DENVER - AutoNation Inc. has declared an early victory in the booming Denver market, where the company has been testing its brand marketing campaign and a no-haggle pricing strategy since Christmas.
Citing a 25 percent gain in first-quarter revenue and 43 percent jump in market share, the nation's largest dealership group last week told analysts it will expand key elements of the brand campaign to other dealerships in the third quarter of this year. AutoNation plans to roll out no-haggle pricing to more markets before year-end.
'The results far exceed our expectations,' said Steve Berrard, co-CEO of the Fort Lauderdale, Fla.-based chain. 'Denver has convinced us that the AutoNation business model works extremely well in a franchise environment.'
Though the sales increases are dazzling, they are not expected to continue at the same pace as the novelty of the brand campaign wears off. And heavy spending on advertising and training have taken a toll on operating profits. Still, the report shows that AutoNation has the financial muscle to move the market.
MOVING THE MARKET
Total new-vehicle unit sales for AutoNation's 17 Denver stores climbed 40 percent. That was good enough to boost AutoNation's share of the Denver new-vehicle market to 28.5 percent in the first quarter. In the first three months last year, these same dealerships took 19.9 percent of the market. AutoNation took over all of the stores in 1997.
Revenues from fixed operations jumped 10 percent from the same quarter last year and the stores experienced double-digit gains in the finance and insurance department.
The company would not release used-vehicle sales. Corporate spokesman Oscar Suris would only disclose that used-vehicle sales are down nationally for the AutoNation chain.
And AutoNation executives declined to discuss specifics on operating margins, which they admit are down. Berrard said that during March the company's operating margins were at or above industry average. According to the National Automobile Dealers Association, the average dealership has a 1.4 percent return on sales. AutoNation's companywide average for new-car dealerships is 3.6 percent.
Suris said margins are expected to rise, attributing much of the decline to startup costs. The chain does not plan to raise vehicle prices.
Though some competing dealers scoff at no-haggle prices, others complain AutoNation's low prices have reduced overall new-vehicle profit margins in the market. The company's largest and most successful competitors admit they cannot outspend AutoNation on promotion and training but are determined not to be beaten on vehicle prices.
'I'll beat AutoNation's prices all day long,' said Doug Moreland, president of the Moreland Automotive Group, an Aurora, Colo.-based chain of 13 dealerships with seven metro-Denver stores. 'I won't lose a customer.'
Many competitors boast of healthy first quarter sales increases, saying AutoNation's ads and no-haggle prices have driven traffic to their stores.
Even after the multimillion dollar ad campaign, AutoNation's three metro Denver Ford stores lag far behind the area's top-selling Ford dealers in unit sales. In the first quarter of 1999, the three AutoNation Ford stores combined sold fewer new vehicles than any of the top three Ford stores sold individually. AutoNation's highest-volume Ford store ranked fifth in unit sales among Denver's 12 Ford stores in the January-March period.
In some cases, competitors say AutoNation's increases did not keep pace with the market. For example, AutoNation's Dodge sales were up 33 percent in the first quarter, while total Dodge volume in Denver rose 34 percent, according to a manufacturer's report supplied by a competing dealer.
But on other makes, AutoNation dramatically outperformed the market. AutoNation's first-quarter sales for Chrysler, Plymouth and Jeep were up 59 percent over the corresponding period in 1998. The Denver volume of Chrysler-Plymouth-Jeep was up 35 percent.
Suris, of AutoNation, points out that the company's overall market share in Denver is up. Said Suris: 'Somebody is losing - not us.'