21st Century Solutions to Selling Cars

Briefings Q&A with Mike Jackson, 
CEO of AutoNation Inc.

The buying and selling of cars at dealer showrooms, one customer at a time, has been around almost as long as the steering wheel. The business of retail automotive franchises has attained sophistication, scale and profitability. As such, it’s attracting attention from entrepreneurs, innovators and investors. Which is why Mike Jackson, CEO of AutoNation Inc., finds himself in the spotlight.

Few people know as much about automotive retailing as Jackson. He got his start in the 1960s at an old-school car dealership, a Mercedes-Benz franchise near Philadelphia—fixing cars rather than selling them. His storied 40-year career has included ownership of franchises followed by a stint as president and CEO of Mercedes-Benz’s U.S. distribution arm in the 1990s, where he was responsible for all U.S. sales operations and 311 franchised Mercedes dealerships. He led a turnaround after the German luxury maker temporarily lost its mojo. During his tenure, Mercedes-Benz went from the third biggest-largest premium luxury automotive brand to No. 1.

Word of Jackson’s triumph at Mercedes spread. Legendary dealmaker Wayne Huizenga recruited him to AutoNation Inc. in 1999 to lead a difficult restructuring. Jackson turned a jumbled collection of disparate businesses into a focused juggernaut with a market capitalization of nearly $7 billion. Today, as CEO, Jackson, 66, commands the world’s biggest publicly owned dealership chain. AutoNation Inc. operates nearly 350 franchises coast to coast, selling about 25,000 new vehicles a month with annual revenue of about $20 billion.

Jackson’s stewardship of AutoNation cemented his position as a respected voice representing franchised auto dealers across the country, as well as a source of market intelligence for global vehicle manufacturers and a guru for politicians and regulators.

Along the way, his automotive retailing savvy has attracted the likes of Bill Gates, whose charitable foundation is a major AutoNation shareholder. Eddie Lampert, the billionaire investor known for his acquisition of Sears and Kmart, is another big AutoNation shareholder with whom Jackson frequently consults.

The reason for the interest of billionaires isn’t hard to understand. Automotive retailing is evolving rapidly—and profitably—from an era characterized by high-pressure, fast-talking salesmen and questionable practices. Today’s consumers are savvier. Modern car dealers, as in other retail businesses, increasingly must manage a digital technology revolution. Prodigious net profit still awaits the retailers who can adapt to this change. Under Jackson’s leadership, AutoNation is investing $100 million to build a digital platform designed to let consumers buy, trade and finance vehicles online.

Jackson was interviewed for Briefings by Doron Levin, a Detroit-based journalist who specializes in automotive industry coverage, and Brad Marion, a Chicago-based Korn Ferry senior partner and leader of its global automotive sector, at AutoNation headquarters in Ft. Lauderdale, Fla.

Tell us a little more about the beginning of your career.

I got in the transportation business 55 years ago. One day my father sat me down and said, “You’re a Jackson, and if you’re a Jackson, work will define you.” I was 10 years old when he sat me down to tell me this. The next week I started as a stable boy mucking out stalls for a dollar a stall.

Where was this?

It was in southern New Jersey, on a farm outside Philadelphia. One of the things missing in much of America today—not that I’m arguing for child labor—is holding jobs at a young age. For me, mucking out stalls was my first encounter with the concept of productivity. I could bemoan the pile of manure and spend the whole day saying, “How did I ever end up here?” and earn a dollar at the end of the day. Or, I could figure out how to move these horses around and get it done in the most efficient, effective way, and earn $10 in four hours instead of a dollar for the entire day.

It sounds as though horsepower didn’t fascinate you.

I was fortunate to attend St. Joseph’s University in Philadelphia; I was not a particularly good student. But a professor saw something in me. He convinced me that the degree and grades were not the goal. He infused me with intellectual curiosity, the belief that learning would never end, that my goal was to be smarter than the day before. That’s how to live an enlightened life.

Did college lead directly to an interest in business?

I thought I wanted to be a lawyer or work in the State Department. After buying an old Mercedes 190 SL, the knock-knock of practicality hit again. I didn’t have money for repairs so I got a job as an apprentice mechanic for a Mercedes-Benz dealership. I fell in love with cars and with Mercedes-Benz. I had a technical aptitude, probably from my father, since he was a mechanical engineer. I could fix anything, and there was something about German engineering that clicked.

