For those who have not noticed, AutoNation (AN) shares have surged 193% from their October 2008 lows. They sell cars …….why?
Reasons:
1- Cars fall apart. Demand for auto’s does not disappear. As a matter of fact, it has not fallen by that much, as sales numbers would have you believe. AutoNation CEO Mike Jackson has said he has full showrooms of customers, they just cannot get the credit to buy cars. Demand is steadily is building and customers will surge to pick up low priced vehicles when credit loosens.
2- Market share. Thousands of dealerships have closed of the last two year sand near a thousand more this year will go under. The good news for shareholders is they are not AutoNation’s. AN is picking up large market share gains “through attrition” as Jackson predicted they would last year in my interview with him.
3- Microsoft’s (MSFT) Bill Gates and Sears Holdings (SHLD) Eddie Lampert have been aggressively buying shares and own over 58% of it.
All that is great Todd you say. BUT, when does auto credit loosen? Well, it just might be now.
From Reuters
The first asset-backed securities offering under the Federal Reserve’s TALF program met with robust demand on Tuesday, leaving hungry investors clamoring for more of Nissan’s $1.3 billion deal.
“The deal was four to five times oversubscribed in the first eight minutes that it was announced,” said Mike Kagawa, portfolio manager at Payden & Rygel in Los Angeles, who did not get a chance to participate in the sale.
Through its Term Asset-Backed Securities Loan Facility, or TALF, the Fed aims to unclog the consumer loan market and jump-start the fledgling ABS market, nearly shut down by the credit crunch and soaring funding costs last year. ABS supply slumped by 82 percent to $159.8 billion in 2008 and has totaled just over $4 billion so far this year.
Under the plan, the Fed will make loans to investors for the purchase of ABS securities. Once the securities are sold, issuers of bonds will have freed up capacity on their balance sheets to make new loans to consumers.
JPMorgan Securities and Banc of America Securities are underwriting the “AAA”-rated four-part sale, which includes a 0.32 percent issue offered at a spread of 40 basis points over one-month Libor, a one-year issue offered at 185-200 basis points over eurodollar swap futures and two-year and 3.16 year notes at spreads of 200 to 225 basis points and 325 to 350 basis points over swaps, market sources said.
Other ABS investors agreed the deal met with very strong interest. “It quickly came and went,” another investor said.
Automakers, which rely heavily on the securitization market for funding of their auto loans, are expected to benefit the most from the plan. World Omni is also expected to be in the line-up of TALF-eligible auto sales over the near-term, market sources said.
I first picked up shares in May last year at $15 an change a then quadrupled the position in Sept-Oct between $7 and $8 for a now average cost of just over $9. Since they are up over 40% am I thinking of selling? No.
The turnaround story here is just beginning. AN is now a very lean operation and there are years of markedly improved earnings coming. As I first said in August last year and still believe, eventually AutoNation, Sears auto and AutoZone become one.
Disclosure (“none” means no position):Long AN
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