DETROIT (Reuters) - AutoNation Inc (>> AutoNation, Inc.) Chief Executive Mike Jackson said on Wednesday the shift by U.S. consumers toward trucks and sport utility vehicles is creating problems for manufacturers who had geared factories to build small and mid-sized cars.

The largest U.S. auto retailer's dealerships are grappling with an oversupply of compact and mid-sized cars, he told Reuters in a phone interview. "It's manageable, but it is an issue," he said.

Lower demand for smaller cars is one reason AutoNation's new vehicle profit margins fell in the second quarter, said Jackson, although he added that margins in other areas of the business, such as service, remain strong.

Jackson said a move toward fixed fees for dealers arranging car loans would have no financial impact on AutoNation, following a settlement recently agreed by the U.S. Consumer Financial Protection Bureau, the Justice Department and the U.S. finance arm of Honda Motor Co (>> Honda Motor Co Ltd).

Jackson said lenders and dealers should embrace the Honda settlement, which could make fixed fees more popular, as a roadmap to avoid more onerous regulation.

"The regulator is not going away," he said. The auto lending industry's choice is to have a regulator "in their business constantly" or take the steps outlined in the Honda agreement to respond to concerns that minority consumers are charged more for credit, he said.

AutoNation on Wednesday reported second-quarter net income from continuing operations of $115 million, or $1.00 a share, up from $101 million, or 83 cents a share, on a comparable basis a year ago.

The results fell short of some analysts' forecasts, and the company's shares dropped 4 percent.

Jackson said the company chose to spend more during the just-ended quarter to speed the rollout of its AutoNation Express online shopping services, completing by the end of June work the company had said would take all year.

AutoNation will invest in its online commerce efforts and reduce reliance on independent car-shopping websites, Jackson said. AutoNation earlier this month severed ties with auto shopping site TrueCar Inc (>> TrueCar Inc).

"If you go through third parties, you are paying to build their brand," Jackson said. "We are going to invest to build our brand."

In the latest quarter, those investments contributed to higher expenses than some analysts had anticipated, Jackson said.

"I am not going to get nailed down and lose my flexibility by giving a micro-roadmap for how we are implementing this big, complex initiative," Jackson said.

(Reporting By Joseph White; Editing by Chizu Nomiyama and Bill Rigby)

By Joseph White