When did you first think you might have leadership characteristics?

In the Boy Scouts. I think I was 14. I applied to a wilderness camp for the summer. The day comes to leave for camp and something was amiss: I’m told I’m too small. I say to my father, in front of everyone, “The form doesn’t say anything about height. The form doesn’t say anything about weight. The form says if you’re 14, you can go, and I’m going! I’m not getting off the bus!”

You wouldn’t budge?

Nope. I went to Philmont scout camp in New Mexico and we were in the mountains. Lots of drama from poisonous snakebites, bears, flash floods; real life-or-death situations. I stayed calm. I always intuitively knew what to do. Everybody listened to me, and we got out of the predicaments. At the end of the camp, at that big campfire, I got the leadership award.

You went from 4´2˝ kid refusing to be thrown off the bus to the leadership award.

Exactly. I also realized that adversity had distinguished me; adversity was my friend. Leadership is not about age, size, rank or authority. If you can communicate what you think should be done in a compelling way, people will follow you. I showed I have that.

Your work at the Mercedes-Benz dealership at an early age obviously made a strong impression.

I was 24 in the early 1970s when I joined the Mercedes dealership as a highly skilled technical specialist. I was making $75,000 a year, which was very good money. But I saw greater opportunity out there. I went to work for Mercedes U.S. corporate at a 90 percent pay cut because I felt I could learn more and grow more. When I was 29, I left the company and bought my first Mercedes dealership. I built that up into a large group of dealerships, and then I was asked to return to Mercedes at age 39 to lead the turnaround in the U.S.

The decision to leave Mercedes-Benz in 1999 and join AutoNation meant you were going from a very large organization in the United States, a distributor for Mercedes-Benz, to the top spot at a public company. What were the leadership skills needed to run a big subsidiary of a global brand like Mercedes-Benz?

I divide automotive into several categories. Retail, which is selling cars one at a time, fixing cars one at a time, plus the skills it takes to deal with retail. Then you go to the (Mercedes) factory and it’s very strategic, very analytical. You’re making billion-dollar decisions that you have to have thought through backwards and forwards a hundred times.

How did this transfer to AutoNation?

My career was perfect training for AutoNation because the job is big, it has scale. You have to know how to lead something large that requires strategic, analytical thinking. But we’re in vehicle retailing. We run car dealerships. We’re going to sell ’em one at a time, we’re going to fix ’em one at a time, and you’d better have an understanding of what’s happening on the showroom floor and the service department.

You started out as a technician fixing cars—and now you’re chief executive officer of hundreds of dealerships, dealing with multiple manufacturers and thousands of employees.

That experience (as a service technician) uniquely qualified me because when I go into a store, I can immediately relate. When I walk up to a technician I can say, “Oh, I can see the problem here. It’s that little actuator for that flap that you’ve got to take half the car apart to get to. Why the hell did they ever build that?” He instantly says, “Yeah, you know, this is the stupidest thing I ever saw, but this is what it takes!” Pretty soon you have a circle of technicians around you. Then you can say: “OK, how’s the work distributed? Is it fair? You got the tools you need?” Once you can relate, then you find out what’s going on.

Automakers weren’t convinced a public company should own a lot of car dealerships. But that controversy has faded. Did you make the case that there shouldn’t be limits on the number of dealerships a public company could own?

The manufacturers’ concerns in the late 90’s were legitimate. It really was unclear how this was going to work. AutoNation was a turnaround, and I had been promoted to captain of the Titanic! A beautiful ship that hit an iceberg.

What was the fundamental issue necessitating a turnaround, and what was the fix?

Our founder is the legendary entrepreneur Wayne Huizenga, still my best friend. Coming to AutoNation was going to be magic or tragic with Wayne. He is an extraordinary founder of companies and a serial acquirer. How you make it work is not his skill set. He’s more like, “You just buy everything, tell everybody to keep doing what they’re doing, and we’ll be fine.” He put together everything from car dealerships to National Rental Car to Alamo Rental Car to a garbage company. We had sign companies, we had toilet rentals, we had everything.

