The auto industry has seen this Coronavirus pandemic in two different chapters. Early destroyed sales and shutter factories. Then it spurred an increase in demand for new and used vehicles alike. For companies like Group 1 automobileThe end result was pretty good, according to the CEO Count Hesterberg.
“The auto distribution network has been crammed with too many vehicles for almost a decade. What you are seeing now is that the system has been cleaned up and is now a demand-drawn system,” Hesterberg told CNBC “Power Lunch.” “I think a moderate increase in supply is the best thing that can happen to the entire industry,” he added.
Group 1 Automotive shares closed 1.4% on Thursday after the Houston-based auto dealer reported third-quarter gains that exceeded Wall Street’s income statement expectations. Revenue of $ 3.04 billion exceeded analysts’ expectations of $ 3.01 billion, according to FactSet. Adjusted earnings per share of $ 6.97 beat estimates by 82 cents and was a record for the company.
Another chain of traders AutoNation, also reported record earnings per share earlier this month. In both cases, the catalyst for higher profits turned out to be a faster-than-expected return in vehicle demand combined with lower inventory levels as manufacturers worked to kickstart production Coronavirus-induced factory closings. This leads to higher sales prices.
“Our inventory levels are actually lower at the end of the third quarter than we were in the second quarter for new vehicles,” Mike Jackson, Chairman and CEO of AutoNation, told CNBC last week. “Industrial inventories are still 25% to 30% below, if not more, so it has been difficult to adjust prices to accommodate the shortages.”
In Hesterberg’s view, however, the inventory crisis did not lead to a significant loss in sales volume. “Honestly, while we might miss a few sales, we’ve probably missed less than people think,” said Hesterberg, who has led the company since 2005 as president and chief executive. He was previously an executive at Ford enginewho had one Blowout results report after the bell Wednesday.
“We were obviously surprised at the level of demand from the pandemic, but it seems to have some legs. What really happened in our industry is that it really improved the balance between supply and demand,” Hesterberg said. “And that had benefits for our industry. But I also think you can see it in the automaker’s revenue that has come out in the last week or so.”
Group 1 Automotive shares rose 7.48% in 2020. Since the pandemic bottomed out on March 18, the stock has risen around 230%.