How Michael Jackson retooled AutoNation with a master craftsman's precision Featured

7:00pm EDT December 20, 2004
How Michael Jackson retooled AutoNation with a master craftsman's precision

AutoNation Inc. is the Hummer of automobile dealerships. Simply put, it's the largest dealership in the country, and Chairman and CEO Michael Jackson's take-no-prisoners attitude suggests he's ready to run over his competitors like a Hummer over, well, anything else on the road.

Jackson was brought in as CEO in 1999 by founder H. Wayne Huizenga to retool AutoNation's hodgepodge of companies.

"Everybody who didn't do it our way, we threw out of the company," Jackson says. "We hired people who did want to do it our way. Was it a battle? Absolutely. Is it over? Absolutely. The idea that you're going to run this business with 350 entrepreneurs all going in different directions is crazy. You're not going to add any value that way."

Jackson, who began his automotive career as a maechanic, arrived from Mercedes-Benz USA LLC, where he was president and CEO. At Mercedes he led a renaissance in the luxury vehicle brand's sales and marketing efforts. He saw a similar opportunity for growth at AutoNation.

"I thought something could be done in automotive retail that had never been done before," he says. "AutoNation was the company that could do that. It (also) gave me the opportunity to work directly with one of the great entrepreneurs of the 20th century."

It wasn't long before Huizenga took Jackson under his wing.

"Wayne is an unbelievable entrepreneur," Jackson says. "We developed a relationship where he was a great mentor. Working with someone from whom I could learn so much was an opportunity I couldn't let go by. Wayne hasn't disappointed me."

Huizenga may have created the company in 1996, but it is Jackson who has built it into one of the largest and most well-run organizations in the nation.

Under Jackson's direction, AutoNation has become America's largest automotive retailer, employing 28,000 people at more than 280 dealership locations representing more than 360 new vehicle franchises across 18 states. The company boasts more than $19 billion in annual revenue and ranked No. 97 on the 2004 Fortune 500 list, outselling all other automotive retailers in the United States.

The company is also the Web's largest automotive retailer of both new and used vehicles, generating $3 billion of revenue in 2003 via the Internet. For his efforts, a group of Jackson's peers last year at the Automotive Hall of Fame voted him "Industry Leader Of the Year."

Culture builder

The automobile dealer industry is extremely fragmented. Only 6 percent of dealerships are owned by publicly traded companies; the rest are operated by entrepreneurs, who are known for their independence. That made AutoNation's growth strategy of acquiring existing dealerships to bring under its umbrella a sometimes-tricky move.

"Five years ago, when I arrived here, that was a huge cultural issue," Jackson says. "It clearly had to be addressed and was going to be the key issue of whether we succeeded or not."

To overcome that issue, Jackson made sure every executive at the company understood and was willing to adopt the newly defined role of executive. Those who couldn't -- or wouldn't -- abide by the new profile were out of a job.

"The profile basically said that we want entrepreneurial energy, high ethical and integrity standards, but combine with that executives who have an understanding of the power of process and who want to be part of something big. And, we wanted people who get extreme motivation by creating something extraordinary," he says. "It's not all about them, the individual."

And, Jackson says, he expects his management team to have passion for their work.

"We had to ask quite a number of executives to leave the company," he says. "And we had to recruit executives who fit that profile. I'm happy to say, today, that's the culture we've created. It's not an issue. Everybody who is with the company is deeply involved in discussing how we do it, but not if we do it. That cultural war is over."

Jackson does not use the word war lightly. Nearly half of the company's executives never fit the profile.

"It took a full five years," he says. "When I started, 10 percent of the executives fit that profile. Fifty percent maybe fit that profile and 40 percent did not. Today, we have 90 percent who fit that profile and 10 percent are on their way there. That's a dramatic transformation."

The result of that transformation is evident not just in the company's top-line revenue of close to $20 billion, but also in its net income, which increased nearly $200 million from 1999 to 2003 as Jackson made the tough decisions and built a new corporate culture from scratch.

Efficiency also improved as a result of the moves.

"We look at every aspect of the business, from how we buy electricity to how we interact with the customer," he says. "And we systematically bring, on a given issue, the best people in the company together to figure out what is absolutely the best practice, best process for the customer and the company, and then systematically implement that across the company."

That would not have been possible in the old days, with each dealer operating independently.

