Automotive News - March 3, 2008 - (Page 36)

36 • MARCH 3, 2008 THE DEALER SPEAKS AutoNation chief sees tough ’08, better ’09 N et earnings at AutoNation Inc., the nation’s largest dealership group, fell nearly one-third in the fourth quarter of 2007. The CEO of the Fort Lauderdale, Fla., company, Mike Jackson, says he expects U.S. new-vehicle unit sales to drop this year. Despite economic weakness in AutoNation’s two largest markets, California and Florida, Jackson predicts an industry rebound in 2009. Meanwhile, the company is proceeding with a pilot program to determine whether it can sell cars and trucks online from start to finish. Jackson, 59, discussed industry issues with Retail Editor David Kushma and Staff Reporter Alysha Webb. What do you think the new-vehicle market will be like this year? It will be down, probably about 15.6 million units. The economy trumps product at the moment. You can’t change the size of this marketplace with product or price. There’s too much structural weakness. In many big states, you have a housing depression. We have a credit crisis, we have high gasoline prices. But contrary to the past couple of years, I have a good feeling about 2009. The way to think about this is that 2008 is the third year of the decline. If you put together 2006 and 2007, then automotive retail is down 11 percent. The structural weakness was hidden by fleet business for the last two years. Downturns usually last 30 to 40 months. Help is on the way — lower interest rates, a stimulus package. I think we will begin to see a recovery in 2009. Are lower rates and a fiscal package enough to overcome the housing mess? I’d say 75 percent of the problem is housing. There is a direct relationship between the level of distress in the housing market and the decline in automotive retail sales. Housing is clearly the driver. To pay your mortgage is 30 to 50 percent of household income. These adjustments on adjustable-rate mortgages are huge. People are not going to buy pickup trucks until housing starts resume. And AutoNation’s footprint is in the states that are hardest hit by the subprime crisis. Yes, I feel it more acutely than others. Half of our business is in California and Florida. This year, there is more risk than there is opportunity. We will have to keep our inventories as lean as we can. We will have to watch our costs very closely. At the same time, we continue our capital investment in facilities and technology. Are you looking to expand in 2008? We are always looking to acquire, but the pricing has not reflected the economic downturn. It hasn’t come down enough. You can buy domestic franchises, but you really don’t know what they are worth because there is so much overcapacity. And everybody would love to have a Mercedes store. Will we see lots of incentives in 2008? The factories are still going to have Does it make you nervous to see 72-month or 84-month car loans? It does. It’s going to compound the negativeequity issue. When people want to trade, they owe more on the car than it’s worth, and that’s not where we should be. MIKE JACKSON incentives. They are still going to accommodate the marketplace. But they are more accepting of the cycle. Look at what happened in 2005. Our industry tried to sustain volume in a rising interest-rate environment with incentives. And at a certain point, everyone said, “I can’t do this anymore.” What I see today that I didn’t see in 2005 is companies looking out six months, nine months, and saying volumes are going to fall and collectively cutting production now. The OEMs have introduced more flexibility in their cost structure, and that is a different business model than we had in the past. They’ve taken out capacity, they’ve negotiated new labor agreements, and they are able to adjust to the marketplace better today. There will always be incentives, but it’s a matter of degree. What’s your impression of how Cerberus is managing Chrysler? I was impressed with Bob Nardelli when he said, “I think the market is going to get worse, and I think the production plan is too high and I’m cutting production.” To walk through the door and to make that call was pretty gutsy. I saw him the other day and he said: “Everybody told me I was crazy at the time. I just hope I cut enough.” Do you like the product you’re seeing from the Detroit 3? Their product policies are dramatically improved from 2005. GM has probably done the most. You can really feel the product cadence. A high- quality product comes out, and there is another one right behind it. I see world-class products here. Go look at the Malibu. The product just screams quality. You really have to congratulate Rick (Wagoner) and Bob (Lutz) for six years of singular understanding of what they need to do to get competitive products in the marketplace, going out and doing it, and not getting distracted. I think Derrick Kuzak is doing the same thing at Ford, but GM has a head start. Chrysler has an all-new team. They are going to have to figure out a new product and a new marketing and retail strategy to re-create Chrysler. Has the CTS gotten Cadillac back in the game? Yeah, it has. The earlier CTS was bought by loyal GM repeat customers. Now it is different. People are bringing the car home and putting it in the driveway, and their friends and neighbors are impressed. That’s a new dynamic. New customers are being referred by the customers who bought it, who are genuinely excited by the product and are talking it up. This has been a big issue for the domestics: How do you get back on the consideration list? Even though you have great product, you have customers who have left you who are very happy where they are. You need more fresh product. How is AutoNation’s online program moving? Slowly. There are still things that have to be done in the store. You can only take online so far. The customer still wants to touch and smell the product and really see blue versus red. There is no doubt that the Internet has fundamentally changed the business. Everyone is going online for pricing ideas and product information. The question is: How deep can you get there? I don’t know the answer. Are your dealerships seeing an increase in late loan payments? There is an uptick in delinquencies, but the automobile industry did not drop its standards like the housing industry. It remained disciplined. So it’s just the normal stress in the economy leading to higher rates of repossession. There’s no meltdown in automotive credit. c

