Lampert, Gates and AutoNation

One of the more interesting parlor games among the power elite in automotive retail is trying to guess what billionaire investor Edward S. Lampert has up his sleeve for megadealer AutoNation.

In November, Lampert's two private equity groups, ESL Partners LP and ESL Investors LLC, bought a combined $4.6 million worth of AutoNation stock. He now owns more than 78.6 million shares -- good for 44.5% of the company. Lampert already was the company's largest stock holder.

He has increased his stake from 24% in March 2007, when he resigned from AutoNation's board of directors.

Some industry analysts speculate that Lampert intends to take AutoNation private. However, there would be many obstacles to doing so, including manufacturer resistance.

A more likely scenario has Lampert increasing his stake in AutoNation to 49% with the hope he will make a killing once the industry bounces back. Although, there could be a big play sometime in 2009, such as a major acquisition of a large dealer group.

Meanwhile, Microsoft founder Bill Gates also has been buying up AutoNation stock. So far in 2008, Gates' two foundations, Cascade Investments and the Bill & Melinda Gates Foundation, have purchased a combined 20.5 million shares giving Gates an 11.7% share of the dealer group.

While some automotive retail technology vendors think Gates' investment portends a possible move to insert Microsoft as the group's dealer-management system provider replacing ADP, it likely is a mere profit play that shows the level of confidence in the automotive retail sector.

AutoNation is making the right moves despite declaring a net loss for the third quarter of $1.4 billion, mostly attributed to declining value of its domestic dealerships. The company is paying down its long-term debt -- down to $1.4 billion from $1.8 billion at the end of 2007. Its cash position also nearly doubled to $60.8 million in the third quarter.

The dealer group also cut its inventories by almost $1.6 billion this year.

The stock is trading at more than $8 a share today, up from a 12-month low of $3.97, but down from a high of $17.50 in the same period.

Stay tuned. Whatever Lampert's and Gates' plans are, AutoNation likely will become a very interesting company to watch in 2009.