Cautionary tale: furnaces and cars

May 11, 2000
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The news that AutoNation is closing most of its used-car superstores and laying off its 1,800 employees should give pause to the champions of consolidation and alternate paths to the market.

The AutoNation action should serve as a cautionary tale to the hvac sector, which is going through a transformation whose ultimate shape is yet to be determined.

In our industry, no convention of contractors or wholesalers is complete without centering on the fate of two-step distribution. And it’s not just talk that is unnerving them.

Manufacturers are making strategic changes: direct-to-customer (Lennox); vendor-managed inventory (Johnson Controls); alliances with giant retailers like Sears (Trane).

AutoNation isn’t just closing its used-car operation — it is also suspending further purchases of new car dealerships and concentrating on paring overhead.

Its stock price has taken a beating.

This is the first serious impediment to confront the company after three years of relatively smooth sailing and spectacular sales volumes.

Boom to bust?

Since its formation three years ago, the former home security company grew to become the nation’s largest seller of new and used cars, clocking in at about $20 billion. Its lots were filled with 1,000 cars.

What happened? High overhead, says one expert. This made the giant retailer vulnerable to undercutting by its competitors.

Also, AutoNation boasted a “no haggling” policy. But haggling is what car dealers are supremely equipped to do, especially those who compete with the behemoths. It’s in their DNA.

St. Louis hvac contractor Butch Welsch, often courted by the four (now two) hvac consolidated contractors, always countered their pitch by asking, “How many more furnaces would I have to sell to make up for your corporate overhead?”

There may be something to sheer bigness, but if that were the only criterion, American Residential Services and Service Experts would still be around.

Their sour experience with Wall Street, along with that of the troubled Pameco Corp., suggests there is more to it than size.

Apparently, the key to success is to keep costs down — and haggle.

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