AutoNation CEO Cheryl Miller Discusses Market Disruptors, Industry Turnover, and Tariffs (Part 2)

In part two of this CBT News exclusive, our host, Jim Fitzpatrick continues his conversation with Cheryl Miller, AutoNation‘s first female CEO, and first-ever female CEO of a publicly-traded auto group. The pair discuss how to combat high turnover rates, market disruptors like Tesla, EVs, ridesharing, and subscription models. Cheryl also weighs in on USMCA, tariffs, and much more.

If you missed part one of our interview with Cheryl Miller, click here to watch.

Cheryl Miller
AutoNation logo (PRNewsFoto/AutoNation, Inc.)

[Previously aired 10/15/19]

Jim Fitzpatrick: As you know, the industry suffers from a 70 percent turnover rate. I don’t know what it is at AutoNation, but in the industry it’s pretty high. It’s really unacceptable, right? I mean, when you talk about the customer experience, you’re really talking about the experience that the customer often has with that salesperson. That’s still a tough thing for dealers to get their hands around, you know? And do you have any thoughts on how the industry can change to lower that percentage of individuals coming into the industry?

Cheryl Miller: Absolutely. So the way we think about it at AutoNation, with respect to turnover is training, is a lot of it. So one of the biggest things we found is if you get that new hire training right, and if you get the pay plan right. So if, particularly if you think about the sales side of the business, that’s a commission pay plan usually. So now we have, I say, a softer entry in, we want to make sure as people migrate to commission, they can even earn more money on commission. But at the beginning, as they’re learning sales techniques, we offer a base in addition to commission every time.

Jim Fitzpatrick: Oh, you do.

Cheryl Miller: Yeah. So we, that’s something that we’ve focused on and we’ve tweaked that. So many years ago, we were kind of leading on that and then lessons learned over time. We’ve continued to tweak it so that it works for associates and also works for customers.

Jim Fitzpatrick: Right. Let’s talk a little bit about the market disruptors that are out there that the industry is dealing with. We’ve got Tesla out there selling cars directly to consumers. We’ve got some other companies on the horizon that are thinking about doing the same thing. Does that threaten new car franchise dealers today? Will there be a day in 10 years where we see a Honda or maybe a Nissan that say, “Hey, we don’t need dealers. They don’t like us anyway. So we’re going to sell our vehicles directly to consumers.” Where’s the future of the franchise dealer? Where does it lie?

Cheryl Miller: We like our manufacturing partners. So when I think about that for the future, franchise-wise, we do commit to facilities and we need a place to service the vehicles. OEMs are great at engineering, they’re great at manufacturing. Most of them don’t tend to have a lot of retail skillsets. Tesla has a great product. They have a lot of fans of their product. There’s always something that you learn from that. There’s a lot of broader, exciting electric coming out too. So every OEM, or many OEMs, are out there with electric offerings, with hybrid offerings and continued improvements in the internal combustion engine, fuel efficiency. And so that’s something that as we think about the broader compliment of vehicles offer, there’s really something for everyone.

Jim Fitzpatrick: Sure. EVs, it’s still something that-

Cheryl Miller: Still less than 2 percent of the market.

Jim Fitzpatrick: Still less than 2 percent. it gets a lot of media time-

Cheryl Miller: It does.

Jim Fitzpatrick: It gets a lot of press. However, it’s still less than 2 percent of the market. Do you think that we’ll see that rise substantially over the course of the next 10 or 15 years and what’s your take?

Cheryl Miller: You’ll definitely see it. I think EVs and hybrids, you’ll definitely see increase over time. It’s still relatively small today. There’s some pretty exciting products coming out from some of the manufacturers. For some customers, it’s a little bit harder to afford these days. So if you think about internal combustion engines, that’s something that can be more affordable depending on the actual customer. But there’s exciting products. So EV offers some great options and hybrid as well. And in the future for autonomous, by definition has to be hybrid or EV to power the equipment.

Jim Fitzpatrick: Yeah. And then rideshare. You know, you’ve got Uber and Lyft out there and when they first came on the scene there was a lot of press that “Oh, this is going to threaten car buying. People are just going to use Uber or Lyft to get from point A to point B. And why do they need a vehicle?” What’s your take on the concern out there about rideshare?

Cheryl Miller: What I’ve seen in rideshare really is it’s taken over the shared transportation market. So if you think about where the disruption has been with rideshare, it’s really been in taxis and it’s been in rental cars, really things that were shared before buses. In fact, it’s actually increased congestion in certain cities. If you think about density like New York, San Francisco, it’s something that they are having to contend with.

From a personal ownership standpoint, what we’re seeing is customers aren’t abandoning their vehicle and then taking Uber or Lyft everywhere. What they’re doing is, they’re using it selectively. So if they’re going to a concert, if they’re going to a certain event on a weekend, they’re taking it and then during the week they’re using their regular personal cars. And so that’s what we’ve seen so far in the industry.

Jim Fitzpatrick: So there’s a place for it?

