The Wal-Mart of auto sales? AutoNation's Mike Jackson has big plans for the car retailer

Chief Executive, The, July, 2004 by Herbert Shuldiner

The overcapacity situation in car manufacturing is burdening automakers because labor contracts require them to produce cars even at a loss, creating the need for hefty incentives to liquidate excess inventory. AutoNation normally starts paying interest when a vehicle leaves the factory. But Zimmerman says the need to move vehicles out of their plants has forced carmakers to pay the first 60 days of inventory costs. General Motors pays up to 140 days of interest on some vehicles, he says.

According to Zimmerman, AutoNation makes a profit of only between 7 and 8 percent on new vehicles. "Under seven percent, we start losing money and eventually we'd go out of business," he says. "In good times, we earn eight percent." He terms the present climate as "hard times," with margins running at about 7 percent. Fortunately, AutoNation makes most of its money on the back end of the business--and that segment offers the greatest growth potential in profits.

Jackson says AutoNation is improving its sales effectiveness through a program of capturing every kind of customer--those walking into stores, phoning or inquiring via the Internet. Every customer call or store visit is recorded in AutoNation's computer system, so each dealer can scan a customer's sales history. For instance, if a customer leaves an AutoNation Chevrolet store and goes to one of its Ford dealerships, the Ford appraiser can readily find out whether the Chevy dealer appraised the car and, if so, at what value.

"Everybody goes to the computer," Jackson says. "The computer also gives us information on which store will have the vehicle the customer wants." Jackson says this helps customers get the best price. But price still depends on supply and demand. He notes that a purple vehicle takes an average of 90 days to sell, compared with 10 days for a silver vehicle. "We can give the customer a better price on the silver vehicle because of that," Jackson says.

Adds AutoNation President Mike Maroone, "We're ready and willing to sell vehicles at any price point. Our pricing policy is to compete in the local marketplace." That helps AutoNation sell cars at the lowest possible price everywhere. "There are vehicles that we give away and others that we sell at MSRP," Maroone says. "You have to have a mix between losers and winners."

About 25 percent of AutoNation's newvehicle profits comes from the premium luxury segment. Most of the rest comes from sales of Chevrolet, Ford, Toyota, Nissan and Honda cars and trucks. "Smaller brands is not what AutoNation does," Jackson says. He believes that the domestic brands can retake some market share if their newest products can generate excitement with car buyers. He is particularly impressed with Chrysler's new brawny yet sleek luxury sedan, the 300C (see Cover Story, page 24). He also believes that Chevrolet is poised for a comeback.

[ILLUSTRATION OMITTED]

Jackson forecasts that new-vehicle sales will range between 16.5 million and 17 million units this year. He acknowledges that publicly traded megadealers such as AutoNation and its main competitors--Group 1 Automotive, Sonic Automotive and United Auto Group--have only 6 percent of this market. (AutoNation controls half of that.) That leaves independent dealers with the major share of sales, and Jackson doesn't see that situation changing dramatically.