filings with the SEC. Certain non GAAP financial measures as defined under SEC rules will be discussed on this call. Reconciliations are provided in our materials and on our website located at investors.autonation.com. With that, I'll turn the call over to Mike.

[Michael Manley, CEO & Director at AutoNation]

Yes. Thank you, Derek, and good morning, everyone, and thank you for joining us today. I'm going to start on the third slide. So our results for the first quarter were strong across the board. We delivered outstanding new unit growth, expanded unit profitability both in used vehicles and customer financial services and achieved record after sales profits.

[Michael Manley, CEO & Director at AutoNation]

Our operating cash generation was solid, allowing us to deploy capital for both share repurchases and accretive acquisitions. Prior to the formal announcement of tariffs, new vehicle sales were performing well, tracking approximately 5% up year over year and the strong pace accelerated following the tariff announcements in late March, adding to our pace resulting in same store new vehicle unit sales increase of 7% for the quarter from prior year. Premium Luxury increased 14%, Domestic 6% and Import increased 2%. Now I'm pleased to say that during the quarter, we increased our share both year over year and month over month in the markets we serve. Used vehicles continue to perform well as unit profitability increased 13% to $16.62 dollars reflecting our focus on margin, costs, inventory levels and mix.

[Michael Manley, CEO & Director at AutoNation]

Our total gross profit included wholesale increased 12% from the first quarter of twenty twenty four. Customer financial services continued to deliver strong results. Per unit profitability increased from a year ago on a sequential basis for the second consecutive quarter. The sequential performance is noteworthy considering the seasonal shift to used vehicles. Another highlight of the quarter was the performance of aftersales, which once again delivered record gross profits and expanded margin by 140 basis points from the previous year.

[Michael Manley, CEO & Director at AutoNation]

We continue to grow our technician workforce while promoting and developing them internally. AM Finance also continued to develop and perform. Originations were $460,000,000 during the quarter, and the business crossed over to profitability well ahead of when expected. And I would like to thank and congratulate the entire A and F team as well as all of the dealerships that have helped them deliver that result. And in addition, the credit quality of our portfolio continues to track favorably.

[Michael Manley, CEO & Director at AutoNation]

And as discussed on our year end call, the sale of the last substantial portion of third party legacy originations significantly reduced our credit risk exposure, which has resulted in a meaningful reduction in delinquencies. Cash flow generation for the quarter was strong, allowing us to deploy capital for both share repurchases and attractive acquisitions. During the quarter, we repurchased $225,000,000 of shares at an average price of $165 per share. As of yesterday's close, we have repurchased more than $250,000,000 worth of shares, reducing our share count by 4% from January 1. Our Q1 performance combined with our share repurchases helped us to grow our adjusted EPS by 4% from a year ago.

[Michael Manley, CEO & Director at AutoNation]

This was the first year over year increase in adjusted EPS in eight quarters as the post COVID normalization trend has significantly moderated. On March 31, we acquired two stores in the Greater Denver, Colorado area, Ford Arapahoe and Mazda Arapahoe, which together sold nearly 5,000 new and used vehicles in 2019 and generated approximately $220,000,000 of revenue. These acquisitions reflect our strategy to add store density into markets where we have a presence. It allows us to rapidly bring significant scale synergies to the acquired dealerships, expanding on the current success of these stores and delivering strong returns to our shareholders. The acquisitions marked the first AutoNation Mazda and second AutoNation Ford in the state, bringing our footprint in Colorado to 13 domestic, six import and three AN USA dealerships concentrated in the Greater Denver area.

[Michael Manley, CEO & Director at AutoNation]

Now before turning the call over to Tom to take you through the quarter in greater detail, I wanted to provide some color on tariffs and our actions at AutoNation. Clearly, in the quarter, we benefited in March from a pull in effect as buyers accelerated their planned vehicle purchases to avoid the coming tariffs. This trend continued into April, albeit at an increasingly moderating pace. And as you can see from our current days of supply, we have a level of ground inventory at pre tariff rates that will, for certain models, sustain this momentum into May. This provides time for the auto tariff structures to be more clearly defined, modified and negotiated between our OEM partners and the U. S. Administration. It also enables each OEM to fully evaluate their supply chain footprint and understand what actions they can take to optimize the tariff efficiency and to establish the forward pricing structures. As these actions progress towards finalization, the impact on new unit availability and pricing will become clearer as will the effects on customer demand patterns.

[Michael Manley, CEO & Director at AutoNation]

These factors combined will establish changes, if any, to the size of the new vehicle market. And in March, the light vehicle side risen to north of 17,000,000 units with estimates that this would come down to somewhere between 31,000,000 units for the year. We expect some of these predicted declines will be cushioned by a cross shopping effect whereby demand for lesser impacted brands and models will supply that for those more affected counterparts. In this situation, we often hold both sides of the trade, not always equally weighted, but our broad portfolio of brands and models gives us an advantage here. We're also confident that our OEM partners will be keen to protect their market share regardless of total size of market.

