AutoNation Down but Not Out

AutoNation is using several tools, including its newly acquired captive finance company and a gradually expanding used-car networkto try and recapture “lapsed” customers – those who disappear after their new-car warranty expires or buy a used car and don’t return for service.

CEO Mike Manley calls them “one-and-done” customers. “There’s an opportunity for us there,” he says during a second-quarter earnings announcement.

AutoNation net income was $561.2 million in the second quarter, down 24% vs. a year ago, due to both fewer used-car sales and lower gross profit per new vehicle. That’s part of an industry trend spurred by increased new vehicle availability and some incentives.

Re-engaging lapsed customers allows all dealership groups to raise their bottom lines. That’s especially true for AutoNation, often cited as the top vehicle seller in the U.S.

Nevertheless, AutoNation has millions of lapsed customers who previously purchased new and used vehicles, parts and service. AutoNation’s total customer base is about 11 million individuals in 10.8 million households, Manley says.

“If you took active customers, including service, the actual percentage of active customers in the 11 million is well below 50%,” Manley says. “So, then you have to ask yourself, why do you get that level of attrition?”

Convenience is a significant factor as customers relocate, he says. And, of course, lapsed customers often opt for aftermarket parts and service, which have a reputation for being less expensive than at dealerships. More contact with AutoNation should help persuade customers that the dealership chain offers value, Manley says.

“It’s because circumstances and needs change within that customer base,” he says of the attrition. “We’re adding and building our business so that we can offer products and services that meet their changing needs, maybe from when they originally bought the vehicle. (We offer) more convenience in terms of service and repair so that, for example, if they are 20 miles, 25 miles (32-40 km) away from a dealership and just looking for a quick oil change (we can offer it),” he says.

Besides the immediate returns, AutoNation seeks less dependency on new-car sales’ cyclical ups and downs, Manley says.

AutoNation acquired Los Angeles-based RepairSmith in January 2023. RepairSmith offers repairs at individual customers’ homes or workplaces or for companies with fleet vehicles. The company also intends to use RepairSmith for internally reconditioning used cars.

Mobile repair should also add to the customer appeal of AutoNation’s used-car dealership network, AN USA, Manley says. “It’s the only standalone, used-car-dedicated business that has one of the most convenient service and warranty provisions in the entire marketplace,” he says.

AN USA now has just 16 dealerships, with an eventual target of 130 locations, the company says. Manley says AutoNation intends to slowly expand the used-car network, , adding seven locations by the end of this year.

“You will see an acceleration only if I believe, and the team believes, we can cope with it operationally, and that it is the right location at the right capital cost,” he says.

 AutoNation also acquired indirect auto lender CIG Financial, Irvine, CA, in October 2022, now serving as the chain’s captive finance company, AutoNation Finance. As mentioned,  the acquisition offers various benefits beyond profit opportunities.

“What we are striving to do through the expansion of our products and services is increase the average length of our (customer) relationship,” Manley says. “And of all the spend they make on transportation and mobility…we want more of that.”