VIDEO TRANSCRIPT:
Jim Fitzpatrick: Mr. Mike Jackson, the CEO of AutoNation. We’re so happy that you joined us here on CBT News. Thanks very much for taking the time out of your day.
Mike Jackson: Jim, good to see you. If you want to talk about the car business, I can do it all day long.
Jim Fitzpatrick: That’s what we’re all about at Car Biz Today, right?
Jim Fitzpatrick: So, congratulations, first and foremost, on 15 consecutive double-digit growth. Talk to us a bit about how you got there, and how things are going, and all that goes into … what it means to have that kind of growth?
Mike Jackson: Well, we just announced the second quarter today, 83 cents, which is an all-time record for the second quarter. A 14% increase. And, as you already said, Jim, but it’s worth saying again, that’s 15 quarters in a row of digit increases.
Jim Fitzpatrick: Yeah, it’s amazing.
Mike Jackson: We’re very proud of the company that we’re building here.
Jim Fitzpatrick: Yeah.
Mike Jackson: We have a culture of operational excellence, we’re a humble retailer. We never lose sight of the fact that taking care of the customer that’s there, right now, on the showroom floor and in the service department, that’s our most important need.
Mike Jackson: AutoNation has the size and the long-term view to make significant investments in strategic capabilities.
Jim Fitzpatrick: Sure.
Mike Jackson: Whether that’s the shared service center, or what we’ve done over the past year, launching the brand, AutoNation, from coast to coast.
Jim Fitzpatrick: Sure.
Mike Jackson: Now, building a new digital experience for our customers.
Jim Fitzpatrick: Yeah.
Mike Jackson: There’s energy that we put into making it happen every day, but at the same time, investing in the long-term is very compelling.
Jim Fitzpatrick: Sure.
Jim Fitzpatrick: Talk to us a bit about the branding of AutoNation among all of its stores? What kind of an impact has that had, do you think, in the success?
Mike Jackson: Well, this was a big decision for us.
Jim Fitzpatrick: Sure.
Mike Jackson: We had local market brands, that was working quite successfully for us, for 15 years.
Jim Fitzpatrick: Sure.
Mike Jackson: Some of those local market brand names were 100 years old.
Jim Fitzpatrick: Right.
Mike Jackson: They don’t walk away from them too lightly.
Jim Fitzpatrick: Sure.
Mike Jackson: You know, with the change in the retail experience for consumers, with the arrival of the empowered consumer with digital, we said, “We need one name from coast to coast, across the enterprise.” Having one name in digital is a big advantage.
Jim Fitzpatrick: Sure.
Mike Jackson: So, we took the step a year ago. It’s been embraced by our customers, because, again, revenues, sales, results have continued to grow at a fantastic rate.
Jim Fitzpatrick: Right.
Mike Jackson: This investment in digital, our view is customers don’t want an online experience and a store experience, they want one experience.
Jim Fitzpatrick: Right.
Mike Jackson: They want to move seamlessly back and forth.
Jim Fitzpatrick: Right.
Mike Jackson: So, we’re building towards a transactional site, because that’s what it means.
Jim Fitzpatrick: Sure.
Mike Jackson: Today, we have informational sites, that’s what most people in the industry have.
Jim Fitzpatrick: Sure.
Mike Jackson: We want our consumers sitting at home to be able to view real inventory, get a real price, send us a deposit, and make it their car, and it’s sitting there waiting for them when they come in. We’ll be able to do that before the year is over.
Jim Fitzpatrick: Wow, that’s very exciting! It must take a tremendous training initiative, from corporate down to the store level, to make sure that happens?
Mike Jackson: It does. The biggest part, if I look at the decision, was to take the risk to change the names.
Jim Fitzpatrick: Yeah, sure.
Mike Jackson: That’s something we did lightly.
Jim Fitzpatrick: Right.
Mike Jackson: Then, the decision to make the investment. We’re investing well over $100 million in this effort, in building the brand, and building the digital capabilities. You don’t do that lightly.
