AutoNation sees U.S. rebound, goes "on offense"

FT. LAUDERDALE, Florida (Reuters) - AutoNation Inc (AN.N), the top U.S. auto dealership chain, is ready to go "on offense" by acquiring new stores and buying more vehicles as it bets that the battered U.S. auto market is headed for a long and steady recovery, the company's chief executive said.

"We're through the abyss. We're through the trough. There's no question in my mind," AutoNation Chief Executive Mike Jackson said in an interview with Reuters.

Jackson forecast a gradual recovery in U.S. auto sales that would take the market back from near 10 million sales this year to more than 15 million unit sales over the next several years.

"We're not afraid to buy Ford or Chevy franchises where we were in the past," Jackson said in a wide-ranging interview in his office at AutoNation's headquarters. "We've increased our orders by 50 percent for inventory. We're doing a whole range of things as we move out of a defensive posture."

AutoNation benefited from a decision to cut costs early as the recession took hold by cutting jobs and slashing inventory, steps that protected its profitability and balance sheet during a downturn that proved to be far deeper than expected, Jackson and other senior executives said.

But Jackson said the U.S. government-funded bankruptcies for General Motors Co GM.UL and Chrysler had removed a major risk for the industry and killed a "production-push business model" characterized by high inventories for Detroit-made products and sharp discounting through incentives.

'NEVER BEEN MORE OPTIMISTIC'

"From my time in the auto business, I have never been more optimistic about the long term," said Jackson, who took over the AutoNation top post a decade ago after a position with BMW. "The sword hanging over the industry is gone."

He added: "We're seeing that there's going to be a gradual recovery, but there's going to be six to seven years of open recovery."

The U.S. auto market has been declining for the past four years, a downturn that accelerated in late 2008 when the bankruptcy of Lehman Bros effectively shut down credit markets and deepened consumer uncertainty. U.S. auto sales hit 16.9 million vehicles in 2005 and dropped to 13.2 million in 2008.

"We game-planned the worst and acted on it," Jackson said. "We're going to come out of it stronger than ever. Now we can go on offense because the day of reckoning has finally occurred."

AutoNation Chief Financial Officer Mike Short said the company would look at investing more on its existing stores and share repurchases after spending the past year focused on reducing debt. The company ended the second quarter with $450 million in cash and liquidity.

It has about $142 million available for share buybacks under a plan already approved by the board.

"It's a transition," Short said. "We're probably fading out of debt retirement now and looking at those other alternatives."

Jackson said AutoNation would keep its vehicle orders up sharply for the time being with a large share of the new orders for the crossovers such as the Chevrolet Equinox and others that have been in strong demand.

The dealership group will also look to add to the 264 new vehicle franchises that it operates in 15 states stretching from Florida to California if potential sellers reduce the amount that they are seeking.

"I think it's only a matter of time until prices come down, just like in housing," Jackson said. "When prices come down, we'll do deals."

Jackson said AutoNation wanted to see more as Chrysler's new product plans take shape under the management of Italy's Fiat SpA (FIA.MI) before considering an acquisition of any Chrysler, Jeep or Dodge stores.

"I think Chrysler has the biggest challenge. It's been through the biggest turmoil for the longest time," he said. "Its product pipeline is most disrupted so we'll wait and see. The product pipeline at GM was not nearly as disrupted as Chrysler, so they're in good shape."

AutoNation will continue to focus on Japanese auto brands, the mainstream U.S. brands Chevy and Ford and German luxury car makers as it looks to buy new stores, Jackson said.

"Chevy, Ford, Toyota, Honda, Nissan, BMW and Mercedes. That's the holy grail," he said.

Jackson said he was impressed with steps Toyota management had outlined in recent days to shore up its U.S. market share. Those steps include revitalizing the Lexus and Scion brands and rolling out new variants of its Prius hybrid.

"Toyota is struggling with being the largest automaker in the world," he said. "But you have to give them credit. They face reality. They deal with it. They act. It's completely unlike what we went through with Detroit in the last 30 years when there was a high state of denial."

(Reporting by Kevin Krolicki, editing by Matthew Lewis)