[Michael Manley, CEO & Director at AutoNation]

There are a number of areas in our business that are less impacted by tariffs, including used cars, customer financial services, parts and service, and we continue to focus and drive our performance in these areas. For example, we have made a concerted effort to increase our used car inventory and are now carrying the highest level of vehicles since December 2023. We are also continuing to drive service lane traffic and our momentum continues to improve as we get further into the year. We remain focused on controlling costs within the company, cash flow and deploying capital to generate shareholders' return. And now with that, Tom, if you wouldn't mind taking the call over and going through our results.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Yes. Thank you, Mike. I'm turning to Slide four to discuss our first quarter P and L. Our total revenue for the quarter was $6,700,000,000 an increase of 3% from a year ago. That's 4% on a same store basis.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

This was driven by a 10% increase in same store new vehicle revenue as we increased new unit volumes across all three segments. Same store gross profit of $1,200,000,000 increased by 3% from a year ago. This year over year performance included same store used vehicles growth of 12%, CFS growth of 6% and after sales growth of 4%. The gross profit margin of 18.2% of revenue was down slightly from a year ago, reflecting improvements in margins for aftersales, which was up 100 basis points or 140 basis on a same store basis and used vehicles including wholesale which was up 90 basis points. This was offset by the moderation of new vehicle unit profitability.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Adjusted SG and A of 67.5% of gross profit was in line with our first quarter expectations. Year over year, the rate was adversely impacted by some timing and non recurring items. Going forward, we continue to expect SG and A as a percentage of gross profit to be between the 66% to 67% range for the full year, reflecting our focus on driving operational efficiency. Adjusted operating margin was flat from the fourth quarter at 5% of revenue. Below the operating line, the floorplan interest expense decreased by $3,000,000 from a year ago as average rates were down approximately 100 basis points more than offsetting the higher average outstanding borrowings.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Non vehicle interest expense decreased $2,000,000 from a year ago reflecting lower average outstanding balances. As a reminder, we reflect floor plan assistance received from OEMs in gross margin. This assistance totaled $31,000,000 compared to $32,000,000 a year ago. And net of these OEM incentives, new vehicle floorplan expense totaled $13,000,000 down from $15,000,000 last year. All in all, this resulted in adjusted net income of $184,000,000 compared to $190,000,000 a year ago.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

This 3% year over year decrease itself is the smallest year over year decline in three years, again demonstrating that the post COVID profit normalization trend has significantly moderated. Total shares repurchased over the past twelve months decreased our average shares outstanding for the quarter by 7% to 39,400,000.0 shares benefiting our adjusted earnings per share, which was $4.68 for the quarter, an increase of $0.19 or 4 percent from the first quarter of twenty twenty four. Slide five provides some color, more color for new vehicle performance. New vehicle unit volumes were a strong point for the quarter, increasing more than 6% from a year ago on a total store basis and 7% on a same store basis. Total store unit sales were up across our three segments with import units up 2%, premiumluxury up 14% and domestic up 6%, reflecting strong supply, better incentives and good performance by our commercial team.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

By powertrain, hybrid vehicle unit sales were up approximately 50 from the first quarter of a year ago and represented approximately 20% of our unit sales and 10% of our ending inventory. The bad vehicle sales were also up nearly 50% from a year ago, reflecting OEM actions with incentives and uncertainty regarding longevity of government incentives for BEVs. BEVs represented about 8% of our sales for the quarter and 8% of our ending inventory. Internal combustion engine unit sales were down 4% for the quarter. Our new vehicle unit profitability averaged $2,803 for the quarter, down seasonally from the fourth quarter, which is, as you know, is a normal trend reflecting higher premium luxury weighting in the fourth quarter.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Unit profitability was flat for the third quarter of last year. New vehicle inventory ended the quarter at 39,000 units, up by about 1,000 units from a year ago. This represented thirty eight days of supply, down six days from the first quarter of last year, reflecting the strong new vehicle sales for the quarter. Looking ahead, as Mike indicated, the momentum we have seen in March has continued into April, albeit at a moderating pace. Turning to slide six, the used vehicle unit profitability was up 13% from a year ago and 8% from the fourth quarter.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

We are executing much better on vehicle acquisition, reconditioning, inventory velocity and pricing. Total used gross profit was up 12% reflecting this unit this retail unit profitability as well as better wholesale results. Lower priced vehicles continue to perform well with unit volume increasing in that band 10% from the fourth quarter in the in the sub $20,000 band. Supply availability remains a challenge, particularly for the mid and higher priced tiers, consistent with the past few quarters, driven by lower new vehicle production during COVID. We continue to be competitive in securing trade ins from new vehicle buyers and to source more than 90% of our vehicles internally, including through our We'll Buy Your Car program.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

During the quarter, we opened two AN USA stores in Texas, adding density to the Houston and Dallas markets and bringing our ANUSA store count to 26. Moving to slide seven, customer financial services. The momentum in CSS performance continued during the quarter. Apart from the overall strength in vehicle sales, our product attachment rate was strong, remaining above two products per vehicle sold. More than 70% of our CFS income comes from product attachment.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Also, our finance penetration rate for the first quarter continued north of 70%. Our CFS PVR of $2,703 for the quarter was up 3% from $2,615 a year ago due to increased profit per contract sold and higher average amounts financed. The unit's profitability growth in CFS is even more impressive considering the growth of AN Finance, which while superior in long term profitability, dilutes our CFS PBR margins. Slide eight provides an update on AAN Finance, our captive finance company. The business' attractive offerings are driving strong customer take up and we continue to expect strong ROEs in the business.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

