CEO Mike Jackson has canceled AutoNation Inc.'s overly ambitious plans to create a national automotive brand, including an AutoNation commercial that was scheduled to run during the Super Bowl in January.
He also has temporarily halted the aggressive acquisition strategy that has made AutoNation the largest dealer group in the country.
Instead, Jackson will spend 2000 recasting AutoNation as the 'low cost' new-vehicle retailer and concentrating on basic dealer values.
He needs to cure the company's ailing share price, which recently dropped below $10, far below its all-time high of $423/4 in January 1997.
'Automotive retail is a local market business and will remain a local market business,' Jackson told Automotive News in a Friday, Dec. 17, interview. 'You have very narrow margins (in automotive), particularly on the new-car side. So what the benefit of a national brand is, I'm not so sure.'
Since joining the company in October, Jackson has cut corporate overhead by $60 million and closed its unprofitable used-car superstore business. In the process, he laid off some 1,800 employees at the superstores and 150 at AutoNation's headquarters in Fort Lauderdale, Fla.
For 2000, Jackson's plans include:
Find a successful model for leveraging the company's size in local markets where AutoNation has a 15 percent share of new-vehicle sales.
Acquire dealerships only in five to six new-vehicle markets where AutoNation is approaching 15 percent market share.
Cut $34 million in overhead at the dealership level by finding efficiencies and renegotiating advertising deals.
Boost annual revenue from the Internet in 2000 by 50 percent to $1.5 billion.
Continue the spinoff of AutoNation's rental-car business.
Create a cost-conscience culture throughout the company that keeps the remaining $2 billion in overhead under control.
'We're now a pure automotive retail company,' Jackson said. 'We need then to scale our corporate headquarters and narrow our focus to that business exclusively and do it more efficiently.'
NO NATIONAL BRAND
Ever since 1996, when it started building used-car superstores and buying new-car dealerships, AutoNation has tried to sell itself as a national brand in three key businesses: used vehicles, new vehicles and rental cars.
Chairman H. Wayne Huizenga and former co-CEO Steve Berrard hoped to copy the same brand strategy that worked so well for them at Blockbuster Entertainment Corp. Last December, they went as far as hiring John Costello, a top Sears marketing executive, as president. But by August, Costello had resigned.
Jackson, who left his post as CEO of Mercedes-Benz USA Inc. to join AutoNation, has scrapped their original strategy along with most other Huizenga/Berrard sacred cows, such as the company's original used-car business and its oversized headquarters staff.
'I think sacred cows can be barriers to a company's success,' he said. 'Therefore, sacred cows have to be slain, put aside, so the company can move forward. That's been done.'
Instead, AutoNation will look for the right business model to attack local new-vehicle markets. The company will use 13 dealerships in the Tampa, Fla., area as a test bed.
Beginning this week, AutoNation will rebadge those dealerships as 'AutoWay' stores. Like in its Denver project in 1999, where it put 17 dealerships under the 'John Elway' name, the AutoNation brand will not be used on the outside of the dealerships.
AutoNation has been unable to use its name on dealerships because of restrictions from some automakers. Jackson said that isn't a problem.
'AutoWay is for Tampa; John Elway is for Denver,' he said. 'It will be other names for other markets.'
The key in Tampa will not be leveraging the AutoNation brand or even increasing share. Jackson simply wants to cut costs.
'If we can't use our scale to leverage into the cost equation, then why do it?' Jackson said in a Dec. 13 conference call with Wall Street analysts.
Jackson said the company has learned much from the Denver project. But he also has criticized AutoNation for spending too aggressively in Denver to increase market share and thus hurting profit margins.
AutoNation went into Denver with a $15 million marketing budget; Jackson said Tampa will be less than half of that.
AutoNation also admits that its increase in sales in Denver and the inability of some manufacturers to quickly replenish AutoNation's supply of new vehicles left several of the Denver dealerships with depleted inventories.
Karen McKemie, an AutoNation senior vice president in charge of the Tampa project, said the company is doing a better job of forecasting sales for the market in order to avoid that problem.
If Tampa succeeds, Jackson is ready to take the Tampa model to other markets where AutoNation has at least a 15 percent share of new-vehicle retail sales. Currently, those markets include Phoenix and southern Florida, he said.
He also identified California and Texas, where AutoNation has more than 110 dealerships, as likely focal points.
But some industry analysts believe AutoNation is in serious trouble, even after the divestiture of its used-car stores and the eventual spinoff of its car-rental business.
AutoNation was going to become the Wal-Mart of the auto industry and use scale to undercut traditional new- and used-car dealers.
But unlike Wal-Mart, AutoNation cannot use its size to buy its inventory at a discount. Franchise laws prevent automakers from giving discounts to AutoNation, said George Hoffer, an economics professor at Virginia Commonwealth University in Richmond, Va.
'Unless they get volume discounts, there's no reason for them to even exist,' Hoffer said.
Jackson insists AutoNation can make it work, even under the current franchise system, by attacking overhead costs.
Investors and even competitors hope he succeeds.
Other publicly traded dealer groups blame AutoNation and CarMax, the other used-car superstore chain, for bringing down all of their stock prices.
'Certainly I think the entire segment has been painted with the same brush,' said Scott Smith, CEO of Sonic Automotive Inc. Despite a strong performance, Sonic's share price has dropped from more than $18 in January to about $8 last week.
Smith believes Jackson can put the company on track by getting it back to basics. 'If they hit their numbers and perform well, I think it's great,' he said. 'If they don't, I wish they'd get out of the business.'
Dealers who sold their dealerships to AutoNation for stock also have their fingers crossed. Many held onto that stock, believing it would skyrocket.
Steve Rayman, a 46-year-old Atlanta dealer, sold his Steve Rayman Pontiac-Buick-GMC Truck dealership to AutoNation for stock in 1997. Rayman, who held onto that stock, has been horrified as the share price dropped below $10.
But he still thinks AutoNation has enough strong dealerships to turn it around, as long as it focuses on new cars and not other businesses.
Said Rayman: 'Maybe what Mike is doing right now will turn it around. I'm banking on that.'