AN - AutoNation

[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.

 

 

 

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.

 

That's what I wonder - did they need to make the $50 million investment in Vroom to see if the relationship would work. There are so plenty of these online used car sites. My guess is that Autonation USA is just a small loss is my guess, but yeah, definitely not a homerun at this stage.

[ander]

Michael Larson from Cascade stepping down. Any thoughts on this change? I wonder if this was planned. Seems a little abrupt. Also stock price at these levels (< than 7x P/E). I wonder if any implication on whether they will be increasing position size or reducing.

 

 

 

FORT LAUDERDALE, Fla., (December 17, 2018) - AutoNation, Inc. (NYSE: AN), America’s largest automotive retailer, today announced that its Board of Directors elected Rick L. Burdick as its Lead Independent Director effective December 17, 2018. Mr. Burdick is a long-standing director of the Company and a partner in Akin, Gump, Strauss, Hauer & Feld, L.L.P., a global full service law firm.

 

 

AutoNation also announced that Michael Larson informed the Company that he is stepping down from the Company’s Board of Directors, effective as of December 17, 2018, the date of this year’s last scheduled meeting of the Board.

 

 

“We thank him for his many years of service on the Board and his contributions to the Company and our shareholders and wish him the best,” said Mike Jackson, AutoNation’s Chairman, Chief Executive Officer and President.

 

 

“After nearly nine years of serving on AutoNation’s Board, I believe now is the right time for me to transition off and focus on managing other positions within our fund’s portfolios,” said Mr. Larson. “As a long-time AutoNation investor and Board member, I am proud of the leadership team’s many accomplishments and wish them only the best for a bright and strong future.”

 

 

About AutoNation, Inc.

AutoNation, America’s largest automotive retailer, is transforming the automotive industry through its bold leadership, innovation, and comprehensive brand extensions. As of September 30, 2018, AutoNation owned and operated 325 new vehicle franchises from coast to coast. AutoNation has sold nearly 12 million vehicles, the first automotive retailer to reach this milestone. AutoNation’s success is driven by a commitment to delivering a peerless experience through customer-focused sales and service processes. Through its Drive Pink initiative, AutoNation is committed to drive out cancer, create awareness and support critical research. AutoNation continues to be a proud supporter of the Breast Cancer Research Foundation and other cancer-related charities.

Please visit investors.autonation.com, www.autonation.com, www.autonationdrive.com, www.twitter.com/autonation, www.twitter.com/CEOMikeJackson, www.facebook.com/autonation, and www.facebook.com/CEOMikeJackson, where AutoNation discloses additional information about the Company, its business, and its results of operations.

 

[ander]

There's a Barron's article re: the same question.

 

Bill Gates Gives Up a Seat at AutoNation -- Barrons.com

DOW JONES & COMPANY, INC. 12:21 PM ET 12/19/2018

 

Bill Gates is the largest shareholder of AutoNation(AN) , but he no longer has a seat at the automotive retailer's table.

 

Microsoft's (MSFT) co-founder owns 20.3 million shares of the giant auto retailer overall through his investment vehicle Cascade Investment (which holds 18.4 million shares) and the Bill & Melinda Gates Foundation Trust (which holds 1.9 million shares). That gives Gates a 22.6% AutoNation(AN) stake, according to a form Cascade filed Monday with the Securities and Exchange Commission. The second-largest shareholder is billionaire hedge-fund manager Edward S. Lampert, who owns 11.5 million AutoNation(AN) shares, according to S&P Capital IQ.

 

Michael Larson, Cascade's business manager and Gates' chief investment officer, joined AutoNation's(AN) board in February 2010. Larson was also lead independent director, but he stepped down from the board effective Monday, coinciding with the last meeting of the year.

 

"[N]ow is the right time for me to transition off and focus on managing other positions within our fund's portfolios," Larson was quoted in an AutoNation(AN) press release that announced his departure.

 

Larson's isn't the only notable AutoNation(AN) departure. The company's CEO, Mike Jackson, will step down next year after a two-decade run, but he will retain the chairman title.

 

It wasn't immediately clear if Cascade would nominate a new director to AutoNation's(AN) board. A message left for Larson at Cascade wasn't returned. In response to a query asking if Cascade would nominate a new director, an AutoNation(AN) spokesman told Barron's in an email, "At this time I am not aware of any plans."