During the first quarter, we originated $460,000,000 in loans, up approximately $100,000,000 from the fourth quarter and $300,000,000 from the first quarter of twenty twenty four. We had approximately $100,000,000 in customer repayments in the quarter. The quality of the portfolio continues to improve. Our credit and performance metrics are improving with average FICO scores on originations of 6 90 5 for the first quarter compared to $6.59 in the first quarter of twenty twenty four and $6.84 in the fourth quarter of twenty twenty four. Delinquency rates at two percent are solid reflecting the shift in our targeted borrower base as well as the fourth quarter sale of the substantive remainder of the legacy subprime portfolio inherited with the CIG acquisition.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Aon Finance generated operating profitability in the first quarter and is our expectation that it will be profitable for the full year. From a funding perspective, 74% of our portfolio balance is funded with non recourse debt. This is up from 61% a year ago and is freeing up capital for us to reinvest. We are getting great support from our warehouse lenders and as we begin to establish a regular ABS funding cadence, we expect 74% funding level to continue increasing. We're actively preparing for our inaugural ABS funding program which we expect to close in the next couple of quarters.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Moving to Slide nine, after sales representing nearly one half of our gross profits continued their revenue and margin momentum and gross profit was once again a record for AutoNation. Same store gross profit increased by 4% from a year ago with gross profit per day up 5% from a year ago. The increase was driven by an increase in gross per repair order and a modest increase in total repair orders. For the first quarter, our margin rate was 48.8%, up 140 basis points on a same store basis from a year ago, reflecting improved parts and labor rates, higher tech efficiency, scale benefits and higher value orders. We continue to develop and promote our technician workforce.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

The quarter end technician headcount was up 3% and our technician efficiency continues to improve. Looking ahead, we expect our aftersales business will grow roughly mid single digits each year. To slide 10, we continue to see a consistent and attractive conversion of income into cash. Adjusted free cash flow for the quarter totaled $237,000,000 compared to $257,000,000 a year ago and our cash flow conversion remained robust at 129 percent of net income adjusted net income. We're focused on sustaining this performance through the cycle time enhancement initiatives as well as on prudent allocation of capital to CapEx.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

For the first quarter, our capital expenditures to depreciation ratio was 1.2x compared to 1.6x a year ago. And as a reminder, our second quarter cash flow is typically the lowest of the year reflecting seasonal tax payments and other timing items. We continue to expect healthy free cash flow conversion for the full year. Slide 11, capital allocation. As we've discussed in the past, we consider capital allocation an opportunity to either reinvest in the business in the form of CapEx or M and A or to return capital to our shareholders via share repurchase.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

CapEx is mostly maintenance related compulsory spending, totaled $75,000,000 for the first quarter and was 20% lower than the first quarter of twenty twenty four. We continue to actively explore M and A opportunities and as Mike mentioned, we acquired two stores in Colorado during the quarter for $70,000,000 These Mazda and Ford stores are located adjacent to our existing stores and increase our density within the market. As previously discussed, we are competitive buyers where we are confident in achieving year three returns greater than our weighted average cost of capital for core franchise opportunities. This hurdle is higher for non franchise acquisitions. Share repurchases have been and will continue to be an important part of our playbook.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

During the first quarter, purchased $225,000,000 worth of shares at an average price of $165 per share. During April, we have made additional repurchases, bringing our year to date repurchases to the $254,000,000 or 4% of shares outstanding at the of 20 20 four. In our capital allocation decisions, we also continually consider our investment grade balance sheet and associated leverage levels. At quarter end, our leverage was 2.56x EBITDA in the middle of our 2x to 3x EBITDA long term target. Now let me turn the call back to Mike before we address your questions.

[Michael Manley, CEO & Director at AutoNation]

Yes. Thank you, Tom. Obviously, tariffs and their impact are going to continue to dominate the discussion in the coming weeks. And clearly, again, the workable resolution is paramount, and we know all of our OEMs are working on that. But beyond the fact of tariffs, automation delivered a great start to 2025 with robust performance across all business lines, which I think shows progress in key areas of our operation.

[Michael Manley, CEO & Director at AutoNation]

And many of these areas are going to continue to deliver benefits to our company regardless of the resolution on tariffs. And as a result, these initiatives combined with our day by day job of running our business well is going to continue to positively contribute to our cash generation. Tom took you through that. And through that, enables us to focus on how we can use that cash for the benefit of our shareholders. That's what we're going to continue to do going forward.

[Michael Manley, CEO & Director at AutoNation]

With that, let's open the lines for questions, if there are any.

[Derek Fiebig, VP - Investor Relations at AutoNation]

Thanks, Mike. Harry, if you could please remind the people how to ask questions.

[Operator]

Yes, of course. And for our first question today, we will be going to the line of John Murphy with Bank of America. John, please go ahead. Your line is open.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

Good morning, guys. Just wanted to stay on the controllable side of things for a second here. Obviously, F and I PVR was a real good guy. I think one of the highest levels we've ever seen except maybe some real peaks in 'twenty two and 'twenty three. Just curious in that context and maybe Tom you can give us some details on this.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

How much of a weight was the AutoNation Finance ramp to that number? Because I mean I know that's a little bit of a drag to the F and I PVR number at the moment as the book is building. And as you think about that inaugural ABS, how much room and flexibility you have in the warehouse facility if market conditions remain a little bit wonky? Over time, I'm sure they'll be fine. You'll get something out there.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

But just curious how much flexibility you have when you launch that inaugural ABS?

