Tag: AN

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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This is great news for Sears Holdings (SHLD) shareholders

By Mary Ellen Lloyd Of DOW JONES NEWSWIRES

Sears Holdings Corp. (SHLD) increased its share of the U.S. retail market for major appliances in 2008 – its first increase after years of declines – as new marketing programs and price discounts helped sales.

The department-store holding company plans to build on its momentum in 2009 through a new rebate-finder program, consumer credit offers and an ongoing rollout of appliances to more stores in its Kmart chain, executives said in a recent interview with Dow Jones Newswires.

“We’re not doing any victory laps yet, but we’re encouraged,” said Doug Moore, Sears’ president of home appliances.

Indeed, Sears isn’t completely out of the woods. Weak appliance sales contributed to an 11% drop in comparable-store sales at the entire Sears chain in the fourth quarter. Even so, Sears picked up a larger share of the overall appliance market.

Moore wouldn’t share dollar or unit sales but said third-party research shows Sears maintained market share in the first quarter of 2008, then gained in each of the remaining quarters to capture a full-year increase.

With its top-ranked Kenmore brand, Sears has long been the top U.S. seller of refrigerators, washers and other major appliances. Lowe’s Cos. (LOW) in the late 1990s and Home Depot Inc. (HD) around 2001 began pushing harder to take market share, expanding selling space and adding brands.

Sears saw its market share decline from about 40% in 2001 to 29.5% in 2007, according to trade magazine This Week in Consumer Electronics, in conjunction with market research firm The Stevenson Co. of Louisville, Ky.

Second-ranked Lowe’s had 15.3% of the $28.1 billion retail appliance market, Home Depot ranked third with 13.8%, and Best Buy Inc. (BBY) was next with 6.8%.

TWICE typically updates appliance rankings in June. Bob Tancula, Stevenson’s vice president of research, declined to release 2008 numbers, citing the confidentiality of paying clients such as Sears. But he confirmed the company had stemmed market-share losses.

“Sears is still the No. 1 by a long shot,” he said.

The gains didn’t come from Lowe’s or Home Depot but were likely taken from smaller local or regional players. “Home Depot and Lowe’s market share in 2008 did not drop off,” Tancula said.

Category Hit By Economy, Discounting

Like automobiles and other big-ticket categories, major home appliance sales have been hit hard by the weakening U.S. economy, tighter credit and the collapse of the housing market. Industrywide unit shipments in the U.S. fell 8.9% to 68.2 million units in 2008, according to the Association of Home

Appliance Manufacturers.

And pricing has been very competitive. Sears regularly offered 15% to 20% off
appliances around the holidays. Home Depot gave up appliance sales rather than sacrifice profit margins in the latest quarter, said Chief Financial Officer Carol Tome. “It was a highly promoted category and we elected not to promote it,” she said.

Lowe’s spokeswoman Chris Ahearn said the retailer’s fourth-quarter unit market share was 18.1%, up 1.4 percentage points from a year earlier. But matching some of the promotions at Sears and others hurt gross margins. Moore, the Sears executive, said it’s taking share “in a financially responsible way.”

“We are not abandoning principles of profitability in how we go to market,” he
said, declining to provide specifics.

Customers have responded favorably to Sears’ “Blue Appliance Crew” marketing
campaign launched last fall, Moore said. As part of that, Sears’ blue-shirted
employees use Web kiosks to show customers other retailers’ prices on the spot,
potentially removing one obstacle to completing a sale.

The campaign also touts Sears’ delivery, variety of brands and financing offers. Sears has been able to offer no-payments and no-interest financing for 12 months on major purchases more frequently than some of its competitors, said Kevin Brown, chief marketing officer for appliances.

Sears’ competitors and some analysts don’t expect appliance discounting to accelerate. Moore said the company plans to capture more business by touting its repair services and by expanding retail space devoted to the category through Sears Home Appliance Showrooms and other newer formats. It also expects to add appliances to more of its 1,400 Kmart stores after putting them in about 286 stores in recent years.

New customer service programs could help, too. For example, Sears recently launched a rebate-finder service. Store employees can determine whether a specific appliance qualifies for a state, federal or utility company rebate through the “Energy Star” program, and they can walk customers through applying for the rebate when they make a purchase.

Sears is working to expand the program to manufacturers’ rebates.

Such conveniences may help close the sale, but the big issue facing Sears and others will be folks like Nick McCoy, who recently waited to replace his washing machine “until the puddle got too big to live with.”

McCoy, who is a senior consultant following home goods for market-research firm Retail Forward, said price and having the key brands are the key issues for most customers these days.

“It’s going to continue to be a battle,” he said.

This will not get much press because its effect now is negligible. This is the same story (too a slightly lesser degree) as Lampert’s other investment, AutoNation (AN). Picking up market share gains in downturns. When the appliance market turns, and like auto’s it will (they break and wear out) Sear’s will see out-sized gains from the increases.

For a retailer there are plenty of ancillary gains. People in the store shopping for appliances will spend money while there on other items increasing overall sales.

Here is the best part. What this does is begin to put Sears higher on the list in people’s minds as a place they can stretch their dollars. We are clearly entering a prolonged period in which people are thinking hard about every dollar they spend. We can see this easily in results at Wal-Mart(WMT) as perceived value drives customer behavior.

The fact that a customer can go to Sears, find and appliance and then be sure they are paying the lowest price for it saves a huge amount of time AND assures the customer they have made a wise buying decision. There is a great long term value to this.