 

Could Larson's departure from the board be a prelude to Cascade selling some or all of its AutoNation(AN) shares? The AutoNation(AN) investment hasn't been a good one as of late.

 

According to S&P Capital IQ, Cascade as been invested in AutoNation(AN) since at least Sept. 30, 2008. Its AutoNation(AN) holdings have fluctuated since, but Cascade has held a steady 18.4 million shares since the end of the first quarter of 2016.

 

AutoNation (AN) stock has tripled since Sept. 30, 2008, but since March 30, 2016, the value of Cascade's stake, along with the stock, has crumbled 28%. Shares have lost 33% in 2018 alone.

 

Follow @BarronsEdLin

 

Write to Ed Lin at edward.lin@barrons.com

 

[kab60]

Cascade stepping down seems like a negative, but it's impossible to quantify. Same with the CEO moving aside and Autonation USA not panning out. Anyway, I don't see how one loses here longterm, so I'm definately sticking around. I'm pretty heavy in auto between this and Linamar however, so the company will have to increase my ownership. Reading a bit up on Vroom I actually like the option. Some of those models seems to struggle without dealerships, so perhaps they can get a partnership going. Management at Vroom looks pretty impressive, and it seems Jackson knows them, so probably a bit of a jockey bet. Difficult to handicap from the outside.

[vince]

Cascade stepping down seems like a negative, but it's impossible to quantify. Same with the CEO moving aside and Autonation USA not panning out. Anyway, I don't see how one loses here longterm, so I'm definately sticking around. I'm pretty heavy in auto between this and Linamar however, so the company will have to increase my ownership. Reading a bit up on Vroom I actually like the option. Some of those models seems to struggle without dealerships, so perhaps they can get a partnership going. Management at Vroom looks pretty impressive, and it seems Jackson knows them, so probably a bit of a jockey bet. Difficult to handicap from the outside.

 

I definitely still like the price here but the failure of Autonation USA has caused me to take a harder look at carmax....and I really loved what I saw and have since built up a nice position in the low 60's.  I think the market maybe hasnt taken into account the rise in earnings from tax reform which has lowered the multiple to pretty historic lows.  Valueline (and i think so as well) has them earning 5 bucks in 2019.  And fcf, adjusted properly for the inflows and outflows of carmax finance is even higher than 5 bucks.  It's not often you can buy this business at 12 times or less and the reasons are obvious.  They are extremely well positioned to grow SSS and also adding stores at a nice clip (they have never closed a store).  In addition, their true earning power is always lagged as they are aggressively growing the number of stores which is front loaded in expenses but also, sales take a few years to ramp.  If you just conservatively apply mature store metrics to newer stores and then add stores as well, this sucker is way too cheap.  There is one concern that is nagging the market and myself and thats Carvana.  Their growth is exploding and the model looks fantastic.  Kmx is countering with their own online sales model and I believe they have an advantage because of their physical footprint but I would absolutely rather that Carvana never existed.  We will see but I think the result here will be good even with Carvana's growth.  And you can be sure that kmx mgmt is buying back lots of stock at these prices which is awesome

[ander]

Any guesses as to why AutoNation USA is failing versus Carmax is succeeding?

[vince]

Any guesses as to why AutoNation USA is failing versus Carmax is succeeding?

 

Well I think it's very difficult in general to change the incentives, employee practices and culture in a business that has had the same sales and business practices for decades.  Kmx started with a no haggle, customer friendly, and transparent sales process so it is embedded in every aspect of the business.  The difficulty in imitating the Kmx model has been proven a few times and this is An's second try.  And the longer it goes on, the harder it will be to catch them, assuming a better mousetrap doesnt surface.  Is Carvana a truly revolutionary used car sales model or is it more an evolution that Kmx can execute.  I personally believe believe it's the latter.  And even if Carvana does pick up lots of share, there is room for more than 1 dominant player....the market is huge and extremely fragmented. 