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Thanks. Thanks, John. Good to hear from you. In terms of the PBR for CFS, you're you're right. The the 3% growth was impressive.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

As I pointed out in my commentary, we are overcoming the shift some of our financing to our Antsense portfolio, which as we've talked about, it gives us a superior long term return. But it does have a short term impact on CFS. It was roughly, say, 150 for the quarter. So you can think of adding that to the 3% and get a real appreciation for the growth that we had there. In terms of the funding of the portfolio, until we have ABS, we're very comfortable with the capacity and availability of warehousing.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

In fact, we increased our capacity in the quarter for the warehousing facility and we'll continue to do so. Not an issue at all. And in terms of ABS, it's exciting for us to be pursuing that. We're working diligently right now on that transaction. There's a lot that goes into it, as you know, a lot of modeling, a lot of work with your rating agencies and your banks.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

We're we're at the pace where we thought we'd be. Markets seem to be, you know, cooperating reasonably well in the last few days. And so, you know, we're we're looking forward to being successful in that. We are hoping to get something north of $500,000,000 but we'll see how that plays out. Hopefully, that helps answer your question.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

And Mike Yeah. That's great. Mike, I just had one follow-up question on your commentary of what appears to be some pull forward demand at the March and into April and maybe in May. There's more than $10,000,000 of pent up demand at least by estimates out there. So I mean, we may have a little bit of pull forward in these kind of two to three months here as we get resolution on the tariffs. Do you think there's going to be significant payback in the months after that? Or could we continue to ride at sort of the 16 to 16.5 we saw sort of the pre tariff dust up and this could be a pretty solid year.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

Mean there's a lot of opinions on this, a lot of people taking their numbers down significantly. But I think you made a very, very good point on there being some substitution that might occur and keep sales going. So I'm just curious on sort of your thoughts on is there are we staring down the barrel of big payback or maybe not just because there's so much pent up demand?

[Michael Manley, CEO & Director at AutoNation]

So the way that I think about it is, think that we saw well, I believe we saw momentum in the marketplace January through February, which we expected. So if I just put tariffs to one side at this moment, I think that the market was headed for a significant improvement year over year. And to your point, therefore, what we saw and we call it a pull forward, we wouldn't necessarily have delivered a full payback in the balance of the year absent of tariffs anyway because I think that there is pent up demand in the marketplace and I think that there was that momentum coming into it. I have obviously, I have a I have a very strong personal opinion on the what I think the impact the tariffs may well be. And, yeah, I do believe that because of the nature and the dynamics of the market and how tariffs will impact everybody in a different fashion that there is going to be significant cushioning to the full impact on the total volume in the marketplace.

[Michael Manley, CEO & Director at AutoNation]

I do think you're going to see a lot of market share swapping and moving. But to summarize my answer, not everything that we saw come into the quarter was indeed pull forward. And it's for sure, in my view, absent of tariffs, will not be all given back in the back half of the year. We will never know, of course, because no one will be able to get a perfect science, but that's my view.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

Extremely helpful. Thank you, guys.

[Derek Fiebig, VP - Investor Relations at AutoNation]

Thanks, The

[Operator]

next question today will be from the line of Rajat Gupta with JPMorgan. Please go ahead. Your line is open.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Great. Thanks for the question. I just wanted to follow-up on John's question earlier around I think some of the comments you made, Mike, earlier that you expect, you know, the OEMs to to remain competitive on pricing, you know, competitive on market share. I was curious, like, how do you think that manifests in terms of, you know, front end grosses for the dealers? You know, would it would would the OEMs expect dealers to absorb some of this inflation, you know, you know, maybe in the form of, you know, higher invoice pricing versus MSRP or or, you know, maybe more dealer discounting versus incentives?

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Just curious how you see that might play out. And I have a quick follow-up on e n finance.

[Michael Manley, CEO & Director at AutoNation]

Look, thanks for the question, and it's great to have you on the call. So I'll state the obvious. And by the way, I've read a number of the commentary from a lot of people on this call who I think have a very good perspective on this, but forgive me if what I say is just repetitive to certain things. As we know, the tariffs are not going to be they're not going to have a uniform impact across OEMs, and they're not going to have a uniform impact within OEMs' model ranges. And I think because of that, the key question is what is going to be the resulting competitive position of a vehicle in a segment against its competitors.

[Michael Manley, CEO & Director at AutoNation]

So relevant competitive position becomes primary for all of the OEMs and that's an obvious statement. But because that's true and no OEM wants to give up market share and every single vehicle sold has a cross shop counterpart, that alone is going to mean that, in my view, the last lever that's pulled is net transaction price appreciation and because of that, I think clearly the impact on the market from some of the projections that I've seen is probably overstated. Notwithstanding what I've said, what that's going to mean is there are some OEMs that are in a very difficult position compared to others and there are some vehicles within OEMs ranges that are in difficult positions compared to others. So you are, I think, going to see quite a degree of cross shopping activity, which is going to be supported through the full value chain. OEMs are going to look for support from their dealers during this period of time and dealers quite rightly going to give their OEMs support because it's in their interest as well.

