AutoNation Chief Executive Mike Jackson sees good things for the auto finance industry in 2015.
Jackson shared his thoughts on a number of topics trending in the auto business yesterday, including Warren Buffet’s foray into the industry, and credit risk in auto finance during the company’s 4th quarter earnings call.
First of all, he made sure to thank Mike Maroon, AutoNation’s current president and chief operating officer, who will be retiring March 1st, it was announced in mid-January. Jackson will add the role of president to his current responsibilities as CEO, through 2019.
“Mike, I’d like to personally say thank you for being my partner for the last 18 years, thank you for your dedication,” Jackson said. “We’ve had our strongest year ever, we set all-time records in 2014. It is a great final chapter.”
AutoNation reported net income from continuing operations of $117 million for the 4th quarter, or $1.02 per share, which is an all-time earnings-per-share record for the company.
During the Q&A portion of the call, when asked about subprime lending, rising interest, or other factors that could negatively impact the retail business, Jackson reminded analysts that a house is not a car, and mortgage is not an auto loan.
“Here’s the way I look at the credit market: the American consumer has approximately $12 trillion of all forms of debt outstanding, of which auto loans are less than $1 trillion, with the lowest default rate of any form of credit,” Jackson said. “Lower than mortgages, credit cards, and student loans — whatever kind of credit you want to point to. People pay their car loans. The industry never bought into the folly that a car is an appreciating asset, which is what the financial services industry said about houses. Now the mindset in automotive lending is, ‘It’s a depreciating asset, it always goes down, and structure the loan accordingly.’”
The one “wild card” that auto lenders should look out for, Jackson said, is volatility in gas prices, and specifically how it will affect cars coming off lease at the end of a contract.
“As for subprime, for us, if we sell 100 vehicles, eight of them are financed with a subprime loan,” he said. “So it’s a small part of the business for us at our level. For AutoNation, that’s not an issue.”
Jackson also called the growing interest of private investors, like Warren Buffet, a “validation of attractiveness and sustainability of auto retail.” In October, Buffet’s company, Berkshire Hathaway, announced plans to purchase Van Tuyl Group’s 78 independently operated dealerships for an undisclosed amount.
Having bigger players in the field is inevitable, he said, but when asked about possible reasons why Buffet specifically bought into auto retail, Jackson said that was a question to be directed at Buffet.
“I met him years ago at Bill Gates’s home, he asked me questions about auto retail and the auto industry, so I’m not surprised that he’s in the space,” Jackson said. “But as to why Warren finally does what he does, is far beyond my pay-grade, and I can’t give you any insight there.”