[kab60]

Cascade stepping down seems like a negative, but it's impossible to quantify. Same with the CEO moving aside and Autonation USA not panning out. Anyway, I don't see how one loses here longterm, so I'm definately sticking around. I'm pretty heavy in auto between this and Linamar however, so the company will have to increase my ownership. Reading a bit up on Vroom I actually like the option. Some of those models seems to struggle without dealerships, so perhaps they can get a partnership going. Management at Vroom looks pretty impressive, and it seems Jackson knows them, so probably a bit of a jockey bet. Difficult to handicap from the outside.

 

I definitely still like the price here but the failure of Autonation USA has caused me to take a harder look at carmax....and I really loved what I saw and have since built up a nice position in the low 60's.  I think the market maybe hasnt taken into account the rise in earnings from tax reform which has lowered the multiple to pretty historic lows.  Valueline (and i think so as well) has them earning 5 bucks in 2019.  And fcf, adjusted properly for the inflows and outflows of carmax finance is even higher than 5 bucks.  It's not often you can buy this business at 12 times or less and the reasons are obvious.  They are extremely well positioned to grow SSS and also adding stores at a nice clip (they have never closed a store).  In addition, their true earning power is always lagged as they are aggressively growing the number of stores which is front loaded in expenses but also, sales take a few years to ramp.  If you just conservatively apply mature store metrics to newer stores and then add stores as well, this sucker is way too cheap.  There is one concern that is nagging the market and myself and thats Carvana.  Their growth is exploding and the model looks fantastic.  Kmx is countering with their own online sales model and I believe they have an advantage because of their physical footprint but I would absolutely rather that Carvana never existed.  We will see but I think the result here will be good even with Carvana's growth.  And you can be sure that kmx mgmt is buying back lots of stock at these prices which is awesome

Thanks for the input re CarMax. I agree it looks interesting around here, but I've always been too cheap to pull the trigger on that one compared to AN, and that might be a mistake. Perhaps the butched Autonation USA is a decent clue that their model is resilent, and the combination of organic growth at high incremental ROIC plus buybacks is a sweet combination.

 

Can't say I'm deeply familiar with Carvana, but from the outside I wouldn't be too worried. Why do you think their model is sustainable?

[vince]

Cascade stepping down seems like a negative, but it's impossible to quantify. Same with the CEO moving aside and Autonation USA not panning out. Anyway, I don't see how one loses here longterm, so I'm definately sticking around. I'm pretty heavy in auto between this and Linamar however, so the company will have to increase my ownership. Reading a bit up on Vroom I actually like the option. Some of those models seems to struggle without dealerships, so perhaps they can get a partnership going. Management at Vroom looks pretty impressive, and it seems Jackson knows them, so probably a bit of a jockey bet. Difficult to handicap from the outside.

 

I definitely still like the price here but the failure of Autonation USA has caused me to take a harder look at carmax....and I really loved what I saw and have since built up a nice position in the low 60's.  I think the market maybe hasnt taken into account the rise in earnings from tax reform which has lowered the multiple to pretty historic lows.  Valueline (and i think so as well) has them earning 5 bucks in 2019.  And fcf, adjusted properly for the inflows and outflows of carmax finance is even higher than 5 bucks.  It's not often you can buy this business at 12 times or less and the reasons are obvious.  They are extremely well positioned to grow SSS and also adding stores at a nice clip (they have never closed a store).  In addition, their true earning power is always lagged as they are aggressively growing the number of stores which is front loaded in expenses but also, sales take a few years to ramp.  If you just conservatively apply mature store metrics to newer stores and then add stores as well, this sucker is way too cheap.  There is one concern that is nagging the market and myself and thats Carvana.  Their growth is exploding and the model looks fantastic.  Kmx is countering with their own online sales model and I believe they have an advantage because of their physical footprint but I would absolutely rather that Carvana never existed.  We will see but I think the result here will be good even with Carvana's growth.  And you can be sure that kmx mgmt is buying back lots of stock at these prices which is awesome

Thanks for the input re CarMax. I agree it looks interesting around here, but I've always been too cheap to pull the trigger on that one compared to AN, and that might be a mistake. Perhaps the butched Autonation USA is a decent clue that their model is resilent, and the combination of organic growth at high incremental ROIC plus buybacks is a sweet combination.

 

Can't say I'm deeply familiar with Carvana, but from the outside I wouldn't be too worried. Why do you think their model is sustainable?

