Searching back through my favorite memories, I can warmly remember the first time I saw the stage play "Annie" back in the early eighties. In the Broadway version of the musical, Andrea McCardle starred as Annie with Harve Presnell playing the part of "Daddy Warbucks." Of course the best part of the whole play was when that wonderful little red-haired girl stood at center stage and belted out her theme song "Tomorrow". Later on Daddy Warbucks, FDR, the president's cabinet and Annie all joined in and sang it again. Just thinking about it brings tears to a grown man's eyes which are running down my face and splashing into the snifter of Remy Martin Cognac sitting next to the keyboard of my computer. Part of the lyrics go like this"The sun'll come out TomorrowBet your bottom dollar that tomorrow there'll be sunTomorrow TomorrowI love ya TomorrowYou're always a day away-y-y-y-y."
Well folks, the modern day, real life version of that play stars another bald billionaire but this time the cast features a new Daddy Warbucks singing the all-new revised AutoNation version of the Annie theme to some little Orphan Car Dealer whose store they are about to swallow.
The new AutoNation lyrics sound something like this"The stock'll go up TomorrowWe want you to risk your bottom dollarThat Tomorrow there'll be gainsTomorrowTomorrowWe'll be profitableTomorrowTomorrow's just a day away-y-y-y-y-y."
Nearly two years ago the public corporations, the superstores and the consolidators came thundering into the market making a lot of noise. "There's a new sheriff in townWe're here to clean up this dirty car business." CarMax and AutoNation were here to teach us how it's done. These guys were going to teach us "Efficiencies of Scale" and how to take advantage of "Critical Mass." They painted traditional automobile sales people to be a collection of seedy criminals. "We're gonna teach you how to sell cars like they was videos, Son!"
Wayne and Steve described how they were going to achieve "Clusters" in strategic markets. At that time I believe they were using the term "Cluster" as a noun, however it's turned out to be an adjective when used to describe their ability to run a used car operation.
According to the most recent research by The Dohring Company, the superstore concept appears to be failing. (not a big surprise to those of you who have been reading this column over the last couple of years).
Even though public awareness of the superstores is increasing, the probability that someone would shop at one has decreased from 49% to 37.6% with a down arrow. The survey was conducted with more than 400 respondents who bought a 1992 model or newer car in 1997 in the Houston Market where there are three AutoNation locations and three CarMaxs. All of the people surveyed lived within ten miles of one of the superstores.
The good news is that 87% of the customers who shopped at a new car franchised dealership bought a car from oneas opposed to just 19% of the customers who shopped at a superstore like CarMax or AutoNation and actually bought a car from a superstore.
Haven't I said in this column for the last three years that one-price doesn't work in a competitive market? Wasn't I the first one to point out that CarMax and AutoNation prices were outrageous?
According to the Dohring survey, the public has overwhelmingly agreed with me, citing that high prices were the main reason they didn't purchase from one of the superstores. Not surprising was the fact that the public views the superstores as impersonal.
It is almost comical watching Wayne and Steve squirm as, piece by piece, their original business model falls apart exactly as I predicted. You've got to remember that AutoNation is the cornerstone concept that they sold to Wall Street. If it fails, Republic fails.
These ostentatious twenty-five million-dollar Taj Mahals were built to stock a thousand units or more in inventory. That was the original plan anyway. Now they are stocking in the neighborhood of 500 units per location. They have had to publicly admit that they didn't carry the right merchandise and their prices were out of line. Reconditioning ate them alive and their inventory rotted on the lot so-to-speak. Inventory aging was an alien concepts to these novices.
They were so proud of the fact that they had no traditional "Car People" running the operations with "No-Haggle" customer-friendly prices and cute little computer kiosks that replaced the traditional sales person. Well fans, if the Dohring survey is accurate, and I am certain that it is, the public is rejecting the entire concept in increasing numbers.
Additional research coming out of CNW Marketing Research, Bandon, Oregon agrees with the Dohring research that consumers are becoming increasingly aware that the superstores' prices are too high.
Mike Maroone, Republic's President of New Car Operations has been quoted in numerous publications as saying AutoNation will be the low cost provider. Sort of sounds like the chorus from the song "Tomorrow" again doesn't it. Excuse me folks, when he says they will be the low price provider, doesn't that sound like he's admitting their prices are high now?
As for the non-traditional AutoNation sales farce, (excuse me, I meant to say "sales force"), they are now replacing some of Wayne and Steve's former Blockbuster Video cronies with real Car Guys. They are aggressively recruiting and hiring experienced "Car People" with traditional retail experience.andthe funniest twist of allthey are now paying their alleged sales people on commissions. That is definitely a major breakdown from their original model that was going to revolutionize the industry with salaried sales people.
Let's see now, they've put these alleged sales people on commissionshad major layoffs in their reconditioning centers... they cut their reconditioning expenditure per unitreduced their warranty coveragereduced their inventory in stock by half the original modeland charged their dealership operations an alleged one-time charge of reportedly more than 150 million dollars to incorporate AutoNation stores into Republic's new and used car operations. Whew, for a minute there I was afraid that 150 million dollar write-off was going to be considered a loss the way most other companies would have reported it.
Disclaimer: I would like to make it perfectly clear that I am not saying that incorporating AutoNation dealerships into their overall Republic Dealership Operations is an accounting trick to make it easier to hide AutoNation's losses from critics and stockholders.
The point is that AutoNation is starting to operate like every other dealership on the block. It appears that they have not contributed anything to the industry that actually works. Maybe that's the reason that Robert Friedman at Standard and Poors seems to have such a low opinion of Republic stock. Since nothing in their model seems to have any added value to the industry, then this is really just another over-priced four-dollar stock.
Obviously, the results of Art Spinella's research at CNW Marketing and Dohring's recent research seem to support my contention that one-price is not working for the superstores and is actually increasing business for their immediate competitors; nearby traditional dealers.
Right now, I know of some dealers who are planning to feature billboards and newspaper ads that say
"Save ThousandsDon't get soaked at the Superstores""We will negotiate"And "Don't pay the Highest prices in the Nation."And "Don't Pay the Max".
Republic is just another dealer group, nothing specialjust got a few more stores doing business the same way all the other car dealers do.
As I wind down this article, swirling the last few sips of cognac, holding the snifter up to the light, I'm humming softly beneath my breath"Tomorrow TomorrowI Love YaTomorrow Tomorrow's just a Day Away-y-y-y-y."