I first interviewed Mike Maroone in November of 1996. We talked about how he got into the car business and what he did to become and stay so successful. We talked about Driver's Mart and agreed that I would come back for the grand opening of his Driver's Mart store in March of 1997. Afterwards, we would feature Mike as a Cover Story Dealer. But a funny thing happened on the way to the Driver's Mart grand opening. It turned intoAutonation!
After already having explained to Mike Maroone over ten months ago that we could no longer feature him as a Cover Story Dealer (he was at that point an employee of Republic), and after many others followed in his footsteps, I decided that maybe this would be a good cover story. Many dealers seem interested in knowing what it's like - what is it like to sell your store(s), your heritage, your future, and trade it in forthe unknown.. And why would someone do that?
Mike Maroone is not a Cover Story Dealer for this magazine, but this compelling story of a car- guy-turned-corporate-employee does have value and is worthy of a cover story. So, with apologies to those dealers who responded to my Publisher's Notes in the May/June '97 issue by faxing "no" to my question, "Should we still have Mike Maroone as a Cover Story Dealer?", I give you the opportunity to find out for yourself"What it's like." But first, the "Why".
Q: Mike, why on earth would you sell one of the country's largest and most profitable dealer groups and go to work for somebody else?
I never intended to sell my businesses. I spent three years of my life with Joe Serra and Don Flow developing the Driver's Mart concept. We felt that automotive retailing was changing and we wanted to be out in front of the change and that's why I went after Driver's Mart. We recruited some of the finest dealers in the country and tried to execute what we thought was a new form of retailing. The Maroone Automotive Group was one of the most profitable dealership groups in the country. We were among the top profit leaders for GM, Chrysler and Ford in our respective dealerships and we had very little debt-we were in a very strong cash position. Wayne Huizenga and Steve Berrard called, actually Steve came to introduce himself to me one night on the football field at a Monday night football game. I was standing on the sidelines before the game and he came down and told me he admired our Driver's Mart operation. He said, "I'd love to have lunch with you," and I went back and told the Driver's Mart guys, "Oh, yeah, I'm going to have lunch with Berrard and won't that be interesting. Maybe they're interested in Driver's Mart." I never thought of them being interested in me. It was not a clandestine meeting, and when I got there, I ended up spending about 30 minutes with Wayne, who had just finished the Alamo deal. I talked with him about all kinds of things, and when Steve came in Wayne said, "Well, I'm sure you're interested in knowing why we wanted to meet with you," and I said, "I really am." Wayne went on to say, "I'd like you to be my partner." I laughed and said, "But Wayne, I'm not really sure what it means to be your partner." Obviously, with Wayne being a billionaire and being quite a successful guy, I couldn't imagine being his partner. I said, "Wayne, I don't have any partners other than my dad and our operators. I'm very happy and I really don't have an interest in it." He responded, "Well, you know our partners get very wealthy." I said, "Well, in my own world I'm pretty wealthy." We laughed about that for awhile and he went on and explained to me what his vision of the car business was and where he wanted to take Republic Industries. I thought it was pretty interesting. I thanked him for his time and told him that I was flattered. He then said to me that he wanted me to head up the new car portion of their automotive business. We talked about that. I told him that I was very flattered, but that I was happy doing what I was doing, and that I had a large obligation to my family, to the Driver's Mart Group and to my employees. I couldn't see myself working for anybody, and he reiterated that I wouldn't be working for him, that I'd be partner with him, and urged me to talk to people who had been partners with him in the past to define what partnership meant. I walked away and called my dad. We chuckled about it - we had never even talked about money. To make a long story short, I ended up meeting with Wayne and Steve four different times and I think the first three there was zero discussion of money or purchase price-it really wasn't about money. With a 200 million plus purchase tag it's hard for somebody to say it's not about money, but what it really got down to is that I felt I had spent a lot of time checking Wayne and Steve out. Many people had done deals with them in the waste industry, the sports industry and elsewhere, and I found that what Wayne was telling me was that he had consistently delivered for over 20 years to different partners. I really thought that the industry was going to change a great deal.
