AutoNation(US:AN) Benzinga·2025-09-12 18:34Core Viewpoint - U.S. franchise auto dealerships are showing resilience in fundamentals despite potential macroeconomic headwinds, with demand performing better than expected in the near term [1][2]. Demand and Affordability - Retail new-vehicle sales are experiencing mid- to high-single-digit growth in Q3, driven by stable consumer spending and limited price increases from OEMs despite tariffs [4]. - The expiration of certain EV incentives has accelerated demand, increasing the battery-electric vehicle mix to approximately 10% in the current quarter, up from about 7% in the previous quarter [4]. Inventory and Profitability - Inventory levels and days' supply are stable, contributing to a gradual normalization in gross profit per unit (GPU) rather than a sudden reset [5]. - Used vehicle volumes remain strong, and service lanes are experiencing healthy traffic and pricing, indicating robust higher-margin fixed operations [5]. Market Outlook - JPMorgan has raised its Q3 estimates, projecting them to be about 2% above previous estimates and roughly 7% above consensus [6]. - The bank's top picks in the sector are Lithia & Driveway and AutoNation, although a recent cyber incident may impact certain U.K.-exposed operators [6]. Used Vehicle Market - Industry checks indicate mid- to high-single-digit year-over-year gains in used retail sales through July and August, with tight late-model supply expected to ease in the coming quarters [7]. - Wholesale prices have cooled after an initial spike due to tariffs, and retail/wholesale spreads suggest a favorable GPU environment, although sourcing remains competitive [7]. Future Risks - Beyond Q3, there are increasing risks to demand and GPUs as EV credits expire and tariffs are fully reflected in vehicle prices amid a softening labor market [8]. - JPMorgan projects a U.S. SAAR of approximately 15.5 million in 2026, slightly down from 16.0 million in 2025, with potential upside if trade outcomes with Canada and Mexico improve [8].