AutoNation Inc. says the rescue mission for its used-car megastores is working.
The four southern AutoNation USA megastores where the retailer has added new-car dealerships have become more profitable, said Mike Maroone, president of AutoNation's retail operations. He said three to five more megastores are scheduled for integration with new-car dealerships this year.
'The efficiencies come out of consolidating expenses,' Maroone said.
AutoNation needs to boost profits at its megastores. Initially, the huge used-car lots dazzled Wall Street. More recently, through, they have contributed to the company's sagging stock price. The stock is trading at $11 to $12 a share, less than half of its price in 1997. The megastores struggled to make a profit because they were overbuilt. The average lot size is more than 20 acres.
'The (integration) concept absolutely makes sense,' said George Hoffer, professor of economics at Virginia Commonwealth University in Richmond, Va. 'That has got to be the salvation of superstores.'
Hoffer, who has done studies panning the megastore concept, views the addition of new-car franchises with cautious optimism. He thinks adding new-car dealerships to the lots can turn the stores around.
The new-car dealerships will provide a steady source of quality inventory from trade-ins and an additional profit center, he said.
AutoNation's first four new-used combinations are: AutoNation Dodge in Grand Prairie, Texas; Seminole Ford and AutoNation USA in Sanford, Fla.; AutoNation Chrysler-Plymouth in Douglasville, Ga.; and AutoNation Nissan in Perrine, Fla.
Maroone said AutoNation has seen some startling turnarounds:
The Perrine store had a 48 percent increase in unit sales, a 92 percent rise in revenue and a 153 percent increase in gross profit in the four months since the new-car dealership was added in April, Maroone said, referring to the combined results for both the franchised dealership and megastore.
The Nissan store had an operating loss a month before Auto-Nation bought it. 'Now it is making a nice six-figure profit,' Maroone said.
The Sanford store delivered almost 600 new and used units in its first full month. 'That's double what it did at the other location' as a solo new-car store, Maroone said.
The new Seminole Ford beat the old entity by 150 units, selling just under 600 new and used units in its first month. The old location typically sold fewer than 250 new and used units a month. The megastore contributed 230 units to the total.
'Integrations are the right thing to do,' Maroone said. 'You give up very little used-car business (by combining the new-car dealership with a used-car superstore) and you get a lot of fixed-operation business.'
But Hoffer thinks the effort easily could stall. The megastore locations are surrounded by new-car franchises. Restricted by state franchise laws, AutoNation could have difficulty relocating a dealership or adding a new one without infringing on another dealer's territory, Hoffer explained.
But Maroone said the integration is running smoothly. AutoNation either is moving its own new-car dealerships to megastores, is buying nearby new-car dealerships for integration with megastores or is getting permission from the manufacturers to add a new franchise to the locations.
The company formed a team including staff from its legal, real estate, operations and acquisitions departments to study its chain of 42 megastores. AutoNation could integrate as many as a dozen megastores with new-car dealerships next year.
'We have done our homework,' Maroone said. 'And we are getting a return right away.'