Mike Jackson: Then, it means changes for our associates. It’s going to mean new ways of doing business, and all that’s yet to come.
Jim Fitzpatrick: Yeah.
Mike Jackson: We’ll have our people ready for it.
Jim Fitzpatrick: Sure. You had mentioned back in April that 16 million cars was where we’re going to end up, somewhere around there. With the [SAR] now reaching more like 17 million, do you see us finishing with possibly 17 million new vehicles sold in 2014?
Mike Jackson: Well, I started the year saying industry sales are going to increase three to five percent for the year.
Jim Fitzpatrick: Right.
Mike Jackson: For the first half of the year, we’re up 4.5%, so it’s right in the range.
Jim Fitzpatrick: Sure.
Mike Jackson: I know we had a SAR selling rate of 17 million for June, but I would pretty much discount that because it was a heavily adjusted month. Actual sales were only up 1%.
Jim Fitzpatrick: Right.
Mike Jackson: I think you look at the 4.5% year-to-date, but within that, what impresses me is that while cars are flat, trucks are up 8%.
Jim Fitzpatrick: Sure.
Mike Jackson: For the American consumer to be embracing trucks at these gas prices, at higher transaction prices, means there’s a lot of confidence in the future.
Jim Fitzpatrick: Mm-hmm (affirmative).
Mike Jackson: And it means, we as an industry, have a better answer on fuel economy than we had even six years ago.
Jim Fitzpatrick: Sure.
Mike Jackson: So, it’s still going to be plus three to plus five, maybe 16 million 400, 16 million 500 for the full year. 17 million won’t happen this year.
Jim Fitzpatrick: Okay. When do you see a plateau? Do you think we’re going to see, maybe, we get to a point with going from 9 or 10 million vehicles, just six or seven years ago, to now, we’re talking 16.5, 16.4 million vehicles. At what point does it plateau for a little while?
Mike Jackson: I see the sustainable rate between 16 and 17 million units.
Jim Fitzpatrick: Okay.
Mike Jackson: The factors are you look at the scrappage rate, 13 million. You look at household formations, 2 cars per household.
Jim Fitzpatrick: Sure.
Mike Jackson: You can get to 16, 17 million. Then, you say, average age is pushed out to 11.4, due to the great crash. Is that going to come down, or stabilize?
Jim Fitzpatrick: Right.
Mike Jackson: I’m more in the sustainability range of 16 to 17 million. I know there’s others that talk about bigger numbers.
Jim Fitzpatrick: Right.
Mike Jackson: Ah, we’ll see. The industry can do very well, between 16 and 17 million units.
Jim Fitzpatrick: Can AutoNation continue on the upward trajectory that it’s on, when the industry plateaus?
Mike Jackson: Well, that’s –
Jim Fitzpatrick: Can you continue to grow?
Mike Jackson: That’s the reason we’re making these investments in the brand.
Jim Fitzpatrick: Sure.
Mike Jackson: In digital, that was literally the conversation with my partner, Mike [Marooney 00:06:43]. I said, “Hey, times are good. The industry is growing, the economy is recovering, interest rates are low. If we’re going to have an investment period, let’s do it now.” Then, when things get a bit more difficult, we’ll have created these new capabilities and be able to continue to grow.
Jim Fitzpatrick: Okay.
Mike Jackson: That’s the ambition, that’s the ambition.
Jim Fitzpatrick: Sure, okay. With the dealers that are watching, or for the dealers that are watching right now, and they’re on the fence about how much they should go digital versus traditional, do you see a day in the next few years that there’s not too much traditional, and all of the marketing at a store is digital? Should dealers jump on now?
Mike Jackson: Okay. First, let me answer it this way.
Mike Jackson: First, the store is completely relevant, today and in the future. What’s changed is the way the customer shops.
Jim Fitzpatrick: Right.
Mike Jackson: If you go back 10 years ago, to get price discovery, they visited five or six different stores.
