AutoNation Inc., the country's largest auto dealership chain, reported that first-quarter profit rose 26 percent on strong sales of new and used vehicles, but its shares fell as the company's CEO predicted significant shortages of some cars due to a lack of parts because of the earthquake in Japan.
The Fort Lauderdale, Fla., company also cut its forecast for industrywide U.S. sales, predicting that Japan-based automakers would not be able to meet demand because of production cuts caused by the shortages.
CEO Mike Jackson said his company would adapt to the changes, but he predicted that people won't be able to get the exact cars they want starting in a matter of weeks and possibly lasting through the end of the year.
"You'll begin to see it in May, and by June, July, there will be significant shortages," Jackson said Tuesday in an interview.
The statements from the chain, which has 243 franchises in 15 states, are the strongest indication yet that dealer lots will start to run short of models as the impact spreads from the March 11 earthquake and tsunami in Japan. Nearly all automakers have been hurt by parts shortages from factories that were damaged in the tragedy, but Jackson said Japan-based automakers are most likely to run short of models.
He also said the shortages won't be limited to vehicles assembled in Japan because North American factory output has taken a hit. The chain predicted strong demand for new cars would continue, but AutoNation cut its full-year U.S. sales forecast to around 12.5 million from 12.8 million because of the model shortages.
"This is a supply disruption, not a demand disruption," Jackson said. "There simply is not going to be enough product to support demand for the year."
For the quarter, AutoNation reported net income of $69.4 million, or 46 cents per share, up from $55.2 million, or 32 cents per share, a year earlier. Revenue increased almost 17 percent to $3.31 billion from $2.84 billion.
The earnings beat Wall Street estimates of 43 cents per share, according to FactSet. Analysts expected revenue of $3.32 billion.
The company reported new vehicle sales rose 20 percent for the quarter, while sales of used vehicles were up 13 percent.
Investors apparently were scared by the U.S. sales prediction and the prospect of car shortages. Shares of AutoNation fell $1.22, or 3.5 percent, to $32.94 in morning trading.
Jackson would not predict the impact of the model shortages on AutoNation's sales or income, but Chief Operating Officer Michael Maroone said the company would use its size to buy more used cars and shift its advertising spending to models with more abundant supplies. He pointed out that AutoNation has 36 Ford, 36 General Motors and nine Chrysler franchises. The U.S.-based automakers have not been hit nearly as hard by parts shortages as Toyota, Honda and Nissan have.
Used car prices, Maroone said, would continue to rise at least in the short-term, but he said people buying new cars should benefit because they'll get more when they trade in their cars.
Jackson predicted that the Japanese automakers would lose market share this year for the second year in a row because they won't be able to meet demand. He expects automakers to cut incentives such as low-interest loans and rebates on the models in short supply and said dealers may try to increase prices, but he does not foresee additional new-car price increases from the manufacturers.