Q: You already thought the industry was going to change a great deal because that was the impetus behind Driver's Mart?
Right. And I felt that access to public money and to the market place by experienced people could really raise the probability of success. I felt that having the chance to get in on the ground floor, to have a leadership role, was a once in a lifetime opportunity. I felt that surrounding myself with them and the other people that they had brought in would be a great learning experience. I talked to my dad about it quite a bit. My dad said, "You're the future of our family business and whatever you do I'll support you." Obviously, I was very grateful for that. I'd always leaned on him for advice and so we finally got down to talking about money. Imagine that, on a deal this size, I don't think we ever spent a full hour talking about purchase price or negotiating the deal. It all fell together quite quickly. I took off for about three weeks to reflect on the ramifications and then made the decision to go ahead and do it.
Q: You're obviously not the first and certainly not the last dealer to sell your stores to Republic, but that would seem to be only part of the deal. It seems they were after you as much as your dealerships. Why do you think that is?
Honestly, it's hard to be objective about who you are and what you stand for. I think what they saw in me is that I was young; I was 42 years old when I first started talking with them. I think they felt at that point in time I'd had 22 years experience running major stores, which is a lot of experience for a relatively young person. I think they had seen that we'd been very, very successful and when they saw our financials they realized that we were at the very upper echelon of the industry in profitability. I also think they saw that I had the energy level and hopefully that I had the leadership skills to be part of a team. I don't consider myself the leader of their team, I consider myself one of the members of a great team.
Q: It's been almost a year since you joined Republic. What are some of the things you like best about what you're doing now?
I think that the thing I like best is that we're playing in a very big arena. We are obviously leading the automobile industry through a huge change. We don't think we caused the change, but we think that at this point we're driving the change. Given the opportunity to work with Steve Berrard on a daily basis and Wayne Huizenga on a weekly basis, it's just a once in a lifetime opportunity. We deal with the top people at each of the manufacturers and it's exposed us to some great people and some great minds. We've also been blessed to surround ourselves with some really outstanding people, so I would say the best part about it is working with great people and being part of a great team.
Q: What has beenmore challenging than you might have expected?
The number of meetingsI don't think I ever realized that any one human being could sit through so many meetings. It's not because they're bureaucratic, it's because there's so much to do. We now have 225 new car dealerships and we'll have 25 megastores within three more weeks. We started from scratch. We had one dealership and one megastore this time last year. To leave that and to develop a cohesive strategy and put together a team of people is so time intensive; it's not like the company ever stops and says, well, let me give you a couple of months to catch your breath or let me give you some time to get your arms around an issue. Yeah, you get one arm around it and next thing you know we've grown by another billion dollars in revenue. So I would say that the speed is a great challenge and the number of meetings are a great challenge. I think the other thing that's unique about it is the sense of responsibility in working for shareholders. The shareholders I had previously worked for were my mom and dad, my wife and myself, and a few of our key people. We recognize how valuable shareholders are and that they're due so much, so I think that we work even harder to try and deliver great value to them.
Q: What do you have to say about the dealers who didn't go to work for Republic at the corporate level, the dealers who sold to Republic but who are still running their old stores?
I've heard a lot of talk about how nobody's going to work as hard when it's somebody else's money at risk as opposed to when it's their own. Obviously you have a lot of entrepreneurial dealers who are used to running things for themselves and now it's different. I have to tell you that the most surprising part of this whole endeavor is how hard our dealers have worked. Many of them are working harder than ever, and I think it's caused by a couple of things. One is that we have parallel interests. The last statistic I saw is that 85% of the stock that we issued was still in our dealers hands, so our dealers have NOT sold out, they really bought in to Republic. I think that's very important. By having parallel interests they're working hard because they want to grow the stock, they want to grow the value for the shareholder and for themselves. The other misconception is that these deals made these dealers rich. There's not a deal that we've done where the dealer didn't already have a lot of net worth. They were already rich. Most had everything that money could buy. What we've seen is our dealers bearing down and saying, "We have a unique chance in history to help define this industry and the industry is really at a crossroads, let's really go after this."
