AutoNation wants to instill patriotic fervor in the fickle car-buying public. The brainchild of entrepreneur and ex-chairman Wayne Huizenga ( Waste Management, Blockbuster), AutoNation is the #1 auto dealer in the US (ahead of Penske Automotive Group and Sonic Automotive). The firm owns more than 250 new-vehicle franchises (down from 300 in 2008) in 15 states, and it conducts online sales through AutoNation.com and individual dealer websites. AutoNation operates under about 15 different brands in local markets (including Mike Shad in Jacksonville, Florida, and GO in Colorado). In addition to auto sales, AutoNation provides maintenance and repair services, sells auto parts, and finances and insures vehicles.
After being stuck in a ditch as the deep recession and credit crunch in the US discouraged car sales in 2008 and 2009, AutoNation's sales have recovered and are growing at double-digit rates. Sales were up 11% in 2011 vs. 2010, after posting a nearly 17% increasing in the previous annual comparison. Both used and new vehicles sales rose by more than 12%. Sales of used vehicles slightly outpaced new vehicle sales. The lag in new vehicle sales, which account for more than 50% of the company's total revenue, relative to used cars continued the pattern observed during the recession, when consumers who had to replace a vehicle eschewed new cars in favor of lower-priced used models. The lingering preference for used over new is a problem for AutoNation because new vehicle sales are much more profitable. Indeed, gross profit on a new car sales was about 21% in 2011 vs. just 7% for used cars. After two years of improvement, the company expects the favorable sales trend to continue over the next few years.
AutoNation seeks to capture an increasing share of vehicle sales through a two-pronged strategy: building powerful local brands, while increasing consumer awareness of the AutoNation brand. The company relies on its 15 local brands in key metropolitan markets, such as GO in Denver and Champion in South Texas, to connect with car buyers. Indeed, stores operated under its 15 local brands accounted for about 70% of total revenue in 2011. Using its website, store signage, and media presence, AutoNation is also working to familiarize car buyers with the AutoNation brand. A key element of the firm's business strategy is its diversified portfolio of 30-plus brands, spanning imports (37% of new vehicle sales), premium luxury vehicles (28%), and domestic autos (34%). Over the past decade, AutoNation has increased the percentage of import and luxury cars it sells.
Mergers and Acquisitions
The economic turmoil caused AutoNation and other megadealers to put the brakes on acquisitions and divest domestic brand dealerships. Historically, AutoNation has been a driving force in the consolidation of the US car sales business. It clusters dealerships within markets so that they can share inventory, cross-sell to customers, and reduce marketing costs -- basically cutting and combining costs in an attempt to become the auto industry's Wal-Mart. As the economy improves, AutoNation has been looking for acquisition and new store opportunities. In 2012 the company purchased six Texas dealerships (Audi, Porsche, and Volkswagen) after having acquired one automotive retail franchise in 2011, five in 2010, and one in 2009.
Billionaire investor and former AutoNation director Edward Lampert has been steadily increasing his stake in AutoNation through his hedge fund ESL Investments, which owns nearly 53% of the company's shares. Cascade Investment, LLC, the investment vehicle owned by Bill Gates III, owns about 14% of the company's shares. – less