Auto Nation's Driver Takes A Sharp Turn
Michael J. Jackson is a glutton for punishment--and stock options, too. Last summer, the 51-year-old former car mechanic was basking in the success of turning once-ailing Mercedes-Benz into one of the hottest luxury-car brands in the U.S. Then he got a call from Florida billionaire H. Wayne Huizenga. Would Jackson take charge of his deeply troubled car retailer, AutoNation Inc.?
So much for what Jackson once called his "dream job." Two months of negotiations later, the trim, dapper Jackson had quit his job as president of Mercedes-Benz USA Inc. to sign up for the top job at AutoNation. With it came the challenge of taking on auto retailing's biggest problem child.
The Fort Lauderdale-based company has grown phenomenally through acquisitions, to 400 stores from just 16 since its founding four years ago. Yet it has failed utterly in its initial promise to become the leader in no-hassle, low-cost used-car sales. And now, under Jackson, the company is in the midst of a complete strategic overhaul. Last year, Jackson bailed out of Huizenga's heavily promoted megastore business, closing down the money-losing 23-store used-car chain. Now, AutoNation is trying to refocus solely on the new and used car-dealership business.
It's going to be a tough climb. The rising costs of AutoNation's expansion have collapsed margins at an alarming rate. In 1999, operating income was just $463 million on $20 billion in sales. That compares with $356 million on $13 billion in sales in 1998. Although analysts expect some improvement in 2000, investors aren't convinced. AutoNation shares have plummeted to $8, down from nearly $45 after the company's 1997 initial public offering. "Credibility with Wall Street--we had it at one point, and we lost it," concedes Huizenga. "It takes time to get it back."
REFOCUSED. Still, Jackson insists that the basic idea behind AutoNation--no haggle, one-price retailing on a massive scale--is still a great one. And now that the strategy is refocused on the company's sprawling empire of dealerships and the Internet, Jackson is convinced that AutoNation's time has finally come. "The irresistible draw was the chance to reshape auto retailing," he says. Another big attraction, no doubt, are the 1 million stock options he got in addition to his $1 million annual salary--and the potential for a $1 million bonus. If Jackson succeeds in fixing AutoNation and its share price, he stands to become an extremely rich car salesman.
But that's far from a sure bet. Now that Huizenga has sunk billions into building the company, the clock is ticking. With new competition growing daily from such popular Internet sites as autobytel.com and Autoweb.com, investors are increasingly skeptical that Jackson and Huizenga can make a go of it. Even in the traditional dealership business, competition is increasing as other chains consolidate. And in the pressure-cooker environment of the auto industry, carmakers are putting increasingly stingy caps on dealership markups. "The jury is out as to whether dealerships can be managed by a corporation," says Nicholas Lobaccaro, an analyst at Lehman Brothers Inc. in New York.
If anyone can recharge AutoNation, however, it should be Jackson. Although little known outside the auto industry, he's famous among insiders for overhauling Mercedes-Benz in the U.S. The German carmaker began the 1990s with a staid and aging image in America but finished the decade as one of the hottest luxury brands around. Part marketing guru, Jackson deep-sixed pretentious ads flaunting German engineering and turned to the likes of Janis Joplin songs to give the brand a more fun-loving image. More important, it was Jackson who insisted that Mercedes come up with a sport-utility vehicle, which has been a big hit.
Affable but serious, Jackson has gotten far on the power of his personality. William D. Smythe, a retired San Jose Mercedes dealer and longtime Jackson friend, recalls how Jackson once quelled a disgruntled gathering of hundreds of dealers, persuading them to cut their commissions nearly in half. In the end, he received "a standing ovation" from the group, says Smythe.
Jackson never set out to be a car guy. Growing up in suburban Philadelphia, he was destined for law school. Or so he thought--until the summer of 1971, while he and his wife, Patricia, were honeymooning on Cape Cod. When their 1959 Mercedes broke down, Jackson, out of cash, talked his way into a job as a mechanic trainee, sweeping floors and doing oil changes in exchange for repair work. Jackson liked the garage scene so much that, to the dismay of his parents, he put off law school to become a full-time Mercedes mechanic. Says Jackson: "My being a mechanic wasn't what they had in mind."
HUGE GROWTH. Jackson found his calling in 1974, when he landed a job with Mercedes as a field representative, visiting dealerships and helping mechanics with technical problems. Five years later, he moved to a small Austrian-owned dealer in Bethesda, Md. During the decade that Jackson ran the dealership, Euro Motors, it grew from a side-street operation selling 300 Mercedes a year to a multibrand outfit selling about 1,700 cars a year, including such brands as Bentley, Acura, and Saab.
By the end of the '80s, Jackson headed the U.S. dealer council, from which he loudly lobbied Mercedes for cars suited to American tastes. The carmaker's U.S. sales had slumped to 58,000 vehicles a year--just half of its peak earlier in the decade. And Jackson had strong opinions about what was lacking. In 1990, Mercedes hired him as senior vice-president for sales and marketing.
Over the next seven years, Jackson often flew to Mercedes headquarters in Stuttgart, accompanied by a small army of dealers. His mission: to persuade the Germans to offer cars with more exciting styling, a sportier ride, and better prices. Says retired Mercedes executive Michael Bassermann: "Mike pushed relentlessly to put some American character into the product." In 1997, he was named head of Mercedes-Benz USA.
Then came his boldest move. To lower prices, Jackson forced dealers to cut their profits by slashing their markup to 7% over invoice, down from 13%. It was a tough sell, but Jackson was able to convince dealers that they stood to benefit. Says Jim Evans, a longtime Florida Mercedes dealer and now vice-president of AutoNation's retail group: "Mike has an uncanny ability to own a room." Thanks in part to that move, Mercedes had record sales of 190,000 cars last year.
Now, Jackson is faced with an even tougher job. Despite its size, AutoNation has never reaped the efficiencies that should come with being the biggest player in car retailing. So Jackson has made some tough cost-cutting moves in his first three months on the job. Late last year, he slashed 200 of the company's 600 headquarters jobs and cut an additional 1,800 workers by shuttering the megastores.
WEB SITE. Jackson's early moves and serious manner have earned him both the respect and fear of his new staff. "There's not a lot of chitchat," says Peter C. Smith, AutoNation's senior vice-president for human resources. "He'll get down to business and then conclude, saying: `Are we finished?"' But he can also be a good listener, says Ken Enders, vice-president for marketing at Mercedes-Benz USA: "He'll give you as much rope as you need without letting you hang yourself."
Jackson knows that cost-cutting alone will not solve AutoNation's problems. He's introducing a new service to AutoNation's Web site that lets buyers pick the colors, options, and packaging they want. Then, in-house software will search the inventory of AutoNation dealers in that market, guaranteeing a price. And to lure customers into showrooms, Jackson aims increasingly to link up with big-name established local dealers. "We'll build a national brand name and then dominate local markets with names like John Elway," he says, referring to the retired Denver Broncos quarterback who sold his six dealerships to AutoNation.
Big-name athletes may impress some consumers, but regaining credibility among investors will take more. Jackson needs to get AutoNation revved up once and for all. Otherwise, he will have given up his dream job at Mercedes for a bunch of stock options that won't be worth a nickel.