AutoNation, Inc.

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AutoNation, Inc.

AutoNation Tower
110 S.E. Sixth Street
Ft. Lauderdale, Florida 33301
U.S.A.
Telephone: (954) 769-7000
Web site:http://corp.autonation.com

Public Company
Incorporated: 1998
Employees: 30,000 (2001 est.)
Sales: $20 billion (2001)
Stock Exchanges: NYSE
Ticker Symbol: AN
NAIC: 441110 New Car Dealers; 441120 Used Car Dealers; 522220 Automobile Financing; 524210 Insurance Agencies and Brokerages; 811111 General Automotive Repair

AutoNation, Inc. is the largest automotive retailer in the United States. The company sells vehicles off of their more than 371 vehicle franchises in 17 states, as well as on AutoNation.com, the largest vehicle sales retailer on the Internet. The physical dealerships commonly offer products and services beyond automobile sales, including vehicle maintenance and repair services, vehicle parts, extended service contracts, and insurance products. The dealerships can also arrange financing for vehicle purchases through third-party sources. In addition to running the AutoNation.com Web site, the AutoNation Retail Group also manages the operation of approximately 270 Web sites for the company’s franchised automotive dealerships. The company also includes AutoNation Financial Services, a finance arm, which has securities assets of more than $1 billion in 2000. Recent deals with AOL and Microsoft have strengthened AutoNation.com’s customer referral power.

From Waste Disposal to Automotive Retail

Wayne Huizenga was one of the best-known entrepreneurs in the United States due to his wild success in creating two mammoth companies: Waste Management and Blockbuster Video. In 1995, Huizenga and a partner began a new foray into business with the purchase of Republic Industries, a U.S. waste-disposal company. Mr. Huizenga hoped to build Republic Industries into a group with interests in security, rubbish collection, and used-car superstores (large used-car supermarkets). After a failed attempt at purchasing the ADT group in 1996, a Bermuda-based security and car auction company, Republic succeeded in purchasing National Car Rental for $600 million in stock. The car rental company had 800 outlets in the United States and Canada, with a fleet of 100,000 vehicles. This purchase, and the purchase in the previous year of Alamo (another car rental company) firmly placed Mr. Huizenga’s dream for supplying his used-car superstores with quality rental cars in reality.

At the same time that Republic was purchasing rental car companies to build a rental segment of Republic, they were also building AutoNation, a chain of used-car superstores. Mr. Huizenga merged AutoNation into Republic in April 1996. The used-car superstores offered customers a way to purchase used cars without the stress of bargaining or haggling; automobile’s prices were set in advance to make a more customer-friendly atmosphere. By December 1996, Republic had begun acquiring new-car dealerships in addition to building the AutoNation chain of used-car mega stores.

Taking Out the Trash

Almost as soon as Huizenga’s automobile chain was off the ground, he spun off the company’s original business, the waste business, as Republic Services Inc. Huizenga sold all of the remaining interest in Republic Services in a public stock offering during the second quarter of 1997. The company continued to operate under the name Republic, but company officials began to take steps to make AutoNation the company’s predominant national brand. The brand AutoNation began to be used at some of Republic’s new-car dealerships. The first market the company tried the AutoNation brand in was Denver, Colorado, where the company consolidated its 17 dealerships under the name “John Elway AutoNation.” Soon after, in 1998, the company took the definitive leap toward establishing AutoNation as a national brand when they changed the company’s name from Republic Industries Inc. to AutoNation, Inc.

Following the name change, the company was split into two operating groups: the AutoNation Retail Group and AutoNation Rental Group. The Retail Group oversaw the company’s used-and-new car superstores and franchise, while the Rental Group oversaw the company’s three automotive rental brands—National Car Rental Systems, Alamo Rent-A-Car Inc., and CarTemps USA. Each of the rental companies adopted AutoNation as their sub-brand, and the new-car franchises added the label “An AutoNation Company” to their dealerships.

Low Profits at Used-Car Mega Stores Trigger Big Changes in 1999

AutoNation’s used-car mega stores did not turn the profits that the company had hoped for. The mega stores fell victim to an increase in new-car sales and with that increase, the devaluation of used cars. When the company’s stock started slipping, AutoNation decided to open new-car dealerships inside the used-car superstores. Four of the used-new combination stores were AutoNation Dodge in Grand Prairie, Texas; Seminole Ford and AutoNation USA in Sanford, Florida; AutoNation Chrysler-Plymouth in Douglasville, Georgia; and AutoNation Nissan in Perrine, Florida. Regardless of AutoNation’s positive outlook and statements surrounding the launching of the new-used stores, the integrated stores did not work the magic that AutoNation hoped they would.

