The U.S. automobile industry’s recovery from the declines of four years ago promises a massive upside over the next two years. Some analysts even believe that favorable interest rates and affordable labor could sustain the current boom for several years. The industry seems to be turning the tables against Japan, which has been the benchmark over the last few years.
For instance, Honda Motors whose majority of auto imports came from Japanese-made cars, expects to import more vehicles from North America with nearly all of them coming from the U.S. by the end of next year, reports the Wall Street Journal. The major U.S auto manufacturers also expect to increase their exports through 2014 with Chrysler Group LLC projecting 0.5 million exports outside of North America per year. According to the U.S International Trade Administration, more than one million cars and light trucks shipped from U.S. auto plants last year, the highest recorded and a more than threefold rise from 2003.
While the U.S. auto manufacturers are reporting record sales, so are the retailers. For instance, AutoNation, Inc. (NYSE:AN) reported a 10% surge in auto sales during the month of June, which is in tandem with the industry. Chrysler’s auto sales surged 8.2% last month, while General Motors Company (NYSE:GM) reported an increase of 6.5%. Likewise, Ford Motor Company (NYSE:F) posted a 13% increase in its June sales.
AutoNation, Inc. (NYSE:AN) is up 14.35% year-to-date, which is well above industry rivals. Group 1 Automotive, Inc. (NYSE:GPI) is up just 4.08% year-to-date while Penske Automotive Group, Inc. (NYSE:PAG) trades at 0.98% upside of its closing price last year. On the other hand, Sonic Automotive Inc (NYSE:SAH) is down 0.14%.
The auto retail segment dominates AutoNation, Inc. (NYSE:AN)’s revenue model, which accounts for nearly 80%. On the other hand, parts and service contributes about 15% of the overall revenue. Therefore, the 10% surge in auto sales coupled by the industry boom, means that AutoNation, Inc. (NYSE:AN) is bound for an upside going forward. Ideally, 100% of AutoNation, Inc. (NYSE:AN)’s income depends on the success of the automobile industry.
Competition
Group 1 Automotive, Inc. (NYSE:GPI) announced on June 6, the disposition of 4 major dealerships, which at the time generated a trailing twelve-month revenue of $176.7 million. The company expects to make a pretax profit of $8.3 million from the disposals.
On June 20, the company agreed to a $1.7 billion revolving credit arrangement with 25 financial institutions expiring in 2018. The arrangement has $1.38 billion set for inventory floor plan and $320 million for working capital. Group 1 Automotive, Inc. (NYSE:GPI) also revealed that it acquired a Ford Motor Company (NYSE:F) dealership in Louisiana, which is expected to generate $80 million in annual revenues.
Overall, the company disposed nearly $100 million worth of annual revenues, following the acquisition of the Ford Motor Company (NYSE:F) dealership.