[Michael Manley, CEO & Director at AutoNation]

I am expecting that. We are prepared for that. We are looking at what we need to do to support our OEMs in that and I think that's natural and what's going to happen. It's a relationship and it's a partnership. They're going to be clear regardless of the total industry.

[Michael Manley, CEO & Director at AutoNation]

I think they're going to be clear segment by segment, vehicle by vehicle, winners and losers based upon that relevant competitive position. As I mentioned at the beginning, obviously because of the broad portfolio that we have got, to some extent we hold both sides of that trade, not in a fully weighted balanced weighted way, of course, but when I look individually across our relative positions, the stronger positions that we've had, and I look at the OEMs and we discuss with them what their plans are, I think if I was in their shoes, I would be doing exactly what most of them are doing. So in answer to your question, I'm hoping I'm answering your question, if not, feel free to redirect. I think dealers will step into it as well. I think they should step into it as well. I think it will be proportionate, and I think the payback will come in protection of their market share in their markets as well.

[Michael Manley, CEO & Director at AutoNation]

Not all dealers are in this position that we are in. And because of that, as I've said, you're going to see, I think, net transaction price increases the last lever that's pulled, but it will have to be pulled in certain circumstances to different degrees by different OEMs.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Understood. That's great color and very clear. Thanks for the comments there. Just one follow-up on AN Finance. You hit the breakeven much sooner than expected.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Curious, Tom, like, what what drove that? You know, was it just better loan performance? It seems like you're still your your net interest margins are still pretty high, you know, relative to the new book that you're rolling on. Curious if if, you know, as that some of the legacy loans still roll off, you know, how how might that play into the quarterly trajectory here, given you already, like, achieved profitability here in the first quarter? Thanks.

[Michael Manley, CEO & Director at AutoNation]

Hey, Tom. Before you answer that question, I'm just going to dive in here for a second. I'll tell you what delivered it. Was a great team of people doing a great job for us, being fully supported by our dealerships. If you look at and congratulations to them.

[Michael Manley, CEO & Director at AutoNation]

Thank you for delivering that. And by the way, as I said to Jeff Butler, who runs that business for us, basically what he's done is just reset his budget for the rest of the year upwards. So congratulations, Jeff. But on a serious note, if you look at what's happened in that business, we all know that business relies heavily on SG and A leverage that relies on building a book with the lowest risk possible. And that's what they've been able to do and they've done it I think very well and very prudently.

[Michael Manley, CEO & Director at AutoNation]

And because of that, they've maintained what I think is good interest margin and we're now beginning to see two effects. One is strong SG and A leverage flow through and secondly, combined with much lower delinquency rates. Some of that delinquency a large portion of that delinquency is because of the significant reduction in the proportion of third party originations that we have, which has now dropped to a very, very low number in terms of the overall book. Secondly, because obviously what we're focused on, as you can imagine, is making sure our processes and the discipline we have in place to service our customers and to service the collection of their payments continues to improve and continues to be a daily focus. And I think it's a combination of those things that pulled forward their breakeven.

[Michael Manley, CEO & Director at AutoNation]

And my expectation is that it continues, but continues again in disciplined way because we're very focused on the buy box we have. We don't want to go outside of that buy box because we're clear on the return on equity. We think that will deliver. That return on equity will be improved as we get into the ABS market and more volume. And we think that we're going to continue that way.

[Michael Manley, CEO & Director at AutoNation]

We have an overall portfolio growth pace that I think is right for us. It's right for the capital we have to deploy for it and we're going to continue on that pace and we will adjust and flex depending on what happens in the marketplace with tariffs. So Tom, do you want to answer the actual Yeah.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

I think, Mike, you hit it at all. And also, Mike, congratulations to the team. Rajat, you had mentioned that the net income sorry, the interest margin seems high, and you're asking whether it was related to legacy portfolio. Pretty much the portfolio we have now is completely clean of the or the book that we acquired back in 2022 is I think it's probably $25,000,000 left or so or less than that. So really, margin is being driven by all the business that we've written as AN finance with automation, And it's it's a % automation, you know, captive dealership book.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

We we no longer, you know, do any of the third party stuff. As you've as you've seen, the credit profile has continued to improve. So I'd attribute all of the performance on interest margin to what we've done and what we've underwritten since we acquired the company.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Understood. So so, I mean, it feels like, you know, you should I mean, it's it's hard to imagine it goes, you know, below breakeven and you you're probably gonna only improve profitability, you know, from these levels if if these are the right level of net interest margins irrespective of the fact that you're gonna still, like, have new originations still increase. Is that is that a fair fair statement? Or Yeah. We disagree?

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Absolutely. Absolutely. I would agree with that.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Awesome. Great. Thanks for all the color and good luck.

[Operator]

The next question today will be from the line of Michael Ward with Citi Research. Please go ahead. Your line is open.

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

Thanks very much. Good morning, everyone. On the it sounds like 2Q, '1 way or another, you have a demand pull forward to some extent strong underlying demand, whatever it is. That should have positive implications on the cash flow side to take out some of that seasonality. Am I reading that rightly?

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Yes. I would agree with that, Mike. As you know, we have well, first of all, first quarter cash was very strong, as we mentioned, close to 130% conversion. So it was reflective of our net income, and our net income obviously was reflective of the pull forward impact that we talked about. There's not a lot of timing differential in terms of cash flow. Probably the last week of the quarter was probably more robust than any of our more recent quarters. So timing wise, it could be a little bit of cash kind of that comes in the second quarter.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

But as you know, as I reminded everybody, the second quarter is when we make our tax payments and some other things. So the benefit that we get from any first quarter residual will be netted into our normal second quarter cadence.

