We believe AutoNation's massive size and economy of scale advantages will allow the company to deliver operating margins often above 4%, and we see upside potential to profits as its AutoNation USA stand-alone used-vehicle stores roll out. There are 23 USA stores as of first-quarter 2024, and long term we expect over 100.
AutoNation's massive size provides some appealing economies of scale, illustrated by strong operating margins.
Bears
About half of revenue is derived from new-car sales, leaving AutoNation vulnerable to the fluctuations of a viciously cyclical industry. This risk is greater for AutoNation as it gets a much larger share of its sales from California and Florida than the national average. These markets could be hit worse than other US markets in a housing downturn.
AutoNation is the second largest automotive dealer in the United States, with 2023 revenue of about $27 billion and over 250 dealerships, plus 53 collision centers. The firm also has 23 AutoNation USA used-vehicle stores, a captive lender, four auction sites, and three parts distributors all across 21 states primarily in Sunbelt metropolitan areas. New-vehicle sales account for nearly half of revenue; the company also sells used vehicles, parts, and repair services as well as auto financing. The company (formerly Republic Industries) spun off its waste management unit (Republic Services) in 1999 and its car rental businesses (ANC Rental) in 2000. Wayne Huizenga founded the company in the 1990s to bring the rollup acquisition strategy to auto retailing, which has proved to be a smart move.