AN - AutoNation

[kab60]

How do you get comfortable with the likely double whammy these guys are facing? First, Auto SAAR has likely peaked, which means a tough road ahead. Second, the number of cars coming off lease in the next 12 months is at an all time high, and the flood of supply that will create will almost certainly hurt used car pricing quite a bit.

I get comfortable by the valuation and the fact that most of the money is made on aftermarket sales anyway. It's selling for what, half the market multiple (for a pretty boring but decent business). What if auto sales simple plateau for some years? Great management, solid capital allocation and 3B or so of owned real estate plus a push into used cars and collision centers also helps.

[Txvestor]

Plus they are consolidating in a pretty fragmented industry, plus, they keep buying back shares at a ridiculous rate, plus they have a multi-cycle industry veteran at the helm. Their debt load if anything is what gives me some pause.

[gfp]

Plan to transition Mike Jackson to Executive Chairman and search for a CEO -

 

http://investors.autonation.com/phoenix.zhtml?c=85803&p=irol-newsArticle&ID=2368023

[glorysk87]

I get comfortable by the valuation and the fact that most of the money is made on aftermarket sales anyway. It's selling for what, half the market multiple (for a pretty boring but decent business). What if auto sales simple plateau for some years? Great management, solid capital allocation and 3B or so of owned real estate plus a push into used cars and collision centers also helps.

 

Yea, the parts business will probably be fine and continue to grow low single digits. But new cars, used cars, and finance/insurance will all probably start sliding. And I wouldn't say "most" of the money is made on aftermarket sales. 55% of gross profit is still made from selling cars.

 

On top of that, the floorplan benefit they've had for the last ten years will probably invert and become a headwind. Then you have a couple of untested strategic initiatives:

 

Collision - this seems an odd business choice considering the new technology going into cars to rapidly reduce accident rates

Branded Parts - not much to comment on here, but I struggle to see how this can meaningfully lift results

Autonation USA - basically playing catchup with some of the new kids on the block like Truecar

 

Not sure you can really underwrite any meaningful outperformance for these, but I guess that part is subjective.

 

Then on top of that you have the CEO (who in my opinion was really the main factor in this average business performing pretty well) leaving in the very near term, and the new CEO is an untested factor.

 

I dunno - maybe it's just me, but there doesn't seem to be a ton of reasons to buy this here. I'd rather wait for the next real downturn to pick up shares.

[kab60]

I get comfortable by the valuation and the fact that most of the money is made on aftermarket sales anyway. It's selling for what, half the market multiple (for a pretty boring but decent business). What if auto sales simple plateau for some years? Great management, solid capital allocation and 3B or so of owned real estate plus a push into used cars and collision centers also helps.

 

Yea, the parts business will probably be fine and continue to grow low single digits. But new cars, used cars, and finance/insurance will all probably start sliding. And I wouldn't say "most" of the money is made on aftermarket sales. 55% of gross profit is still made from selling cars.

 

On top of that, the floorplan benefit they've had for the last ten years will probably invert and become a headwind. Then you have a couple of untested strategic initiatives:

 

Collision - this seems an odd business choice considering the new technology going into cars to rapidly reduce accident rates

Branded Parts - not much to comment on here, but I struggle to see how this can meaningfully lift results

Autonation USA - basically playing catchup with some of the new kids on the block like Truecar

 

Not sure you can really underwrite any meaningful outperformance for these, but I guess that part is subjective.

 

Then on top of that you have the CEO (who in my opinion was really the main factor in this average business performing pretty well) leaving in the very near term, and the new CEO is an untested factor.

 

I dunno - maybe it's just me, but there doesn't seem to be a ton of reasons to buy this here. I'd rather wait for the next real downturn to pick up shares.

You're right that most of the money isn't made by aftermarket sales, but used car sales should hold up pretty well in a downturn and they've been growing that segment.

 

Collision: It takes a long time to turn the car park, and the other side of the argument is that more advanced cars (full of sensors) will be more difficult to repair.

 

Branded parts: According to the Company it should add 100m of gross profit this year. Difficult to handicap but they seem confident.