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

Okay, Keith. Did you get the Hey, Mike.

[Michael Manley, CEO & Director at AutoNation]

Sorry. Carry on. I didn't mean to interrupt you.

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

No, no, no. Go ahead, please.

[Michael Manley, CEO & Director at AutoNation]

Was the only thing I was gonna mention on the pull forward is, obviously, you can look at the total number of days of supply that we finished the quarter with, and that will that will decrease. But you're also what's what's in there is you think about how that continues. I talked about the fact that it obviously is going to moderate as you go forward as the mix changes in your residual ground stock. So when we think about cash generation, agree with everything that Tom said, including the seasonal 2Q tax payments. But clearly, you need to just factor in mix for that ground stock that we closed the second quarter with.

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

Yes. But one way or another, you're in a demand pull environment, and that's positive for pricing, right?

[Michael Manley, CEO & Director at AutoNation]

Yes. For sure. Usually, a demand pull environment is positive for pricing. I would agree entirely with that. But it is not it doesn't have the same pricing dynamics that you saw in a COVID

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

Right. And the supply is okay.

[Michael Manley, CEO & Director at AutoNation]

Exactly. Yeah. Exactly. So

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

Okay. So it just tying the piece together on the cash side. So the other missing link is as you get your ABS completed, that frees up some of your cash that we see on the operating side instead of that being drain last year of almost $900,000,000 offset by the debt. Right? So that starts to turn positive.

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

So on the operating cash flow side, you see a positive delta, call it $500,000,000 from the ABS. Right?

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Yeah. Of course.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

It it I I would consider it, Mike, to be a replacement of warehouse

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

A replacement?

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Finance Right. With with ABS. Okay. But but, you know, the point is that if if, you know and I'm just making up the numbers here. But if if I had a loan that was 80% funded under the warehouse, that might be 95%.

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

Right. So it does free up. Okay. And just one last thing. Give us a direction on floor plan interest. Okay.

[Derek Fiebig, VP - Investor Relations at AutoNation]

Mike, this is Derek. Just we have a reconciliation in the deck which shows what the change in auto loans receivable net is. So Right. Adjust our operating cash flow for that. So that's how we look at it internally because that's the cash that's

[Michael Manley, CEO & Director at AutoNation]

now available to us. Thank you for that, Corey, Derek. One of things that's important, and this is, again, it frees up cash on a static book. And your net cash position has to take into account your growing book, obvious statement, so just to close off that conversation.

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

Thank you. And just lastly on the floor plan interest, it sounds like it goes down again in 2Q year over year, right?

[Thomas Szlosek, Executive VP & CFO at AutoNation]

I think modeling it at a pace that's similar to Q1 is probably in order for now until we kind of see the impacts of whatever happens.

[Michael Ward, Vice President & Senior Analyst - US Insurance at Citi]

All right. Fantastic. Thank you.

[Operator]

The next question today will be from the line of Daniela Hagian with Morgan Stanley. Please go ahead. Your line is now open.

[Daniela Haigian, Vice President - Equity Research at Morgan Stanley]

Hi. Thanks. So what does your age mix in used look like? With the newer used vehicle supply still tight, even with mitigating factors like you mentioned in house sourcing and also a consumer pressured by affordability? Do you see opportunity moving into older used vehicles to meet demand?

[Michael Manley, CEO & Director at AutoNation]

I think Tom talked about the fact that lower priced, sometimes older, sometimes higher margin vehicles continues to be strong demand. And I think that for sure is going to continue. The teams that look after our mix are modeling demand as far up the demand funnel that they can to try and make sure that they still maintain a balance. As we mentioned in the opening comments, we deliberately increased our used vehicle stock at mix as best you can in this period because we think that it's an opportunity for us going forward and we can build on our Q1 results. So yes, we think that will continue to be in demand, sub-twenty thousand dollars vehicles and it is a focus for us both in terms of self sourced and other sourcing activities that we have.

[Daniela Haigian, Vice President - Equity Research at Morgan Stanley]

Thanks. And then just on, after sales, you spoke to, you know, increased tax, increased, productivity. What does capacity excess capacity look like today, and how much room is there left? I know you guided to, moderate growth over the next few years, but how much on top of that can you get to with the capacity that you have?

[Michael Manley, CEO & Director at AutoNation]

So I can tell you in terms of physical installed capacity, on average, every dealership is slightly different. On average, we have plenty of capacity in terms of installed ramps and we've added to that capacity in various fashions where it has been in acute position. We continue to be at a 4%. I think it was increasing technicians in Q1. That is a big focus for us because there are still productivity that we can unlock through training and development of our technicians, but we want to add physical labor resource into our net because one of the big areas for us, if you if I just break down our vehicle parks into zero to three, three to seven, we continue to make progress in penetration of those aged vehicles in the vehicle park.

[Michael Manley, CEO & Director at AutoNation]

The area that is traditionally more difficult to unlock is obviously seven year plus vehicles. There is plenty of opportunity for us to progressively unlock that. And to do that, we need to think about pricing. We need to think about convenience. We need to think about a whole host of things, one of which means we'll continue to need technicians.

