As head of the nation's largest dealership group, AutoNation Inc. CEO Mike Jackson has one of the industry's most listened-to voices. On a visit to Detroit this month, Jackson, 57, talked about gasoline prices, Big 3 retail strategies and sales trends with Automotive News Editor David Sedgwick, Retail Editor David Kushma and Staff Reporter Gail Kachadourian.
How are high gasoline prices affecting the mix of vehicles you sell?
When the price of gasoline went to $3 a gallon (last year), I said there would be very little reaction because the consumer expectation is that it would come back down. That's exactly what happened. Model-year '05 fuel efficiency, for all the hoopla about gasoline prices, only improved from 20.8 mpg to 21 mpg -- exactly where we were 25 years ago.
This second spike is a strong message to consumers: Aha -- this happened again in a relatively short period of time. It's beginning to seep in that maybe the party is over. In that sense, yeah, we have seen some change in behavior.
How about sales of subcompacts -- B cars, the Toyota Yaris?
When you talk about changes in behavior between segments, it is still primarily product-driven rather than exterior factors. Ten years ago, small cars were ugly, uncomfortable, noisy pieces of junk. They were throwaway econoboxes that people only bought because of the price and couldn't wait to get rid of.
Small cars today have achieved the same attractive price point but are highly refined. They're very comfortable to drive, full of features, much safer, with fuel efficiency. Price is still the primary factor. If (consumers) could afford more, they would buy more.
But there are two other factors. One, people have a portfolio of vehicles in the household. They still want to keep the Suburban, but they say, you know, having a small car to run errands with this fuel situation is not a bad idea.
You also have Scion and Mini, which have made small cars fun. People are choosing to buy them. In Mini's case, they're even paying a premium because of the emotional feel and the styling and the fun-to-drive aspect. It's quite a story.
Which automakers are doing the best job with small cars?
It's hard to call out a leader. Everybody's doing something. Certainly Toyota has to be admired for the Scion brand, And in typical Toyota style, they made a mistake with the Echo and fixed it with the Yaris. Honda has to be admired for making fuel efficiency a core brand attribute.
You have to admire Chevrolet for what it's done with Daewoo. Look at the Caliber from Dodge. We've gone from the Neon -- people looked at it and said, you expect me to pay $14,000 for that? -- to looking at the Caliber and saying, that's only $14,000? That's a product transformation.
You have several perception issues in the marketplace that, fair or unfair, right or wrong, are affecting consumer behavior. The perception is that if you care about fuel efficiency, you want to look at Honda. The perception is that Toyota's not far behind. Even when (competitors) finally have addressed those issues, they're going to have to work very hard to overcome the lagging perception.
What's happening with large vehicles?
We're selling a lot of GM's new large SUVs. The vehicle is a hit. There is still a need for a vehicle that size. If you have a large family, you can make a very good case that your mileage per person is very efficient in a large SUV. And it still has the ruggedness and the towing capacity.
GM did a great job, from the Tahoe through the Suburban through the Escalade. It's the new benchmark, and everybody else is going to be stressed out about it. The segment will never be what it once was, between (consumer) choices and fuel prices, but it's not a market segment to just throw away.
Do you see the luxury segment growing now that the baby boomers are getting older?
No question about it. The baby boom generation is not going quietly into the night. It's in its peak earning years and is getting a transfer of wealth from its parents. (The) premium luxury (segment) is going to grow disproportionately in this market for the next 10 years.
When I arrived at AutoNation, premium-luxury sales were 10 or 11 percent of our revenue. Today we're at 22 percent. And 30 percent of our store profit comes from premium luxury. Our focus is on the triple crown -- Lexus, BMW and Mercedes. We're the largest retailer in the U.S. for those three brands. And we're looking for more (dealerships).
Do you expect another Big 3 price war this summer?
There has to be a summer clearance. The '06s are built; they want us to start buying '07s. There has to be a plan to make the '06s go away. Inventories are not as out of whack as they were a year ago. So there'll be some sort of program -- whether zero percent (financing) or some other aspect, I have no idea. But I expect some sort of appropriate summer sale.
Are you taking the possibility of a Delphi strike into account in planning your inventory?
No, we are business as usual. We are not raising inventory levels, saying let's see what happens to Delphi, we don't want to get caught short. There might be some sort of tactical strike, but I don't expect a long-term strategic strike. The implications are simply too great for all parties concerned. So I expect they'll negotiate their way through it.
How is the Internet affecting the way your stores sell cars?
Ten years ago, without the Internet, the poor little old lady who just didn't have the stomach to negotiate paid a very high price. The person who shopped all over town at 20 different dealerships got an unbelievable price. Today, even a little old lady is comfortable sitting at the computer and checking prices.
It's a tremendous fairness issue. What really makes the consumer unhappy is the idea that the person in front of them got a better deal or the person after them is going to get one. They want a fair, everyday value price. The Internet is going to facilitate a much quicker, easier transaction.
Are you emphasizing service work at your dealerships?
The complexity of the vehicle is going up geometrically every day. The units in operation are going up every year. The tripwire for recalls, whether for safety or clean air, is getting smaller. The commonality through vehicles means that when something goes wrong, it affects a lot more vehicles.
Meanwhile, the choices for the consumer of where they can go for the expertise to repair these things are becoming tougher. I get daily downloads on (repair) software from manufacturers. You go to an independent repair shop, you won't be able to restart that vehicle after you get it in there, let alone fix it.
So, yes, service departments are going to be dramatically larger than they are today. There's going to have to be much more investment in the service and technical end of the business. But that's all high added value, anyway. I don't have a problem with that.
You may e-mail David Sedgwick at [email protected]
You may e-mail Gail Kachadourian at [email protected]