 

Autonation USA: I think they're going after Carmax, and they did that some 20 years ago and failed mightily. I'm not convinced it'll work this time around (even though management has owned up to their prior fiasco and seems to take a more measured approach), but I don't think one pays a whole lot for these strategic initiatives.

 

I agree it's bad news that the CEO is leaving, and I don't think it looks too good on him or the board that they don't have an internal successor ready, but perhaps they hired a headhunter to exhaust all options (and already have a strong internal pick). He's still chairman till 2021, so I don't think capital allocation will change much and that is my biggest concern.

 

As for timing: It's not trading a whole lot higher than at the end of 2011 while shares outstanding have gone down almost 40 pct. One might argue it's already in a downturn. No idea. Good luck getting the timing right. I'm not smart enough for that.

 

 

 

[kab60]

This is mainly speculation so bear with me for a moment, but I think this is quiet interesting.

 

It's trading at the same level as Q3 last year, where the Company bought back 9 pct. of its stock. It seems to have a really hard time getting pushed below 39 dollar/share, so I suppose Company is buying back heavily at the moment (which is good if you like me think it's cheap, otherwise not so much). The share price action (which I don't give a fuck about usually) seems a lot like Q3 last year.

 

Anyway, I think the timing is somewhat interesting since the Company is expected to announce their plans for Autonation USA (their used car sales operation) in Q3 later this month.

 

The Company has opened 5 Autonation USA stores today and said on the Q1 call that the 5th store was profitable after just four months.

 

They're trying to eat some of CarMax' lunch and I never expected them to succeed (still don't do) but always considered it as a free option (at these levels). If the concept actually works it could be big, but we won't know more till later this month.

 

Anyway, I like the bet at the levels, since the buyback seems to support the share price, and if Autonation USA is a viable and solid concept they'll suddenly have another option for decent incremental ROIC. If not I still think it's pretty cheap for a decent business that managed the last the GFC pretty solidly and is moving more towards collision centers and aftermarket than new car sales.

 

Sorry for the drivel, lots of speculation. :)

[vince]

I get comfortable by the valuation and the fact that most of the money is made on aftermarket sales anyway. It's selling for what, half the market multiple (for a pretty boring but decent business). What if auto sales simple plateau for some years? Great management, solid capital allocation and 3B or so of owned real estate plus a push into used cars and collision centers also helps.

 

Yea, the parts business will probably be fine and continue to grow low single digits. But new cars, used cars, and finance/insurance will all probably start sliding. And I wouldn't say "most" of the money is made on aftermarket sales. 55% of gross profit is still made from selling cars.

 

On top of that, the floorplan benefit they've had for the last ten years will probably invert and become a headwind. Then you have a couple of untested strategic initiatives:

 

Collision - this seems an odd business choice considering the new technology going into cars to rapidly reduce accident rates

Branded Parts - not much to comment on here, but I struggle to see how this can meaningfully lift results

Autonation USA - basically playing catchup with some of the new kids on the block like Truecar

 

Not sure you can really underwrite any meaningful outperformance for these, but I guess that part is subjective.

 

Then on top of that you have the CEO (who in my opinion was really the main factor in this average business performing pretty well) leaving in the very near term, and the new CEO is an untested factor.

 

I dunno - maybe it's just me, but there doesn't seem to be a ton of reasons to buy this here. I'd rather wait for the next real downturn to pick up shares.

You're right that most of the money isn't made by aftermarket sales, but used car sales should hold up pretty well in a downturn and they've been growing that segment.

 

Collision: It takes a long time to turn the car park, and the other side of the argument is that more advanced cars (full of sensors) will be more difficult to repair.

 

Branded parts: According to the Company it should add 100m of gross profit this year. Difficult to handicap but they seem confident.

 

Autonation USA: I think they're going after Carmax, and they did that some 20 years ago and failed mightily. I'm not convinced it'll work this time around (even though management has owned up to their prior fiasco and seems to take a more measured approach), but I don't think one pays a whole lot for these strategic initiatives.

