The leader in automotive innovation news

AutoNation ready to dive back in

4 min read

As AutoNation Inc.’s used-vehicle sales in the second quarter eclipsed new- vehicle sales for the first time — and by more than 4,400 units — the auto retail giant has a plan to take a bigger bite of the vast and resilient used market.

The company has given the green light to build 20 or more AutoNation USA standalone used-vehicle stores in the next three years.

The standalone stores are part of AutoNation’s brand-extension strategy that in 2016 called for 25 sites. But two years ago, the company froze AutoNation USA expansion plans after opening five locations in 2017 and 2018.

“We see an opportunity to take a larger share of the used-vehicle market, which is substantially larger than the new-vehicle market, and benefit from the increased interest in vehicle ownership from consumers,” CEO Mike Jackson told analysts and investors in a call last week.

AutoNation’s new- and used-vehicle sales recovery late in the quarter, strong increases in profit per vehicle, digital initiatives and lower expenses helped the retailer post second-quarter results that set a record for adjusted earnings per share from continuing operations, even amid the coronavirus pandemic.

Jackson noted the AutoNation USA pause was a bit longer than planned, but the company wanted to get the formula right before moving forward.

The new stores will cost the nation’s largest new-vehicle retailer $10 million to $11 million each, which is 20 to 25 percent less than what it spent per store previously, he said.

AutoNation USA stores feature no-haggle vehicle pricing and a five-day or 250-mile money-back guarantee.

The newer stores will include reconditioning centers to cut transport costs and speed the time to market. They will have some service capability but won’t include large service departments, Jackson said.

“Our service capacity we put in the stores simply didn’t pan out,” he told analysts. “And we don’t want to repeat that in future stores.”

The AutoNation USA portfolio first broke even in the second quarter of 2019. AutoNation CFO Joseph Lower told analysts that the stores are generating a little more than $2 million in profit per quarter.

Jackson said the new locations should break even within a year and generate targeted returns, which weren’t disclosed, in 18 months to two years.

“When we launched the USA stores, we said we’d build five as pilot stores and then pause until we had a clear path to profitability, had paid our tuition and figured out what works and what does not work,” Jackson said in an interview. “And we’re now through that, and the stores are solidly profitable.”

Jackson told Automotive News that stores likely will come in existing or contiguous markets “where we can leverage the AutoNation brand and infrastructure as a very cost-efficient way to do this without exorbitant marketing costs.”

He said more information on the rollout would be provided during the retailer’s third-quarter earnings call.

A store count of 25 would put AutoNation USA on pace with Sonic Automotive Inc.’s planned build-out of its EchoPark used-vehicle-only superstores. Sonic has 10 EchoPark locations and plans to add at least three more this year and four to six in 2021. It has a goal of at least 25 locations through 2024.

Penske Automotive Group Inc. operates 16 used-vehicle supercenters, including six in the U.S., and auto retailers also compete with used-vehicle startups Carvana, Vroom and Shift, as well as used-vehicle giant CarMax Inc.

Jackson, who largely closed AutoNation’s used-car megastores shortly after becoming CEO in 1999, told analysts he sees consolidation coming in the used-vehicle space, including from independent players.

“I think there is a yearning in the pre-owned market for a brand that can be trusted,” he said. “And scale also brings in the consumer’s mind an idea of trust. And if you really have a good experience and you stand behind the product, I think that’s where the business is going to consolidate around. And whether that’s Carvana, CarMax, AutoNation, Vroom, I think the big players that are branded are clearly going to take share.”

SunTrust Robinson Humphrey analyst Stephanie Benjamin sees the AutoNation USA expansion as positive for the company, though she noted AutoNation faces increasing competition in the space.

“It enables AutoNation to play a greater role in the large, recession resistant (and clearly pandemic resistant) used-vehicle market,” Benjamin wrote in a note to investors last week.

AutoNation, of Fort Lauderdale, Fla., ranks No. 1 on Automotive News‘ list of the top 150 dealership groups based in the U.S., retailing 282,602 new vehicles in 2019. It retailed 246,113 used vehicles the same year, putting it at No. 3 on Automotive News‘ list of the top 100 retailers ranked by used-vehicle sales.

What do you think?

Copyright © All rights reserved.

MotorLinks 2020