The company’s drooping profits and management’s inability to turn those profits around caused AutoNation’s founder and co-CEOs to step down from their positions to make room for fresh ideas in the form of a new chief executive. The new executive was Michael Jackson, who came to AutoNation with many years of automobile dealership experience. To take the chief executive position at AutoNation, it was necessary for Jackson to resign as president of Mercedes-Benz of North America. Only four months after Mr. Jackson had taken up the reins at AutoNation he faced the task of deciding what to do with the company’s unprofitable 29 used-car mega stores. His decision was quick, on December 19, 1999, Mr. Jackson announced the closure of 23 of the company’s 29 used-car mega stores and the integration of the remaining mega stores into new-car franchise outlets. In an interview with Knight Ridder/Tribune Business News, Jackson said, “I knew when I joined AutoNation of their announced plan to integrate used-car stores into our new-car stores, but after looking at it closer realized it would be difficult to do, would require that we invest an inordinate amount of capital into those stores and at the end of the day still end up losing money, which made no sense.” He continued, “We decided to simply close the stores.” In the same interview, Jackson went on to say, “Our focus now is on improving our operating margins and on creating a unique and branded customer experience in our new-vehicle franchises, which are now AutoNation’s sole business focus. By closing the megastores, we have taken the necessary steps to ensure the long-term success of AutoNation.”

Success on the World Wide Web: 1999

When AutoNation decided to take their business online to expand their customer reach and generate sales leads, they did not waste years developing the idea and Web site. AutoNationDirect.com and Web sites for 270 of AutoNation’s dealers were developed in a quick 18 months, by a four-person information technology team and several vendors. The AutoNationDirect.com Web site enabled customers to buy vehicles from all of AutoNation’s 400 new-and-used car stores without ever needing to visit the dealership. The Web sites for individual dealers were connected to the main Web site (www.autonationdirect.com) so that all leads that came onto any of the sites could be logged and tracked. If a customer visited the main umbrella site, AutoNationdirect.com, they were referred to the dealership geographically closest to them. AutoNationdirect.com was designed with a slew of features that the individual dealer’s Web sites did not offer in order to establish AutoNationdirect.com as the focal point for the network of dealership sites. For example, at AutoNationdirect.com customers could apply for online financing, insurance procurement, and could utilize a chat line that allowed them to ask questions and get answers from a call center agent in real time.

Although AutoNation’s Web site was slated to be used as a marketing platform, the company did not expect the Web site itself to generate a large amount of profits because they believed that few customers would be willing to buy a vehicle sight unseen. Instead, the company used the Web sites to build traffic to send out to its dealerships. In May 1999, AutoNation president John Costello discussed with Automotive News’ Donna Harris the Web advantage as AutoNation saw it. He explained that promoting a Web site could expand a dealership’s territory from the typical ten-mile radius to a 30-mile radius. He said, “The Internet provides an opportunity to generate greater traffic and revenue. The physical dealership will play an important role in the sales and ownership experience.”

Because of the nature of the link between the Web sites and physical vehicle dealerships, it was important that AutoNation devise a strategy to contact salespeople at the dealerships and supply them with information about interested customers in a quick manner. The company used pagers to alert salespeople in the dealerships about incoming Internet leads, and some dealerships experimented with even more complicated technology to shorten the wait-time for possible customers. AutoNation’s used-vehicle Cleveland store used the Merchant Notification System developed by NetSearch LLC of Scottsdale, Arizona. The system was a two-inch-by-three-inch wireless handheld computer terminal with a keyboard. This system allowed for salespeople to respond immediately to leads.

Company Perspectives:

AutoNation’s Driven to Be the Best vision is based on a foundation of operational excellence that drives an uncompromising focus on the customer. This vision shapes a company that’s continuously improving and setting industry standards in all that it seeks to achieve, from superior shopping experiences to market-leading brands, to unmatched scale advantages and productivity-boosting best practices.

AutoNation Spins Off ANC Rental Corp.: 2000

On April 4, 2000, AutoNation announced that it expected to launch the spinoff of ANC Rental Corp. ANC Rental Corp. included Alamo, National, and CarTemps rental operations. The announcement was long-awaited, due to the fact that ANC Rental lost $71 million in 1999. AutoNation reasoned that they were spinning ANC off in order to focus more completely on their new-car dealerships. On June 3, 2000, AutoNation completed the tax-free spinoff of ANC.

AutoNation Reports Big Loss: 2000

Due to the upheaval that AutoNation underwent in 1999 and the beginning months of 2000, it came as no surprise that the company announced a large loss for the first quarter of 2000. The spinoff of ANC and the closure of the company’s 23 used-vehicle mega stores contributed to the reported $403 million loss. CEO Michael Jackson told Automotive News, in January 2000, that AutoNation intended to concentrate on becoming a new-vehicle retailer now that they were free of their rental business.

Following their first-quarter loss, the company forged ahead focusing all their energies on becoming a successful new-vehicle retailer. In July 2000, AutoNation decided to capitalize on brand recognition by changing the names of 28 of their 30 car dealerships in Florida to Maroone. The strategy of capitalizing on brand recognition was not a new one for AutoNation, they had consolidated a host of dealerships in Denver years before under the well-known name John El way. Although they renamed existing dealerships, the AutoNation name was displayed underneath the Maroone and automaker names.