 

I agree it's bad news that the CEO is leaving, and I don't think it looks too good on him or the board that they don't have an internal successor ready, but perhaps they hired a headhunter to exhaust all options (and already have a strong internal pick). He's still chairman till 2021, so I don't think capital allocation will change much and that is my biggest concern.

 

As for timing: It's not trading a whole lot higher than at the end of 2011 while shares outstanding have gone down almost 40 pct. One might argue it's already in a downturn. No idea. Good luck getting the timing right. I'm not smart enough for that.

New vehivle sales are only 17 percent of gross profit.  I love their strategy and cant believe you can buy them at these prices.  They repurchased 9 percent in 2017 at 43 and change but that is a much higher price than what it looks like on the surface,  net profits have increased dramatically cause they are a full taxpayer.  Focusing on less cyclical higher margin revenues, especially because he spent the last 4 years building the brand as a platform to support the extension (which means they frontloaded spending and are ready to harvest) is genius.  The market will appreciate it eventually

[Spekulatius]

How is AN different than PAG? It looks pretty much like the same business to me and PAG May be even cheaper. I don’t own any, but had it on my watchlist and it looks like well managed. Maybe they are both buys?

[vince]

How is AN different than PAG? It looks pretty much like the same business to me and PAG May be even cheaper. I don’t nein any, but had it on my watchlist and it looks like well managed. Maybe they are both buys?

 

Hi Spek, lol, I dont know much about PAG but I really like the capital allocation strategy at AN including the very well executed buyback.  In 3rd qtr of 2017 they repurchased 9 percent of their equity at roughly 10 times.  That was in 1 qtr.  As you know from other boards that I post on, I really like that.  Obviously there is more to it than that but I really like the valuation.  It has been my experience that when you buy a reasonably good business at under 10 times earnings where it looks very likely that the business model will be around for a long time and mgmt buys stock aggressively, there is a great chance to get at least satisfactory returns....even with flat volume over many years (simple math proves this out)  They have some strong advantages, and make most of their net income from non cyclical activities like parts and service which makes it likely that their earning power is at least constant over time with a good chance of some growth.  The multiple is much lower at 40 dollars per share than when they did buyback in 2017 at 43 cause they are a full taxpayer and recent legislation increased their net earnings dramatically.  Lastly they are focusing much more on better margin revenues as the attractiveness of new vehicle revenue has declined.  And they have spent a high percentage of the capital on the new initiatives with the benefits starting to roll in.  I would read all their earnings transcripts starting from end of 2016 at least to achieve an understanding of what I just wrote.  And then dig in with some research on how their scale gives them advantages in IT and how the new vehicle business has some important barriers (buffett bought one of their competitors a few years ago) and is very fragmented which plays to the strengths of good capital allocators.  These barriers set the stage for long term franchise agreements that provide the dealer with the parts and service revenue which is the key imo

[vince]

How is AN different than PAG? It looks pretty much like the same business to me and PAG May be even cheaper. I don’t nein any, but had it on my watchlist and it looks like well managed. Maybe they are both buys?

and just a quick look shows that PAG's net income took a big jump and dont believe that 2017 represents their true earning power, i could be wrong tho. And if u look at operating income AN looks much cheaper

[voyager]

Both companies are actually pretty expensive compared to their private market values.  Private market value for AN is essentially a 5.5x multiple of their cash flow - adjusted for inventory swings and consumer financing, plus their net asset value - excluding all the vehicles the are floor planned.

 

The cheapest private deals go for 2x EBIT believe it or not. 

 

How is AN different than PAG? It looks pretty much like the same business to me and PAG May be even cheaper. I don’t nein any, but had it on my watchlist and it looks like well managed. Maybe they are both buys?

and just a quick look shows that PAG's net income took a big jump and dont believe that 2017 represents their true earning power, i could be wrong tho. And if u look at operating income AN looks much cheaper

[vince]

Both companies are actually pretty expensive compared to their private market values.  Private market value for AN is essentially a 5.5x multiple of their cash flow - adjusted for inventory swings and consumer financing, plus their net asset value - excluding all the vehicles the are floor planned.

 

The cheapest private deals go for 2x EBIT believe it or not. 