Q: Are you saying that some of the dealers already had the toys and had the liquidity, but there wasn't really the challenge, now there's a challenge again? They had already accomplished most of what could be accomplished and now there's something else to reach for?
I can't speak for them but I think that's a big part of it. I really think that they were ready to play in a bigger arena. You know we use an expression at Republic, "All of us play at one level, and we dream at another level," and at Republic we try to provide our partners with the resources to play at a higher level. What I mean by that is, you may have been in a town before saying, "Boy, I wish I could get my hands on a Toyota franchise in this town," or "I wish I could get my hands on such and such a franchise." Now all of a sudden, you've got the opportunity to do it and you can expand your horizons like you dreamed you could. We're seeing our dealers anxious to take on greater and greater responsibilities.
Q: What do you miss most about not being in your own dealerships?
I miss the people in our dealerships a tremendous amount. Some of those were lifetime relationships, and some of the people, especially in our store in Buffalo I mean these guys fixed my toys when I was growing up. We have 30-plus-year employees and the people at the businesses I helped build in Florida were people that I spent 60 to 70 hours a week with and I miss them a great deal. I still speak to them oftenwe communicate via voice mail and other ways, but I do miss them. I miss being on the showroom floor. Probably the thing I enjoy most is when I'm out visiting a high performance store or a high performing megastore, I just love to be back in the retail world and out of the office building.
Q: And you get to visit storeshow often now?
I probably enter a store of some sort every week. Every Saturday at Republic I work in the morning and then I go to one of our megastores or one of our Maroone stores or one of our South Florida dealerships. It helps keep me connected.
Q: Now, in regard to your old dealerships, what do you miss the least?
Probably personally dealing with customer complaints. When I was there, I never hesitated to deal with any customer issues because I felt it was an opportunity to create a customer and to prevent losing one, but you know, after you do that for 20 years, it's a little bit of a grind. I'd say the other thing is personnel issues and lawsuits and things that are part of the retail car business today. Certainly we've got our own issues on the corporate side, but I don't miss involvement in that part of the business.
Q: What are some of the biggest changes in the Maroone stores since they were purchased by Republic?
I don't think there's been any major changes. I think, if anything, probably the biggest one is that there's a lot more opportunity for our people. A number of our people are now taking leadership roles both in Republic and in dealerships that we bought in the South Florida market. The GM of our Dodge store has just taken a very important role in a district. Our used car manager who was going to run Driver's Mart is now the dealer at Hollywood Honda, which is, I think, the fifth largest Honda store in the country. My former new car manager, Fred Senra, is going to be the dealer at Abraham Chevrolet. Our CFO is now the corporate controller for the new car division. My fixed operation director is heading up the customer satisfaction effort for all of AutoNation USA and the Republic Automotive Retail Group. So, our people have gotten a chance to grow. We've probably had 10 or 12 key people that have taken on much larger responsibilities. That's something that really makes us feel good and makes us grateful for who those people are.
Q: Your vision for Driver's Mart included one-price selling and November a year ago when I asked, you told me there were no plans for taking your franchises to one-price.
That's correct.
Q: And is that still the case?
I think that we'll look at that as an option every year, but right now we find that in the marketplaces where we do business it would not be an economic advantage. We're going to stay the course where we are. What we try to focus on is how we can better satisfy customers. We find that one price doesn't always mean more satisfied customers. We think that the future of the megastore business is on the one-price side, but on the new car side it's yet to be seen.
Q: Republic wants to standardize the dealership processes throughout all stores. What impact has this had on employees, a more rigid structure?
