In a bid to boost its sagging stock price, auto retailing giant AutoNation Inc. said yesterday that it will shed its rental division, made up of National Car Rental, Alamo Rent A Car and CarTemps USA.
The company also said its president and chief operating officer, John H. Costello, had resigned after just seven months. AutoNation named Michael E. Maroone, formerly president of the auto retail division, as his successor.
AutoNation's chairman and co-chief executive, H. Wayne Huizenga, said that separating the rental unit, by selling it or spinning it off to shareholders, "will enhance shareholder value by making AutoNation a pure-play automotive retailer."
But investors were unimpressed. AutoNation's shares rose just 31 1/4 cents to close at $15.25. The stock has fallen 28 percent in the past year.
AutoNation also said it plans to repurchase $500 million worth of its own stock, or about 7 percent of its common stock.
Huizenga has built AutoNation from a trash-hauling company since 1995 by acquiring auto dealers and eventually expanding into online sales of new and used cars. Quitting the rental market marks a major shift in strategy.
The company also announced positive results for its continuing operations in the second quarter, ended June 30, 1999. For the auto retail division, it reported a 91 percent increase in earnings per share, to 21 cents, compared with 11 cents for the same period last year. Revenue for the quarter rose 60 percent, from $3.2 billion to $5.1 billion.
For the quarter, the auto rental business earned $24.8 million, compared with $73.2 million in the same quarter of 1998.
AutoNation, which has more than 412 franchises in 24 states, has followed an acquisition-led growth strategy in the auto rental business. It acquired Alamo Rent A Car Inc. in November 1996 and National Car Rental System Inc. in February 1997, and merged three other companies it acquired duing 1997 to form CarTemps USA.
In 1998, the car rental business contributed about 21 percent of AutoNation's total revenue but accounted for 36 percent of the operating income.
Last year, auto rental revenue was $3.45 billion, vs. $3.06 billion in 1997. Ten percent of the revenue increase was due to acquisitions. Similarly, 4 percent of the 1997 growth in revenue was due to the takeover of Alamo.
However, the company, which changed its name from Republic Industries in April, has had a problem winning investor support for efforts to expand through its acquisitions and diversification.
While AutoNation was expanding in the rental market, it faced growing competition in its core auto retail business. Three years ago, when Republic began opening big used-car stores and buying up new-car dealerships, it claimed it would change car buying with its no-haggle, fixed-price strategy.
But various costs, related to buying used-car inventory and competition from online car retailers, have affected AutoNation. Recently, it linked with Priceline.com--a company that finds a seller for the used-car buyer's bid--to build its presence in the online car-buying market.
The company said that during the second quarter it sold more than 10,000 vehicles via the Internet and generated over $230 million in revenue.