 

How is AN different than PAG? It looks pretty much like the same business to me and PAG May be even cheaper. I don’t nein any, but had it on my watchlist and it looks like well managed. Maybe they are both buys?

and just a quick look shows that PAG's net income took a big jump and dont believe that 2017 represents their true earning power, i could be wrong tho. And if u look at operating income AN looks much cheaper

 

What cash flow are you referring to? If you start with a greater than 10 percent cash on cash return (a 10 multiple on fcf or net earnings in this case is appropriate also) and mgmt is not in the habit of burning cash, you are going to end up with a good result, assuming the earnings level is sustainable,  unless interest rates are unusually high for an extended period.  And if you get even a few percentage points of growth the results will be fantastic.  I dont know where your valuation model comes from but there is ZERO chance that a large publicly traded new car franchise will sell privately at the multiples you are referring to. 

[Spekulatius]

How is AN different than PAG? It looks pretty much like the same business to me and PAG May be even cheaper. I don’t nein any, but had it on my watchlist and it looks like well managed. Maybe they are both buys?

and just a quick look shows that PAG's net income took a big jump and dont believe that 2017 represents their true earning power, i could be wrong tho. And if u look at operating income AN looks much cheaper

 

The 2nd thing I do when I research a stock after looking at the companies financials is looking at a competitor. PAG is one I know and have followed a bit and it looks like they are also hitting on all cylinders, perhaps more so than AN:

https://seekingalpha.com/article/4190591-penske-automotive-group-inc-2018-q2-results-earnings-call-slides

 

It looks like they will make $5.3/ share this year, and an even higher number next year. This is cheaper than AN actually. PAG buys back less shares than AN, instead seems to prefer organic growth. Both AN and PAG and perhaps the whole sector is cheap. Having anything to do with cars appears to be a leper touch right now.

[vince]

How is AN different than PAG? It looks pretty much like the same business to me and PAG May be even cheaper. I don’t nein any, but had it on my watchlist and it looks like well managed. Maybe they are both buys?

and just a quick look shows that PAG's net income took a big jump and dont believe that 2017 represents their true earning power, i could be wrong tho. And if u look at operating income AN looks much cheaper

 

The 2nd thing I do when I research a stock after looking at the companies financials is looking at a competitor. PAG is one I know and have followed a bit and it looks like they are also hitting on all cylinders, perhaps more so than AN:

https://seekingalpha.com/article/4190591-penske-automotive-group-inc-2018-q2-results-earnings-call-slides

 

It looks like they will make $5.3/ share this year, and an even higher number next year. This is cheaper than AN actually. PAG buys back less shares than AN, instead seems to prefer organic growth. Both AN and PAG and perhaps the whole sector is cheap. Having anything to do with cars appears to be a leper touch right now.

 

Look at the relationship between op income and net income in the last 3-4 years.  The jump in Pag's net income is probably not ongoing earning power (i repeat that i could be wrong about this).  An's operating income is much higher and Pag has a higher market cap.  Pag pays a dividend, I can assure you organic growth is highest priority for AN.  I dont spend too much time on relative industry values and dont care if cars are the lepers right now, I buy when I like the business, mgmt, and where price will give me a good return, (assuming earing power is sustainable) and where multiple expansion IS NOT what I need for good results, even if unit volume is flat.  I think AN fits that description perfectly and I believe I will get unit volume and multiple expansion here, I just dont need it.

[voyager]

Both companies are actually pretty expensive compared to their private market values.  Private market value for AN is essentially a 5.5x multiple of their cash flow - adjusted for inventory swings and consumer financing, plus their net asset value - excluding all the vehicles the are floor planned.

 

The cheapest private deals go for 2x EBIT believe it or not. 