"Everyone in this company (understands) the combined power of entrepreneurial energy with best practice process," Jackson says. "It's tremendously powerful combination. Where (with) small business, it doesn't make sense for all the incremental improvement, it makes sense for us because we apply it to such a (large) scale.

"For us, every time we find a 10-basis-point improvement, it means something. It means something to the existing business, and it means something to everything we acquire in the future. Imagine, by 10 basis points at a time over five years, we have created a 500-basis point advantage of cost over our competition, and we feel we have another 200 (to go). That's a 700-basis point improvement that we're creating in seven years. That's quite something, and it's very difficult for anybody else to match."

Entrepreneur at heart

While Jackson's changes at AutoNation were necessary to grow the business, as a former car dealer, he understood the power of the entrepreneurial spirit.

"Having grown up in retail, but also having worked in a large corporate environment where you get a broader view, you understand how big corporations work," he says. "You understand the power of process, the power of strategy. Without that background, I think it would have been very difficult."

That background has made it easier for Jackson to oversee AutoNation's operations, which are spread across 18 states. The company's largest presences are in California, Texas and Florida, and Jackson says there are no immediate plans to enter the remaining 32 states with physical locations. AutoNation does, however, do business in all 50 states through its Web initiative, a strategy Jackson has supported since the beginning.

"We always believed the Internet was going to change the balance of power between the consumer and business," he says. "You were going to have an educated, informed and empowered consumer, compared to what was possible in the marketplace five, 10 or even 15 years ago. We saw this as an opportunity."

Jackson says that's because informed consumers make it easier for AutoNation to facilitate a quicker, more convenient transaction time. And, with that in mind, Jackson tasked his team with finding ways to embrace the Net.

"We have been able to dramatically reduce our transaction times over the last five years through the arrival of e-commerce," Jackson says. "By having embraced it and not resisting it, by designing all our processes to take into consideration that you have an e-empowered consumer, that has been a big advantage for our customers."

Jackson cites studies that show 80 percent of his company's customers spend time researching cars, prices and loans before they ever contact an AutoNation salesperson or begin an online transaction. The company's processes are designed to be customer-friendly, he says, in an effort to meet or exceed customer expectations.

"It's been a big win for us," he says.

AutoNation's Web component may have exploded over the past few years, but Jackson says growth through acquisition is expected to continue at a much slower and consistent pace.

"The segment has only consolidated 6 percent by publicly traded groups, meaning it's still 94 percent independently entrepreneurial," he says. "It will be a very gradual consolidation. If, in the next five years, that begins to knock on 10 percent, that's about as fast as I can see it grow."

Singularly focused

Jackson's arrival at AutoNation heralded a new era for the business in another way. In addition to sweeping away executives who wouldn't or couldn't adopt the new approach, Jackson eliminated those parts of the business that weren't focused on selling cars.

AutoNation, once part of Huizenga's Republic Services conglomerate, also owned Alamo Rent-A-Car and National Car Rental.

"The basic decision I made when I arrived was that AutoNation was going to be very good at one thing, and that's automotive retail," Jackson says. "We're going to be the best in the world at it. Anything else is a distraction."

Jackson's moves were quick. Just three months after his arrival in November 1999, the company exited the vehicle rental business. The spin off of Alamo Rent-A-Car and National Car Rental into publicly-traded ANC Rental Corp. was completed by June of the following year.

By year's end, Jackson had also exited the used vehicle megastore business, closing its AutoNation USA stores.

"Creating conglomerates is very difficult to do," he says. "General Electric has done it. They took 100 years to do it, but I don't have 100 years.

"I'm not sure with how the megastores were created in AutoNation, we could have ever had added value," he says. "There were many things that were done from a consumer point of view that were extremely positive, but the economic model was flawed. And we needed to put that behind and put our capital and our energy where we could create value."

Today, with its singular focus, AutoNation's revenue stream is divided among new vehicle sales at 61 percent; used vehicles at 23 percent; parts and service at 13 percent; and finance and insurance at 3 percent.

"The one number we would like to increase steadily is our service and parts business," Jackson says. "That's the foundation of our business. We service 25,000 vehicles a day. They are complex, highly sophisticated, technical products. We have a lot of added value and a lot of infrastructure that we've built in order to care for those vehicles.

"It's a high-margin business to do our high added value. That's a business we would like to disproportionately grow."

Based on Jackson's record, there's a good chance that 10 years from now, AutoNation will be running over its competitors in that segment of the industry as well.

HOW TO REACH: AutoNation, www.autonation.com or (954) 769-7000