Table of Contents Feed for the Digital Edition of Automotive News - March 3, 2008

Bob Nardeli's new big-idea guy New Kia boss reaches out to restless dealers Scion hits a wall Lithia losses raise caution flag Detroit 3 shun talk of NAFTA do-over Lincoln names new marketing manager Mercedes to launch hybrid sedan in '09 Mazda has new top marketing exec M-B will hit the road with 50-state diesels Pontiac puts big ad bucks into traditional media for G8 Reynolds, ADP diverge on growth strategies Ford plans to cut fleet sales 10% in 2008 Mazda: New models, styling will boost its loyalty rate Run-up to axle strike adds to supplier woes Webasto's fast heater will debut by 2010 Russian plant wants to be world's biggest A Lancer is hatched Chrysler throws out purchasing rulebook Honda sets lofty hybrid goal, with Civic's help Honda: Use of ethanol limited, must be biomass Honda CEO Fukui: No recession in U.S., despite soft sales in spots 550 hp? 620 hp? Is GM crazy? Doug Fraser was a great leader How ironic: Lyons learns caution Well done, Doug Don't let Calif. impose fuel rules on the nation Blame the dealer, not the brand Cutting weight doesn't cut safety When Lutz dumps on global warming ... JM exec Czubay: A taste for hogs, pierogi Doug Fraser: A good man to have known Fraser led UAW with 'combination of substance, politics and charm' Autonet finds success at NADA with wi-fi for cars GM to sell medium-truck business, keep dealer network Web classified ad firms renew marketing to dealers, buyers Chery designs venture's vehicles China venture eyes 20,000 Fiesta hatchback sales Toyota plans crossovers in China Dongfeng, YuAn plan minicars BMW shakes up global marketing, sales ranks Delphi divestiture boosts forging supplier Is Blackhawk purchase bucking a trend? Repair company grows as Detroit 3 struggle BorgWarner unit expands German automakers seek more parts sourced in North America Hyundai picks ArvinMeritor Japan parts firm to build Miss. plant Nissan to increase spending on IT Purchase keeps Tenn. plant open Automakers hit with apartheid claims Mexico sales flat in January Ford prices '09 Flex atop crossover line Hamp rejoins Visteon board RV deliveries decline 3.4% in December Subaru lowers Forester price Personnel Bright future for LED headlight suppliers? Valeo's Morin to Pardus: Learn before you leap German automakers aren't worried about U.S. recession Porsche's Wiedeking: We must retool VW Europe's loud debate over quieter tires Noise level depends on the tires, the road Auto industry robotics spending jumps 43% in 2007 Electronic brakes struggle to get traction Big Texas dealer returns to some domestic brands AutoNation chief sees tough '08, better '09 In downturn, Sonic looks beyond new cars GM promotes service, parts leads for dealerships 10 cool dealership technologies found at NADA Dealers Kia will build transmissions at Georgia plant Gibson leaves DealerTrack board Akebono closing Kentucky plant Feds issue Ford fire warning Magna net income drops VW to use Siemens' software A tale of 2 exhaust systems EU wants CO2 in ads; battle looms Maize malaise stalls ethanol Tata to siesta during Ford's Fiesta Honda moves its American bike offshore Honda will recycle cycle plant Tom LaSorda's multimillion-dollar smile

Automotive News - March 3, 2008

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