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报告标题涉及的是JP摩根对美国汽车经营商第二季度（Q2）业绩的预览，主要关注汽车零部件行业，特别是新能源汽车的相关动态。该报告涵盖了包括Asbury Automotive、AutoNation、Group 1 Automotive、Lithia Motors、Penske Automotive和Sonic Automotive等几家主要的美国汽车经销商。在描述中，JP摩根分析师指出，尽管2019年第一季度（1Q19）的业绩超出了预期，其中门店毛利润增长了3%，这主要是由于零部件和服务业务增长了6%的推动，但预计市场将继续关注零部件和服务业务的表现，以抵消新车销售利润的压力。他们预计新车销售利润趋势不会有显著改变，而二手车利润可能会随着CarMax（KMX）的结果所示而有所改善。对于零部件和服务业务，分析师预测在2019年剩余时间里，同店毛利润增长将保持中单位数，这得益于保养需求的持续增长以及维护服务的多样化。报告中的关键词“新能源汽车”虽然没有详细展开，但可以推测，在汽车零部件行业中，新能源汽车的发展可能对这些经销商的未来业绩产生影响。随着电动汽车和混合动力汽车的普及，零部件和服务的需求可能会发生变化，经销商可能需要调整策略以适应这一趋势。此外，报告还提供了这些公司的市值、评级、目标价格等信息，显示了JP摩根对这些公司的最新评估。例如，Asbury Automotive、AutoNation等公司被标记为评级不变（n/c），但有一些公司如Lithia Motors和Penske Automotive的目标价格有所上调，这可能反映了分析师对它们未来业绩的乐观预期。总体而言，该报告关注的重点是汽车经销商如何通过零部件和服务业务来应对新车销售利润下滑的挑战，并在新能源汽车市场的背景下寻找增长机会。投资者在做决策时，应考虑到这些因素以及JP摩根可能存在的利益冲突。

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www.jpmorganmarkets.com

North America Equity Research

09 July 2019

Equity Ratings and Price Targets

Mkt Cap

Rating

Price Target

Company

Ticker

($ mn)

Price ($)

Cur

End

Date

End

Date

Asbury Automotive

ABG US

1,725.78

82.97

n/c

88.00

Dec

85.00

n/c

AutoNation

AN US

3,763.14

41.49

n/c

38.00

Dec

37.00

n/c

Group 1 Automotive

GPI US

1,434.35

80.36

n/c

87.00

Dec

83.00

n/c

Lithia Motors

LAD US

2,761.51

118.80

n/c

122.00

Dec

117.00

n/c

Penske Automotive

PAG US

3,967.64

47.01

n/c

51.00

Dec

50.00

n/c

Sonic Automotive

SAH US

974.73

22.78

n/c

18.00

Dec

16.50

n/c

Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 08 Jul 19.

US Auto Dealerships 2Q19

Earnings Preview

Focus Remains on Sustainability of Parts & Services

Strength; Raise FY Estimates on Favorable Rates

Autos & Auto Parts

Rajat Gupta

(1-212) 622-6382

rajat.gupta@jpmorgan.com

Ryan Brinkman

(1-212) 622-6581

ryan.j.brinkman@jpmorgan.com

Daniel J Won

(1-212) 622-3221

daniel.j.won@jpmorgan.com

J.P. Morgan Securities LLC

See

page 22 for analyst certification and important disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aw

are that

the firm may have a conflict of interest that could affect th

e objectivity of this report. Investors should consider this report as only a single

factor in making their investment decision.

After better than expected 1Q19 results, where same-store gross profit growth was

+3% for the group, driven primarily by solid, +6%, Parts & Services same-store

growth, we expect focus to remain on Parts & Services as an offset to pressures on

front-end vehicle profitability. We do not expect any material changes in new

vehicle profitability trends, and expect 1Q trends to largely continue, with used

vehicle profitability potentially getting better as evident by KMX’s results. We

believe Parts & Services should see continued mid-single digit same-store gross

profit growth for the remainder of 2019 driven by a combination of both macro

and micro factors including, an increase in UIO, increasing average vehicle age,

increasing complexity of parts, which favors dealers with OEM-certified parts vs.

independent aftermarket shops, improvement in penetration of post-warranty

customers driven by greater product offerings, and digital initiatives. We also

raise our 2019/2020 estimates for US Auto franchise dealerships driven primarily

by lower floor plan expense expectations vs prior due to favorable direction of

interest rates. We believe expectations for the group are somewhat elevated after

~1,000bps of relative re-rating since the beginning of 1Q19 reports, and we

maintain our balanced view on the sector, acknowledging some of the structural

and cyclical risks with our Dec’19 PTs showing flat upside on average.