 

Well I haven't done enough work on it to say with certainty that the model is sustainable except their revenues are growing by more than 100% and their current year revs will be higher than all previous years combined.  When customers embrace a business like that the way they have I think it's a safe bet that they will be around for a long time.  By the way, when you make the earnings adjustments on Kmx that I mentioned they are almost as cheap as An, with a better business imo.....one that has a better (almost certain) chance of growing.  Starting with a high yield combined with guaranteed unit growth in a fcf generative business almost always gets you to that 15% hurdle I have mentioned in many of my previous posts.  Take a look today at Kmx earnings, unbelievable growth that was easy to see because of new store unit growth (sss have not grown much lately which concerns me and hope its not related to carvana), tax considerations and buybacks.

[ander]

Vince - what's your estimate for what AN is trading at? (re: AN and KMX at similar multiples)?  Thanks again.

[vince]

Vince - what's your estimate for what AN is trading at? (re: AN and KMX at similar multiples)?  Thanks again.

 

Last time I looked at them in detail, I think they were trading at about 10 times when in the low 40's.  Now keep in mind there are some moving parts there as well....they are spending money on some initiatives where the returns on those expenditures haven't shown up yet. And An has gotten cheaper with what looks like a very stable business platform.  I don't know if you read some of my previous posts on the way I do valuation.  Take a look at those instead of me repeating the same thing.  On Kmx, when you adjust their earnings to get current "earning power" it doesnt quite get to the same level of An in terms of cheapness but when you factor in the higher certainty of growth, in present value it is actually cheaper by my calculations.  Unless there is major change in either of their industry's, something that i'm not seeing, I don't see how you don't get returns.  Starting with a 10 percent free cash flow yield, assuming their mgmt's don't like burning retained earnings, almost by definition you will get north of 10 percent.  If you envision some growth, where the returns on the growth expenditures are north of 10 percent, then you can do very well with no multiple expansion.  Although multiple contraction affects the potential returns negatively, One has to assume that you have a much better chance of multiple expansion vs contraction.  When you combine the defensiveness (An is probably more defensive) with potential growth (Kmx is way better positioned for growth) with the high fcf yields and managements that will not burn our money, you are going to make some good money regardless what the stock does in the short term.  In fact, with shareholder orientated managements, the probability of double digit returns increases dramatically the longer they can buyback shares at those yields.  In effect, the lower current stock prices makes their jobs easier...it makes it relatively easy for them to allocate capital at good returns which will find it's way into our pockets eventually

[vince]

Cascade stepping down seems like a negative, but it's impossible to quantify. Same with the CEO moving aside and Autonation USA not panning out. Anyway, I don't see how one loses here longterm, so I'm definately sticking around. I'm pretty heavy in auto between this and Linamar however, so the company will have to increase my ownership. Reading a bit up on Vroom I actually like the option. Some of those models seems to struggle without dealerships, so perhaps they can get a partnership going. Management at Vroom looks pretty impressive, and it seems Jackson knows them, so probably a bit of a jockey bet. Difficult to handicap from the outside.

 

I definitely still like the price here but the failure of Autonation USA has caused me to take a harder look at carmax....and I really loved what I saw and have since built up a nice position in the low 60's.  I think the market maybe hasnt taken into account the rise in earnings from tax reform which has lowered the multiple to pretty historic lows.  Valueline (and i think so as well) has them earning 5 bucks in 2019.  And fcf, adjusted properly for the inflows and outflows of carmax finance is even higher than 5 bucks.  It's not often you can buy this business at 12 times or less and the reasons are obvious.  They are extremely well positioned to grow SSS and also adding stores at a nice clip (they have never closed a store).  In addition, their true earning power is always lagged as they are aggressively growing the number of stores which is front loaded in expenses but also, sales take a few years to ramp.  If you just conservatively apply mature store metrics to newer stores and then add stores as well, this sucker is way too cheap.  There is one concern that is nagging the market and myself and thats Carvana.  Their growth is exploding and the model looks fantastic.  Kmx is countering with their own online sales model and I believe they have an advantage because of their physical footprint but I would absolutely rather that Carvana never existed.  We will see but I think the result here will be good even with Carvana's growth.  And you can be sure that kmx mgmt is buying back lots of stock at these prices which is awesome

Thanks for the input re CarMax. I agree it looks interesting around here, but I've always been too cheap to pull the trigger on that one compared to AN, and that might be a mistake. Perhaps the butched Autonation USA is a decent clue that their model is resilent, and the combination of organic growth at high incremental ROIC plus buybacks is a sweet combination.