 

How is AN different than PAG? It looks pretty much like the same business to me and PAG May be even cheaper. I don’t nein any, but had it on my watchlist and it looks like well managed. Maybe they are both buys?

and just a quick look shows that PAG's net income took a big jump and dont believe that 2017 represents their true earning power, i could be wrong tho. And if u look at operating income AN looks much cheaper

 

What cash flow are you referring to? If you start with a greater than 10 percent cash on cash return (a 10 multiple on fcf or net earnings in this case is appropriate also) and mgmt is not in the habit of burning cash, you are going to end up with a good result, assuming the earnings level is sustainable,  unless interest rates are unusually high for an extended period.  And if you get even a few percentage points of growth the results will be fantastic.  I dont know where your valuation model comes from but there is ZERO chance that a large publicly traded new car franchise will sell privately at the multiples you are referring to.

 

Easiest way to calculate dealer cash flow is EBITDA +/- floor plan interest income/expense... That's the earnings that these things trade off of in private markets. 

 

I agree that a DCF will say something different about the value of the car dealers.... I personally think that private market value is the correct way to value them - which might be why most of the dealer's share prices are flat over the past 5 years.  With industries that are highly active with m&a, I usually like to use the lower of 1) a dcf or 2) private market multiples to value them.  Auto dealers are bought and sold all the time.  In fact, around 1/8 of all dealers have changed hands in the past 5 years.  Public dealership groups divest dealers all the time - look at the transaction list - http://www.autonews.com/section/buysell.  They go for the same blue sky multiples that private dealers sell for.  So, if you were to liquidate AN or PAG, or any of the public dealers, each dealer would be sold at their blue sky multiple... Kerrigan advisors has info on blue sky multiples.   

[vince]

Both companies are actually pretty expensive compared to their private market values.  Private market value for AN is essentially a 5.5x multiple of their cash flow - adjusted for inventory swings and consumer financing, plus their net asset value - excluding all the vehicles the are floor planned.

 

The cheapest private deals go for 2x EBIT believe it or not. 

 

How is AN different than PAG? It looks pretty much like the same business to me and PAG May be even cheaper. I don’t nein any, but had it on my watchlist and it looks like well managed. Maybe they are both buys?

and just a quick look shows that PAG's net income took a big jump and dont believe that 2017 represents their true earning power, i could be wrong tho. And if u look at operating income AN looks much cheaper

 

What cash flow are you referring to? If you start with a greater than 10 percent cash on cash return (a 10 multiple on fcf or net earnings in this case is appropriate also) and mgmt is not in the habit of burning cash, you are going to end up with a good result, assuming the earnings level is sustainable,  unless interest rates are unusually high for an extended period.  And if you get even a few percentage points of growth the results will be fantastic.  I dont know where your valuation model comes from but there is ZERO chance that a large publicly traded new car franchise will sell privately at the multiples you are referring to.

 

Easiest way to calculate dealer cash flow is EBITDA +/- floor plan interest income/expense... That's the earnings that these things trade off of in private markets. 

 

I agree that a DCF will say something different about the value of the car dealers.... I personally think that private market value is the correct way to value them - which might be why most of the dealer's share prices are flat over the past 5 years.  With industries that are highly active with m&a, I usually like to use the lower of 1) a dcf or 2) private market multiples to value them.  Auto dealers are bought and sold all the time.  In fact, around 1/8 of all dealers have changed hands in the past 5 years.  Public dealership groups divest dealers all the time - look at the transaction list - http://www.autonews.com/section/buysell.  They go for the same blue sky multiples that private dealers sell for.  So, if you were to liquidate AN or PAG, or any of the public dealers, each dealer would be sold at their blue sky multiple... Kerrigan advisors has info on blue sky multiples. 

Share prices are flat but AN was as high as 60 bucks a few months ago and has traded at good multiples many times so I dont think the share price at any given point is an ideal way to support an argument.  Secondly, the odds of a liquidation are very very low, at least in AN's case, therefore making your case by selling them off individually doesnt jive.  The fact of the matter is SCALE matters (in dealership business)and all indications are that is is getting more important quickly which means the whole is worth more than the sum of the parts.  And therein lies one of the advantages and reasons I like the business at 8.5 times earnings.  They buy shops at a lower valuation (and even that has not been easy lately because of elevated prices even for the smaller ones) and increase the values under their umbrella.  Its an easy excercise to check the individual store financial metrics relative to the mom and pop operations.  Whatever method that you prefer to value them on will not change the fact that when you buy a defensible earnings stream at greater than a 10 percent yield where most of the capital return is with buybacks done at similar yields, then almost by definition you will end up with a highly satisfactory return.  Just judging by historical prices, they rarely trade for a lower than 8.5 multiple.  So you also have a good chance, almost guaranteed at some point to unload at a higher multiple.  Lastly, its also likely you will get some earnings growth.  When you combine those likelihoods it adds up to fantastic returns.  And thats the reason a dcf is usually the best way to value an earnings stream. 

