FORT LAUDERDALE, Fla. -

AutoNation insisted back in early September that it would be “worth it” to enact a policy not to sell, lease or wholesale any new or used vehicle that has an open safety recall.

The dealer group acknowledged that at the close of the third quarter, 16 percent of its used-vehicle inventory wasn’t available for sale because of those open recalls.

AutoNation chairman, chief executive officer and president Mike Jackson also conceded the policy not only pinched the group’s used-retail grosses in Q3 because “it took longer to prepare vehicles to have them frontline ready.”

Furthermore, Jackson also noted the company is going to have to beef up its inventory numbers during the fourth quarter in order to have a satisfactory number of units available. Nonetheless, Jackson remained steadfast in his conversation with Wall Street analysts after AutoNation reported its most recent quarterly performance that the group made the right decision.

“We’re taking a leadership position in something that’s clearly a black eye for the industry at the moment,” Jackson said during AutoNation’s latest conference call.

“The recall situation … AutoNation is going to be part of the solution, not part of the problem,” he continued. “That we put our customers and their safety first is a clear brand statement, and we see that the strength of our brand is every year more evident.”

Jackson looked at the issue of recalled vehicles from another perspective, too; one that wasn’t just about AutoNation. He believes there is “an issue out there floating” regarding the fact that currently franchised dealerships are the only facilities authorized to complete recall repair work “and completion rates are not acceptable.”

Jackson continued his thought by saying, “ You hear regulators talking about the fact, ‘Well, if the new-vehicle dealers and the manufactures can’t figure out how to get these repairs done faster and on higher level, we're going to open it up to everyone else.’”

The thought of independent repair shops and other operations being able to complete recall work “would be not a good development on any side,” according to Jackson.

“And I for one believe when you have an issue in the industry, be part of the solution,” he added. “It’s a genuine issue for our customers.”

So whether it’s finding those solutions for its own dealer group for the industry as a whole, AutoNation remains confident that its used-vehicle performance will not be negatively impacted long term because of the no-turn policy on recalled units.

“We think we’re going to work through all those issues over the next quarter and starting sometime in the first half of next year, going back to growing the used-vehicle business and improving the grosses,” Jackson said.

More commentary about latest acquisition

On the same day AutoNation released its Q3 performance, the dealer group also announced the acquisition of a dozen stores in Texas.

Jackson explained why these rooftops will take on the AutoNation moniker, not remaining with the name potential buyers already might know when these stores were part of the Allen Samuels Auto Group.

“Think about it,” Jackson began. “So, we buy the Allen Samuels Group in Texas. Great name, fine everything. We’re going to rebrand those stores AutoNation. And as good as the legacy names are, they're not as good as the brand name AutoNation and all the attributes that come with it.

“Also, we take all the marketing communication money that’s being spent by the Allen Samuels Group not to save, but to put behind the AutoNation name,” he continued. “So then, our whole presence in the state of Texas goes up by another factor. And it begins to feed on itself.

“Therefore, our confidence that we can execute on our plan to hit our return and the amount of risk involved, the risk goes down and the confidence goes up, all because of the brand AutoNation. That’s what a brand is doing for us at this point,” he went on to say.

Beyond just the name on the showroom building, AutoNation discussed the integration of these stores into the dealer group when the acquisition is expected to close in the first quarter of next year. Jackson leverages two of his top lieutenants — executive vice president and chief operating officer Bill Berman and executive vice president and general counsel Jonathan Ferrando — to complete this work.

“What we do is we take a very patient and balanced approach to our integration,” Berman said. “Jon and I go in and set the stage, initially going into the acquisition stores, laying the ground work and foundational components of how the transition is going to take place.

“When I talk about patience, we don't try to sit here and flip a switch and from one day to the next go from being a legacy store into an AutoNation store,” Berman continued. “But over several months, we’ve perfected a process of being able to integrate them into our systems, our processes and our pay plans.”

“They actually have a peer, a mentor, on an equal basis to help guide them through the transaction and the transition,” said Berman, who indicated AutoNation used this process to blend the last 12 stores into its portfolio.

“We’ve had a very, very low turnover rate, a high adoption rate and then been able to hit our pro forma target,” he added.

With evidently such an elaborate plan in place, investment analysts kept pressing Jackson to speculate on what acquisitions might be next. When the transaction for the Allen Samuels Auto Group is complete, AutoNation’s total store count will be 265 and total franchise count will be 372.

“We look for acquisitions that are a strategic fit for us, fit in our model where we want to be one-third domestic, one-third Asian, one-third German, and a cultural fit with our company,” Jackson said. “Certainly, these acquisitions are a cultural fit. Sometimes there is a difference in point of view about the future of a certain company.

“When we look at 100 deals, we maybe do 10,” he continued. “So there's a lot of discussions, a lot of conversations going on and it has to meet all those thresholds to meet that. We have a level of conversation that we can do a lot of deals next year. Whether they'll meet all that criteria or not, I don't know, and what I very much like is keeping the flexibility.”

Update on online activity

Jackson also sparked several inquiries when he reported AutoNation generated more than 25 percent of its total vehicle sales in the third quarter from its own websites.

Meanwhile, sales stemming from third-party sources have decreased to under 9 percent during Q3, a span that also included AutoNation severing its ties with TrueCar.

 “I think that the third quarter is uncontestable proof that the strategy we’ve been talking about investing in has been validated and that we’re getting tremendous benefit from it,” Jackson said about projects that include AutoNation’s transaction website SmartChoice Express, which launched late last year.

“No question we’re a company that zigs when everybody else is zagging. I mean, that’s indisputable,” he continued.

“Here is the way I think about it. I came to conclusion several years ago that building a brand with genuine attributes was the only way to compete and win in this marketplace and not be disrupted and become a warehouse fulfillment center for others. That’s really where I didn’t want to end up. So, then when you say you have brand, the brand has to stand for something,” Jackson said.

Jackson emphasized that AutoNation’s websites are not just “informational; they’re transactional.” He also acknowledged that it “took a lot of money and effort” for AutoNation to reach this stage.

Wall Street observers then wondered if or when AutoNation might completely abandon third-party websites to move metal.

“There is a place in the market for third-party lead providers. There are dealers where it’s appropriate that they do business with them,” Jackson said.

“But here's the way I think about it. Every dollar I spend on marketing today sells a car today and sells a car tomorrow because I'm building a brand. And if I’m diverting 30 percent, 40 percent, ultimately 50 percent of my marketing budget to build somebody else’s brand that will play out where that ends,” he continued. “So, that's why the third quarter is so important. We were leading up to it. It was our pivot. And clearly, it works. And in my view, every year AutoNation is going to be stronger than the year before and all the benefits that comes from that.

“And so, that gives us a relevancy and approachability and an attractiveness in the marketplace that can cut through all the other choices that consumers have and give us a very interesting and compelling business,” Jackson went on to say. “But it has to be genuine, and you have to take risk and you have to take short-term disruption in order to get that differentiation. And we are doing that.”