Is AutoNation Making a Huge Cost-Cutting Mistake?

The COVID-19 pandemic has forced many businesses in a long list of industries to make difficult decisions. Management teams have had to prioritize and strategize like never before.

AutoNation (NYSE: AN), the nation's largest automotive retailer, is no exception. But what investors might not know is that the company makes the biggest chunk of its gross profit not from selling vehicles, but from its parts and service business. AutoNation just announced it would shut down its collision parts business in a cost-cutting move. Could that be a huge mistake?

It might surprise investors that while AutoNation is known as the largest automotive retailer in the U.S., its bread and butter isn't selling new and used vehicles. In fact, new and used vehicles only generate roughly 25% of the company's total gross profit. Almost half of AutoNation's gross profit comes from its parts and service business and another nearly-30% chunk comes from finance and insurance. Just take a look at the lopsided amounts of revenue compared to gross profit for each business segment in the charts below.

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Source Fool.com