CARY, N.C. -

AutoNation currently has five standalone used-car stores.

The retailer wants to have more than 130 AutoNation USA locations open by the end of 2026.

That target store count would include the five existing AutoNation USA stores. The retailer plans to have five additional USA stores finished by late this year, then add 12 more in 2022.  And then the growth in AutoNation USA would really escalate.

As one analyst from the investment community calculated during Tuesday’s quarterly earnings call, reaching the 130-plus AutoNation store count by the end of 2026 would mean adding at least 27 locations a year between 2023 and 2026.

“That’s just an expression of our confidence that we really have this combination figured out,” AutoNation chief executive officer Mike Jackson said of the growth plans during Tuesday’s call.

“And not to be repetitive but it's important to brand 1PRICE, digital platform, operating skills, speed to market.”

In thinking of USA stores, Jackson added, “It’s an acquisition point, but a reconditioning center for pre-owned and for speed to market and it's a delivery center. And we're able to build those very cost-effectively and with a very reasonable ramp to profitability.”

Beyond its used-car store growth forecast, AutoNation — like many of its peers, lately — has also flexed its M&A muscle. The retailer announced an agreement Tuesday to purchase 11 stores and a collision center from Peacock Automotive Group. The locations operate in Hilton Head, S.C.; Columbia, S.C.; and Savannah, Ga.

The acquisition would represent annual revenues of approximately $380 million. The deal is expected to close during the summer.

AutoNation USA, by the numbers

Back to the used-car store program: In AutoNation’s investor presentation slides, the retailer said there is a $10 million to $11 million initial capital investment in each USA store.

AutoNation anticipates its pre-owned locations to break even about a year after they open. Initial run-rate is expected after 18 months.

AutoNation forecasts a model USA store to pull in $2.4 million in pre-tax profits each year (or $200,000 a month) at initial run rate.

Breaking that down further, the forecasted monthly average per store at initial run-rate would include projected revenues of $5.5 million and total gross profit of $680,000.  With forecasted SG&A costs of $470,000 and projected floorplan costs of $10,000, the monthly pre-tax profit forecast would be the aforementioned $200,000.

And within its five existing USA stores, management has been pleased with the results thus far.

“The performance of the existing stores is outstanding and continues to develop really well,” Jackson said. 

The existing USA stores generated more than $3 million in operating profit during the first quarter, management said.

AutoNation has also become quite adept at sourcing used vehicles. Jackson said that 90% of AutoNation’s used-vehicle retail sales are units the group sources itself.

Chief financial officer Joe Lower emphasized during the call that, “the success we've had in procuring vehicles, which is where it all starts. If you go back just a year, 80% of our procurement was self-sourced” compared to 90% in Q1. 

“The skills we’ve learned in procuring vehicles, directly from customers, really is a differentiator in the marketplace and something we think we can leverage going forward,” Lower said.

Finding the managers

AutoNation’s next USA stores are set for: Austin, Texas; two locations in Denver; Phoenix; and San Antonio. The latter is expected to open by the end of this quarter.

But as expansion significantly ramps up from 2023 through 2026, AutoNation management was asked about the human capital piece. Getting that many general managers ready to open an average of 27 locations per year for four years is quite the task.

"On the human capital side, we have AutoNation General Manager University, which is an internal development capability that general management within the company is trained and developed,” Jackson said. “High-potential future general managers are identified years ahead of time and go into the development program.

“And the development program has a big component around pre-owned cars. And leading a USA store is something now that's aspired to within the company. Everybody's seen the success that they are,” he said. “And we have a development pipeline of talent that we will promote from within to lead these stores.”