Source: Automotive News (April 25, 2016) – AutoNation is changing one of the key tenets of its policy not to sell any vehicle with an open recall. The retailer now will allow some recalled vehicles to go to wholesale auction if lack of replacement parts causes lengthy repair times.
With a lack of replacement parts creating lengthy repair times for some recalled vehicles, AutoNation Inc. is sending some of the used vehicles grounded on its lots to wholesale auction.
Those auction sales, which began in December, run contrary to the recall policy initially laid out by AutoNation in September. CEO Mike Jackson said the policy was modified when it became clear that a lack of replacement parts for some recalls meant that vehicles would otherwise be grounded for months and months.
“The Takata airbags is a particularly difficult situation to deal with,” Jackson told Automotive News last week after the dealership group reported lower first-quarter earnings. “We will auction vehicles with open recalls where there are no parts in sight. We put a big sticker on the vehicle that, when it goes through the auction, declares it has an open recall, so whoever is buying that at auction knows they’re assuming the responsibility for that vehicle.”
Recalled vehicles, particularly those with Takata airbags, swelled on AutoNation’s lots late last year. Sending some to auction has helped the company, the country’s biggest new-vehicle retailer, deal with that overhang, Jackson said. At the end of March, 15 percent of AutoNation’s used-vehicle inventory was on sales hold because of recalls. For 60 percent of those grounded vehicles, the cause was Takata airbags.
During the quarter, AutoNation’s wholesale vehicle revenue rose 23 percent, but the company lost money on those sales, posting a $2.7 million gross profit loss on wholesale.
When AutoNation said last year that it wouldn’t sell any vehicles with open recalls, Jackson included wholesaling, even for scrappage, in that pledge. He said then that any sale of an unrepaired vehicle “is not a responsible solution. You’re just kicking the can to somebody else.”
Despite the change, AutoNation still has an industry-leading position on recalls, Jackson said last week.
Retailing an open-recall vehicle is still “out of the question,” he said. “We can stand on our brand principle vis-a-vis the consumer. But when there are no parts in sight, let someone else manage that vehicle to its completion as far as the recall.”
AutoNation will not wholesale all vehicles affected by the Takata recall. Only vehicles on long-term hold, six months or more, will go to auction, an AutoNation spokesman wrote in an email. He added that the retailer also is holding on to vehicles for which it is receiving financial assistance from manufacturers, such as BMW and Honda.