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How AutoNation, America's Biggest Car Dealer, Is Future-Proofing Its Business

January 17,2018 08:26

Dealer margins on new car sales are already razor-thin; if people start relying on car-sharing services as a substitute for car ownership, many dealers, most of them long-held family businesses, could be in jeopardy. Mike Jackson, chief executive of ...and more »


Joann Muller , Forbes Staff I write about industrial innovation and the global auto industry

AutoNation has a deal to maintain and repair autonomous cars for Waymo, the leader in autonomous driving technology.  (Photo by Joe Raedle/Getty Images)

It's a scary time to be a car dealer: ride-hailing apps and emerging high-tech mobility services like robo-taxis threaten to disrupt tried-and-true methods for buying and selling cars. Dealer margins on new car sales are already razor-thin; if people start relying on car-sharing services as a substitute for car ownership, many dealers, most of them long-held family businesses, could be in jeopardy.
Mike Jackson, chief executive of AutoNation, the country's largest dealership chain, has a potential antidote. He's built a recognized brand across 16 states, selling vehicles from virtually every carmaker, generating an estimated $21.4 billion in revenue, the most of any public dealership group. But more important, he's been growing a stable of related, higher-margin businesses under the AutoNation umbrella like used car stores (AutoNation USA), resale auctions (AutoNation Auto Auction), replacement parts (AutoNation PrecisionParts) and repair shops (AutoNation Collision Centers).
With margins of barely 1 percent, new-car sales comprise only about 18 percent of AutoNation's revenues, Jackson said. Like most car dealers, the company makes the bulk of its profit on used-car sales, financing and aftermarket parts and accessories. But as a nationwide brand, it has an advantage over mom-and-pop dealerships, Jackson said in an interview. "There’s no money in selling new vehicles. Thank God I have the scale and a strong brand."
Just in case, he has also struck a multi-year deal with Waymo, the perceived leader in autonomous car technology, to maintain and repair its fleet of self-driving cars. Having watched the Google subsidiary's development from the start, Jackson has concluded Waymo is "far ahead of everybody else as far as providing a consumer service."
The business model for autonomous ride-hailing services is still in its infancy, Jackson said. "All I'm looking for is to join hands with the baby that's crawling on the floor, and eventually they'll stand up. One day they’ll make money and then we’ll make money," he said. "I don't need to make money (now). I just want to be there from the beginning and pick the right partner."
He's convinced Waymo, conceived by Google founders Larry Page and Sergey Brin and now led by auto industry veteran John Krafcik, is that partner.
"Here’s what I like about Google," Jackson told me. "They make a lot of money. So they're not going run out of money on this start-up phase. Second, the founders are passionate about it. It's a legacy project for them. So they're doing it the right way, with no shortcuts," he said.
The important thing, he said, is that AutoNation remains relevant even in an autonomous world. "I’ve made a bet on Waymo. How fast autonomous sharing grows, I can’t predict, but I’ll be there however fast it goes."
 

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