 

Can't say I'm deeply familiar with Carvana, but from the outside I wouldn't be too worried. Why do you think their model is sustainable?

 

Kab, the apparent failure of AN USA is definitely another proof point that Kmx's model is resilient, I really thought that that Jackson was onto something with the expenditures on branding and other initiatives.  While it does look like other aspects of the strategy are working, the almost immediate change and withdrawal from the AN USA in initiative is striking.  Instead of throwing in the towel, I changed my mind and took advantage of the information by  buying a nice position in Kmx while also trimming An.  This was a statement made by ceo on todays call and I really do see it the same way.... 

" We believe we have a clear advantage to continue to lead the automotive industry and delivering a truly integrated and seamless experience both online and in store. This advantage is enabled by continuing to leverage our strengths including our skilled and knowledgeable associates, our national footprint in transportation infrastructure, our inventory scale and merchandising capabilities, our continued investment in technology and digital capabilities, and our industry-leading brand. All of these factors combined will allow us to deliver an unmatched experience that we believe will be the future of car buying. Now we'll be happy to take your questions"

[ander]

Vince - what's your estimate for what AN is trading at? (re: AN and KMX at similar multiples)?  Thanks again.

 

Last time I looked at them in detail, I think they were trading at about 10 times when in the low 40's.  Now keep in mind there are some moving parts there as well....they are spending money on some initiatives where the returns on those expenditures haven't shown up yet. And An has gotten cheaper with what looks like a very stable business platform.  I don't know if you read some of my previous posts on the way I do valuation.  Take a look at those instead of me repeating the same thing.  On Kmx, when you adjust their earnings to get current "earning power" it doesnt quite get to the same level of An in terms of cheapness but when you factor in the higher certainty of growth, in present value it is actually cheaper by my calculations.  Unless there is major change in either of their industry's, something that i'm not seeing, I don't see how you don't get returns.  Starting with a 10 percent free cash flow yield, assuming their mgmt's don't like burning retained earnings, almost by definition you will get north of 10 percent.  If you envision some growth, where the returns on the growth expenditures are north of 10 percent, then you can do very well with no multiple expansion.  Although multiple contraction affects the potential returns negatively, One has to assume that you have a much better chance of multiple expansion vs contraction.  When you combine the defensiveness (An is probably more defensive) with potential growth (Kmx is way better positioned for growth) with the high fcf yields and managements that will not burn our money, you are going to make some good money regardless what the stock does in the short term.  In fact, with shareholder orientated managements, the probability of double digit returns increases dramatically the longer they can buyback shares at those yields.  In effect, the lower current stock prices makes their jobs easier...it makes it relatively easy for them to allocate capital at good returns which will find it's way into our pockets eventually

 

I was just curious how you were looking at apples to apples. On 10/10/18, you wrote AN was trading at about 8.5x your numbers when the stock was at $40 - so that's about $4.70 per share. Today the stock is at $33, so ~7x.

 

[kab60]

Thanks for the input, Vince. I agree it looks interesting here, and it seems they have somewhat of a secret sauce. Not sure how you adjust KMX numbers, but just going with headline (and I might penalize KMX a lot but one could say AN are hit by brand extension), I do think it's interesting to compare how EPS has evolved for both over time. Not sure I see a very clear winner, and AN also held up extremely well during the GFC (due to service & maintenance). All rear mirror stuff, but that share buyback and resilence due to service has worked wonders (not for shareholders recently).

[vince]

Vince - what's your estimate for what AN is trading at? (re: AN and KMX at similar multiples)?  Thanks again.