We remain selective on stock picks, with LAD our top pick given sustained top-

tier execution, best growth metrics and highest relative upside from capital

allocation though we don’t necessarily see 2Q19 as catalyst for further re-

rating given the recent run (stock now at a ~10% premium), and future stock

outperformance will be driven by relative EPS revisions which is likely to be

gradual. Neutral rated PAG now moves higher up the pecking order given

compelling valuation after the recent derating as well as recent headwinds

potentially easing in 2H19. We remain OW on GPI given improved execution

in recent quarters, potential for continued upward relative revisions, and an

attractive valuation (~15% discount on P/E). On ABG, valuation has come in

recently, and we see the setup as favorable heading into the 2Q print. We

remain UW on AN despite improved execution in 1Q19, but still sustained

below par growth metrics that does not support its premium valuation (~5%

premium). On SAH, after recent outperformance (driven primarily by EchoPark

turning profitable), we think the stock is unattractive from a valuation

perspective (~15% premium on P/E) on our estimates, particularly given

relatively less upside from capital allocation vs peers and likely below average

Parts & Services profit growth.

North America

Equity Research

09 July 2019

Rajat Gupta

(1-212) 622-6382

rajat.gupta@jpmorgan.com

 Sector performance recap. YTD, the US Auto franchise dealership sector is up

~38% vs the S&P 500 up ~19%, our Auto supplier coverage up ~7% and Auto

OEMs up ~21%. Majority of the dealership sector outperformance has come

since the beginning of 1Q reports with the sector up ~20% since then which

compares to the S&P up ~2%, Auto suppliers in our coverage down ~17%, and

Auto OEMs up ~3% over the same period. The dealerships group now trades at

a ~40% discount to the S&P, compared to the ~50% discount earlier this year,

and compares to the LT average discount of ~25%.

Figure 1: US Auto Dealerships Premium/Discount vs S&P 500

% premium/discount vs S&P 500 % y/y LTM rolling SAAR

Source: Bloomberg.

 Rates continue to move in a favorable direction. The 3-month Libor, a proxy

for floorplan interest rates, continues to moderate, now at ~2.3%, vs ~2.6% at

the end of 1Q (~2.8% at year-end 2018), and is now down slightly y/y, with

increases unlikely. We adjust our models to reflect this, driving our 2019/2020

floor plan interest expense lower than prior. As we had highlighted in our Feb

2019 initiation, every 100bps change in floor plan interest expense impacts EPS

by ~5%.

Figure 2: Auto Dealers Relative Multiple vs S&P and 3 month-Libor (proxy for floor plan interest rates)

Relative premium/discount 3-month Libor (inverse, Right axis)

Source: Bloomberg.

 New vehicle retail weakness persists into 2Q but not incrementally worse vs

1Q19 levels; inventory levels in check. US light vehicle SAAR tracked 17.3

mn in June as per Autodata, flat y/y, with 2Q19 SAAR tracking at 17.0 mn,

better than 16.8 mn in 1Q and tracking ahead of our outlook for 16.75 mn for

full year 2019. Based on comments from Ford, retail sales however seem to be

-30%

-20%

-10%

10%

20%

30%

25%

50%

75%

100%

125%

150%

Auto Dealers vs. S&P 500 LT Avg US SAAR y/y (4-qtr lag)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%30%

50%

70%

90%

110%

Auto Dealers vs. S&P 500 3 month Libor

North America

Equity

Research

09 July 2019

Rajat Gupta

(1-212) 622-6382

rajat.gupta@jpmorgan.com

tracking down mid-single digits in 2Q, similar to 1Q with fleet up mid to high

single digits. Days supply of inventory on hand at dealer lots stood at ~67 days

at June-end, down -1 day y/y, similar to May after slightly elevated levels in

April. While incentives rose slightly in June after remaining down y/y YTD

through May, Average Transaction Prices (ATPs) continue to rise (up >$1,000

in 2Q), given richer segment mix (for example, pickup trucks constituting fully

18.5% of the market in June, +140 bps y/y, amidst newer entries from Ram,

Chevrolet, and GMC).

Table 1: Historical & Forecast New Vehicle Same-store Gross Profit Growth

2018 1Q19 2Q19E 3Q19E 4Q19E 2019E 2020E

ABG -4% -5% -7% -6% -5% -6% -5%

AN -12% -7% -4% -3% -3% -4% -2%

GPI* -8% -4% -5% -5% -5% -5% -2%

LAD -5% -5% -4% -3% -2% -3% -2%

PAG -4% -7% -3% -2% -1% -3% 0%

SAH -7% -3% 4% -1% -5% -1% -2%

Group -6% -5% -3% -3% -4% -4% -2%

Source: J.P. Morgan estimates; Company data.

Note: GPI data shown is for the United States only

 Used vehicle volumes remains strong. KMX’s F1Q results and our

conversations with industry participants continue to point to a robust used

vehicle market with healthy volume trends. KMX saw used unit comp sales up

9.5% with management citing strong conversion and growth in web traffic.