[Michael Manley, CEO & Director at AutoNation]

So installed capacity, we have we have, a lot of of physical ramps, etcetera. We have a we have the headroom we require. We constantly are growing our technicians. And in terms of work that's available with different degrees of addressability, there's opportunity to grow in the park.

[Daniela Haigian, Vice President - Equity Research at Morgan Stanley]

Thank you.

[Operator]

The next question will be from the line of Colin Langan with Wells Fargo. Please go ahead. Your line is now open.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Great. Thanks for taking my questions. I just want to clarify. I mean, so I think in your earlier Q and A, you had mentioned that you think the SAAR kind of falls to fifteen, sixteen pace. Is that your view for the full year?

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Or is that after April when we have the pull forward, that's where you think it settles in at? And then, you know, I wasn't also sure of your comments on pricing. You think I I guess there's numbers out there. 10% would be needed to fully pass that on. You you don't think that will be seen in the industry and that both automakers would have to raise price a little and you guys would take some on the GPU? Is the right way to interpret all those comments?

[Michael Manley, CEO & Director at AutoNation]

It's the right way to interpret some of the comments. Firstly, what I said was that I think some of the forecast in terms of impact on the SAAR were probably overstated because of the fact that different models in different segments will have different net transaction impacts. And therefore, cross shopping to some extent would soften the full impact on the total industry. That was my first point. I didn't give you a total industry forecast for the year, and I will not give you a total industry forecast for the year.

[Michael Manley, CEO & Director at AutoNation]

And then secondly, what I said was I believe the last lever any of our OEMs will pull will be one that affects net transaction price. And therefore, they're going to be looking at suppliers, their own cost base, their own infrastructure, including their dealers to develop a best strategy they can based upon the individual circumstances to, I think really balance, the impact on dealers, the impact on themselves and of course their market share. And in that instance, there is no doubt in my mind that dealers will be asked to participate in that, but I think it will be in a balanced way. I think the end result will be, as I said, that cushioning effect on the total industry. I do think the total SAAR will drop, but I think some of the numbers out there are overstated.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Got it. Okay. And then just on the buyback pace, it seemed to sort of jump up a bit. I mean, how should we think about it with all the tariff uncertainty? Are you going to continue at this kind of pace? How is the M and A market? Is that maybe where you'd want to pivot more?

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Or are you kind of on pause given there is so much uncertainty out there?

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Yes. Thanks, Colin.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

The couple of thoughts there. First of all, all of our capital allocation is based on where we think we can develop the greatest returns. As it happened in the quarter, we identified some good acquisition opportunities. We also see our shares as the intrinsic value is is is higher than know, where we're trading, and so we think that has continued to be a buying opportunity for us. And so we're we're deploying, you know, capital to the, you know, extent we think prudent, while managing our balance sheet leverage.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

And so those are, you know, those are the three factors. I I don't see a material change in, you know, things that had our normal run rate. We'll see how the how the tariffs play out, but we've we've done, you know, stress tests of, you know, our p and l and of our, you know, our our cash flows under different scenarios and feel pretty confident that, we'll we'll be able to continue to generate good cash flow and be able to have the opportunity to make those decisions on where to deploy the capital.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Got it. All right. Thanks for taking my questions.

[Michael Manley, CEO & Director at AutoNation]

Thanks, Colin.

[Operator]

The next question today will be from the line of Bret Jordan with Jefferies. Please go ahead. Your line is now open.

[Bret Jordan, Managing Director at Jefferies LLC]

Hey, good morning, guys. In after sales, could we get some color as price versus car count? And did the mobile service initiative contribute to the after sales growth in the quarter?

[Michael Manley, CEO & Director at AutoNation]

There was volume increase, which was I and Tom, just correct me. We have volume increase and price increase about onethree volume, twothree price increase. Some of that was mix shift, by the way. It pure power sold or parts sold pricing. There was quite a bit of mix shifting, which helped us as well in that phase.

[Michael Manley, CEO & Director at AutoNation]

Mobile service did contribute to the total hours sold. They did not contribute to our net income because it is still a business that we're investing in for growth, but it contributes at a gross level. Tom, did I get the picture right?

[Bret Jordan, Managing Director at Jefferies LLC]

And then a question and then it sort of gets back to tariffs. When you think about the after sales business, the percentage of parts that you were selling either into a repair order or out the door in wholesale that are imported? Obviously, a few years back, you guys went with a private label parts around the AutoNation USA strategy. Do you have a feeling for what percentage of your parts mix might see tariff exposure?

[Michael Manley, CEO & Director at AutoNation]

Yes. The analysis that we've done is to look at the distinction between a captive part and a competitive part. It doesn't mean to say that competitive parts will not get price increases. Think because it isn't just OEM parts, they're going to be affected. The vast majority of non OEM parts have an income have import situation as well with them.

[Michael Manley, CEO & Director at AutoNation]

So there is in terms of, by the way, of that analysis between captive and non captive, of our part sales roughly 40% you can think of of what OEMs consider to be captive and 60% are non captive. And therefore, they will have different situations in terms of the competitive nature of the marketplace. And again, you see a very similar lever on parts that you will see on new vehicle sales. What I would tell you on captive parts is it's not automatic that parts increases or costs flow through to the customer because there are consequential benefits of that. They may well be captive, but for example, we have seen pretty strong mitigation in collision business throughout the bulk of 2024 and coming into 2025, where we are seeing more total losses than repaired vehicles.

