Public Dealership Chains Order New Cars Carefully

Publicly owned dealership chains boosted their sales of new vehicles in the first half, bucking the industry's overall decline compared with the same time a year ago.

The 3.2% increase by the six “public” megadealers demonstrates their clout nearly 10 years after they began to assemble collections of franchised auto dealerships and were listed on the New York Stock Exchange.

A total of 414,202 new cars and trucks were sold by the “Big 6” in the January-June period, compared with 401,796 a year ago. If 2006 winds up at about 16 million new-vehicle sales in the U.S., the public chains would account for nearly four out of every 30 sales.

As those chains have reached maturity in the U.S., they also have asserted their influence as the protector of shareholder equities, and have thus become a major force in the distribution networks of the auto makers.

Releasing their quarterly earnings and revenues numbers publicly, as required by federal law, the chief executives of the six megadealers often express policies and opinions not always in accord with those of the manufacturers.

In July, for instance, the CEO of the largest megadealer, AutoNation Inc.'s Mike Jackson, told analysts that AutoNation's stock of domestic vehicles was at the 100-day level and, as a result, the Fort Lauderdale, FL-based network had stopped ordering '07-model units.

AutoNation, which retailed 99,027 new vehicles in the first half, has 280 dealers and is undeniably a retail force to be reckoned with.

Jackson has been candid in expressing his views in the past, and his status as the CEO of the largest megadealer is evident. (See End Game column on page 48). Jackson's disclosure of a freeze in AutoNation's new-model ordering was a shocker.

The CEO of Group 1 Automotive, Earl Hesterberg, a former Ford Motor Co. executive, says his firm is “watching its '07-model ordering with caution,” although he did not call it an ordering freeze.

Asked about their policy, in view of the surfeit of domestic models across the nation, Asbury Automotive's CEO Ken Gilman acknowledges that “one of the domestic Big Three had asked Asbury not to reveal its high inventory count” as it had done last April for the first quarter.

Sid DeBoer, CEO of Lithia Motors, a megadealer whose domestic new-vehicle mix is the highest of the public six, says its stockpile was adequate as of July 1.

DeBoer says he preferred to have more carryover '06 vehicles in stock in the late summer and early fall so as to offer lower-price deals in contrast to the higher prices on '07 models. DeBoer is a member of the Chrysler national dealer council, and Lithia's share of Chrysler Group vehicles runs about 40% in its mix.

The stockpile debate was not joined this summer by UnitedAuto Group CEO Roger Penske or Sonic Automotive CEO Jeff Rachor.