AutoNation Thriving In Sour Economy

Written by Dominique Feldman on . Posted in Business/Finance

During a time when the rest of the economy was literally bottoming out, AutoNation was at the top of its game. ‘08-’09 was their “finest hour” because they had incredible operating strength, rooted in long-term strategy. While so many companies are desperately seeking to meet the sales projections of the next quarter, AutoNation was carrying out its carefully crafted strategy with a focus on a 5 to 6 year plan. 

Passing through the doorways in the sleek, modern façade and entering the brightly-lit, spacious, and stylishly-furnished showroom of the Maroone Chevrolet of Fort Lauderdale dealership, immediately one recognizes the company’s prosperity, and gets a clear understanding of why AutoNation is the only investment grade rated public automotive retailer. As I walked in and prepared for the forthcoming interview, I was immediately greeted by courteous and professional sales staff, who were impeccably dressed in business wear emblazoned with the brand logo.

It was reminiscent of the 1950’s era, when service station attendants would run out the instant you pulled in. Taking a seat in the very comfortable customer lounge, one of the first things you realize is that there are no walls between you and the extensive, yet visually arresting, inventory. This recently-renovated dealership, along with its sister AutoNation facilities across the country, was a revelation and reassurance to the retail automotive industry. In that open and relaxing lounge, I had the opportunity to speak with the men who are mainly responsible for that prosperity.

It was the Mike & Mike show: Mike Maroone, the President and Chief Operating Officer of AutoNation since 1999 became G.M. of the first Maroone dealership in South Florida in 1977. Mike Jackson, the Chairman and CEO of AutoNation is widely regarded as one of our generation’s most influential and effective leaders in the automotive industry. After having served as Mercedes-Benz’s North American Chief Executive, he joined AutoNation in 1999, and has since been responsible for transforming the automotive sales industry. 

Like Captain Dan and Forrest with the Bubba-Gump Shrimp Company, these two gentlemen steered AutoNation through the eye of the storm of the worst economy since the Great Depression. While everyone else was tanking, or paying their investors large dividends to inflate their stock price, AutoNation reinvested over a 5 year period, some $500 million in the buyback of equity. The stunning appearance of the Fort Lauderdale Chevy dealership, piloted by General Manager Pete Small, was part of a $100 million renovation and updating of 36 of AutoNation’s General Motors stores. They are now making even larger investments in their Toyota, Mercedes-Benz and Audi dealerships. These investments are paying off in spades. These impressive dealerships are places where people want to buy cars; but that’s only part of the Customer Satisfaction story.

In addition to their infrastructure upgrades, another AutoNation advance is their investment in technologies. They’ve implemented end-to-end software to streamline the purchasing funnel. Customers can seamlessly go from researching and prospecting online, to purchasing, all the way to making service appointments. 

AutoNation has tapped in to the full power of the digital world to better service their customers. The Great Recession didn’t hit AutoNation quite like the rest of the country, at least partly because they found that their customers paid on car notes before paying almost anything else, because people need their cars. That, coupled with the fact that sub-prime lending in automotive never went sour, kept things strong. A lot of lenders offered excellent financing, and they found success dealing with AutoNation. In addition to that excellent financing, the shift to value-added contracts, i.e. the AutoNation Pledge, provides another purchasing bonus to today’s customer. What once was an unpleasant and confusing experience for many prospects has transformed into an open, transparent, accountable, and above-all helpful process. They have made it clear to customers that the purchaser can obtain their own financing, that interest rates are negotiable, and they offer excellent Service Contracts, Prepaid Maintenance, Theft Protection and other products.

Because of its strategic strength, AutoNation has seen its revenue grow 35% between the 3rdquarter of 2009 and the 3rd quarter of 2012. In that same time they have reduced their standing inventory from 100 billion to 40 billion, so that instead of offering strategic sales incentives with the goal of moving inventory, they can make tactical decisions, selling specific vehicles in targeted areas where they know that the demand for that make or model is high. They can do this because of the breadth and scope of their enterprise, and the sales data that they have gathered. This also serves them well in their value vehicles business. A trade-in they accept in one region doesn’t have to be resold there, but can instead be sent to a dealership where it is much more likely to move quickly.

In November alone, AutoNation saw foreign car sales rise by 21% and domestics by 10%. What’s more, Mike Jackson points out that the last 10 days of the year are the very biggest ones for auto sales, so he expects things to continue to look up.

The biggest concern that both Mikes have is the effect of the government on the economy. Like so many top corporate executives--a group that traditionally has stayed out of politics--the CEO and COO of AutoNation are calling on Congress to get past Party differences and find solutions that help the American economy, or at least don’t hinder it. For instance, Jackson believes that a much more promising field is the market for natural gas operated vehicles. He sees these as an excellent option for the fleet vehicle market as well as for individual car owners, and that increasing the use of this very available energy resource could get America energy-independent by 2020, and lead to the creation of many long-term jobs.

In any case, as long as the government does their job reasonably well, Mike Jackson and Mike Maroone both feel that their business, and that of the auto industry as a whole, will continue to improve. The industry as a whole moved 15,500,000 units in 2012 through the end of November, the largest numbers since 2008. The leaders of AutoNation are optimistic and proactive, and expect that trend in numbers to continue to rise. As Mike Jackson put it, “People genuinely need to buy new vehicles…financing is better than ever,” which are good reasons to predict that sales will continue to improve.

As for government issues, Mr. Jackson says of his customers, “People have faith…that Washington will…do the right thing and get out of the way of the economy.” If they, and he, are right, the future for AutoNation looks even brighter than its recent past.