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What AutoNation Revenue Means for Auto Supplier

The owner of America’s largest car retailer Autonation (((NYSE: AN). Speaking in the light car market, it’s usually a good idea to hear. This is especially true for investors in automobile suppliers, such as: 3M (((NYSE: MMM). It is also highly relevant for companies that have automakers as their main final market. Rockwell automation (((NYSE: South Korea). When Cognex (((NASDAQ: CGNX)... In that context, let’s take a look at what AutoNation CEO Mike Jackson said about the recent results of car retailers.

AutoNation’s surge in sales

You don’t need a bachelor’s degree in economics to understand that the interaction between supply and demand usually sets prices. And now there is no doubt that the demand for new cars is outpacing the supply. As a result, the prices of new and used cars are high. This is great news for AutoNation’s revenue and profits. You can see this by taking a quick look at AutoNation’s new and used car sales and the gross margin for the second quarter.

Autonation

Same-store sales Q2 2021

Same-store sales Q2 2020

Gross profit per vehicle for the same store Q2 2021

Gross profit of the same store per vehicle in the second quarter of 2020

New vehicle

77,08 1 unit

54,359 units

$ 4,157

$ 2,198

Secondhand car

80,305 units

58,749 units

$ 2,240

$ 1,801

Data source: AutoNation.

In addition, Jackson hopes that the favorable environment will continue.Quote from him Revenue call: “Demand continues to outpace new car supply. This is expected to continue until 2022, coupled with low interest rates and consumer preference for personal transport.”

Supply side considerations

On the supply side, it is a well-known fact that the factory closure caused by the pandemic has led to supply chain difficulties. Automaker.. In addition, many documented semiconductor shortages, a combination of production outages and shifts in consumer demand to locked-down computing devices, exacerbate the problem. As a result, global car production is not expected to normalize until 2022.

Image Source: Getty Images.

This is not good news for companies that sell to car makers. For example, over the past few quarters Rockwell Automation just held While steadily maintaining year-round guidance on sales growth in the automotive end-market, we will strengthen guidance across the end-market in many other industries.Similarly, machine vision maker Cognex faces short-term headwinds Due to sluggish automobile spending due to the reduction of automobile production. This sector tends to be one of Cognex’s major end markets. Automakers tend to adopt automation and machine vision technology early.

Whether the automotive sector will increase spending is an open question. The uncertainties surrounding it are part of the reason why 3M’s year-round transportation and electronics segment sales guidance is so wide. As a result, 3M’s management’s current guidance calls for high single-digit growth in the 2021 segment.

Jackson also commented on some sort of paradigm shift caused by the pandemic. “I think this idea of ​​installing 4 million vehicles across the United States as a way to run the industry is truly being rethought,” he said in a statement about automakers and the industry in general.

Again, this suggests that automakers may be wary of being too aggressive in launching production.

Demand is expected to grow

While the short-term outlook on the supply side has been questioned, Jackson’s commentary on the demand side was clearly positive. Again, I pointed out the possibility of behavioral changes due to pandemics, but this time it’s about consumers. He insisted on it The pandemic caused a “dramatic change in the priority of personal consumption”, demanding larger housing and bringing about “safety and convenience of personal transportation”.

A couple buying a car.

Image Source: Getty Images.

It is not yet known if this will have a short-term impact. However, given the current strength of demand, it is reasonable to assume that the impact will be more sustained, especially given the financial stress that many have suffered during the blockade.

If this proves to be the case, car production could keep up with demand once short-term supply chain problems and semiconductor shortages are resolved.

What does that mean for investors

It’s hard to know what a car supplier will report when it announces revenue. The worst problems in the supply chain should be behind the car makers, but the problems remain. If Jackson is right about rethinking the industry, automakers may be cautious about overspending.

But suppose the demand side is holding up because consumers want to avoid public transport and a recovery in employment boosts spending. In that case, light vehicle production will inevitably recover in the long run. This is likely to be great news for Cognex, 3M and Rockwell Automation, and investors will have to put up with them even if their second-quarter automotive revenues aren’t high. If Jackson is right about changing demand, car suppliers will inevitably benefit in time.

This article represents the opinion of writers who may disagree with the “official” recommended positions of The Motley Fool Premium Advisory Services. We are miscellaneous! Asking investment treatises (even our own) helps us all think critically about investment and make decisions that help us become smarter, happier, and richer. Useful.



What AutoNation Revenue Means for Auto Supplier

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