Auto retail giant AutoNation Inc., in a move toward developing its own captive financing unit, plans to acquire auto lender CIG Financial to support its standalone used-vehicle business AutoNation USA and further develop customer relationships during vehicle ownership.
AutoNation said this week in reporting lower second-quarter net income that it plans within the next 90 days to buy CIG Financial of Irvine, Calif., for $85 million.
The planned purchase marks a strategic move under the leadership of AutoNation CEO Mike Manley. Manley, who took over as CEO in November, said in February that he was “aggressively” looking to restart a captive finance company at the auto retailer and in April said he would prefer to create a captive finance company from a acquisition.
“This acquisition provides capabilities, footprint, technology and, most importantly, a proven and motivated team with great 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 low risk.”
CIG Financial, with about 160 employees, has about $325 million in loan credits, of which $300 million has been securitized, AutoNation CFO Joe Lower said on the call. The company originated roughly $195 million through 12,000 loans last year and has a network of mostly independent dealers, which service about 80 of those stores, Lower said. He said AutoNation plans to continue serving those dealerships.
“Our integration plan is very deliberate,” Lower said. “There is a strong overlap in the credit profile, particularly within AN USA. They have a very strong and proven track record in both underwriting and servicing, which was a real attraction for us.”
Manley said the acquisition is an important part of the retailer’s growth strategy, particularly as it accelerates its used vehicle business. It wants to grow to more than 130 AutoNation USA stores by the end of 2026.
AutoNation said it plans to open its 12th AutoNation USA store in Kennesaw, Ga., outside Atlanta, by the end of September.
Manley said he also sees the acquisition providing “significant upside” over time to the group’s strong financial and insurance income.
“We have no current intention to displace or replace existing captive financing with our OEM partners,” Manley said. “It is our intention that we focus our new captive finance house on our AutoNation USA business and the large book of business that CIG has developed with its many retail partners.”
Former AutoNation CEO Mike Jackson spun off the then-money-losing auto retailer’s finance unit in 2001. Still under Jackson’s watch, the company in 2014 reconsidered a corporate restart financial captive, but a year later abandoned the idea citing factors such as cost, return. in investment, scale and competition.
AutoNation competitor Lithia Motors Inc. operated by Driveway Finance Corp.
Captive finance companies help franchisee dealers diversify their businesses and also, in AutoNation’s case, “strengthen profitability at stand-alone used car stores,” since they have fewer parts and services and F&I profits “lower traditional,” Ali Faghri, Guggenheim’s managing director, said in a note to investors.
AutoNation of Fort Lauderdale, Fla., ranked first in Automotive News’ most recent list of the top 150 U.S.-based dealer groups, with retail sales of 262,403 new vehicles in 2021.