After another year of losses at its AutoNation USA used-car superstore chain, Republic Industries Inc. has decided to convert some of those superstores into new-car dealerships.
The converted superstores will retain AutoNation concepts such as no-haggle pricing, but they could lose the AutoNation name, a Republic official said.
Republic, based in Fort Lauderdale, Fla., declined to say last week how many of its 43 AutoNation superstores will get new-car franchises.
Mike Maroone, president of the company's Auto Retail Group, expects some to be converted by the end of 1999.
Maroone also thinks that by converting the stores completely to new-car dealerships, Republic can avoid resistance from automakers.
In response to CarMax Group's attempts to add new-car franchises to its used-car superstores, both Ford Motor Co. and General Motors have said they do not want their new vehicles showcased in used-car superstores. Ford spokeswoman Ann Doyle said Ford would have no problem with a superstore if it were converted into a new-car dealership.
Republic is not dumping the AutoNation chain, Maroone said. Several superstores are performing well and do not need to add new cars to their inventories.
'We love the used-car superstore concept,' he said.
But losses from the AutoNation chain remain a constant thorn in Republic's side, pulling attention away from its profitable new-car dealerships and car-rental subsidiaries.
Although the AutoNation chain posted its first profit, $2.6 million, in the third quarter of 1998, that was wiped out by a $14 million loss in the fourth quarter.
The chain's fourth-quarter revenue rose 22.2 percent, to $282.1 million. However, fourth-quarter sales at the 17 superstores that were open during the corresponding period in 1997 dropped 9 percent.
Republic's losses from the AutoNation chain are in sharp contrast to income from its 262 new-car dealerships. Even after the $14 million loss, Republic's overall automotive retail operating income was $105.7 million in the fourth quarter.
The biggest problem for the AutoNation chain and its chief rival, CarMax, based in Richmond, Va., has been competition from new vehicles. Because of manufacturer/importer incentives on new vehicles, the price gap between new and used vehicles has narrowed too much, Maroone said.
Both AutoNation and CarMax have addressed that by edging away from higher-priced late-model vehicles. AutoNation's goal is to bring the average cost of its used vehicles below $10,000, Maroone said.
But the move has not been enough. George Hoffer, an economics professor at Virginia Commonwealth University in Richmond, said AutoNation and CarMax superstores have a fatal flaw. Hoffer said the superstores have all the costs of a new-car dealership but only one profit center - used vehicles.
Republic wants to give some of its superstores a second profit center by turning them into new-car dealerships. Maroone said the company either will relocate existing Republic new-car franchises to nearby superstores or acquire the rights to additional franchises for its superstores.
CarMax Group also has been trying to build profits by adding new-car franchises such as Chrysler and Mitsubishi to its used-car superstores.
But GM has said it is not interested, and Ford has gone as far as blocking CarMax's acquisition of at least two Ford dealerships.
GM and Ford have rejected CarMax because of the assumption that those CarMax sites will remain used-car superstores, Maroone said. The converted AutoNation stores will be operated as new-car dealerships, he said.