Officials at the two major used-car superstore chains, CarMax and AutoNation USA, need to prove themselves in 1999.
It's now or never.
CarMax Group, which launched its first used-car superstore six years ago, thought 1998 would be the year it finally turned a profit. Despite more than $1 billion in sales for the year, CarMax again lost money.
Now the company, a subsidiary of Circuit City Stores Inc., is forecasting profits for 1999.
At Republic Industries Inc., weak sales at its AutoNation USA used-car chain brought down the company's overall earnings in 1998. Republic believes it can turn it around this year.
Art Spinella, an automotive analyst with CNW Marketing/Research in Bandon, Ore., isn't so sure. Both companies started out with flawed strategies, he says.
CarMax and AutoNation acknowledge a need to change. Last year they slowed their expansion plans and scaled down the size of their stores. They also appear to be putting less emphasis on late-model vehicles, conceding that market to the franchised new-car dealers.
Republic has boosted its efforts to make AutoNation a national brand by hiring the top marketing executive at Sears, Roebuck & Co. as its president. The company also has given its project in Denver, where it has put the 'John Elway AutoNation' name on 18 new-car dealerships, an advertising budget of $15 million.
That's fine for Denver, Spinella says, but a similar project in Los Angeles could cost Republic $50 million in advertising. 'Can they sustain it? I doubt it,' he said.
Last month, CarMax found a silver lining in its balance sheet. In a press release it pointed out that it had reached $1 billion in annual sales in five years - much faster than startups such as Wal-Mart and Southwest Airlines. McDonald's, it said, took 17 years to hit $1 billion.
Maybe so. But McDonald's founder Ray Kroc certainly didn't have the backing of Circuit City, a company with nearly $8 billion in annual sales.
Joe Miller welcomes comments. Call him at (313) 446-1635 or send e-mail to [email protected]