Disclosure (“none” means no position):Long SHLD

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Bottom line, we are at depression levels for new car sales and Jackson still has his company profitable with strong cash flows. I have hammered this point here before and will do so again. The market share gains AutoNation (AN) is achieving in this environment as thousands of rival dealerships have closed the past two years assure a strong recovery for the company.

Jacskon: “At $2 a gallon gas, people are not buying “green” vehicles and the migration back to big cars and SUV’s is already underway”

Jackson: If you want to sell “green” vehicles, you need to place a higher floor under gasoline prices.Let’s also not forget nearly 60% of the share are held by two people, Sears Holdings (SHLD) Eddie Lampert and Microsoft (MSFT) Founder Bill Gates. Auto demand does not disappear, it wanes and surges. While folks today will hold into their vehicles a little longer and repair them (witness recent sales at AutoZone (AZO))eventually they need to be replaced. Jackson and his company will be a much larger player in that field when it does happen.

Disclosure (“none” means no position):Long AN, SHLD, none



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There is a very interesting sentence in there about ESL and Eddie Lampert.

The applicable sentence is highlighted by me below…

From the 10-K

In January 2009, our Board of Directors authorized and approved letter agreements with certain automotive manufacturers in order to, among other things, eliminate any potential adverse consequences under our framework agreements with those manufacturers in the event that ESL Investments, Inc. and certain of its investment affiliates (together, “ESL”) acquires 50% or more of our common stock. The letter agreements with American Honda Motor Co., Inc. (“Honda”) and Toyota Motor Sales, U.S.A., Inc. (“Toyota”) also contain governance-related and other provisions as described below. Also a party to both the Honda and Toyota Agreements is ESL, our largest shareholder. As of February 6, 2009, ESL beneficially owned approximately 45% of the outstanding shares of our common stock.

Under the terms of the Honda Agreement, Honda has agreed not to assert its right to purchase our Honda and Acura franchises and/or similar remedies under the manufacturer framework agreement between Honda and the Company in the event that ESL acquires 50% or more of our common stock. If ESL acquires more than 50% of our common stock, ESL has agreed to vote all shares in excess of 50% in the same proportion as all non-ESL-owned shares are voted. In addition, we have agreed to ensure that a majority of our Board is independent of both the Company and ESL under existing New York Stock Exchange (“NYSE”) listing standards. Furthermore, the Honda Agreement provides that Honda’s consent does not apply to a “going private” transaction under Rule 13e-3 of the Securities Exchange Act of 1934. The terms and conditions of the Honda Agreement will only apply at such time and for so long as ESL owns more than 50% of our common stock.

Under the terms of the Toyota Agreement, Toyota has agreed not to assert its right to purchase our Toyota and Lexus franchises and/or similar remedies under the manufacturer framework agreement between Toyota and the Company in the event that ESL acquires 50% or more of our common stock. If ESL acquires more than 50% of our common stock, ESL has agreed to vote all shares in excess of 50% in the same proportion as all non-ESL-owned shares are voted. Furthermore, we have agreed that a majority of our Board will be independent from both the Company and from ESL under existing NYSE listing standards. We have also agreed not to merge, consolidate, or combine with any entity owned or controlled by ESL unless Toyota consents thereto. In addition, the Toyota Agreement provides that in the event that we appoint a Chief Operating Officer who, in the good faith judgment of our Board, does not have sufficient breadth and depth of experience, a relevant, successful automotive track record, and extensive successful automotive experience, ESL shall be required to divest its shares in excess of 50% within nine (9) months or its voting interest will be limited to 25%, and if ESL does not divest such shares within eighteen (18) months, it will lose all voting rights until it divests such shares. The terms and conditions of the Toyota Agreement will only apply at such time and for so long as ESL owns more than 50% of our common stock and will terminate on December 31, 2009 with respect to future stock acquisitions by ESL, provided that ESL may seek successive annual one-year extensions, and Toyota may not unreasonably withhold or delay its consent thereto.

In connection with the Toyota and Honda agreements described above, in January 2009, our Board authorized and approved a separate letter agreement between the Company and ESL in which ESL has agreed to vote shares of our common stock owned by ESL in excess of 45% in the same proportion as all non-ESL-owned shares are voted. The ESL Agreement expires on January 28, 2010, unless extended by mutual agreement of the parties.

This is the first time I have seen in a filing the thought that AutoNation may be “merged with another entity”. hmmmmmm

Readers here know that for a while now I have thought Lampert’s end game is an AutoNation (AN), Sears Holdings (SHLD) and AutoZone (AZO). The reason can be found here.

Share Repurchases:
On October 23, 2007, our Board of Directors approved a share repurchase program (the “Share Repurchase Program”), which authorized AutoNation to repurchase up to $250 million in shares of our common stock. The Share Repurchase Program does not have an expiration date. During the fourth quarter of 2008, we did not repurchase any shares of our common stock. As of December 31, 2008, up to $142.7 million in shares may yet be repurchased under the Share Repurchase Program.

Sales:
Interesting statistic. Luxury sales were down 16% vs 29% for domestic for the company. In 1999, AN was 70% domestic 30% import/luxury. In 2009 those numbers will be almost 80% import/luxury vs just over 20% domestic.

Disclosure (“none” means no position):Long AN

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Justa day after Bill Gates, who holds 12.2% of the stock filed a 13D, Sears Holdings Chairman (SHLD) Eddie Lampert added to is 46% stake.

Lampert disclosed today he added 28k shares of AutoNation (AN) on 2/2.

Seems to be a race to own it..

Disclosure (“none” means no position):Long SHLD, AN

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