AutoNation Inc., its stock bumping along the bottom, is looking for a conventional automobile executive to run the show. Auto retailing wasn't such easy pickings after all.
AutoNation's aggressive founders, Steve Berrard and the legendary investor/consolidator H. Wayne Huizenga, are stepping aside as co-CEOs and will protect their investment from the sidelines as board members.
A lot of fellow investors have lost money betting on the Huizenga magic. When he and Berrard entered automotive retailing barely three years ago, they conceded that they didn't really know the auto industry. But they knew an opportunity when they saw one.
They started in used cars. They saw a fragmented market of more than 40 million high-dollar products a year, with high margins and low customer satisfaction. It was time for another consolidation, just as Huizenga and Berrard had consolidated the fragmented video-store market into the huge Blockbuster chain. Investors leaped in.
But if used cars were good, how about new cars? High prices, high cost of sales and low customer satisfaction. This would be taking candy from a baby. With soaring stock, they bought out dozens of big dealer groups in an acquisition blitzkrieg. AutoNation would have a lower cost of capital and lower per-unit advertising costs. Bye-bye, mom-and-pop store.
Now, in addition to 45 used-car superstores, AutoNation has some 270 new-car dealerships with more than 400 franchises. It has 18 stores under one name in Denver, where it sells a lot of cars at low prices. And it has a low stock price because the margins and internal growth of automotive retailing are not the kinds of numbers that excite Wall Street. So AutoNation is looking for a traditional auto executive who will inspire investor confidence.
The AutoNation challenge has been a healthy thing. It has forced every dealer and factory to improve customer handling. And it has created a booming market for dealers who want to sell. It has not yet created a new model for how to succeed in the auto industry.
As it turns out, there's a reason that the independent, franchised auto dealer has dominated this best of all automotive markets for nearly a century. Revolutionizing that business is not as easy as it appeared to the guys who wiped out the corner video store.