AutoNation targets used-car market with new no-haggle prices

FORT LAUDERDALE, Fla. – Used-car buyers want no-haggle prices and a brand they can trust, AutoNation’s research shows. So the country’s largest auto retailer on Friday rolled out a “one price” strategy and a new concept used-car and service store to address those concerns, making the announcement with its third-quarter earnings report.

“The consumer is craving a fair, transparent price,” said Mike Jackson, CEO of Fort Lauderdale-based AutoNation. “They really have had enough of the negotiated process and the lack of transparency around pricing.”

The move turns AutoNation’s direction from new to used cars and puts it into direct competition with CarMax and other used-car dealers, as well as mom-and-pop service and repair shops. Currently, new cars make up 60 percent of AutoNation’s business and used cars make up 40 percent.

“We will have a bigger piece of share of the pre-owned market,” Jackson said. All used cars will be reconditioned before sale, the company says.

The strategy comes at a time when new-car sales are leveling off and AutoNation’s sales growth has slowed. AutoNation missed analysts’ third-quarter earning estimate of $1.14 a share, coming in at $1.05 a share, which matched the third quarter 2015.

To combat slowing growth, the company plans to open a new concept store, AutoNation USA, with five locations in 2017 and another 20 in coming years, focused on used-car sales and service. AutoNation already has 280 franchise locations across the country – including a handful of locations in Spokane and Spokane Valley – under manufacturing brands that include Cadillac, Chevrolet, Chrysler Dodge, Ford, Honda, Lexus, Nissan, Land Rover, and Mercedes-Benz dealerships.

At the same time, AutoNation is expanding its car repair and maintenance service, with both its AutoNation USA stores and 15 more AutoNation Collision Centers scheduled to open in the next two years. To support the used-car focus, AutoNation also will buy cars and trade-ins at stores and through new auction locations.

AutoNation said the overall investment in extending its brand will cost more than $500 million over the next few years.

The plan is for AutoNation to offer used cars at a “no-negotiation” price. To sweeten its pitch to used-car buyers, AutoNation is offering two years of free maintenance including oil change, tire rotation and basic inspection; lifetime-guaranteed batteries; and auto parts at bulk-buy prices. One AutoNation salesperson would take the buyer through the process – no “let’s see what the manager says” tactic, the company says.

With this new “no-negotiation” strategy, there will be no point in driving from one AutoNation dealer to another to shop prices. All cars will be centrally priced and can be found on AutoNation’s website, which also is being updated, the company said.

Stickers on the cars will display the AutoNation price compared with the price from Kelley Blue Book, which is typically used by consumers to research what a used car is worth. Stickers also would show the estimated monthly payment on the car, if buyers choose to finance with AutoNation or elsewhere.

The first store branded as “AutoNation USA” will open in Houston, with a second planned in Corpus Christi, Texas. Plans also include one in Phoenix and two in Las Vegas.

But the “no negotiating” price will be widely available even sooner. In Florida, the transition from “make me a deal” to “one price” will occur in existing stores during the first quarter of next year, AutoNation said.

During a conference call Friday, analysts questioned AutoNation’s large investment in brick-and-mortar locations in an increasingly e-commerce world, with competitors opening smaller stores, and asked when the “payoff” would be.

Jackson said the company’s investment in AutoNation-branded auto parts will almost immediately pay off. He said AutoNation will only move forward with more USA stores and collision centers after the first five are profitable.

With its new stores and pricing strategy, AutoNation will be competing with CarMax and other used-car dealers.

“CarMax is a worthy competitor. The used vehicle market is huge. There’s plenty of room for a strong brand you can trust that offers a good value,” Jackson said.

In 2013, AutoNation began branding local dealerships it purchased with the AutoNation name. Then the company added an inventory-wide online sales operation called AutoNation Express. Now the company is building on those elements, leveraging the brand recognition and market power it has gained over the past few years.

At the end of the recession, when many consumers could finally replace their aging vehicle, AutoNation enjoyed soaring new car sales. In 2015, AutoNation sold its 10th million vehicle and revenue climbed 9 percent to nearly $21 billion.

AutoNation is turning its attention to the used-car buyer as new car sales have slowed.

“The new vehicle market has leveled off, entered a plateau period,” Jackson said. “I didn’t want to be sitting on my hands when the day arrived. We wanted to continue to grow despite the tougher environment.”

In its third quarter, revenue was $5.6 billion, up 4 percent from $5.4 billion in the same period a year ago. Profits fell to $107.3 million, or $1.05 a share, in the third quarter from $118.5 million, or $1.05 a share, a year ago. AutoNation reported an 11 percent sales decrease of domestic brand vehicles, 7 percent of imports and 6 percent of luxury.

Industrywide, used-vehicle sales totaled almost 42 million last year, including sales by independent used-car dealers and individuals, according to Automotive News. In comparison, new vehicle sales were 17 million.

The company’s one-price strategy works in tandem with converting its sales force from commission to salary. About 50 percent are now on salary, and the remainder will move to salaries as the no-negotiation strategy is rolled out, which Jackson says is more attractive to younger generations entering the business.

So AutoNation will be expanding its real estate footprint at a time when many auto dealers have turned their focus to online sales and even home delivery.

A report by DealerSocket released in October says that while two-thirds of franchise dealers think consumers would like to buy online, only one-third of consumers who were surveyed said they’d want to do that. Of the 2,000 car buyers surveyed over 12 months, 33 percent said they wanted to complete the buying process online, instead of visiting a dealership, while 67 percent did not.

“The consumer still wants to come to the dealership. They want a different kind of experience than what they’ve been getting,” Jackson said. “They want a fair price that’s transparent. It’s a big purchase – it’s a lot of money. They just don’t want it showing up in their driveway.”