AutoNation: Used market 'ripe for disruption'

FORT LAUDERDALE, Fla. -- By opening stand-alone used-vehicle stores, AutoNation Inc. joins fellow public retailers Sonic Automotive Inc. and Asbury Automotive Group Inc. in trying to gain a bigger foothold in a lucrative marketplace.

But there's enough room in the used-vehicle market for everybody, including used giant CarMax Inc., Sonic's EchoPark and Asbury's Q auto, AutoNation CEO Mike Jackson said.

"It's a 40 million [units] a year marketplace," Jackson said. "The consumer is still dying for a better experience in pre-owned. I think there's room for their success. I like our strategy better."

Jackson said the used-only stores -- to be known as AutoNation USA -- have been long planned, but that executives decided AutoNation would fare better to first build a brand name, develop digital sales capability through AutoNation Express and validate brand awareness. Taking those steps, Jackson said, will "reduce the risk profile dramatically and significantly."

"I like having the AutoNation brand," he said. "It's well accepted in the marketplace and means something."

The AutoNation USA stores are the centerpiece of a massive brand-extension strategy unveiled by the retailer last week. The first store is planned for Houston around May. AutoNation plans to open five stores in 2017. Another 20 stores are in development.

Jackson estimated the cost of each AutoNation USA store at $13 million to $15 million. With 25 stores, that puts the near-term investment in AutoNation USA at $325 million to $375 million.

At AutoNation USA stores, a single employee will handle the transaction from start to finish using a tablet computer and the AutoNation Express digital format as the in-store operating platform. All vehicles will be priced to market conditions with no price negotiations during the transaction.

"It's down to whether you have free floor mats or not," Jackson said.

Once a shopper has selected a vehicle, the transaction is expected to be completed in an hour or less.

Jeff Dyke, Sonic's executive vice president of operations, welcomed AutoNation to the used-car market. "It's fantastic," said Dyke. "They're late to the party, but I couldn't be more supportive."

Consumers will benefit from added competition, said Dyke, who is not concerned EchoPark will lose market share.

"EchoPark is years ahead of anything that AutoNation and Asbury have to offer," he said. "The way you'll be successful in the used-car business is by having the ability to manage inventory. I think we do that better than anyone in the business."

Sonic aims eventually to have 10 EchoPark stores in each of more than 50 U.S. markets. It already is moving beyond the initial stores in Denver to markets elsewhere in Colorado plus Texas and the Carolinas. Next: Georgia and Florida.

"About two months ago, we bought Auto-Match, which has four used-only stores in Georgia and Florida," said Dyke. "We'll convert those to EchoPark stores by end of 2017."

Attempts to reach CarMax and Asbury for comment were unsuccessful.

AutoNation has tried to build used-vehicle sales in various ways since closing a chain of used-car superstores more than 15 years ago.

At one point, it had more than a dozen Value Vehicle Outlets and Premium Vehicle Outlets at franchised dealerships and focused on older, higher-mileage cars. Some of those have closed, and Jackson said the rest will go away with the advent of AutoNation USA stores.

"It's a marketplace ripe for disruption," Jackson said, "where the consumer is aching for a more transparent, trusting experience than what's fully available today."

Jamie LaReau contributed to this report.