 

Last time I looked at them in detail, I think they were trading at about 10 times when in the low 40's.  Now keep in mind there are some moving parts there as well....they are spending money on some initiatives where the returns on those expenditures haven't shown up yet. And An has gotten cheaper with what looks like a very stable business platform.  I don't know if you read some of my previous posts on the way I do valuation.  Take a look at those instead of me repeating the same thing.  On Kmx, when you adjust their earnings to get current "earning power" it doesnt quite get to the same level of An in terms of cheapness but when you factor in the higher certainty of growth, in present value it is actually cheaper by my calculations.  Unless there is major change in either of their industry's, something that i'm not seeing, I don't see how you don't get returns.  Starting with a 10 percent free cash flow yield, assuming their mgmt's don't like burning retained earnings, almost by definition you will get north of 10 percent.  If you envision some growth, where the returns on the growth expenditures are north of 10 percent, then you can do very well with no multiple expansion.  Although multiple contraction affects the potential returns negatively, One has to assume that you have a much better chance of multiple expansion vs contraction.  When you combine the defensiveness (An is probably more defensive) with potential growth (Kmx is way better positioned for growth) with the high fcf yields and managements that will not burn our money, you are going to make some good money regardless what the stock does in the short term.  In fact, with shareholder orientated managements, the probability of double digit returns increases dramatically the longer they can buyback shares at those yields.  In effect, the lower current stock prices makes their jobs easier...it makes it relatively easy for them to allocate capital at good returns which will find it's way into our pockets eventually

 

I was just curious how you were looking at apples to apples. On 10/10/18, you wrote AN was trading at about 8.5x your numbers when the stock was at $40 - so that's about $4.70 per share. Today the stock is at $33, so ~7x.

 

Ander, yes thats about right. 

[vince]

Thanks for the input, Vince. I agree it looks interesting here, and it seems they have somewhat of a secret sauce. Not sure how you adjust KMX numbers, but just going with headline (and I might penalize KMX a lot but one could say AN are hit by brand extension), I do think it's interesting to compare how EPS has evolved for both over time. Not sure I see a very clear winner, and AN also held up extremely well during the GFC (due to service & maintenance). All rear mirror stuff, but that share buyback and resilence due to service has worked wonders (not for shareholders recently).

 

Kab, I dont take the adjustments to 10 decimal places but just to give you an idea....it takes roughly 10 years for a Kmx store to reach maturity in terms of what they think is a steady state market share and that number is roughly 10 percent.  Half of their store base of 200 is less than 10 years old as they started building units aggressively right around 2013 again after the great recession pull back.  So if lots of your mature stores reach roughly 10 percent share over a similar time frame, and there hasnt been major change in the competitive dynamics I think it's entirely appropriate to start thinking about what the numbers would look like as the newer stores mature.  Remember also that they are only in maybe 60% of the markets that they have identified so you also have that potential.....they are still building stores aggressively and those stores are putting pressure on current financials.  However, you dont really want to give too much weight to potential future sales and earnings but at 12 times you dont need to at these prices.  I like very much when I find things where its pretty predictable in terms of profitable growth. 

[vince]

Anyone really interested in doing some work on Carmax should read their whitepaper of 2003, you can find it with a google search

[ander]

Significant restructuring.

 

 

AutoNation Announces Restructuring and Cost Savings Plan- Corporate and Regional restructuring and savings plan expected to reduce costs by approximately $50 million annually- Regional structure consolidated from three regions to two regions- James "Jim" Bender named Executive Vice President of Sales

 

QUOTES AS OF 04:02:03 PM ET 01/07/2019 

FORT LAUDERDALE, Fla. , Jan. 7, 2019 /PRNewswire/ -- AutoNation, Inc.(AN) , America's largest automotive retailer, today announced its planned actions in a restructuring and cost savings plan to improve efficiency and profitability that further positions the Company for long-term success. The restructuring enhances the Company's flexibility to continue investing in its brand extension strategy and digital capabilities.

 

"We believe automotive retail will be challenging in 2019 and improving our performance, creating synergies across our network, and restructuring our corporate and regional teams are pivotal components of AutoNation's(AN) cost savings plan, as we create a more agile, streamlined, and efficient core business that is well-positioned for long-term success. These actions will better position us for a changing market," said Mike Jackson, AutoNation(AN) Chairman, Chief Executive Officer and President.

 

The Company's plan to reduce costs by approximately $50 million includes a reorganization and realignment of its operating structure. A key driver is the consolidating of its regional structure from three regions to two regions.  In conjunction with this reorganization, James "Jim" Bender, AutoNation Eastern Region President, has been named Executive Vice President of Sales, effective today, January 7, 2019. 