Cheryl Miller: Absolutely. I think there’s a place for it and I think it’s great to have that element of a different option for shared transportation.

Jim Fitzpatrick: Sure. A friend of mine just purchased a Lincoln because he said that his Uber driver had a Lincoln and he was so impressed with it that he went and bought a Lincoln.

Cheryl Miller: Good marketing. It’s a great, great marketing technique.

Jim Fitzpatrick: So maybe from a stance of renting a car, you say, “Wow, this is a great car, I think I’ll go buy it.” So President Trump is bringing down the hammer and saying, “Hey, we’re going to put tariffs in place.” And in some cases he has already. What’s your take on that, on the whole tariff situation that threatens auto sales?

Cheryl Miller: So USMCA, which actually turned out pretty well for the automotive industry, it still hasn’t been ratified by Congress, but hopefully that will be ratified. When I think about Europe, there’s still some resolutions there that need to occur for that to settle in, as well as China. So overall, tariffs would not be great for the automotive industry. We are diversified, so we’re a third import, third domestic, third prim luxury. So we have some balance within our portfolio. It helps to protect against it. But anything that isn’t good for the consumer, is not good for us.

Jim Fitzpatrick: Right, right. And subscription, this is a whole new concept, right? The notion that you would pay one fee per month, then you can get a number of different types of vehicles to drive. Do you think that’s here to stay? You think that’s an alternative out there, like leasing or-

Cheryl Miller: Subscriptions are interesting. I’m not sure about the financial model. So having been a CFO and looked through the financial models, it’s interesting. It’s expensive for the customer. From a marketing perspective, I think it’s great. So it gives customers an opportunity to test some things. We certainly always want to be aware of what’s going on out there in subscription. I think it’s important to know anything that’s going on trend-wise in automotive and particularly things that impact auto retail. It remains be seen whether that’s actually affordable for customers longterm.

Jim Fitzpatrick: Okay. And Vroom, which you know a little something about.

Cheryl Miller: We do.

Jim: So you guys took a 7 percent stake in that company. Why Vroom and what motivated you to take that particular step?

Cheryl Miller: Yeah, so we want to know what’s going on out there. So if I think about our relationship with Waymo, which I had the chance to work on entering into back in 2017-

Jim Fitzpatrick: That was my next question.

Cheryl Miller: Right. And then Vroom. We always want to know what’s going on out there. So we took a stake in Vroom, that’s a learning opportunity for us and certainly with the background of Vroom, they’ve got some amazing technology people there as well. And so we always want to be out there, everything from subscription to autonomous, all around and digital, we want to be learning all the time.

Jim Fitzpatrick: Okay. Okay. And do you see that stake growing needs, do you see a day that you may play a bigger role in Vroom or maybe as a partner?

Cheryl Miller: Yeah, we like where we are today. And so, you know, with all of our [crosstalk 00:06:54], it’s definitely not a big announcement at this time. Yeah.

Jim Fitzpatrick: And let’s talk about Jeff Bezos. He recently has been kind of nudging the auto industry saying, “Hey, I like this. I like car sales and I like what automotive has to offer”, and if he sets his sights on automotive and he comes into the business either on the used car side or picking up new car franchises or auto groups or what have you, how much of an impact will that have if Amazon jumps into the industry?

Cheryl Miller: Amazon’s a great company and certainly you have to look at what the customer loves about Amazon. The interesting thing about cars is they don’t fit that well in cardboard boxes and they’re kind of expensive to ship.

Certainly Amazon does some work in the parts space. Certainly they’re not in the new vehicle franchise space today. We build dedicated facilities and have great manufacturer relationships. So, but broadly from Amazon to Alibaba, you should be out there understanding, especially in e-com, what is it that the customer likes. so when we think about and our digital offerings, we’re always wanting to be out there learning from some best in class players out there.

Jim Fitzpatrick: Yeah, for sure. And dealers, by and large, are looking at that same, consumers do want an easier transaction process, right? An easier sales process. They want to maybe be able to hit an app on their phone and say, here’s the car that I want. I already know I want that Camry. Here’s how I want it loaded or equipped and deliver it to my home. Right. And is that pretty much the way of the future?

Cheryl Miller: The way the feature right now is omni-channel. So if we think about today or the present, omni-channels is what customers are interested in. Some customers love the traditional process and some customers want to go online. So we want to meet the customer where they are. We don’t want to force them through any particular sales channel. We want them to be able to work at their pace. It’s the second largest purchase of their life. Some people are very nervous about it. They want confirmation, they want validation, they want the ability to switch and change their mind. It’s a little bit harder to do a return of a vehicle remotely. And so that’s where we do like that combination of having great digital and having bricks and mortar as well.

Jim Fitzpatrick: Autonomous vehicles. We hear a lot about them. Obviously it’s kind of like the Tesla out there. But do you see this as an issue coming down the pike, autonomous vehicles? Do you think we’ll wake up one day and say, “Wow, all these vehicles are driving themselves.” You think we’d see that in our lifetime?