Jim Fitzpatrick: Right.
Mike Jackson: They don’t need that today.
Jim Fitzpatrick: Right.
Mike Jackson: They can find out pretty much what the market price is, and what’s a fair price without ever leaving their home. So, when they come to the store, they’re coming to buy.
Jim Fitzpatrick: Right.
Mike Jackson: Visits are down to 1.5 stores.
Jim Fitzpatrick: Right.
Mike Jackson: The point is, you better win, whether you’re a manufacturer or a retailer, in digital, or you’re going to miss the whole parade.
Jim Fitzpatrick: Uh-huh (affirmative).
Mike Jackson: Having said that, where you spend your media dollars, that’s a different question. We’re increasing our media spend in traditional advertising.
Jim Fitzpatrick: Okay, interesting.
Mike Jackson: To drive people to our higher capable websites.
Jim Fitzpatrick: Okay, I gotcha.
Mike Jackson: Now, in the past, we would have ran media to drive people into the stores.
Jim Fitzpatrick: Sure.
Mike Jackson: Now, we run the media to drive into our own branded websites.
Mike Jackson: Imagine, Jim, after one year, our AutoNation branded websites are producing more business for the company than all the third party companies we do business with, whether that’s True Car, or Auto Trader.
Jim Fitzpatrick: Right.
Mike Jackson: Within one year!
Jim Fitzpatrick: Right, that’s amazing.
Mike Jackson: We’ve surpassed.
Jim Fitzpatrick: Right.
Mike Jackson: I think we’ve got the right formula figured out.
Jim Fitzpatrick: Sure.
Mike Jackson: Use traditional media and your brand.
Jim Fitzpatrick: But no longer to drive them to the showroom.
Mike Jackson: Not through our store.
Jim Fitzpatrick: Drive them to the virtual showroom, the website.
Mike Jackson: Drive them to the virtual showroom, where everything is presented.
Jim Fitzpatrick: Sure.
Mike Jackson: Then … We don’t even have this yet, but we will before the year is over –
Jim Fitzpatrick: Okay.
Mike Jackson: – be able to transact with them. Our ambition is not only will they be able to get price, and actually put a deposit down on the vehicle, we will give them ultimately a price on their trade.
Jim Fitzpatrick: Okay.
Mike Jackson: That’s binding, or a price that will buy their trade.
Jim Fitzpatrick: Okay.
Mike Jackson: We’ll give them an idea of what their payments are going to be, what the financing is going to look like, and on customer care, whether everything from making an appointment to paying your bill.
Jim Fitzpatrick: Sure.
Mike Jackson: It’ll be a transactional site.
Jim Fitzpatrick: Great, great. It really leaves just the delivery of the vehicle for the showroom?
Mike Jackson: Well, we’ll –
Jim Fitzpatrick: When that customer comes in, it’s really all about getting him in and getting him out in the most easy way?
Mike Jackson: You know, if you’re talking new cars, an average transaction price of $32, $33 thousand –
Jim Fitzpatrick: Right.
Mike Jackson: Consumers still wants affirmation and confirmation that they’ve done the right thing.
Jim Fitzpatrick: Sure.
Mike Jackson: They want to look at their choice, on either side.
Jim Fitzpatrick: Yeah.
Mike Jackson: Before they write that check.
Jim Fitzpatrick: Right.
Mike Jackson: When they’re coming through the door, they’ve made up their mind to buy. They’re either going to buy from you, or the very next place they go.
Jim Fitzpatrick: Right.
Mike Jackson: That’s what you’re down to. Yeah, we’re going to be able to speed up the transaction dramatically, because we’re going to allow more and more of the work to be done online, transactionally. If you take all the forms you have to sign, why can’t they all be done from your home?
Jim Fitzpatrick: Sure.
Mike Jackson: Before you come in.
Jim Fitzpatrick: Right, right.
Mike Jackson: We’ve got all these kind of ideas.
