How were things in 2010?

Mike Jackson: It was a solid recovery year for the industry revolving around the availability of credit. We really had no credit in '08 and '09. We had the traffic, we had the demand, but we couldn't get the financing. For prime and near-prime, it's pretty much normalized. It's still constricted around sub-prime and leasing, but I expect that to normalize in 2011 and will be one of the reasons the industry sales lift another 10% or 11% to around 12.8 million [automobiles].

As I recall, you were waving the caution flag a year or two ago on Squawk Box saying that credit was not available and that the government needed to do something.

Mike Jackson: Yeah, you can't sell something with the average transaction price of $32,000 to the American people without credit. It's simply not possible. And, during the bleakest period after Lehman Brothers rolling into '09, we could take a prime customer and shop him to 10 banks and couldn't get him financed. It was just shut down. And I've never seen that before for the consumer market.

And now it's opened up?

Mike Jackson: Now it has opened up. I would say for prime and near-prime it's almost normalized. They require higher down payments than they did in the past – okay, that's fine. The customers with the higher savings rate had saved up for those down payments. We had thousands of customers come in who didn't have the down payment say, “Hey, I'll be back in six months.”

So we know that this savings factor is built in, which gives us a lot of confidence to say we'll get back to 12.8 in 2011. To go beyond that though you really need a better employment picture.

What about the leasing picture?

Mike Jackson: It's still mixed. You have brands like Mercedes-Benz and BMW where [financing is] there and never pulled back. And then you go all the way to the domestics and they just don't have the product, the financial products. If you look at a lease customer, they're not loyal to a car brand – they're loyal to a financing concept.

So if you come into a GM (NYSE: GM) store and I don't have a lease for you, I can't convert you to a buyer. They're going into the market place until they find a brand that will give them a lease. Certain manufacturers still have to figure out how to address that.

Recently I've seen a lot of good leasing programs from Subaru.

Mike Jackson: I would say in the volume market, the natural lease market, it's probably 18%, 19%. That's a big piece of the pie. And if you go into the luxury market, it's 50% to 60% of the marketplace.

What's your plan for 2011? Expanding? Keeping the same stores you have?

Mike Jackson: We work hard to make our money and put a lot of thought and discussion into how to deploy our capital. Basically, we look at the share repurchase, acquisition, or investing in existing stores, and whichever is going to give us the best opportunity is where we go.

But we're agnostic; if you look at it in the downturn when debt was distressed, we said oh, we'll buy our debt back. We're very flexible on that. I can't tell you where the pricing is going on the stock or the acquisition, but we're gonna buy the one that gives us the highest return.

Do you see hybrids or fuel-efficient cars being more attractive in 2011?

Mike Jackson: It depends on where the price of gas goes. If the price of gas is basically $3 to $3.50, no, I don't see it going anywhere. The freak-out number to really push fuel efficiency is $4.50, $5 a gallon. Every time we have one of these spikes, the freak-out number becomes higher because people adjust in their mindset as to what they can live with. So it depends on where the price of gasoline goes, and I don't know where it's going.

Does AutoNation plan for that? Penske Automotive Group, Inc. (NYSE: PAG) bought Smart car when they thought fuel prices were gonna keep going up.

Mike Jackson: We have argued for, and we've won the argument for the whole industry, [and that] was: in order to be more flexible, you need lower inventories. So if I look back to the summer of '08, industry inventories were approaching four million units. Today they're just over two million units.

The fact is you can't have these huge inventories. If the marketplace moves, you need to be able to switch over production and liquidate the wrong inventory and re-stock with the right inventory. Which, in '08, took six months, and I think the industry could now do it in three months, with every manufacturer having a significant offering for fuel efficiency. So the industry is much better prepared.

The following two questions are for our younger listeners: how did you get to become the CEO of AutoNation? Was it your schooling, parents, what was the—?

Mike Jackson: It's a 40-year journey. I've been in the business 40 years. I started as an apprentice mechanic. A college education – you can't do anything without at least a college education.

Where'd you go to school?

Mike Jackson: St. Joseph University in Philadelphia. Then for a summer job I got an apprentice mechanic and decided that rather than become a lawyer I was going to stay in the car business. I've done everything in the business at every level.

You need entrepreneurial spirit, risk-taking, roll the dice. I bought my first dealership at the age of 29, highly leveraged. Took a lot of risk. I was either going to win big or lose big.

It either way.

Mike Jackson: Either way! Go big or go home.

So you had some anxiety back then.

Mike Jackson: Sleepless nights. And rather than sleep I worked at night.