At this point in time I'd say it's not more rigid. Probably the only piece that's more rigid is the financial reporting, which we push obviously for uniform accounting and standardization of reporting, and certainly the timing of reporting is more critical when you have to disclose quarterly results. Right now we're really trying to gather what we call "best demonstrative practices" and I believe best demonstrative practices are not painful or harmful for an organization. They show people what other successful dealers have done that could prove to be a better way of doing business. That could be the first step to standardization, but we are very, very careful not to do anything to disrupt the entrepreneurial spirit of our new car partners.
Q: Tell me about co-founding Driver's Mart.
It was really the brainchild of Don Flow, a multiple line dealer in Winston-Salem and someone I consider to be a great friend. Don approached me first and then Joe Serra from the Team Management Group in Grand Blanc, Michigan. It was originally started as an idea to get several dealers together to buy off-lease used cars as a group to try and gain competitive price advantages by buying en masse. It later evolved into a new wave of retailing. Both Joe and Don were very active in the Saturn group. Don was one of Saturn's founding dealers along with Joe's dad, Al. The other reason for starting Driver's Mart was because we felt that sometimes our options as new car dealers were limited in two ways. One was that our fate was controlled in part by whether or not that franchise had a hot product that year. I can remember some years making very, very little money in our Chrysler franchises. The last three or four years they've been fabulously successful with the same people, the same levels of management, the same level of intensity. So we're tied in part due to the demand for the manufacturer's product. The other thing was that franchise laws that had really been designed to protect dealers often restricted what you could do as a business man. If you saw high growth in a certain area of town, you couldn't go over and take advantage of that growth, so I think we looked at the used car business as a way to go to the growth spot and take advantage of future retailing locations.
Q: Supposedly one of the reasons that Wayne Huizenga has been so successful is in his getting people to share his vision and obviously that's happened in your case. You were successful in getting some of the top dealers in the country, some of the most successful dealers in the country, to share your vision of Driver's Mart. Then you joined Republic which, in effect, is a competitor. How did that make you feel?
That was by far the toughest part. It was even tougher than deciding to sell a long time family business because I did have an awful lot of loyalty to the Driver's Mart team. Along with Don and Joe, I helped recruit many of the Driver's Mart dealers into the fold. It was a very tough choice. Our Driver's Mart was the biggest out there, and it was almost done (construction completed). We were getting ready to open, and it made it a very tough situation.
Q: What would you have to say to the current Driver's Mart partners, dealers who shared your vision and joined your team?
I think they made a great decision; I think they showed great foresight and leadership in making a commitment to Driver's Mart and in making a commitment to doing business a different way. It takes a lot of guts and there's a lot of risk in getting involved with a new venture, especially one that thus far has not been profitable for anybody. I applaud them for having the guts to go after something they really believe in.
Q: Anything more personal you'd like to say?
Just that I wish them well and that we really believe, all of us at Republic, that we would like to see Driver's Mart succeed, we'd like to see Car Max succeed and we'd like to see the IPOs succeed. If we're the only successful one out there we don't think the market will ever value us properly and we really are cheering for everyone to be successful in the business. We are not trying to be the only successful player in the automobile retailing business that's a public company.
Q: How do you see the retail auto business changing next year?
The industry is going to continue to change, probably at the same speed or maybe even faster than what it's done in the recent past. Having access to the public markets and having access to Wall Street and the capitalists there is really going to change the capital base of the industry. I really see the industry continuing to accelerate in its change.
Q: How about five years from now, what do you see different from today?
I think it's obvious that there will be fewer players and the ones that are here are going to be very large. I still see an opportunity for the single store operator in many markets and I think good operators will always be successful. The other thing is that people like Ziegler and others are predicting that operators will lose their love for the business when they don't have ownership and we believe that with our operators, their love hasn't diminished whatsoever and their ownership is just in a different form. Ownership that we have today is a lot more liquid than we had in the past.
Q: Right after you joined Republic a lot of dealers, at least some of the ones that I talked to, seemed to feel angered and betrayed by dealers who "sold out" (their words). "Buying in" would be how you would phrase it. What would you have to say to those dealers as Mike Maroone, President of Republic's Automotive Retail Group?