Jim Fitzpatrick: Okay.
Mike Jackson: Where, when you come to the store, it’s more affirmation, confirmation.
Jim Fitzpatrick: Right.
Mike Jackson: They still want to test drive.
Jim Fitzpatrick: Right.
Mike Jackson: We’re going to be able to move the transaction at a speed that they like.
Jim Fitzpatrick: Okay. What do you think that speed is? How long do you think it should take a consumer once they arrive at the dealership, to be able to drive off in their new or used car?
Mike Jackson: I’ll tell you –
Jim Fitzpatrick: What is the target?
Mike Jackson: An interesting discovery we have is the key is, not so much the amount of time the consumer takes –
Jim Fitzpatrick: Okay.
Mike Jackson: – it’s that the consumer is deciding how much time they want to spend. You can meet that expectation.
Jim Fitzpatrick: Okay.
Mike Jackson: Some people want to be in and out in 45 minutes.
Jim Fitzpatrick: Right.
Mike Jackson: Other people want to take three hours. The point is, you need to be able to make it enjoyable.
Jim Fitzpatrick: Right.
Mike Jackson: If the consumer is empowered, then they’re deciding how much time they spend in the store.
Jim Fitzpatrick: Right.
Mike Jackson: It’s not that we’re trying to run them in and out.
Jim Fitzpatrick: Sure.
Mike Jackson: It’s just we’re moving at the pace they want to move.
Jim Fitzpatrick: Sure.
Mike Jackson: We don’t have that capability today. I mean, we’ve cut transaction times in half.
Jim Fitzpatrick: Right.
Mike Jackson: Over the last five, six years, but we still have a long way to go.
Jim Fitzpatrick: Okay.
Mike Jackson: That’s all in the works.
Jim Fitzpatrick: Hence, I suppose the reason in the investment of the bricks and mortar, and the stores that you’ve got, that look like beautiful country clubs when you walk in. Some have coffee bars in them, and leather sofas. I mean, it’s a genuinely nice place to hang out.
Mike Jackson: Yes, of course. The brick and mortars, you have to think different than you did 10 years ago.
Jim Fitzpatrick: Sure.
Mike Jackson: Before, everybody had showrooms and inventory, again, because consumers were on this merry-go-round, going to five or six stores.
Jim Fitzpatrick: Right.
Mike Jackson: Now, brick and mortar is about customer care.
Jim Fitzpatrick: Yeah.
Mike Jackson: That’s the foundation of the business.
Jim Fitzpatrick: Okay.
Mike Jackson: The margins are very tight on the new car side –
Jim Fitzpatrick: Oh, for sure.
Mike Jackson: – for this whole thing to make sense. We have, with our customer care business, which is growing at a terrific pace, we now have 91% fixed coverage. I’m 91% happy when I get up in the morning. I’d almost be 100% happy when I get up in the morning that, namely, I don’t have to sell a car to break even, as a major retailer.
Jim Fitzpatrick: Right.
Mike Jackson: That’s what I want to be.
Jim Fitzpatrick: Right.
Mike Jackson: This is a very different mindset for dealers and retailers, to understand the role of brick and mortar has changed.
Jim Fitzpatrick: Yeah.
Mike Jackson: That the showroom is for affirmation, confirmation, and fulfillment.
Jim Fitzpatrick: Yeah.
Mike Jackson: The foundation of the business is customer care.
Jim Fitzpatrick: That’s right.
Jim Fitzpatrick: One dealer said to us, “I’ve got to win it on the laptop if I expect to see him on the blacktop.” Which, I thought was a great line.
Mike Jackson: That’s a nice line.
Jim Fitzpatrick: That’s, you know, what it’s all about, right?
Mike Jackson: That sums the whole thing up.
Jim Fitzpatrick: Can I switch gears with you a bit here?
Mike Jackson: Sure.
