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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 standalone used-vehicle AutoNation USA business and further develop customer relationships throughout 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 strategy move under AutoNation CEO Mike Manley’s leadership. Manley, who took over as chief executive 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 an acquisition.
“This acquisition provides capabilities, footprint, technology and most importantly a proven, motivated team with great leadership,” Manley told investors and analysts in a call this week. “CIG has everything we need to scale and improve our financial performance with modest upfront investment and little risk.”
CIG Financial, with about 160 employees, has loan receivables of about $325 million, of which $300 million has been securitized, AutoNation CFO Joe Lower said in the call. The company originated approximately $195 million across 12,000 loans last year and has a network of primarily independent dealerships, serving about 80 of those stores, Lower said. He said AutoNation plans to continue to serve those dealerships.
“Our integration plan is one that will be very deliberate,” Lower said. “There’s strong overlap in the credit profile, particularly within AN USA. They have a very strong, proven record in both underwriting and in servicing, which was a real attraction to 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 of Atlanta, by the end of September.
Manley said he also sees the acquisition providing “significant upside” over time to the group’s strong finance and insurance revenue.
“We have no present intention to displace or replace existing captive financing with our OEM partners,” Manley said. “Our intention is that we’ll focus on our new captive finance house on our AutoNation USA business and the great book of business that CIG has developed with its many retail partners.”
Former AutoNation CEO Mike Jackson ended the auto retailer’s finance unit, then a money loser, in 2001. Still under Jackson’s watch, the company in 2014 reconsidered restarting a captive finance company, but a year later abandoned 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 aid franchised dealers in diversifying their businesses and also in AutoNation’s case “strengthens profitability across standalone used-car stores,” given less parts and service and “less traditional” F&I profits, Ali Faghri, managing director with Guggenheim, said in a note to investors.
AutoNation of Fort Lauderdale, Fla., ranked No. 1 on Automotive News‘ most recent list of the top 150 dealership groups based in the U.S., with retail sales of 262,403 new vehicles in 2021.
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