Did Huizenga give you latitude to make strategic decisions?

I said, “We’re going to have to make some tough calls.” He promised to back me a thousand percent. We tackled the issues, one at a time, spinning out Republic (waste disposal) and the rental car companies.

What was the toughest call?

Closing the (used car, no-haggle) megastores. I joined the company in October, and between Thanksgiving and Christmas we closed 2,500 megastores. It was a tough conversation with Wayne because it was his baby, and his attitude was, “Mike, I brought you in here to turn this around because we can’t go on like we are.” I agreed and said, “We’re going to close ’em because there was no fixing them!” Otherwise, it was going to take the company down.

So public companies owning numerous franchises then became more valid to automakers?

Yes, because we narrowed the focus to auto retail. We were going to be the best in the world at auto retail. Everything else needed to go off and do its thing.

The brand is AutoNation. If I’m really interested in buying a Chevy Cruze, I’m going to go look for a Chevy dealer. I don’t necessarily think I’m going to go look for an AutoNation dealer. How do you lead the retail customer to think AutoNation when looking for a car?

Our brand position is “whatever you want, we’ve got it.” If you live or work in a market where AutoNation is, you cannot make an intelligent decision without considering us. We have the positioning of the biggest. That says to consumers “if we’re the biggest, we probably have attractive pricing and the best selection.” That’s natural in retail. We are on our way to having all brands in all markets. Whatever you want, there’s AutoNation.

That’s the starting point—how has the brand further separated itself from other dealerships?

We go beyond and say if you want a transactional digital experience, we’re the only ones who can give that to you. If you want a company that cares deeply about issues and making a difference on issues, like “Drive Pink,” (support of breast cancer research) we’re your company. We’re a company that puts your safety first by resolving all open recalls, even if it creates all kinds of problems and complications for us, that’s our problem, but we will not sell you a car with open recalls. We fix every open recall before we present it to consumers or even put it back in inventory.

You say that Wayne Huizenga is one of your key mentors.

I learned so much from Wayne. Back in the early days I had a particularly complicated issue that I really couldn’t figure out. I start laying it out, and he gives me a point of view that’s insightful. I begin to gravitate to his position and agree. Just about the time I think we’ve found a common ground, Wayne does a 180 and starts arguing from the other direction. I call these 360s, because Wayne argues it from every direction. In the end, I am a hundred times more confused. “OK, I really came here to find out what you would do, and you haven’t told me!” He goes, “Mike, that’s too easy! You’re the CEO. You make the decision.” I think for a minute. “Wayne, what if I get it wrong?” He says, “Well, then you’re screwed.”

What have you borrowed from Huizenga?

My management style is participatory. The company’s run by four executives, of which I’m one. We meet right here at this table at least once, sometimes two, three times a week. My responsibility is the quality of the discussion, to see it from every direction, to ensure we have everything to make a decision. The biggest benefit of this style is that you minimize mistakes, which is not a bad thing.

You’ve essentially created a small management board.

It’s very rare that four people will all agree to do something stupid. The quality of the decision is much higher. Everyone has classic buy-in.

Did you have other mentors?

First, was my father. Next was my professor in college. When I started as an apprentice technician, the most senior technician was a curmudgeon Hungarian who wouldn’t speak to anyone. Somehow, he adopted me and transferred a lifetime of technical expertise in several months. Then my partners in the dealership who were Europeans based out of Vienna. This was the height of the Cold War. They had friends and business trapped behind the Iron Curtain. I would go behind the Iron Curtain with them. They broadened my worldview. (Daimler AG chief executive officer) Dieter Zetsche was a fantastic mentor. His line that stuck with me: “Take the risk, then manage the risk.” Put the goal post out there. That’s step one, then you’ve got to manage from where you are.

How about current influences?

I have a large shareholder, Eddie Lampert, who’s been with me 15 years. Today he owns 16 percent of the company. He gave me a Ph.D. in capital allocation. We have another large shareholder, Michael Larson (who manages assets for the Bill and Melinda Gates Foundation), who represents 15 percent of the company. He taught me very much how to think long-term, which taught me discipline and patience. He encouraged me to make bold decisions that would be controversial in the near term. I don’t have to worry about activists because nobody’s going to take on those two!