Jim Fitzpatrick: And talk about our industry. Some major moves by GM, obviously, a year or so ago, by appointing [Mary Barra 00:13:03], the first woman to head up a manufacturer. My first question is, what do you think of the job she’s doing thus far?
Mike Jackson: I think she’s done an incredible job under unbelievably, extraordinary circumstances that no one imagined.
Jim Fitzpatrick: Right.
Mike Jackson: I mean, this is, what happened with GM, and the ignition switch, and what happened to those families –
Jim Fitzpatrick: Yeah, it’s very unfortunate.
Mike Jackson: – the victims, it’s an American tragedy story, presented great risk to General Motors. Mary’s done the following: The American people, they’re still fair minded, and they’re willing to say, “You know, what happened with GM, in principle, is the responsibility of the old GM.”
Jim Fitzpatrick: Right.
Mike Jackson: That horrific culture that they had.
Jim Fitzpatrick: Sure.
Mike Jackson: As long as today’s GM takes the appropriate step, we’re open minded. She’s taken all the appropriate steps.
Jim Fitzpatrick: Right.
Mike Jackson: She met with the victim’s families. It couldn’t have been easy.
Jim Fitzpatrick: Yeah, huge step.
Mike Jackson: She empowered Anton [inaudible] to write that internal investigation. I don’t know whether you’ve read it from cover to cover –
Jim Fitzpatrick: No, I haven’t but, it’s very, very strong.
Mike Jackson: It’s stinging.
Jim Fitzpatrick: Yeah.
Mike Jackson: No holds barred.
Jim Fitzpatrick: Yeah.
Mike Jackson: She brought in Kenneth Feinberg to deal with compensation.
Jim Fitzpatrick: Very bold move.
Mike Jackson: And, she’s unleashed a review of everything GM has on the road, and everything in production, and anything in doubt, recall.
Jim Fitzpatrick: Right.
Mike Jackson: Pushing the classic reset button.
Jim Fitzpatrick: Sure.
Mike Jackson: That’s won GM a lot of good faith.
Jim Fitzpatrick: Right.
Mike Jackson: Then, you combine it with the fact that the products that they have in the showrooms today are excellent. The atmosphere in our showrooms is very constructive, positive, our sales with General Motors are up this year.
Jim Fitzpatrick: Right.
Mike Jackson: Despite all this.
Jim Fitzpatrick: Sure. What do you attribute that to? Do you think that the consumers are just forgiving and understand the situation?
Mike Jackson: Yes, they are.
Jim Fitzpatrick: Right.
Mike Jackson: Now, if GM stonewalled again, their reputational risk would have been huge.
Jim Fitzpatrick: Sure.
Mike Jackson: My point is, Mary’s walking a very difficult tight rope. She’s dealing with the catastrophe of the past, and at the same time, leading the company today, that it still functions.
Jim Fitzpatrick: Right.
Mike Jackson: And we’re still selling vehicles, and we’re still fixing vehicles.
Mike Jackson: Now, they’re not done yet. The story’s not over.
Jim Fitzpatrick: Right.
Mike Jackson: There can’t be any more missteps.
Jim Fitzpatrick: No, no there can’t. I don’t know that the consumers will be that forgiving.
Mike Jackson: Exactly.
Jim Fitzpatrick: Right.
Mike Jackson: So, they still have a ways to go, but I have a high degree of confidence that Mary is, indeed, the leader to see GM through this.
Jim Fitzpatrick: Sure, sure. Good. Which is perfect lead in, to my next question. When do you think it will be that we see a woman heading up an automotive group, a retail automotive group?
Mike Jackson: Well, there must be somebody out there, right?
Jim Fitzpatrick: Well, let’s say a publicly traded.
Mike Jackson: Oh, a publicly traded?
Jim Fitzpatrick: Do you think that’s in the near future? Oh, and if you want to make any announcements today, feel free.
Mike Jackson: Well, we’re coming close. We just announced our new CFO.
Jim Fitzpatrick: Yes, you did.