Management attributed the strength to solid execution, a robust lending

environment and shift in timing of some tax refunds into F1Q (management

cited a week’s worth of benefit). We believe a healthy used vehicle trends is a

function of stable macro indicators and healthy consumer environment overall in

US keeping overall vehicle demand healthy with some signs of new vehicle

demand shifting to used vehicles given the ongoing trend of lower incentives,

higher ATPs and higher interest rates. For franchise dealers, companies with a

higher used to new unit ratio are likely to benefit in a stronger used vs new

vehicle environment. In our coverage, the best used to new unit ratio (2019

estimated) is at PAG at ~1.3x (<1.3x in US alone), followed by SAH at ~1.18x,

LAD at ~0.94x, GPI at ~0.92x, ABG/AN at ~0.82x.

Table 2: Historical & Forecast Used Vehicle Same-store Gross Profit Growth

2018 1Q19 2Q19E 3Q19E 4Q19E 2019E 2020E

ABG 3% -1% 3% 3% 3% 2% 1%

AN 8% 3% 3% 3% 3% 3% 3%

GPI* -3% 15% 1% -1% -1% 4% 0%

LAD 3% 12% 6% 1% 4% 6% 3%

PAG 8% -14% -4% 2% 5% -3% 3%

SAH -2% 3% 1% 2% 0% 2% 0%

Group 3% 3% 2% 2% 2% 2% 2%

Source: J.P. Morgan estimates; Company data.

Note: GPI data shown is for the United States only

North America

Equity Research

09 July 2019

Rajat Gupta

(1-212) 622-6382

rajat.gupta@jpmorgan.com

 Parts & Services strength will be the key to sustaining recent sector

strength. In a declining new vehicle gross profit environment, margin pressure

on used vehicles, and peaking F&I GPUs, we think Parts & Services (~45% of

sector gross profit) growth will be key to watch at this stage of the cycle. After

solid, ~6% same-store profit growth in 1Q, we expect 2Q to remain solid,

though more in the 4-5% range as 1Q benefits from strength in both Customer

Pay and Warranty as well as stronger mix of services vs parts that helped

margins. We believe Customer pay growth is likely to remain resilient, driven

by a combination of both macro and micro factors, including 1) an increase in

UIO (units in operation, see Pg 46 for our initiation where we illustrate forecasts

of 4-8 year old vehicle growth) after moving beyond the lapping of cyclical

drop-off from pressure in 2007-09, 2) increasing average vehicle age (now ~12

years vs. <10 years last cycle), 3) increasing complexity of parts, which favors

dealers with OEM-certified parts vs. independent aftermarket shops, 4)

improvement in penetration of post-warranty customers driven by greater

product offerings (wipers, brakes, batteries, windshields, etc.), 5) digital

initiatives that include online service appointments, and 6) bridging the price

gap of parts vs. independents. In addition, service bay capacity remains

underutilized at most dealers, suggesting ample opportunity at existing stores.

We believe continued strength in Parts & Services will be key for the sector to

sustain its recent re-rating and restore investor confidence in a challenged

cyclical and secular backdrop.

Table 3: Historical & Forecast Used Vehicle Same-store Parts & Services Gross Profit Growth

2018 1Q19 2Q19E 3Q19E 4Q19E 2019E 2020E

ABG 3% 6% 5% 4% 4% 5% 3%

AN 5% 4% 4% 4% 4% 4% 2%

GPI* 2% 8% 3% 4% 7% 5% 3%

LAD 6% 11% 5% 6% 6% 7% 4%

PAG 4% 4% 4% 6% 5% 5% 5%

SAH 1% 2% 3% 3% 3% 3% 3%

Group 3% 6% 4% 4% 5% 5% 3%

Source: J.P. Morgan estimates; Company data.

Note: GPI data shown is for the United States only

 F&I strength continuing into 2019, but not an upside driver. F&I run

continues into 2019 but trends are starting to look mixed as dealers dial down

new vehicle unit focus and mix starts to impact GPUs; company specific

initiatives likely to be the key driver going forward. F&I gross profit was solid

in 1Q19 at ~3% though ~1% ex-SAH (note that SAH generates majority of the

markup from EchoPark stores from upfront F&I sales and service contracts

while marking the ASP of the used vehicle lower than what would have

otherwise been sold at a franchise dealership). We do not view F&I as a

significant driver of our stock specific theses and instead take the approach of

F&I as a means to an end. This is particularly relevant as, currently, our auto

dealer universe is at high levels of F&I per unit attachment (and 10 year F&I per

unit CAGR of 3.5%). However, we do see selective opportunity as a strong F&I

strategy can generate incremental volumes and ability to offset pressured retail

margins, particularly at underperforming or recently acquired dealerships (like at

LAD, where F&I penetration and $ per vehicle typically lag), while service

contract penetration is also a key early indicator, in our view, of potential

sustained parts & service retention (one of our key investment theses).

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