Had a great conversation with CEO Mike Jackson and COO Mike Maroone from AutoNation (AN) after earnigs were released this morning.
Some notes:
– Q1 was the bottom for auto sales
– Expects an annual run rate of 11 million units by end of 2009
– The 900 to 1200 dealership closures that are currently estimated for 2009 is “substantially below” what they feel the eventual reality will be.
– Regarding Closures:
- Counting rooftops is not a totally accurate assessment of the effect of closures. For instance, the Bill Heard closings, while only 30 dealerships, had a fundamental change in the markets in which they did business because of the huge volume of business they did in them. Those dealers left standing in those markets are now seeing significant operating improvements (share and margin).
– Domestic metro market are those in which “rationalization” will occur
– Rural markets are “fine”
– Domestic share now at 30% and AutoNation now plans to lower that through the GM (GM) and Chrysler restructuring. Those dealerships that AN owns will then be transferred to other uses (Import, Luxury)
– Debt Covenants:
- Leverage ratio down to 2.35 vs covenants of 3.0 (better than Q4)
- “The deeper we get into this, the stronger we get”, looking forward to the rest of the year, if one were to say they are very comfortable with their covenant situation that would be an “extremely, extremely credible statement”.
- $400 million in capacity in credit lines and cash on hand makes for “colossal liquidity”
– Service down only 6% and has proven very resilient.
– GM’s announced 9 week shutdown is fantastic move as it means they are serious about getting rid of excess inventory
– Auto loan securitization will be TALF dependent through 2009
Here is Jackson’s CNBC appearnance this morning:
Disclosure (“none” means no position):Long AN, none