Mike Jackson: Cheryl Scully.
Jim Fitzpatrick: Yeah, yeah.
Mike Jackson: Who is a woman.
Jim Fitzpatrick: Yeah, that’s right.
Mike Jackson: The whole company congratulated me. This is interesting. The whole company congratulated me for appointing a woman in this key, C-suite position, CFO.
Jim Fitzpatrick: Sure.
Mike Jackson: I said, “Yeah, but she was the best person for the job.”
Jim Fitzpatrick: Right, right.
Mike Jackson: We’re getting closer.
Jim Fitzpatrick: We’re getting closer, okay. Having said that, do you think that it is still a male dominated business, and it’s tougher for women to be in retail automotive industry?
Mike Jackson: It is. I think, if I look at the women in our company, they’re always top performers.
Jim Fitzpatrick: Sure.
Mike Jackson: Now, what does that mean? That means the only way you can survive in this culture is to be a top performer. You have to out-produce the male in order to survive.
Jim Fitzpatrick: Right.
Mike Jackson: I’m not saying that’s right, I’m not saying it’s fair, I’m just observing. We have quite a number of women in key positions.
Jim Fitzpatrick: Sure.
Mike Jackson: They’re all always top performers.
Jim Fitzpatrick: Right.
Mike Jackson: At a certain point, we’ve got to be more balanced –
Jim Fitzpatrick: Sure.
Mike Jackson: – in attracting more women into our industry.
Jim Fitzpatrick: I think the Mary Barra appointment has brought that to light, and maybe there’s even more female consumers that have taken notice, to say, “Yeah, there really aren’t too many women in top management level positions at automotive manufacturers, or auto groups.” Maybe we’re under the scrutiny as an industry a bit, too.
Mike Jackson: Well, we should be.
Jim Fitzpatrick: Yeah.
Mike Jackson: It needs to change.
Jim Fitzpatrick: Sure, sure.
Mike Jackson: It is changing, but not fast enough.
Jim Fitzpatrick: Sure.
Jim Fitzpatrick: I don’t want to keep up too much of your time, here. I appreciate all the time you’ve given us. Let me just close in asking you, you’ve been here for 15 years. You’ve had one of the most remarkable turnarounds in retail automotive history, with AutoNation. You’ve done an incredible job. Stock price from six to $60. As we just mentioned, 15 incredible quarters, one after another. What can we expect to see from AutoNation? How do you top that story? Then, the follow-up question to that, so you can be thinking about it, where is Mike Jackson down the road and in the future?
Mike Jackson: So, what’s so great is we’re entering our most exciting phase. I like to build things, and in this case, I like to build a company, build an enterprise. Have a fantastically talented team around me.
Jim Fitzpatrick: You don’t feel like you’ve done that already?
Mike Jackson: Here’s my point. I think we’ve put foundational components in place that are going to allow us to do things in automotive retail that no one else has ever done.
Jim Fitzpatrick: Wow.
Mike Jackson: Whether it’s with this coast to coast brand, and this transactional, digital capability, it’s going to be very exciting.
Jim Fitzpatrick: Yeah.
Mike Jackson: Since life begins at 80, I’ve got a lot –
Jim Fitzpatrick: You’re around for a long time!
Mike Jackson: I’ve got a lot of runway in front of me.
Jim Fitzpatrick: You’ve got a lot more quarters ahead of you, don’t you?
Mike Jackson: I sure do. I mean, look at Roger, right?
Jim Fitzpatrick: I know!
Mike Jackson: He’s 76. Does he look like he’s slowing down any?
Jim Fitzpatrick: No, he does not look like he’s slowing down at all.
Mike Jackson: Okay.
Jim Fitzpatrick: Hopefully we’ll have him on CBT News to finish that.
Jim Fitzpatrick: Mr. Jackson, thank you so much for your time.
Mike Jackson: Great seeing you.
Jim Fitzpatrick: It’s so much appreciated.
Mike Jackson: Thank you.