This is a great, great country and it's wonderful that people can have options for what they want to do with their businesses. I think that what Republic and other public companies have done is that they started to properly value some very profitable businesses. If you look, it wasn't too long ago that you could buy dealerships for one time earnings or two times earnings and today the multiples are much higher than that. I think that we have created a tremendous amount of wealth, not just at Republic, but at all public companies. It's created a lot of wealth for a lot of dealers and it raised the value of the businesses. We find that people who understand that are grateful, and not that they should be grateful just to Republic, but I think they should be grateful for public ownership and public money coming in and allowing us to realize the full value of our businesses.
Q: That's good for the top dealerships and the high-performing dealerships, but there's also been talk that some of the small to medium-sized dealerships are not really going to benefit from any of this increased value.
I don't agree with that. I believe that if you look even in the smaller to medium-size markets you'll see stores now trading for 21/2 and 3 times earnings in terms of blue sky pre-tax earnings where it would never have been that way before. I think the biggest change for dealerships is going to be for people who do not make the commitment to reinvest in their business. They're going to have a real hard time competing. I do believe that those who reinvest and put capital back in the business will be very, very successful and can compete with any of the public companies.
Q: Steve Berrard has said that Republic's going to gain market share by taking it from someone else. When someone else is your former fellow-dealers, what do you have to say to them as Mike Maroone, Car Guy, as opposed to Mike Maroone, President of Republic Automotive Retail Group?
I'd say that the winner's going to be the customer and as every business has evolved in every industry, when you get a change like this the customer is the one that wins. Any time there's a change in market share somebody wins and somebody loses, but the interesting thing is the customer wins. It's a better customer experience, there's more reinvestment in the industry and I believe ultimately there are going to be lower prices. So I say this to dealers, "Hey, it's a competitive world out there, and let's compete for customers," but I say to customers, "I think you're going to be the big winner."
Q: You recently spoke at a dealer conference. What were some of the questions from dealers that you think were most poignant, and what were some of your answers?
Well, obviously the questions were very direct in terms of what I thought about the megastores, if I thought the megastores were successful and what's the future of the megastore business. I think that's the question on most dealer's minds.
Q: How did you answer that?
We feel the megastores are going to be very successful. I will tell you it has been a tough business to get off the ground. Car Max has been at it about five or six years now, but they've shared very little with the industry and I don't mean that critically, but they've been very close-mouthed about their successes and their failures. We've had a tremendous amount of scrutiny. If you look at our megastores, they all started with no employee or customer bases. When you start a megastore you have zero owner base and it's a tough business. There's a limited number of profit centers, but the good news is that the customers who are buying from the megastores have achieved an unparalleled level of customer satisfaction. I mean, the level of customer satisfaction with our sales experience is 97.5 among our 23 stores that are open. That's incredible! Our service experience is between 93 and 94. I've never seen a similar level of customer satisfaction, so customers love it, but it's going to be a learning curve for us and for others.
Q: To what do you attribute those high customer satisfaction scores?
The fact that customers have more choices and customers can really define the way they shop. There's very little pressure. There's a very high level of reconditioning to the vehicle. We've invested a tremendous amount of money in the quality of the vehicles and in training people, and we think that we've built a great foundation for customer satisfaction.
Q: Do you think it's a function of an overall approach rather than how many minutes to greet a customer or how long until they're passed on to the next thing, as a lot of the factory surveys typically try to expose?
Well, customers can shop at their own speed in the megastore. There's zero pressure. If a customer says, "You know, I really want to go home and think about it," there's not a second or third person that comes in and says, "Well, why do you want to think about it?" and, "Couldn't you make that decision today?" or, "If I did this for you would you do this for me?" We have absolutely none of that. We really try to empower our salespeople to take the transaction from start to finish. Customers understand that when they meet a new person in an automobile dealership in a traditional sales transaction, in almost all cases that person is trying to extract additional money from them.