Exciting Internet Partnerships

Developing the online AutoNation brand and partnering up with well-known and well-connected Internet companies was an important next step in AutoNation’s reach for new-vehicle sales success. On May 15, 2000, AutoNation and AOL announced their intention to ally and build the world’s largest “virtual auto dealership.” The companies built a co-branded Web site called, “AOL AutosDirect, Powered by AutoNation.com.” The deal allowed AutoNation to be the exclusive retailer of new-and-used vehicles to AOL members who purchased a car or truck through the new co-branded site. AOL members who purchased vehicles through this site were eligible to receive a slew of exclusive benefits.

Another important announcement, along the same lines as the AOL announcement, made on May 15, 2000, was that AutoNation acquired AutoVantage, a car-buying service from Cendant Corporation. AutoVantage was ranked by J.D. Power & Associates as one the most popular automotive lead providers, and had a network of approximately 900 dealers throughout the country. The purchase of AutoVantage gave AutoNation the reach they would need to serve AOL’s geographically diverse customer base.

AutoVantage and AOL were not the only two exciting Internet partnerships that AutoNation had in the works. In October 2000, the company reached an agreement with Autoweb.com to allow AutoNation to use their content and technology platform of the Autoweb Web site. Autoweb.com technology allowed Web users to configure a vehicle by manufacturer, make, model, trim specifications, and other options, and then to perform comparison shopping with similar vehicles.

AutoNation did not limit Internet partnerships to the year 2000. In February 2001, the company entered into a three-year partnership with MSN CarPoint. Under their agreement, CarPoint would send Internet sales leads to AutoNation’s dealerships and affiliated dealerships.

Stock Prices Soar: 2001

AutoNation’s low stock price was affected by the success of their many high-profile Internet deals and the company’s focus on new-car sales. Since 1997, AutoNation’s stock had sunk steadily (more or less). The stock had traveled from more than $40 a share in January 1997 to $6.875 per share in 2000. Since January 1, 2001, share prices roughly doubled for AutoNation—the company’s market capitalization had jumped to $3.6 billion.

New Developments in Successful Times

In order to continue serving their customers in the most friendly and responsible way, AutoNation created a managers’ training program patterned after the successful programs developed by Burger King and The Walt Disney Co. The school aimed at establishing operating standards throughout its car dealership network. The education program was taught by ten AutoNation trainers and company executives and lasted 2½ days.

In October 2001, AutoNation announced that it had built an online dealer network of 2,928 franchises, called “e-Tail Network, Powered by AutoNation.” Senior Vice-President of Operations Allan Stejskal, told Automotive News’ Donna Harris that, “We expect to handle 2 million leads a year.”

Key Dates:

1995:: H. Wayne Huizenga purchases Republic Industries Inc.
1996:: Republic purchases National Car Rental and begins acquiring new-car dealerships.
1997:: Republic spins off its waste business as Republic Services Inc.
1998:: Republic changes its name to AutoNation, Inc.
1999:: AutoNation launches AutoNationDirect.com.
2000:: AutoNation completes the spinoff of ANC Rental Corp; co-brands a Web site with AOL called AOL AutosDirect; purchases AutoVantage, a car-buying service; and uses Autoweb.com’s content platform.
2001:: AutoNation debuts its online dealership group, “e-Tail Network”; and forms a three-year partnership with MSN CarPoint to generate sales leads.

ANC Causes Trouble for AutoNation

Just months after AutoNation spun off ANC Rental (June 2000), ANC filed for Chapter 11 bankruptcy (November 13, 2001). When AutoNation spun off ANC, the company continued to guarantee its former unit’s credit, as well as the six- to nine-month leases of a large amount of vehicles from Mitsubishi Motor Sales of America Inc. The bankruptcy filing caused AutoNation to come to terms with the fact that they were not free from the woes of ANC’s failing business. In an AutoNation filing with the U.S. Securities and Exchange Commission (SEC), the company reported that the Mitsubishi leases held AutoNation obligated for $4 million to $5 million a month, with the possibility of the obligation rising to $8 million a month. AutoNation feared that it could end up paying upward of $150 million if it had to cover ANC’s credit obligations.

Exit from Lending Operations

To boost automotive sales, post-September 11, 2001, after the terrorist attacks in the United States, many loan companies offered low-no-interest loans (subvention loans). Loans like this, although they did boost new-car sales, usurped market share from AutoNation’s finance business. AutoNation refused to offer loss-leading loans stating in the Asset Securitization Report in December 2001, “As an independent finance company, we are not in business strictly to move metal, and you have to profit from your loans. We absolutely refuse to compete with subverting zero-percent loans.” AutoNation decided to exit the loan-origination aspect of the auto business in December 2001. The company’s exit from the loan business had little impact on outstanding loan deals, due to the fact that World Omni Financial had long been contracted by AutoNation to do the actual financial work of the loans AutoNation was listed as the master servicer on.

New-and-Used Car Sales up for AutoNation: 2002

Automotive News reported in May 2002 that AutoNation topped both the used-vehicle sales and new-vehicle sales tallies for 2001. In addition to their selling success, AutoNation officials reported (in a conference call with Daily Business Review in April 2002) first-quarter earnings of $91.7 million, or 28 cents a share, compared with the earlier year’s $59 million, or 17 cents a share. The company’s streamlined focus on selling new-and-used cars is proving to be a successful business choice.