[Michael Manley, CEO & Director at AutoNation]

Part of that is because of increases in captive parts and obviously changes in residual value. Even though it is a captive part, it isn't just a, Hey, this is a captive part. Let's pass it on. That's not how it happens in my opinion. And other considerations are in there.

[Michael Manley, CEO & Director at AutoNation]

That's how we think about it and I think OEMs are probably thinking about it similar way.

[Bret Jordan, Managing Director at Jefferies LLC]

Great. Appreciate that. Thank you.

[Operator]

Our last question today will be from the line of David Whiston with Morningstar. Please go ahead. Your line is now open.

[David Whiston, Equity Strategist - U.S. Autos at Morningstar]

Thanks. Good morning. First, sticking with tariffs, as you know, some German three production isn't USMCA compliant. And I'm just curious, do you think your customers at those stores have willingness to incur larger price increases than, say, a GM customer or Toyota customer does?

[Michael Manley, CEO & Director at AutoNation]

So let me let me just soak on that question for a second to try and give you a balanced answer to it. So, obviously, the best answer I can give you is it goes back to what I said. At end of the day, there is always an alternative to what you wanna buy, And, it's going to be a a a decision an individual customer by customer decision of whether they wanna switch to an alternative in the marketplace that is to them a lesser price. And I think they're gonna have think they're going to have that option. Typically, as you know, a model line or a brand that has a premium is more able to gain pricing in the marketplace than, let me say, a much more competitive segment.

[Michael Manley, CEO & Director at AutoNation]

That's always been the case and will be the case going forward. That's the best I can give you off the top of my head.

[David Whiston, Equity Strategist - U.S. Autos at Morningstar]

Appreciate it. Just one question on buybacks. It's a very long term outlook question here, but I'm just curious how low are you guys willing to take the share count five, ten years from now? And if there is a four, would a regular dividend at that point get serious consideration?

[Thomas Szlosek, Executive VP & CFO at AutoNation]

Excellent question, David. Yeah. I I I think our management team and the board, you know, continue to, you know, want to drive, returns, you know, through, you know, balanced capital allocation. I mean, it just so happens that, you know, the more the better opportunities have been in, you know, share repurchases. But, you know, we're we're confident that, you know, the m and a market itself will will present opportunities for us, particularly to take advantage of of the footprint that we have and to drive synergies and to drive scale.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

I I'd be hesitant to to give you, like, what we what we think the golden number of shares is. Does it go down to one? Yeah. I I couldn't tell you. But, you know, the the when you look at our shareholder base, we have, you know, a very liquid set of shares and, you know, we'll continue to, you know, pursue it.

[Thomas Szlosek, Executive VP & CFO at AutoNation]

I I I I don't think it's, you know, critical that, you know, we have an end target in mind in terms of shares outstanding. It will always be there as an opportunity for us given the liquidity.

[Michael Manley, CEO & Director at AutoNation]

And end target we got in mind is absolutely the best shareholder return we can deliver.

[David Whiston, Equity Strategist - U.S. Autos at Morningstar]

Thanks guys.

[Operator]

Thank you. This concludes Q and A, and I will now hand the call back to CEO, Mike Manley, for closing remarks.

[Michael Manley, CEO & Director at AutoNation]

Yes. Thanks, Harry. As I mentioned in as we finished the segment, obviously, during this period of time, it's completely natural. A lot of on tariffs and the potential impact in the next weeks are really going to be very helpful in terms of seeing what will actually transpire in the marketplace. But I do think, and I'll repeat some of the things that I said during my opening comments, if you look at our quarter and you look at the way our business is developing, there are plenty of areas within our business that are less impacted impacted by tariffs that continue to develop in a positive way.

[Michael Manley, CEO & Director at AutoNation]

And many of those areas still have a lot of opportunity for us and the team to further develop, whether it's in aftersales, for example, or the continued growth and development of AM Finance. And there are areas that clearly, regardless of the tariff situation, the things the team is focused on and we'll remain focused on those things. And as Tom said, clearly and naturally, we look at different potential scenarios going forward to make sure that we are taking the appropriate steps in our view to position automation in the best possible way we can despite the environment. And one thing that is true about this organization is this business was the first of this type of business and they have proven in virtually every economic cycle that they've been in to have a robust business model that has consistently delivered grown. With that, we'll end the call.

[Michael Manley, CEO & Director at AutoNation]

I'd like to thank you all for your time and your questions today. Thank you.

[Operator]

This concludes the AutoNation Incorporated first quarter twenty twenty five earnings call. Thank you to everyone who's able to join us today. You may now disconnect your lines.

Participants

Executives

• Derek Fiebig, VP - Investor Relations
• Michael Manley, CEO & Director
• Thomas Szlosek, Executive VP & CFO

Analysts

• John Murphy, Managing Director at Bank of America Merrill Lynch
• Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co
• Michael Ward, Vice President & Senior Analyst - US Insurance at Citi
• Daniela Haigian, Vice President - Equity Research at Morgan Stanley
• Colin Langan, Automotive & Mobility Analyst at Wells Fargo
• Bret Jordan, Managing Director at Jefferies LLC
• David Whiston, Equity Strategist - U.S. Autos at Morningstar