Month: February 2009

Trying to think of a good moniker for my optimistic reader who sends me these excellent posts…idea?

The reader writes:

I saw this and would agree with Jackson that auto sales are the key. If you could get 10-15% increased sales from improved credit then I think the market as a whole would take this as a very strong positive. This would be the signal that the market needs to flip from thoughts of a dire “end to the world” to one of “on the track to recovery”.

The best investors look at what key individuals are doing every day. I get Google alerts to about 200 corp managers and portfolio managers. These are individuals whose track records I have screened and found to be much, much better than the rest. Most look to see what a guru is buying, but have no idea as to what that individual’s investment is really like. So, most remain in constant confusion of looking for sound bites-Buffett buys BNI and don’t know how to determine what Buffett sees. You have to study people and once you see reported activity or comments, you must be able to place Buffett in context with Berkowitz and these “gurus” in context with others as well as market valuations to get the full picture. You must go deep enough to be able to judge the investment judgment of these “gurus”.

The world is about individuals. We tend to lose track that companies are run by individuals and that track records for PG or AN are only in a minor fashion the track records of their very different industries. Track records of companies are mostly the track record of a single individual, the CEO and the culture he/she imposes on the machinery of a business. Once your focus is on the people and a business cycle of ~5yr, then you begin to listen to only individuals like Mike Jackson or Warren Buffett and the like. You tend to ignore the wealth of worthless information thrown about and focus only on the valuable tidbits. It is these tidbits you string together in a cohesive line of investment analysis. I take Bruce Flatt’s activity, add the story of Moulder and Vaughn buying real estate in London and juxtapose with Mike Jackson’s commentary within my over all process and get a picture that we are on the verge of a major change in market psychology for the better. Psychology = trust/lack of trust = Liquidity and Credit. Flip psychology to a positive track and the world suddenly has a different perspective-the market soars.

Here is the WSJ Article he references (for the record I am long AutoNation, I have no idea if the reader is):

Posted on Fri, Jan. 30, 2009

AutoNation (AN) looking to reverse sales slide

BY PATRICK DANNER

Coming off a dismal three months for car sales, Fort Lauderdale’s AutoNation is counting on federal aid to jumpstart the moribund car business.

AutoNation, the nation’s largest seller of cars, hopes a new plan by the Federal Reserve to loosen credit will be the cure for consumers who haven’t been able to buy a car because they can’t get a loan.

”I really see a tipping point in the first quarter, in February, with TALF,” said Mike Jackson, AutoNation’s chairman and chief executive, referring to the Federal Reserve’s Term Asset-Backed Securities Loan Facility.

The U.S. central bank, as early as next week, could start offering up to $200 billion in loans to investors that hold securities backed by pools of auto loans and other debt. The intent of the program is to get banks and other institutions lending. Jackson blamed Lehman Brothers’ September bankruptcy for freezing credit markets.

”We do believe there is a possibility of improvement in March if credit really begins to thaw,” Jackson said. ”We could have a lift in [sales] of 10, 15, 20 percent in a very short period of time if we could get some level of normal credit” for borrowers.

Any improvement can’t come soon enough for the nation’s largest automotive retailer, which just endured what Jackson called the most difficult period in his 40-year career.

”Never in the history of the automobile business has there been a collapse in sales for every brand and every manufacturer in every part of the country,” Jackson said. “Everything surprised me in the fourth quarter.”

AutoNation’s revenue plunged by a third to $2.7 billion, primarily on the drastic drop in sales of new and used vehicles. For the year, AutoNation recorded revenue of $14.1 billion — its smallest in a decade.

AutoNation sold 45,400 vehicles last quarter, about 30,000 fewer than in the same period in 2007. That was nearly a 40 percent drop, but better than the 49 percent slide the industry experienced, noted AutoNation President Mike Maroone. Unit sales of used vehicles were off 21 percent. In Florida, where AutoNation operates dealerships under the Maroone name, sales were off 50 percent, Maroone said.

Still, AutoNation turned a profit for the quarter after sustaining a $1.4 billion loss in the third quarter from writing down the value of some of its dealerships — which ended a string of 34 straight quarters in the black. The company earned $67.1 million, or 38 cents a share, aided by a tax benefit and the repurchase of debt. For the year, it lost $1.2 billion.

Earnings from continuing operations, which exclude special items, was 12 cents a share — narrowly beating the average 11.5-cent estimate of 12 analysts polled by Bloomberg.

Meanwhile, AutoNation announced it achieved $200 million in annualized cost savings, double the reductions forecast in July. The company trimmed its workforce by about 3,700 people last year, significantly reduced advertising spending and cut the number of stores.

As much as 80 percent of the cost reductions are considered permanent rather than temporary, said Michael Short, AutoNation’s chief financial officer, during a conference call with analysts.

At the end of the year, AutoNation had an 84-day supply of new vehicles, up from 52 days at the end of 2007. By comparison, Maroone said, the industry had a 119-day supply at the end of 2008.

To shrink inventory, and in turn lower the interest it pays carmakers while those vehicles sit on its stores’ lots, AutoNation earlier this month said it was cutting orders of new vehicles by as much as 60 percent.

On Thursday, Jackson acknowledged AutoNation has encountered some resistance from manufacturers. General Motors and Chrysler, in particular, have implemented programs requiring dealers to buy more inventory to receive incentives on the inventory they want, he said. ”That has definitely created some friction,” Jackson said. ”But we’re not playing that game.” AutoNation is getting the vehicles it wants, he added.

GM spokeswoman Susan Garontakos said she had no comment on Jackson’s remarks. ”No one forces a dealer to do anything,” she said. “A dealer can decide to do that or not.”

Said Chrysler spokeswoman Carrie McElwee: “We’re not pushing back. We’re really talking to [dealers] about the programs and initiatives we have for 2009.”

Disclosure (“none” means no position):Long AN

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