[vince]

I was reading through BRK's 2016 annual meeting transcript and was surprised to learn that Buffett disclosed that he paid 4.1 billion for Van Tuyl but really 3.1 billion cause they had 1 billion of securiteis.  Here is the quote " For one thing, we got a billion dollars of securities, roughly, with the 4.1, and those securities we’re basically carrying at a quarter of a percent. But that billion is available to us, and that came with the deal."  Van Tuyl has 83 dealerships and 109 franchises with 9.5 billion in revenue.  AN has 253 dealerships and 360 franchises with 21.5 billion in revenue.  Now its not obvious what VT's net income is based on BRK's financials but AN's net margins are steadily around 2%.  Just judging from VT's superior revenue per store we can confidently say they probably have higher margins, say 2.5% net income margins (which is 25% higher and probably generous) which would make BRK's purchase multiple around 13 times.  This doesnt necessarily prove anything, Buffett could have paid too much...but I do think it shows that an 8.5 multiple is way too low (remember buffett is a cheapskate and the Van Tuyl's approached him twice) and that other valuation models being thrown around would likely come in even lower than the equivalent of 8.5 times.  And I want to put another sentence up that was in BRK's annual report description of the business that supports my view on the defensibilty of the new car dealership business "The states generally have automotive dealership franchise laws that

provide substantial protection to the franchisee, and it is very difficult for a manufacturer to terminate or not renew a franchise

agreement outside of bankruptcy or with “good cause” under the applicable state franchise law." 

[vince]

One more statement at the annual meeting caught my eye that I forgot to include in my previous post..."We haven’t — incidentally — we haven’t had much luck, so far, in acquiring other auto dealerships based on the same metrics that we bought Van Tuyl."

[ander]

https://investors.autonation.com/news-and-events/press-releases/press-release-details/2018/AutoNation-Reports-Record-Third-Quarter-EPS-from-Continuing-Operations/default.aspx

 

Just reported this am. Bought a $50 million stake in Vroom instead of share buybacks. I would have preferred the share buyback on the face of it. Thoughts?

[kab60]

The problem for me is they report that they'll increase investments in brand extension but doesn't mention Autonation USA. I always viewed it as somewhat of a free option with pretty big payoff potential, but I expected more clarify this quarter, and their used sales numbers doesn't look too impressive. I kinda read their lack of comments on Autonation USA as a place to invest as a sign of it not working out as well as hoped, but we'll have to see what they say on the CC.

 

Lack of share buybacks does surprise me since it makes me wonder whether management isn't quiet as optimistic about the prospects as I am (and obviously their insight is much, much bigger). Parts and service looks good, so generally the numbers are fine, but I had hoped for something more substantial on Autonation USA and their lack of comments doesn't exactly inspire hope when they focus on a venture investment in Vroom and their partnership with Waymo instead. No idea on Vroom, I suppose it might make sense, but Waymo I don't expect anything from.

 

So, a bit disappointed but the share price pretty much reflected that sentiment already and underlying business still looks solid.

