Auto Dealers Decide Cars Are Taking Up Too Much Prime Space – Adrienne Roberts April 29, 2017 7:00 a.m. ET


Large chains opt to move merchandise to less-valuable real estate

Auto dealers own or lease about $130 billion of real estate in the U.S., according to Kerrigan Advisors.

Auto dealers own or lease about $130 billion of real estate in the U.S., according to Kerrigan Advisors. Photo: mario anzuoni/Reuters

AutoNation Inc., AN -3.78% the largest seller of new vehicles in the U.S., is making a $500 million bet on the used-car business. To pay for it, the dealer chain is selling what has long been the industry’s most precious asset outside of the cars: property.

The Fort Lauderdale, Fla.-based company’s move follows a broader trend in the business. As car buyers increasingly use smartphones and internet tools to shape shopping decisions, several large chains are paring property holdings as they shrink the amount of inventory they keep in eyeshot of the showroom.

Auto dealers own or lease about $130 billion of real estate in the U.S., according to Kerrigan Advisors, an advisory firm that helps dealers sell their businesses. Dealers traditionally have sought land on high-traffic roads with enough space to store gobs of inventory, requirements that led to significant real-estate investments.

AutoNation, for instance, owns $3 billion of real-estate assets. It will sell some of it to help raise as much as $500 million to create a line of stand-alone used-car stores called “AutoNation USA,” which the company says could deliver higher margins than the new-car business.

“It’s a very prudent approach to brand extension,” AutoNation Chief Executive Mike Jackson  said in an interview.

Car sellers are seeing buying behavior rapidly change, with shoppers sometimes spending more time searching for better deals while in the showroom instead of looking at a dealer’s inventory. Aware of this trend, inventory is being stored off-site on cheaper land.

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