AutoNation Inc., seeking to broaden its customer base, is expanding a set of no-haggle outlet centers specializing in the sale of older-model, lower-priced used cars.
Top executives of the largest U.S. auto retailer outlined the strategy today as they announced an increase in third-quarter operating profit and the addition of seven Fiat franchises awarded by Chrysler Group.
The used-car centers, called Value Vehicle Outlets, are located at existing stores, though the outlet cars are segregated and marked differently. AutoNation launched a pilot at its Courtesy Ford store near Orlando during the second quarter.
“We were very impressed with the customer demand for that product, so we moved very quickly and opened 15 more in the third quarter,” AutoNation COO Michael Maroone said in an interview today. “Those are on our existing real estate, and they utilize cars that we normally would be sending to wholesale.”
Six more locations are planned by next March, bringing the total to 22. The outlets stretch across all four of AutoNation's regions, with one to three sites planned per market area, depending on the population and supply of used vehicles, Maroone said.
Vehicles at the outlet have an average price of less than $8,000. At one outlet location in South Florida, prices advertised online ranged from about $2,000 for a 1997 Ford Aspire to $23,000 for a 2007 Lexus RX 350.
The outlet vehicles go through a thorough reconditioning, Maroone said. They are backed by a three-day, money-back guarantee and a one-year roadside assistance package.
AutoNation expects incremental sales of between 50 and 60 vehicles from each outlet per month, Maroone said. Vehicle margins as a percent of revenue are higher than the typical used vehicle, he said, though the absolute dollar profit is slightly less.
“It's an opportunity to retail a vehicle that we normally would wholesale,” Maroone said. “It's incremental business, and it helps us create another retail customer.”
Separately, AutoNation said today that Chrysler has granted it seven Fiat franchises. The retailer's Fiat locations will be in California, Colorado, Arizona, Washington, Virginia and Georgia. Chrysler announced last week that it had begun awarding the franchises but didn't reveal the number or names of the retailers.
AutoNation continues to talk to Chrysler about additional locations, CEO Mike Jackson said in the interview.
“We've got great locations from Washington, D.C., to Washington state,” Jackson said. “With seven big Fiat stores, we think we'll ultimately be the biggest retailer of Fiat in the United States.”
Most but not all of the Fiat outlets will be paired with Chrysler operations, Jackson said on a conference call.
The Fiat stores likely will open near the end of next year's first quarter, Maroone said. AutoNation already owns the facilities that will house the seven Fiat stores. AutoNation declined to discuss how much it is investing in Fiat or how many employees it will add at the new stores.