AutoNation to boost used car business with CIG Financial

Auto retail giant AutoNation Inc., in a step toward developing its own captive finance unit, plans to acquire auto lender CIG Financial to support its growing AutoNation USA used vehicle business and further develop customer relationships throughout vehicle ownership.

AutoNation said this week, reporting lower second-quarter net income, that it expects within the next 90 days to buy CIG Financial of Irvine, Calif., for $85 million.

The planned purchase marks a strategic shift under the leadership of AutoNation CEO Mike Manley. Manley, who took over as chief executive in November, said in February he was “aggressively looking” to restart a captive finance company at the auto retailer and said in April he would rather start a finance company. captive financing from an acquisition.

“This acquisition provides capabilities, footprint, technology and, most importantly, a proven and motivated team with excellent leadership,” Manley told investors and analysts on a call this week. “CIG has everything we need to scale and improve our financial performance with a modest initial investment and little risk.”

CIG Financial, which has about 160 employees, has loan receivables of about $325 million, of which $300 million has been securitized, AutoNation chief financial officer Joe Lower said on the call. The company issued about $195 million on 12,000 loans last year and has a mostly independent dealer network, serving about 80 of those stores, Lower said. He said AutoNation plans to continue serving those dealerships.

“Our integration plan is one that will be very deliberate,” Lower said. “There is a strong overlap in credit profile, particularly within AN USA. They have a very strong and proven track record in both underwriting and service, which was a real attraction for us. “

Manley said the acquisition is an important part of the retailer’s growth strategy, particularly as it ramps up its used-vehicle business. He wants to reach more than 130 AutoNation USA stores by the end of 2026.

AutoNation has announced plans to open its 12th AutoNation USA store in Kennesaw, Georgia, outside of Atlanta, by the end of September.

Manley said he also sees the acquisition as providing “significant benefit” over time to the group’s strong earnings in finance and insurance.

“We have no current intention to displace or replace existing captive financing with our OEM partners,” Manley said. “Our intention is to focus our new captive finance house on our AutoNation USA business and the large volume of business that CIG has developed with its many retail partners.”

Former AutoNation CEO Mike Jackson ended the then-money-losing auto retailer’s finance unit in 2001. Still under Jackson’s watch, the company in 2014 reconsidered restarting a captive finance company, but a year later scrapped the idea citing factors such as cost, return. on investment, scale and competition.

AutoNation competitor Lithia Motors Inc. operates Driveway Finance Corp.

Captive finance companies help franchise dealerships diversify their businesses and, in AutoNation’s case, “boost the profitability of stand-alone used-car stores,” given fewer parts and services and “fewer” F&I profits. traditional”, Ali Faghri, chief executive of Guggenheim, said in a note to investors.

AutoNation of Fort Lauderdale, Florida, ranked #1 on Automotive News‘ Most recent list of the top 150 U.S.-based dealer groups, with retail sales of 262,403 new vehicles in 2021.

Comments are closed.