Cheryl Miller: It’s pretty amazing. I’ve already been in vehicles that are driving themselves. And to be honest with you, the technology keeps improving, but certainly there’s an exponential move up to level four and level five autonomy. We view it as a great opportunity. So if you think about service, we have an amazing technician base, so we’ve got amazing master technicians, we’ve got all kinds of people out there doing great work on vehicles and those vehicles are complex. So we’ve serviced a ton of electric vehicles, we’ve serviced hybrids, and now we’re servicing and maintaining autonomous fleets already. And so I love to have that opportunity to be on the ground floor with autonomy. We’ll see the pace at which it’s adopted over time, but there’s certainly a lot of great applications for autonomous.

Jim Fitzpatrick: Sure. And of course if autonomous comes about, AutoNation stands ready to retail those cars as well. Right?

Cheryl Miller: Absolutely. To service them at first, we’re servicing them today.

Jim Fitzpatrick: Talk to us about the relationship with Waymo and where that deal stands today.

Cheryl Miller: Yeah, so we signed up for, back in 2017, for a maintenance agreement with Waymo, so we’re actively maintaining that fleet and the uptime of that fleet out in Phoenix. So you can see that on the roadways today and you can see those vehicles out there operating. We also use that instead of shuttles. So we used to have shuttles at some of the stores out there and now we’re offering, not requiring, certainly some customers love it. Some customers are still a little bit nervous-

Jim Fitzpatrick: Yeah, I would be.

Cheryl Miller: But if you drop your vehicle off for service and then you need to get to your office or you need to get back to your home, we offer Waymo as an option.

Jim: That’s pretty cool.

Cheryl Miller: Yeah.

Jim Fitzpatrick: That’s the future right there. Talk to us about Drive Pink. Obviously we’re sitting in front of this great poster here, or painting, I should say. You guys have raised $20 million, I think.

Cheryl Miller: Over $20 million.

Jim Fitzpatrick: Over $20 million for cancer. Talk to us about that campaign. Will we see that continue under your administration?

Cheryl Miller: Yeah, absolutely. It absolutely will continue. It’s something I’m extremely proud of. I’ve been a part of it since its inception and Mike was really the catalyst behind that. It was amazing when we put all of our philanthropic efforts behind Driving Out Cancer, it really rallied our associates, it rallied our customers and it’s very personal to people. So we’ve raised over $20 million.

Jim Fitzpatrick: Wow, that’s incredible.

Cheryl Miller: But in addition to that, we deliver bags, right? So if you’re a cancer patient going through treatment, we have certain days where we’ll deliver care bags. So if you’re in the hospital, you get a blanket, you’ll get other things in that bag. And it’s a really important personal part. We have a lot of associates unfortunately impacted by it. People have family members impacted by it as well.

Jim Fitzpatrick: That’s fantastic. Yeah, it really is. Talk to us about the AutoNation USA stores. When Mike came aboard, he shut them down and said, “Hey, we’re not in the used car business.”

Cheryl Miller: I remember that back then.

Jim Fitzpatrick: And then came back recently and said, “Actually, if we tweak this thing, maybe we can do this and make it profitable.” Talk to us about where that is today.

Cheryl Miller: So AutoNation USA today is very different than it was way back. It was totally different model, different footprint, different customer value proposition. So we really like the model. We have five AutoNation USA stores. We were proud to announce in Q2 that they were already at breakeven and we’re continuing to tweak the model, learn and we’ll evaluate and go from there. But we’re pleased with where it is at this point.

Jim Fitzpatrick: As the head of the nation’s largest automotive retailer, what are some of the things that keep you up at night? What do you see lurking around the corner as a threat to either AutoNation or to the industry as a whole?

Cheryl Miller: I see opportunities, so what keeps me up at night is thinking about all the great opportunities and how quickly we can continue to move on them and how we can grow. And so I am an optimist by orientation and so I think about how can we further extend the brand? What more can we do in parts and service? How are we thinking about autonomy and mobility for the future? We have to be realistic about the backdrop. This year coming in, I would have thought, and it was predicted that we’d have three rate hikes instead we’ve had two rate cuts. So certainly that’s a bit of a tailwind. I think headwinds, just general consumer, great employment status within the US today. But there’s certainly, you know, there’s different volatility out there. We have to be aware of worldwide volatility and how it might impact us. The good thing about having previously been a CFO is I know where to watch for those signs, and my intent is to play offense, but certainly as we need to, we can play defense pretty well.

Jim Fitzpatrick: Sure. You think you’ll be reaching over the back of the new CFO and … That’s not what I used to do.

Cheryl Miller: Yeah. You know, I think the great thing for me is bringing in talented people and then letting them do their jobs. So providing support, but letting people run and show how good they can be.

Jim Fitzpatrick: Sure. Well, Ms. Cheryl Miller, the new CEO and president of AutoNation, the nation’s largest automotive retailer, I want to thank you so much for joining us on CBT News here in your gorgeous headquarters. Thank you so much.

Cheryl Miller: Thank you, Jim. It’s great to be here today.

Jim Fitzpatrick: Great.

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