You talked about adversity being your friend. What did you learn from the extraordinary adversity of 2008 and 2009?

We were prepared in 2008, which was the big one. In my first year at AutoNation, the industry was running at (new vehicle sales of) 17 million. I had a planning meeting then where I said we have to prepare for the day this industry sells 10 million vehicles.

Your management team must have thought you delusional.

I insisted that we have a plan. We ran it, we built the model, and there were consequential decisions that we took in 2001 to 2004 as a result. We said if sales fall to 10 million, there will be big problems. When the moment arrived, I said, “This is an exceptional opportunity. We will come out of this bigger and stronger relative to the competition.” The hardest thing to do in business is to open gaps from the competition. The goal during the downturn—and I didn’t know how long it would last— was to dramatically outperform the competition. It worked. Our profitability, our results were greater than all the other publicly traded groups combined.

Did your management style have to adapt?

Most executives are pathological about growth. There’s good growth and there’s bad. We had to go backward before we went forward. Besides the companies we benched, there were structural issues within the auto retail part of AutoNation that had to be resolved. That meant slower growth. For people who are hardwired for growth, it was very difficult. I needed shareholders who understood, and they’ve been rewarded. They came in at $10, the stock is now $65; and we’re not done.

Few stereotypes are as persistent as that of the fast-talking car salesman who relies on slippery tactics. How have you addressed automotive retailing’s poor reputation?

This is a culture question. When I arrived and had a vision for what we’d be, I concluded there were 350 key positions in the company that would determine success or failure. I had a clear view of the characteristics of leadership and talent for those positions and did an assessment of the people in them. It took two years. Ten percent met the criteria, 30 percent might someday fit the criteria, and 60 percent absolutely did not. A big chunk of that 60 percent were our top producers. This is the moment of truth when culture becomes just a poster on the wall or how the company really performs. Most leaders blink at that moment and say “I’m not firing 180 people.”

What did you do?

We fired 15 percent per year and still functioned as a company. We would ask 15 percent to leave, and we would recruit and attract new people who fit our profile. The next year we did it again. We had a cultural war between the believers and the non-believers over who was going to win. I’m sure there was a betting pool whether I would make it. It took five years.

Does reinforcing your cultural values require constant firings and upheaval?

Once it’s clear you’re going to win the cultural war, the old guard self-selects out. People who fit the old guard profile don’t apply anymore. The type of talent that you’re looking for, that you value, all want to work for you. A major disadvantage, a major disruptor, becomes an advantage. I can sit here today and say 90 percent of the company fits our profile. The other 8 percent we’re working on; they’re in development programs. And a very minor 1 or 2 percent, I don’t have to find. They know they don’t belong, and they leave.

Can you explain the characteristics you were seeking to define AutoNation’s culture?

For starters, automotive entrepreneurial talent; it’s one of those things you either have or you don’t. If God hasn’t given this to you, Mike Jackson’s not going to be able to instill it. Step two: We’re in it for the long haul, so I’m looking for high ethical standards. In auto retail, that’s not where everybody’s at. It’s a little bit like the Wild West. As long as the numbers are coming in, don’t tell me too much as to how you got there. We are a knowledge transfer company. We benchmark best practices to define ideal processes and technology. I need people who understand if you put in place a process that yields 10 basis points year in and year out, it’s worth doing.

Do the previous characteristics sum up the ideal AutoNation employee?

Not entirely. I want people who want to be part of something big and transformational that’s changing the business. They must like a collaborative environment. They have to be passionate about the business. They have to love this business, because retail is too demanding on time and energy. You can’t force yourself to be the best at it unless you just love it.

You’re a year beyond the normal retirement age in many public companies. What are your thoughts on the future?

We have to execute an ambitious agenda that’s exciting, ambitious and transformational. We’ll make history if we do it. That’s in front of me. I have supportive shareholders. I have an outstanding senior management team. As long as I have my health and it’s this much fun with this ambitious agenda, I’ll do it. I may have a five-year contract, but in my mind I’ve got to earn it every day.

 

Authors

  • Doron Levin

    Contributor, Korn Ferry Institute

  • Bradford Marion

    Global Sector Leader, Automotive

    Bio >