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CEO: Car industry can't repeat errors

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CEO: Car industry can't repeat errors

AutoNation chief says healing has started

BY GREG GARDNER

FREE PRESS BUSINESS WRITER

Bankruptcy, restructuring and new management have cured some of Detroit automakers' self-inflicted wounds, but Mike Jackson hopes the industry will be vigilant to prevent any relapses.

Jackson, CEO of AutoNation, said the practice of building more cars than dealers can sell and then offering costly rebates to clear out bloated inventories had to end and cannot return.

"It was always a road to bankruptcy, but the dragon has been slain," Jackson said.

Jackson was in town with his management team to give local automaker executives feedback from AutoNation's dealerships. When Jackson speaks, automakers listen because AutoNation is the U.S. industry's largest customer, with 206 dealerships representing every major automaker competing in this country.

During the visit, AutoNation officials saw many of the new models to be launched in the next three years.

While Jackson said he was enthused by the styling and upgraded interiors that he saw at GM and Chrysler, the economy is recovering so slowly that it will be a while before consumers are buying cars the way they did before the September 2008 financial meltdown.

"I see the process as a three-stage rocket," Jackson said. "The first stage is the healing of credit, which is beginning to happen, but will take at least through 2011. Second, housing prices need to stabilize. Finally, employment must recover."

Until that happens, automakers will be under pressure to protect or grow their market share. Ratcheting up incentives is one way to do that.

In his quest to discourage the problems of the past from re-emerging, Jackson wants automakers to distinguish in their monthly sales reports how many vehicles they sell to retail customers versus fleet customers, such as rental car companies, corporations and governments.

Retail sales are the scoreboard industry insiders watch to see who's really in first place with mainstream consumers. But because fleet and retail are typically reported together, fleet sales can sometimes make some automakers look like stronger performers than they actually are.

"I think transparency is an inoculation against reverting to the sins of the past," Jackson said "We'll all be healthier in the long run."

Like most automakers and economists, Jackson expects U.S. consumers to buy about 11.5 million new vehicles this year, and many in the industry say it will be in the range of 12 million units next year. But that's down from 16.1 million in 2007.

While banks, credit unions and other lenders have shown somewhat more willingness to make auto loans in recent months, customers who have lost jobs or suffered home foreclosures are still finding loans hard to get.

AutoNation President Mike Maroone said subprime borrowers account for between 20% and 25% of the company's sales in certain markets. Until that financing normalizes, industry sales won't likely be robust.

"We're still a year away from normal credit conditions for auto loans," Jackson said.

Read more: CEO: Car industry can't repeat errors | freep.com | Detroit Free Press http://www.freep.com/article/20100923/BUSINESS01/9230399/1210/BUSINESS01/CEO-Car-industry-cant-repeat-errors#ixzz10MJZyxIh

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