AutoNation’s (AN) CEO Mike Jackson was on NBC’s Nightly News the other night.
Here is the appearance:
Now, Jackson is both being right and a little self-serving which, as a shareholder is just fine. $4 gas for a prolonged period will lead to a fundamental shift in consumer behavior. The tens of millions of SUV’s that have been sold in the past decade are going to be traded in for smaller, more efficient models in droves.
As the largest auto-dealer in the nation, Jackson (and shareholders) will benefit from that activity. As gas prices inch higher ($4.25 around here) that activity will begin sooner and become greater. Good….
While auto sales are currently down (along with AN’s stock price), this is not an evaporated demand situation. It isn’t like retail where I may pass on something and just never get it. People need cars as they age and deteriorate (or trade in a gas guzzler). The demand builds over time as the purchases are put off, then it releases and the longer the build, the faster the release.
The key here is Jackson’s market share. As dealerships close, Jackson is getting an even bigger piece of a shrinking pie without expending more capital to do so. The Kiplinger Letter recently predicted 15 million auto units to be sold this year. Here is what got me. They said “expect 1,200 dealerships, mostly US only brands to be gone by the end of the year”.
Since they will not be Jackson’s, this is good news for AutoNation shareholders.
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
3 replies on “AutoNation's Jackson on $4 Gas…..Good”
Todd, I think you are right that AN stands to be a winner from any rationalization that takes place within the auto sector. However, I think you underestimate the extent to which people will change their behaviour if petrol prices stay at the level they are now.
– 2 and 3 car familiy’s will become one car family’s
– Those living in large cities will increasingly leave the car at home and take public transport
The overall car owning pie will likely get smaller and that is not such good news even for the best car dealers.
bryan,
i think initially you may be right which is ehat we are seeing now in the demand drop for auto’s. long term realities set in, kids need cars for work, school, event etc. the three car family may go to 2, but not 1. even with that though, one of them is an suv which will likely be traded in.
age is still a factor too…
the city folk are not big auto buyers anyway, so i think any real effect there may be negligible
All Big Auto has to do in order to return to profitability is mass market an electric car that 1) can make 1000 mile trips on one battery cycle and 2) doesn’t take forever to charge. If that happens we don’t need the oil as much making the environment better and Americans can keep their style of living.
I think what todds trying to get at is that since AN is bigger than most dealerships they will continue to grow in market share because they are more likely to stay in business in tough times then some of the smaller ones they have better cash flow. Lampert sees this and I think its also what Buffet sees.