AutoNation Earnings Call Insights: New Branding Strategy and Regional Names
AutoNation Inc (NYSE:AN) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
New Branding Strategy
Mike Jackson – Chairman and CEO: This is Mike Jackson. We, anticipating this had already pretty much moved to common themes and our communication like the, ‘Who You Gonna Call’ theme, runs in all 15 markets today. And we felt by having those themes established in all 15 markets then when we launched the AutoNation brand we’ll just keep the same theme and put in AutoNation. So, we’ve already achieved that will continue it. Obviously, though there is tremendous efficiency to move into one unified brand, both on the cost side and on the impact side. I will also tell you though that biggest opportunity that we see and probably the tipping point to finally take the step is the opportunity in digital. As we discussed, we view our foundation for digital is established, we’re at an inflection point, we are investing heavily in that. All of our calculations show that as we make this back on digital that the pay-off can be much bigger with one brand from coast-to-coast namely AutoNation. So, the benefits just go on and on and there is no question year-after-year it will just get stronger and stronger.
Elizabeth Lane – Bank of America Merrill Lynch: And you mentioned that automakers are on board with the new branding strategy. Are the OEMs generally growing more comfortable with large partners like AutoNation and could that open up more acquisition opportunities?
Mike Jackson – Chairman and CEO: Obviously, we have an outstanding relationship with the manufacturers based on partnership, trust and mutual respect or they never would have approved this step. And on naming the manufacturers have tremendous power because we need their affirmative consent to the states in order to get our license. So, it is not like you can do this and then fight about it, we need affirmative consent. And as we discussed this with them they set very high standards that would have to be met and that’s understandable and I am very proud to say that AutoNation from coast-to-coast has met and exceeded all those standards. So, our relationships with the manufacturers are stronger than ever.
Elizabeth Lane – Bank of America Merrill Lynch: Just one quick question on January. Did you see any impact on sales from the expiration of the payroll tax cut and then consumer seeing a bit less in their paychecks this month or did it seem like it was still pretty healthy month of sales?
Mike Jackson – Chairman and CEO: The month is obviously not over, today is the last day. But we did have concerns considering December was such a strong close would there be a low or hangover and I am very happy to report that January was like a sprinter out of the starting blocks and we will report our new vehicle sales results on Monday, but I expect them to be up 15% to 20%.
N. Richard Nelson, Jr. – Stephens: Just a follow-up on the rebranding. I am curious if you’re planning to pull the regional name off the stores and replace them with AutoNation or do you add the AutoNation linked…?
Mike Jackson – Chairman and CEO: That’s a very good question and there is some confusion about that, Rick, so let me be clear. Let’s take South Florida which will be the first market to change tomorrow. Now, mind you, Maroone is a fantastic local market name, for 58 years vehicles have been sold under the Maroone name. Our associates when they go home today the name Maroone will be on the dealership when they go back to work tomorrow, the Maroone name is gone and AutoNation has replaced it. This is a full scale replacement. The Maroone name disappears, never to be seen again, unless one of Mike’s grandchildren opens a dealership, let’s say in Buffalo or something like that, but the AutoNation – the Maroone name comes down and AutoNation goes up. So, if it was Maroone of Pembroke Pines in now becomes AutoNation Pembroke Pines and that will continue across the country, being totally completed by June. We will have, and this is the reason for an incremental surge in marketing communication spend of $18 million, that is non-recurring, that is simply dedicated to educating the marketplace that the Maroone name is now AutoNation and that the Go name is now AutoNation and the Power name is now AutoNation. We think that is important to do, to bridge the transition as these names go away. We did not want to straddle the fence and mix apples and oranges. We’re ready for this step. We’re all in, and you may say, well why didn’t you do it before? Mike and I discussed two different approaches, we could put the name up first and then add the capabilities and the customer experience and the attributes. So, in other words, over promise and under deliver or we could be patient and make the investment of $3.7 billion in facilities, in additional car lines and most importantly in the customer experience and then when we’re really able to deliver a peerless experience, then name the baby. So, we’re at that point and to be unequivocal, this is all in. We’re not going back. These 15 local market brand names, under which we retailed almost 9 million vehicles start going away tomorrow and will be replaced by the name AutoNation.
N. Richard Nelson, Jr. – Stephens: Just to be clear does this includes the luxury stores as well?
Mike Jackson – Chairman and CEO: No. For Premium Luxury business, and by Premium Luxury that is primarily the German, the Mercedes-Benz, BMW, Audi portion of the world there we’ve always had a different strategy. So, we’ve never sold Mercedes-Benz under the name Maroone, for instance, in South Florida. So, the Maroone name was never associated with our Premium Luxury business, it was always Mercedes-Benz of Fort Lauderdale per se. So that will stay exactly the same. So, the Mercedes-Benz of Fort Lauderdale there is no change whatsoever, those names continue. So, we always had a bifurcated strategy between high volume marketing and Premium Luxury marketing. So, for the high volume business there is the local market brandings were used they are going away, being replaced by AutoNation that’s about 82% of our unit volume is now going under the AutoNation flag and on the unit volume basis the Premium Luxury business will retain the strategy that we put in place long ago it is working very well for us.
N. Richard Nelson, Jr. – Stephens: If I could ask just one final question. The incremental spend that you talked about the (80 million) is that going to be fairly consistent through the first half or is it front-end loaded or back-end loaded?
Mike Jackson – Chairman and CEO: It is front-end loaded in each market, so it will hit very heavy starting in South Florida tomorrow and we do Texas next week and then there is a whole schedule for the other markets completing in June. It is $18 million incremental spend purely focused on the name change. Now, for instance, in South Florida, when we change the name tomorrow to AutoNation, all the other communication, normally the selling vehicles that normally would say Maroone, now say AutoNation. So, the amount of marketing dollars going behind AutoNation will migrate to the entire communication efforts, but on top of that there is non-recurring $80 million surge in spending that I would say maybe Mr. Short you know is about equally split between the first and second quarter.