 

Mr. Bender has served in leadership positions within AutoNation(AN) for over 20 years. Most recently, he oversaw the Company's largest region with nearly 100 stores, 125 franchises, and approximately $8 billion in revenue in 2017. During his tenure as the Eastern Region President, Mr. Bender implemented several key initiatives that improved the overall performance of the locations under his leadership.

 

"Jim is an exceptional and respected leader, with tremendous success. He will lead all aspects of the variable sales operations," commented Mike Jackson.

 

As part of the corporate restructuring, several executive leadership positions were realigned. The Company announced that Executive Vice President and Chief Operating Officer, Lance Iserman, and Executive Vice President and Chief Technology Officer, Tom Conophy, will be leaving the Company, effective January 7, 2019. Executive Vice President, Franchise Network, Merger & Acquisitions, and Corporate Real Estate, Donna Parlapiano, elected to retire from the Company on January 3, 2019. "We want to thank Lance, Tom, and Donna for their years of service and contributions to the Company. Realigning, combining, and reducing positions improves efficiencies, speeds up decision making, and reinforces our commitment to providing a peerless customer experience," said Mike Jackson.

 

Executive Vice President and Chief Human Resource Officer, Dennis Berger will be leaving the Company on January 31, 2019, after assisting with this major restructuring. Mike Jackson commented, "We would like to thank Dennis for the skill, leadership, and passion he brought to the Company."

 

[kab60]

Not really sure what to think. I like slashing four exec positions, saving 50m annually and decrease complexity, but it raises some questions. How will they save 50m, what is the cost and time to get there, and why did it come to this? There seems to be too much exec traffic. Dropping the COO is also quiet the move. I'd prefer if they had a strong internal CEO candidate, but if it isn't the COO I'm not sure who. Their comment on a negative 2019 is a bit surprising. Sure the market expects a tough 19, but Q3 was pretty good, and last call they guided increased margins - perhaps we now know how. :)

[Spekulatius]

Sounds like more bad news is coming. Chopping so many execs ( or do they want to leave?) is rarely a good sign.

[kab60]

Sounds like more bad news is coming. Chopping so many execs ( or do they want to leave?) is rarely a good sign.

It's a pretty simple and boring business, so I don't expect any big surprises. I suppose Mike might setup the company for a new CEO, and if they've gotten too fat at HQ and some positions aren't worth the cost I'm all for it. Hard to read too much into. Generally I just don't like too much exec rotation and I think it looks bad in him that they don't have an internal candidate ready to take over.

[Spekulatius]

Sounds like more bad news is coming. Chopping so many execs ( or do they want to leave?) is rarely a good sign.

It's a pretty simple and boring business, so I don't expect any big surprises. I suppose Mike might setup the company for a new CEO, and if they've gotten too fat at HQ and some positions aren't worth the cost I'm all for it. Hard to read too much into. Generally I just don't like too much exec rotation and I think it looks bad in him that they don't have an internal candidate ready to take over.

 

I am betting that most positions will be replaced. There is going to be a head of HR and a CTO in the future and probably someone overseeing real estate (the latter could be replaced lower level executive), so these departures are only a small part of the $50M in savings. Besides that $50M hardly move the needle for a company with $21B in revenue and $3.3B in gross profits. It’s more likely that there is some change in direction or some issues and I am guessing we will find out soon.

 

Disclosure: no position

[Foreign Tuffett]

Sounds like more bad news is coming. Chopping so many execs ( or do they want to leave?) is rarely a good sign.

 

I agree that it doesn't look good. Iserman only lasted a 18 months as COO after his predecessor Berman "unexpectedly" resigned (I think he was forced out). Not a good sign.

 

 

[ander]

Agreed a lot of turnover. Cascade board member resigned. Execs left last year. Mike Jackson is stepping down as CEO. Possibilities for restructuring: being pro-active for expected decline in SAAR that Mike’s referred to as rates have gone up, management conflicts, cutting costs for a sale, structure of auto dealer business changing detrimentally impacting profitability negatively.

[kab60]

Q1 out, numbers looking good. Definately prefer this over a 10 year treasury.