Appearing on CNBC to answer questions on the effect of a possible bankruptcy filing by Chrysler Corporation on the overall auto industry, Mike Jackson Chairman and CEO of AutoNation felt that a government led bankruptcy would be a viable option and possibly the last option left for turning around the U.S. domestic auto industry to allow for a more competitive and streamlined manufacturing and distribution process.
Chrysler currently, because of the intractableness of the debt holders to accept the deal most recently offered in the company’s reorganization plan, is likely to file for bankruptcy in a Manhattan court, after talks with debt holders collapsed. An announcement on the auto sector is expected from the White House. The talks for a restructuring of Chrysler had had the full support of the company's key stakeholders, including the UAW and the largest creditors, but the rest of creditors did not agree.
Mike Jackson looks upon the situation as a positive though, concluding ‘to take bankruptcy off the table will only lead to more delays in the necessary restructuring of the American auto industry. A government led bankruptcy, protecting the American consumer in guaranteeing warranties on vehicle sales, for Chrysler Corporation, and possibly General Motors, would be the most viable option for true reorganization of the companies, if “stake holders” will not agree to necessary concessions,'
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An extremely pleased Mike Jackson Chairman and CEO of AutoNation, appeared on "CNBC", "Business News Live Canada", "CNN Money" and Bloomberg Television to provide an overview of the company’s most recent quarter of outstanding earnings improvement, an almost doubling of earnings from the last quarter of 2008, for the largest auto dealership in the United States.
In his discussion with Becky Quick on CNBC Squawk Box, Mr. Jackson attributed the improvement in operating earnings to productivity improvements, an overall company efficiency drive that was undertaken early in 2008 which was accelerated later in the year on September 15th, as well as a "substantial" corporate debt reduction.
It was a “brutal first quarter” for the car industry with only about a 9.5 million unit sell rate for the U.S. auto industry Mr. Jackson went on to say, ‘AutoNation reduced its structural costs by $400 million dollars year over year; of which $200 million was in the form of variable comp. The company also paid down significant debt by $1.25 billion dollars which allowed the company to sequentially improve earnings from last year to date by 11 cents a share to 23 cents a share in quarterly earnings.’
‘There was an improved environment in used car sales', Mike Jackson went on to say, 'the volatility in the market has somewhat "settled down", and gross profits have improved.' Mr. Jackson believes we have seen the bottom of the market in this most recent completed quarter, and now the economic climate for car sales should gradually improve over the course of the rest of this year.
Mr. Jackson was also pleased to see a "thawing" of the commercial credit markets; 'TALF has started with almost 7 billion dollars of available capital - with more to come. In the last 6 months of 2008 only 5 billion of auto credit was securitized. We expect more auto “stimulus steps” to come, such as the pending “clunker bill” which will provide a tax credit for scrapped used vehicles. The Federal Government Auto Task Force understands that the viability of the industry depends on increasing new car sales and with the restructuring of Chrysler and GM, the U.S. should see an improvement. “We do take President Obama at his word in that General Motors “will survive” in one form or another Mr. Jackson concluded.
As for Chrysler, it is a bit more difficult to see if the future bodes well for its survival. Chrysler holds very valuable assets in the Jeep brand and its other vehicle platforms, but if for whatever reason Chrysler does not survive this tumultuous time, AutoNation will only be moderately affected as Chrysler car and truck sales make up only 4 percent of the company’s total revenue and profits.
As for the rest of the year, Mr. Jackson is quite positive. "Currently the U.S. is scrapping almost 13 million vehicles per year, and forming 1 million households." 'Consequently the currently low rate of new car units being sold at 9.5 million units per year will not be able to supply future demand of 14 million units. Currently inventories are dropping and with General Motors shutting down their production plants for the summer this will only accelerate the reduction in the oversupply of vehicles within the nation. Overall there will be a re-rationalization of the United States auto industry from the car dealerships to the manufactures, which will be positive for the country.'
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Mike Jackson Chairman and CEO of AutoNation, the largest auto dealership in the United States was one of three other distinguished panelists who spoke at the Newsweek Environmental Conference on U.S. energy policy.
Joining Governor Jennifer Granholm of Michigan, Mr. Henry Fisker of Fisker Automotive, Lou Rhodes of Chrysler Corporation and speaking to a standing room only audience as well as to an audience of millions over the C-Span network, Mr. Jackson reiterated AutoNation’s position on the strategic alternatives necessary in placing the United States on the course of energy independence.
‘It is absolutely necessary to maintain a floor in gasoline prices between $3.50 and $4.00 per gallon’ …Mr. Jackson stated. It does no good to have an energy policy that guarantees low gasoline prices when ninety five percent of the public consumers will choose larger cars and trucks with larger engines when the calculating the lower fuel costs as compared to the higher cost of purchase of a fuel efficient hybrid or electric vehicle. Though the public is intrigued with electric cars most will not purchase an electric car or hybrid vehicle at fuel prices less than $3.50 - $4.00 per gallon.
We need higher fuel taxes on a revenue neutral basis to keep fuel costs within U.S. borders so as not to spend hundreds of billions of dollars importing oil from countries who do not have our best interest at heart.
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