Q: It sounds to me like, at least in the sales process, that there's nothing that you're doing that any traditional dealer couldn't do if they were so inclined.
That's absolutely correct and as we like to say at Republic, "Everything that we do well is going to be copied and everything we don't do well is going to be ridiculed." That's what happens when you're in a leadership position.
Q: We called dealers of all sizes and asked them what one question they would ask you. The number one question America's dealers have for Mike MarooneSurvey saysWhy didn't you take cash instead of stock?
There's a great fallacy about Republic. We've got a number of deals with cash and stock, and our stock is liquid. You can take stock one minute after the deal's closed and cash it. I think that that's a huge misnomer for a transaction. The stock is a huge advantage for us. If you take cash, at the time you only keep 72 cents on the dollar.
Q: What is the reason that 85% of the stock issued to dealers who have bought into Republic has not changed hands?
Many dealers believe they can grow their business faster with Republic than they could on their own. Once you sell it back, then you get 72 cents investment on the dollar. Where are you going to go invest it that you're going to get a higher return? Let me share with you some interesting statistics. In 13 years Waste Management stock on average appreciated 30% a year. In the seven years of Blockbuster, Blockbuster stock appreciated an average of 69% a year. I don't know what Republic's is, certainly the last year has been a bigger challenge, but the first year and a half of Republic, I think the growth was about 300%. If you look at that for a transaction where you're still playing with a hundred cents on the dollar, there's not an automobile dealer in America that can grow their net worth that way. Therefore, in talking about people "buying in" or "selling out," they're really betting that Republic stock can grow faster than they could grow their own business.
Q: How did you get into the car business?
My dad became a dealer when he opened Al Maroone Ford in 1954 in Buffalo, NY. He worked there practically every day and night for as long as I can remember. If I wanted to spend time with my dad, I had to go to work with him. I worked in the dealership every summer from age thirteen. After graduation from college in 1975, I went to work at the dealership. In 1977, we bought a Ford store in Miami and I moved there to run the store.
Q: How did the Maroone Automotive Group become one of the country's largest?
We really did it with people, and I know it may sound trite, but we were fortunate enough to surround ourselves with great people; people that we felt had the same customer focus, the same work ethic and the same level of integrity. We worked with a very young team. Most of the team that I started with in the late '70s grew our business in the early '80s and are still either with the organization or now hold key positions with Republic. I would say our success has always been due to people. It's also been due to a very aggressive approach in the market place. We're always a big advertiser, we always stock a lot of inventory. We never had a lot of management people, but the ones we had were paid very well and we kept them.
Q: How were you able to attract these talented people?
Through creating a workplace where there's a lot of give and take. It was probably long before "empowerment" became popular, but we hired good people, trained them, and then we let them do their jobs. We didn't micromanage. We ate lunch together every day and communicated on a regular basis. We were always big believers of what we called one-on-one communications. We didn't have a lot of staff meetings, but every day my dad or I would sit down with our very key people and spend a half hour to an hour talking about everything that was important to them or important to us. Our managers knew they were going to have regular visits with us. We all came prepared to the meetings and found it a great way to communicate.
Q It sounds like you had a pseudo-corporate structure in place at your dealership group.
I think we did. Maybe we didn't look at it that way, but we thought one-on-one involvement was good. We then asked our managers to go back and deal with their assistant managers or their key people on a one-on-one basis. We ultimately took it to the salesperson and technician level where we asked our management every day to try and do a "mini" one-on-one with every key employee and it turned out to be very effective for us.
Q: One final question-is Mike Maroone still a car guy?
I spend all day long trying to figure out how to sell more cars and satisfy more customers. I'll always consider myself a "Car Guy." It's an industry that I love very much. I was blessed to have the best teacher in the whole world, my dad. He loved the business and I love the business. I don't think I'll ever get away from the business of selling cars and trying to take care of customers.