The Sunshine Economy: Cars, Trade, Jobs and The Future Of Driving With AutoNation's Mike Jackson

Apr 24, 2019

Mike Jackson used to shovel horse manure for one dollar a stall. He wound up leading a company selling over half a million new and used cars and trucks a year.

In March, Jackson stepped aside from CEO of AutoNation, the position he held for 20 years. AutoNation is one of South Florida’s largest publicly traded companies -- worth almost $3.5 billion. And Florida is its most important market, with quarter of its revenues coming from auto dealers it owns here.

But for Jackson, his working days began with a speech from his father. Jackson is from a big Irish-Catholic family in Philadelphia. He says his father sat him down, told him that work would define him. He needed to get an education and he better get to work to make money to pay for school.

"I was 10 years old when I got this speech," Jackson says, "and I started as a stable boy the following week."

He remembers his first day and the first stall. “A mountain of horse manure” is how he describes it.

Jackson isn't leaving the auto business. He is executive chairman of the board -- a position he will fill for the next two years as new CEO Carl Liebert takes over. Liebert was the number two person at USAA, a financial services firm for the military and veterans.

During Jackson’s tenure as AutoNation CEO, he transformed the company from its Fort Lauderdale headquarters into a single national auto dealer brand, remade it’s used car business and has become a voice of the auto industry.

Jackson is outspoken. When AutoNation’s new CEO was announced, Jackson criticized Tesla CEO Elon Musk for "over promising on autonomous vehicles". In 2018, when Jackson first announced he would be resigning as the boss, trade publication Automotive News wondered “Who will do the talking for American car dealers?”

Jackson is not shy about sharing his opinion on issues beyond the showroom floor -- from trade policy and immigration, the staying power of gasoline engines and finding enough qualified mechanics to repair 21st century cars and trucks.

Economy

"The economy's in reasonably good shape," says Jackson, but he acknowledges it has slowed down from a year ago. The tax cut legislation that took effect in 2018 helped boost consumer and corporate confidence. In a slower growing environment, Jackson has warned of slower new vehicle sales. AutoNation's annual report called 2018 “a plateauing sales environment.”

"The consumer likes truck-based vehicles which have a higher price point. Interest rates are higher than the last time they were in the marketplace. You combine those two factors and it's leading to a price point that the consumer is not happy with," he said. 

Jackson served as the chairman of the board of directors of the Federal Reserve Bank of Atlanta last year. The agency oversees banking and the economy in the southeastern U.S. While the unemployment rate is at historic lows, Jackson has worried about the proportion of Americans involved in the job market. Fewer than two out of every three Americans capable and interested in working are part of the labor pool. "I think America has a challenge in the number of people who have decided not to participate in the workforce. Everything is not as strong as some of these numbers would indicate. I'm cautious on the economy in 2019."

Automobile tariffs will make steel and aluminum look like a picnic. - AutoNation Exec. Chair. Mike Jackson

  Trade

President Trump is expected to make a decision by the middle of May on whether or not to slap new tariffs of up to 25 percent on foreign-made cars and car parts. It would open a new front on the international trade war over import taxes, especially with Europe and Japan.

 

A Commerce Department report on the auto tariffs was completed in February to determine the effects of imports on national security. The report has not been made public. The president has used similar reports to put taxes on imported steel and aluminum -- key ingredients in American-made cars, trucks and S-U-Vs.

 

Auto dealers like AutoNation see the effect of the tariffs on car prices, and Jackson worries about the economic impact if the president goes forward with more taxes on imported autos and auto parts.

 "Automobile tariffs will make steel and aluminum look like a picnic, will be extremely disruptive to the U.S. economy, very expensive for the U.S. consumer,  and could bring on a recession," said Jackson.  About half of the new cars and trucks the company sold last year were imports, led by Toyota and Honda. According to Reuters. Toyota estimates that if President Trump approves a 25 percent tax on foreign autos and auto parts, it would raise the price of a Toyota Camry built in the U.S. by $1800. 

"This statement that the current state of the U.S. automobile industry is so rickety that it's [imports are] a threat to the national security of the United States, is absolutely ludicrous. The U.S. auto industry is as healthy and as vibrant as ever," says Jackson. 

He does not think the Administration ultimately will institute the new auto tariffs, and supports changes included in the trade pact designed to replace the North American Free Trade Agreemment. The USMCA (U.S. Mexico Canada Agreement) would increase the amount of a vehicle and vehicle parts are manufactured by workers earning at least $16 a hour. It also would increase the portion of a vehicle that has to be made in North America from 62 percent to 75 percent. Congress has yet to take action on the proposed trade deal.

Jackson calls the deal's terms "entirely reasonable" and "appropriate steps" to keep a trade pact in place.

Skills Gap

Nationwide, there are more job openings than there are officially unemployed people, according to two separate monthly surveys from the Bureau of Labor Statistics. This imbalance has helped pick up wages. Average weekly pay is up over three percent from a year ago nationally.

About a third of the people working in the auto and auto parts retail industry in Florida are mechanics. Their average wage was up 1.6 percent last year. The average mechanic’s hourly salary in Broward County rose much faster -- up more than four percent.

 

The data highlights the difficulty companies are experiencing in filling jobs, and the pressure they are under to raise pay to attract qualified workers.

 

"There is a skills gap that is both emotional and intellectual." For Jackson,  the emotion skills gaps is "a certain disdain" for what traditionally has been thought of as vocational or trade school education.

 

"The skills gap is going to get larger because in each step the complexity and the level of skill you need is a bit higher than it was before. And we're falling behind."

 

Innovation

There have been several efforts to revolutionize car buying through the years. In the early 1990s General Motors started its Saturn brand. Cars were sold at their sticker prices -- no haggling. Carmax did the same for used cars.

 

Most car shopping today includes some kind of online shopping, but still includes walking into the showroom. As the country’s largest auto retailer, AutoNation has been investing in e-commerce. Last year, it spent $50 million to buy a seven percent stake in online car retailer Vroom. That was followed a month later by a partnership with Fair. Fair is part of a new breed of companies offering automobile subscriptions. These are somewhere between a car rental lasting a few days and a 3-year lease. A monthly fee pays for the car, maintenance and maybe insurance. The partnership allows users of Fair to have access to some cars at AutoNation dealers.

 

Then there is the repair business -- the most profitable part of AutoNation’s business. If the future of driving doesn’t require owning a vehicle, or even driving one thanks to autonomous technology, how is that going to change the auto repair business?

 

In 2017, AutoNation struck a deal with Waymo, the self-driving technology branch of Google’s parent company. Waymo tests the technology and AutoNation maintains the cars to keep them in driving condition.

 

None of these deals are expected to add meaningful to AutoNation’s bottom line anytime soon. They represent some of last strategic deals by Mike Jackson before he resigned as CEO to become executive chairman.

 

There is more change coming in the next 10 years than we had in the last 100 years. - AutoNation Exec. Chair. Mike Jackson

  "There is more change coming in the next 10 years than we had in the last 100 years. A number of technologies are at inflection points that feed off of each other. First is electrification."

Jackson says emission regulation in the U.S., Europe and China is helping drive the auto industry toward electric vehicles. Meantime, manufacturing and retail costs have been declining, but range anxiety remains. How car can an electric car go without needing a charge? Ranges have been increasing, but Jackson doesn't expect electric vehicles to make up more than 10 to 15 percent of new car sales by 2030. Two percent of new cars sold nationwide last year were electric. "This is going to take time. It's a revolution."