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AutoNation CEO: Hybrid Cars with 70% Consumer Interest but Only 2.5% Purchase

December 07, 2011 | About:
AutoNation (AN) is an automotive retailer in the U.S. As of December 2010, it owned and operated 242 new vehicle franchises from 206 stores located domestically. It has diversified portfolio of vehicles in its inventory, up to 31 different brands manufactured by Toyota, Ford, Honda, Nissan, General Motors, Mercedes, BMW and Chrysler ranging from medium to luxury segments. So the performance of AutoNation can give quite helpful insights to the situation of automobiles industry in the U.S.

In the recent CNBC interview with Mike Jackson, the CEO of Auto Nation, he gave quite interesting facts on the automobile industry in general and AutoNation in particular. Regarding the operating performance of AutoNation, he said that the premium luxury was up 35%, with Mercedes Benz leading the way up 50%, and the domestic revival continues with the increase of 30%. The first time since May, the Japanese had a sales increase of 10%, only Honda was still down around 8%, mainly because of the situation in Thailand.

For Honda, Mike thought that they had product challenges. Honda has a very conservative approach with a great deal of effort focusing on quality and fuel efficiency. However, their weakness was on the styling. Meanwhile, the Koreans took different approach by bringing Europeans over to do the styling and got exciting products. Civic was important product for Honda, but it didn’t go well as it was viewed as too conservative, the cost side had been emphasized too much. Even with those challenges, Mike still thought Honda was a great company and would keep growing and reviving in the next couple of years.

These days, electric/hybrid cars was the hot issue; there were many conversation around that topic. And consumers were very interested in the product itself. Mike mentioned that 70% of the customers liked to talk about hybrids. However, the challenge factor for hybrid to have penetration in the market is price. Consumers would not pay the price premium for the electric and hybrids automobiles even with the government subsidies; it was just not enough. There was a 70% interest level, and 2.5% finally made the purchase; that was after 10 years on the market place.

It was like Chevy Volt, the technical marvel. Pople loved to drive it, they were excited about it, they thought that was great. And finally they said that they would take Chevy Cruze because of the 42 miles a gallon at half the price. American people were very practical. How much money would it save me at the pump or in fuel costs versus the upfront cost? The upfront cost was now too high and they had alternatives.

So the big challenge for electric/hybrid car was price. It had to come down dramatically.

In regard to electric/hybrid cars, Carlos Ghosn of Nissan had the same view. He said that he felt the hybrid vehicles and plug-in hybrids would play an important role alongside pure electric in reducing gasoline consumption, but he personally prefers electric cars. However, the cost has been pushed up possibly due to the batteries being still too heavy and too expensive. So for him, in the 21st century, the evolution of the battery is extremely important for the development in the world.

About the author:

Anh Hoang
Money manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam

Visit Anh Hoang's Website


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