One on One With Michael Jackson, CEO, Autonation
Thursday, February 09, 2006
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SUSIE GHARIB: Profits plunged 53 percent at the nation`s largest dealership of new and used cars. AutoNation said today its fourth quarter earnings fell to $0.28 a share, $0.05 below estimates. Shares fell more than 2 percent on the disappointing news. Joining us now with more about those earnings and the outlook, AutoNation Chairman and CEO Michael Jackson. Mr. Jackson, thank you for coming on the program.
MIKE JACKSON, CHAIRMAN & CEO, AUTONATION: My pleasure, Susie. Good to see you tonight.
GHARIB: Nice to see you as well. You said today that the sales environment was challenging in the fourth quarter. Can you be a little more specific about what happened?
JACKSON: Well, nothing like a little adversity to sometimes test a business model. First, you know, we have a significant portion of our business in Florida and we were dramatically impacted by hurricane Wilma, both from a point of view of physical damage and disruption to the business. That was about $0.04. Then the retail environment was also very tough. Why total industry sales were only slightly off, if you eliminate the fleet business, there was a double digit decline in retail business. That was a payback for the very strong sales over the summer with all the promotions that went on with the employee purchase program. We also had a significant gain in taxes last year, of course which did not reoccur. So if you put it on an apple to apples basis and eliminate the hurricane, we actually increased EPS slightly.
GHARIB: So I can see that really was a tough quarter. How do things look for AutoNation going into this quarter and for the rest of the year? Do you see the retail environment turning around for you?
JACKSON: The expectation for `06 is that the industry will once again sell almost 16 million -- high 16 million if not nearly 17 million units. And that will be for the eighth year in a row. It will be somewhat of a roller coaster ride during the course of the year, but by the end of the year, that`s about where about industry sales are going to come out. We followed our diversified business model approach, redeployed capital in a very discipline way and we feel we`ll average over the years a 10 to 12 percent improvement in EPS.
GHARIB: Now, many of the economists that I talked to on our program are still seeing possibilities of more interest rate hikes for 2006. What impact do you think this is going to have on consumer buying and in particular on buying cars at AutoNation?
JACKSON: There`s no question that rates will go up several more times this year. We have not seen a significant impact on consumer behavior as yet. The rates in a historical perspective are still quite attractive. We`ve got to remember just how low rates were. And now we`re getting back to a point, an equilibrium point. But they`re still very attractive and we still see the consumer in the marketplace and, as I said, the end of the year it will be nearly 17 million units.
GHARIB: We heard from GM this week saying that it`s making some drastic cuts so that it can turn itself around and get back in the black. To what extent are these changes at General Motors impacting AutoNation?
JACKSON: Well, what we have urged General Motors and Ford and to a certain extent Chrysler is to permanently reduce prices, take all these incentives and rebates, put it in the pricing upfront so you have an everyday low price for the consumer. And you can put your marketing dollars behind selling the product and the brand. As the retailer, we really dislike the confusion and the distrust that comes from huge rebates and incentives. So to the extent that General Motors has taken significant steps in that direction, we very much support that.
GHARIB: All right, Mr. Jackson thank you very much for your thoughts. We appreciate your views.
JACKSON: Pleasure, thank you.
GHARIB: We`ve been speaking with Michael Jackson, chairman and CEO of AutoNation.