 

[vince]

Dont like the non buyback but results are perfectly fine even without looking at CC.  I would rather have very strong growth quarters but we dont need them....I am more concerned about creating a dollar of market value for every dollar retained, or said another way, dont make a mistake with our capital.  And the easiest way to accomplish that is thru a buyback at single digit pe's.  50 million isnt going to break the bank and they obviously need to position themselves strategically.  It seems that a few of my stocks are in incredible positions to buy back more stock but have lots of investment opportunities as well and do not have much extra debt capacity.  My favorite situation is DTV in 2010, negative working capital, no large plant investments upcoming, no debt, no desire for transformative acquisitions, a cheap stock price and a CEO that understood why he was there (Mallone wasnt looking for superman).  They had 3 billion of real economic earning power in 2010 and same level in 2013.  They levered up and bought back stock, lots of stock, and shareholders made a killing.  And in that case, the business was clearly going to decline eventually, so no multiple expansion was to be expected.  I will take a defensible no growth business with a solid mgmt trading at single digit pe's anyday over a high growth business where we are unsure how incremental capital will be used.  It's easier to make money in the no growth imo.

[kab60]

I don't disagree with any of that, and I like how they plant small seeds before committing a lot of capital but I had hoped results at Autonation USA were better. Organic growth investments with high ROIC and a long runaway are obviously attractive and would be very valuable. On the plus side results were good and it seems demand for their branded parts were quiet a bit higher than expected so that'll give them something to do next year.

[ander]

I own the stock but am incrementally cautious on strategy with Vroom. The Vroom deal and the possibility of what can happen in terms of developing a relationship with them sounds like they're hedging their bets (based on the conference call) for the used car market given Mike's view on the growth of that market, but as there was a lot of skepticism around the Autonation USA launch seems like it has not gone as well as hoped. I mean they could have just done an agreement with Vroom and no reason for the $50 mn investment. Buying all of Vroom I'm skeptical would be a good purchase, in which case I'm not sure I like the $50 mn investment unless it was absolutely required to develop the relationship. Historically, Mike has done a great job of capital allocation, so he gets the benefit of the doubt, but I'd probably be unhappy with an entire $700 million acquisition of Vroom because I'm skeptical of what we'd be getting.

[vince]

I own the stock but am incrementally cautious on strategy with Vroom. The Vroom deal and the possibility of what can happen in terms of developing a relationship with them sounds like they're hedging their bets (based on the conference call) for the used car market given Mike's view on the growth of that market, but as there was a lot of skepticism around the Autonation USA launch seems like it has not gone as well as hoped. I mean they could have just done an agreement with Vroom and no reason for the $50 mn investment. Buying all of Vroom I'm skeptical would be a good purchase, in which case I'm not sure I like the $50 mn investment unless it was absolutely required to develop the relationship. Historically, Mike has done a great job of capital allocation, so he gets the benefit of the doubt, but I'd probably be unhappy with an entire $700 million acquisition of Vroom because I'm skeptical of what we'd be getting.

 

 

 

I feel the same way about the hedge and the same way about the Vroom investment.  But that low multiple I feel saves me from permanent loss of capital, although the market is very unforgiving in the shorter term and the stock could get killed with bad news around Autonation usa

[kab60]

I own the stock but am incrementally cautious on strategy with Vroom. The Vroom deal and the possibility of what can happen in terms of developing a relationship with them sounds like they're hedging their bets (based on the conference call) for the used car market given Mike's view on the growth of that market, but as there was a lot of skepticism around the Autonation USA launch seems like it has not gone as well as hoped. I mean they could have just done an agreement with Vroom and no reason for the $50 mn investment. Buying all of Vroom I'm skeptical would be a good purchase, in which case I'm not sure I like the $50 mn investment unless it was absolutely required to develop the relationship. Historically, Mike has done a great job of capital allocation, so he gets the benefit of the doubt, but I'd probably be unhappy with an entire $700 million acquisition of Vroom because I'm skeptical of what we'd be getting.

 

 

 

I feel the same way about the hedge and the same way about the Vroom investment.  But that low multiple I feel saves me from permanent loss of capital, although the market is very unforgiving in the shorter term and the stock could get killed with bad news around Autonation usa

Not sure if it's priced in but after the call I think it's prudent to assume Autonation USA is a donut. I think Vroom is another option that might or might not pay off but I like how they approach these growth opportunities and experiment in a measured way. Vroom combined with a physical network might be a strong combo down the line (but I have no idea really - just know management is usually very measured). While it sucks Autonation USA obviously isn't what they hoped for, there was a positive surprise in their branded parts initiative.