A Billionaire Stumbles -- Autonation's Troubles Just The Latest For Wayne Huizenga's Empire

FORT LAUDERDALE, Fla. - The annual shareholder meetings of AutoNation, the chain of auto dealerships run by billionaire Wayne Huizenga, used to be festive affairs. In 1998 Huizenga climbed to the stage to music from the Indiana Jones movies. Afterward waiters poured champagne, and shareholders mobbed Huizenga seeking autographs. One woman even insisted that he kiss her baby.

The bubbly wasn't flowing at this year's gathering, which was held in May. Many of the 2,000 shareholders who jammed the Broward Center for the Performing Arts here were downright hostile. "What have you done for me lately, Wayne?" asked Doris Zimmeth, a retiree from Boca Raton, Fla., who says her AutoNation stock is down $100,000.

These are humbling times for Wayne Huizenga, 61, the man who earned near-cult status among investors for building Waste Management and Blockbuster Entertainment into national brands whose stocks soared with him at the helm.

Huizenga's current business ventures aren't going nearly so well. The four companies he now leads have lost more than two-thirds of their market value since their peaks.

Huizenga is chairman of four publicly traded companies, including AutoNation, which he promised back in 1996 would change the way Americans bought cars. Instead, it's struggling as a car dealership with high overhead, low profits and a strategy that hasn't clicked. AutoNation said last Monday that it would close most of its used-car superstores and take a charge against earnings of as much as $490 million pretax.

Huizenga's also in the leisure business with Boca Resorts. This company started as a way for Huizenga to cash in on his Florida Panthers hockey team and has since expanded into the competitive business of operating posh resorts. Huizenga co-founded Extended Stay America, a chain of long-term-stay hotels, which is now struggling to compete in a crowded, overbuilt segment of the lodging industry. He's also back in waste hauling, the business with which he made his name in the early '80s, with Republic Services. That company has failed to deliver steady profits and growth.

With all the businesses except Boca Resorts, Huizenga is following the model he used to get rich in waste and videos: He took a widely fragmented industry with hundreds of small operators and bought them one by one to create a national chain.

In the past, Huizenga would standardize operations, cut costs, and woo investors with double-digit growth. But now Huizenga's trying to keep and run his disparate businesses. And instead of mom-and-pop rivals, he's squaring off against deep-pocketed, experienced competitors, from car dealerships with $100 million in sales to Marriott International.

Huizenga said he is up to the challenge. "I'm far more than just a builder of big companies, far more," he said.

Investors aren't so sure. "It's been very, very frustrating," said Leon Cooperman, chairman of Omega Advisors, a $3 billion hedge fund that sold its 2.94 million shares of AutoNation last summer. "He has overpromised and underdelivered for years."

Few could have predicted Huizenga's fall in the fall of 1994, when Huizenga agreed to sell Blockbuster to Viacom for $8.4 billion. With more than $500 million in Viacom stock, Huizenga could have retired and watched the three sports teams he then owned: the Miami Dolphins football team, the Florida Marlins baseball franchise and his hockey team.

Instead, though, he plunged headlong into new businesses, counting on his proven strategies to carry him past his inexperience. AutoNation is a particularly telling case.

In May 1995 Huizenga paid $27 million for an 18 percent stake in Republic Industries, an Atlanta-based garbage collector with $55 million in annual revenue. At first, it seemed like Huizenga was trying to repeat his past success at Waste Management. There were, after all, still plenty of consolidation opportunities in the waste business.

Within months, he had enlarged his vision: Republic would be his vehicle for consolidating the highly fragmented auto-retailing business - the largest sector he'd ever tried to tackle, with sales of $1 trillion a year. Not a single dealer had even 1 percent of the market; and General Motors alone had 7,000 dealers.

Using his consolidation skills, Huizenga would build a nationwide chain of used-car dealers, new-car dealers, rental-car agencies, repair and maintenance shops, and car-financing and insurance operations - all a person's automotive needs under one roof.

Huizenga's new companies adopted many of his hallmarks: He stocked top management with a cadre of loyalists from his Waste Management and Blockbuster days, including Blockbuster Chief Financial Officer Gregory Fairbanks, who became Republic's CFO.

As at Blockbuster, employees at Extended Stay donned khaki pants, blue dress shirts and name tags. Even used-car salesmen were trained to be friendly, not pushy. Huizenga made them wear polo shirts and khakis and called them "consultants."

