AutoNation closes doors on its Las Vegas-area superstore

Phil Levine

Tuesday, Dec. 14, 1999 | 10:48 a.m.

AutoNation Inc., America's largest auto retailer, closed its Henderson superstore Monday as part of a national effort to reduce costs and bolster stock value.

Casting a dark shadow over the holiday season for its 90 Henderson employees, the Fort Lauderdale, Fla.-based auto giant simultaneously closed 23 used car superstores nationwide. A total of 1,800 employees were laid off.

The company also revealed plans to integrate six other used megastores with new vehicle franchises.

A company spokesman said AutoNation's 10 Metropolitan Las Vegas dealerships are unaffected by the closure. However, he said an unspecified number of the laid-off Henderson employees could be integrated into other local franchises.

AutoNation plans to sponsor a local job fair for the remaining laid off employees.

The company operates more than 400 franchises in 19 states, and sells cars through its AutoNationDirect.com Internet website. Total auto sales are expected to reach about $20 billion this year.

AutoNation Chief Executive Officer Michael Jackson said he regretted closing the stores during the holiday season, but financial regulations required moving swiftly once a final decision was made.

"This was a very difficult move given the time of year, but the decision (to close) was made and we had an obligation to our shareholders to publicly reveal it," said Jackson. "The company determined that while the megastores were a marketing success, they weren't an economic success."

In an effort to appease Wall Street, AutoNation concurrently announced the repurchase of $500 million of common stock; that's in addition to the approximately $1.2 billion of stock repurchased since August 1998.

As a result of the closures, AutoNation said it will take a one-time charge of between $430 million to $490 million against fourth-quarter earnings.

The closure of the used car superstores comes only weeks after the company began its nationwide "branding" campaign.

As part of that initiative, all AutoNation franchises nationwide -- with the exception of luxury dealerships -- are marketed under the AutoNation banner.

In addition to establishing brand recognition, that move was also seen as a cost-saving measure. It's estimated AutoNation dealerships spend about $230 million on print and television ads each year; marketing under one name is seen as a way to cut those costs.

Jackson said the decision to close the superstores doesn't mean AutoNation is departing the used car market.

"The used car business remains important to us," he said. "It's also important to note that our 400-plus new car dealerships all sell used cars as well."

He also stressed the growing importance of Internet-based auto sales.

"E-commerce will be one of our fastest growing areas," said Jackson. "Our online sales will reach $1 billion this year, and more than $1.5 billion next year. That is a market we intend to actively pursue."

Industry watchers were unsure whether the closures would strengthen AutoNation's bottom line or harm its marketing efforts.

"Some consumers may see the AutoNation used-vehicle superstores shutting their doors, and mistakenly believe the entire company has gone out of business," said Chris Denove, director of automotive retail analysis with Agoura Hills, Calif.-based J.D. Power & Associates.

"This is because AutoNation initially focussed its branding strategy primarily on its used vehicle superstores. As a result, AutoNation must now increase its efforts to aggressively position its brand name with its new vehicle operations."

Still, Denove said the company made the right move by closing its used car superstores.

"This is a prudent business move for AutoNation," he said. "They found it difficult to sell late-model used vehicles in a market where manufacturers are heavily incentivizing new vehicles."

Other factors hurting used-car superstores included marginal returns in their parts and service business and difficulty competing with franchised dealers who obtained cheaper used cars through trade-ins.