For a while, things worked according to plan at Republic. Huizenga went on an acquisition tear, buying a car dealership every two days. He also acquired three car-rental franchises - National Car Rental System, Alamo Rent-A-Car and CarTemps USA - for more than $3 billion, forming the country's largest rental-car business. The rental agencies' castoffs could be sold at his used-car lots.

Cracks start to show

All through 1996 and 1997, Republic was rolling up scores of trash haulers, building a chain under the Republic name.

The frenzied expansion was vintage Huizenga. "I'm not smarter than everybody else," he said. "I just work harder." To judge by his stock price, he sure looked smart to investors. By January 1997, Republic stock had soared to $44 from less than $2 when he bought it in back in 1995.

But then, the first signs of trouble surfaced in Wayne's world. Republic reported a loss of $96.6 million, or 38 cents a share, for the fourth quarter of 1996, blaming unexpected charges related to the acquisitions of some waste companies and Alamo Rent-A-Car. Analysts had expected the company to earn 6 cents.

That triggered investor concern that the company wasn't being diligent enough in its acquisition spree.

By June 1997, five months after hitting its peak, AutoNation stock had lost half its value. It was becoming clear that Huizenga's do-it-all strategy in auto retailing wasn't working. With the economy booming, new-car sales were strong, but AutoNation's 42 oversized used-car dealerships flopped.

"This is the ultimate example of an either/or situation: A customer is not going to buy both a new car and a used car," said Sanford C. Bernstein & Co. research analyst Ursula Moran. Being on both sides of the business might protect AutoNation in a downturn, but it also prevents the company from cashing in on the current boom.

The used-car stores cost $25 million each to build and had expensive amenities like coffee bars, child care and big-screen TVs. The synergies Huizenga had hoped for with the car-rental business failed to materialize: Used-car customers shunned the plain-vanilla models the rental companies used.

"He's articulated a lot of strategies, most short-lived and poorly executed," said Robertson Stephens analyst Jordan Hymowitz.

Last year Huizenga fired seven senior executives and hired Mercedes-Benz USA Chief Executive Michael Jackson, who led the German auto maker's U.S. division to a record year in 1998.

Under Jackson, AutoNation has scaled back its ambitions. Last Monday, the company said it would close 23 of its megastores and merge the rest with new-car dealerships, junking Huizenga's strategy.

In addition, AutoNation stunned investors and analysts by reporting that its auto-retail operations were performing far worse than expected - especially since the economy is booming and retail sales are strong.

AutoNation said fourth-quarter profit from operations would fall far short of expectations - 10 cents instead of an estimated 19 cents. Corporate overhead at AutoNation, Jackson said on a conference call Tuesday, is the main culprit, rising 71 percent from the fourth quarter of 1998 to the summer months.

AutoNation will now focus on multibrand, no-haggle, new-car dealerships. The company is testing the prototype in Denver, where it converted 17 outlets last year into John Elway AutoNation USA dealerships, including several purchased from the retired, two-time Super Bowl-winning, Denver Broncos quarterback. More broadly, analysts said Huizenga has overlooked the car business's cyclical nature. A slowing in economic growth or a continued rise in interest rates could lead to a downturn in car sales, which are at record highs.

Huizenga dismissed the strategy shifts and management shakeup as mere growing pains. But he concedes that it's far harder to crack a business like cars - in which he faces competition not only from Internet rivals but established competitors like GM - than it was to set up Blockbuster.

"It ain't the video business; that much I've learned," he said. "But I'm not walking away."

Reaction has been the same for all four of the companies that Huizenga heads. Stock prices are in such a slump that some of his companies are being scouted by bottom fishers who think the stocks can't sink any more.

Among the opportunists was Cascade Investment, an investment company affiliated with Microsoft Chairman Bill Gates, who bought 9.1 million Republic shares last fall.

Huizenga said everyone is exaggerating his difficulties. He recalls a time when Blockbuster, too, was a market dog. "I told the shorts we'd deliver with Blockbuster, and I was right," Huizenga says. "And I'm telling them the same thing now."

It's not just the market professionals whose trust Huizenga has lost. Just ask Bernie Kaye, a North Miami Beach, Fla., investor who owns 500 shares of AutoNation that he bought in the mid $30s.

"It went up above $40, and I was Wayne's biggest fan. I even drove up to the 1997 annual meeting and got him to sign an annual report, which I left out on my coffee table," said Kaye, a retired salesman.

Now Kaye has the report tucked away in the bottom of a drawer. Nobody, these days, is asking Huizenga to kiss babies.