I recently traveled to Exeter New Hampshire, to visit with the incoming President of the NADA. Mr Holloway's openness and frank answers to my questions were as refreshing as the crisp New England air. He's not afraid to say what all dealers know and feel. The Association is in for another great year!
Q: How did you get into the retail automobile business?
When I was in high school, I used to buy junk cars, fix them up and then sell them. I sold cars while I was in college, then went to work for General Motors when I got out. I started with GM in New Jersey. I went into a training program in which they would take 25 people and train them for 22 months. The training I got there was invaluable. They had us move to a city and go to work as a salesman for six to nine months. It was a "washout" period, as in a lot of people "washed out." But those who made it through the entire 22 monthsthey learned the business.
Eventually I became a district manager here in New England. I thought it was just another step up the corporate ladder, but in 1963 I drove through Exeter and went home that night and told my wife, "If we ever have to stay here (in New England), I was in a town today where I could live the rest of my life."
I eventually was to be promoted to the New York office, but we would have to move again for the umpteenth time. The constant moving was tough on the family and there would probably be more moves after New York. I worked six days a week and on the seventh day I did my paperwork. My wife and I decided that, with the workload and the constant moves, I needed to find a different place for myself in the automobile businessfor our family's sake.
I had met a dealer in Exeter named Gerald Dreher who had a small dealershiphe sold about 90 cars per year. On January 10, 1967, I became an automobile dealer as a partner of Jerry's. I gave him some cash, I gave him a note for the rest and he started introducing me to everybody as his partner. We had six employees, including myself, and we still have three of them. Of course, Mr. Dreher eventually retired-he passed away about two years ago.
Q: Early on, what did you see as the keys to success being an automobile dealer?
#1 - Take care of the customer. In a town this small, taking care of the customer is paramount. Ninety-five percent of the time, when a complaint is made, the customer is right. Why waste time trying to figure out who the five percent areand possibly alienate some of the ninety-five percent in the process?
#2 - Build cash. My first year we paid our bills in January and we were $2,996 upside down. That was itI made up my mind then and there that we would never be in that position again. I never envisioned the kind of success that we've had, but one of the reasons for it is that I've always said cash is king, cash is your best friend. In tough times, cash can sometimes be your only friend.
#3 - Select and hire good people, then let them do their jobs and keep turnover to a minimum. Whether a metro or rural market, the competition for good people is intense. You have to look for all the traditional traits such as dedication, hard-work and honesty, plus they must feel free to disagree. We have very frank, open discussions. Our managers meetings are not one-way. They may tell me, "You're screwed up, you don't know what you're doing." That has to happen, you have to let them tell you because you know what? Sometimes they're right! You need that balance and your managers need to have the confidence to say that to you. You may not want to hear it, but you should at least take a second look. Since 1967, we've had four sales managers in Exeter - two left to be dealers and one is running another dealership for us.
Q: Why do you want to be president of the NADA?
Back in the late '80s I had some concerns about the NADA. I had been very involved with dealer councils and had been a state dealer association director and president of our state association. If you look at the current makeup of the board, a generational shift has taken place since the days of being a club. There are only seven or eight directors left that we elected before 1990. Today, NADA's board is youngermore aggressive. All they care about is getting the job done. We won every single battle we got into in Washington. Ramsay Gillman is certainly much more aggressive than his predecessors of eight to ten years ago. He wasn't concerned with others' agendas; he was focused and telling the story of the automobile dealer. He managed to upset some of the factory folks along the wayand I guess Ford is still upset with us, but Ramsay spoke the truth. The way Ford handled Indianapolis was not the best way and I think, upon reflection, they would tell you they would do it differently. I want to be president to continue to tell the dealers' story.
Q: How do you view dealer-factory relations?
One thing that bothers me with the factories is that every time dealers say something they don't like, they lose their temper. If dealers reacted that way when the factories say things dealers don't like, we'd never talk to each other. The automobile dealer is the most important link in the chain. The factories just haven't recognized this.
Q: Ron Zarella was quoted as saying, "The dealer is not our customer, the consumer is our customer." What's your take on this?
I'm not sure why he would say that, but if he said it, he's obviously not concerned with his dealers' attitudes. GM dealers are taking their money and reinvesting it in other franchises and that's not good. And if the factory talks that way about dealers, that won't reverse the trend.
Q: What are some other areas where manufacturers have recognition problems?
GM thinks they can promote 75+ brands. They had some of the best brandsmaybe the car they made wasn't the best at the time, but the brands were damn strong and people knew what a Pontiac was. Now they're trying to segment particular models of Buick, like a LeSabre? In my Mercedes stores people come in to buy a Mercedes, they don't come in to buy a C-220 or a C-280, they come in to buy a Mercedes. Once they come in, it's our job to put them in the exact model which best fits their needs. When someone asks them what they drive, they don't say "a C-220." They say, "I drive a Mercedes."
Now some of the manufacturers are trying to reinvent the wheel, not that there aren't areas that could be changedbut it's absolutely ridiculous, in my mind, how some of these manufacturers are trying to create all these brands as if cars were cereal or soap. Number one, they don't have the money; number two, it's being driven by people who don't understand the automobile business. I have people coming in here telling salespeople how they should be talking about brands, people who have never sold a car. Hell, some of them have never bought a carbut they come in here as experts. The salespeople want to hear how they can make a living selling cars when the manufacturers keep minimizing their ability and my ability to make money.
Q: What should the manufacturers do differently?
They need to bring in some people who don't agree with them all the time. I've seen guys on some of the factory committees that never saw a factory program they didn't like. That's ridiculousit helps no one. You make errors, I make errors, everybody makes errors. There is no cohesive effort to involve the retailer who sees customers face-to-face on a daily basis. We've got dealer councils giving great input, but that's as far as it goes. Also, I find that the manufacturers have retired a lot of knowledge. I'm not saying the people they have aren't smart, but intelligence is one thingknowledge of the business is another. Some of these factory folks haven't suffered. Fifteen million is a pretty good year. What happens when it drops to 13.7? That's when they'll come to their dealers and say, "Help us, we have to keep these factories running." Unfortunately, the manufacturers only recognize the value of their dealers when they can't sell their product.
Q: As the president of NADA, how can you get the factories to "recognize"?
I have to be realistic about what I can do as the president of the NADA. I can articulate the position of the dealer. I can talk publicly about the dealer's storybut we can't walk into the manufacturers' boardrooms and smack them in the head with a baseball bat.
Q: Why not?
Because (laughter), because we can't. First of all, there is no process for direct communication; secondly, we can't threaten the manufacturers. We are a franchised dealer. We deserve respect, however I don't think the factories give the dealers the respect they should. I don't think the factories really understand the value of their dealers. Dealers are a very, very unique breed of people - given a challenge and understanding why they're in a position, I have never met with a group of dealers who haven't responded positively and gotten the job done. And I mean that sincerely. When I was with General Motors, there were times when I knew what I was asking a dealer to do wouldn't make them a ton of money, but if you explain to them why, explain to them the long-range benefits, explain to them the downside if we don't do it - I've seen dealers step up and do what they never thought they could do. We don't have that anymore. We don't have the intensity to sell those cars from the people who are calling on us. This is still a one-on-one business, really, and if you look at what GM did, for instance, where they pulled everybody into Michigan to call on Chevrolet dealersI don't think Chevrolet's recovered from that decision yet. Now they have spent a fortune on consultants, they've spent a fortune on moving these people out there. They forgot to talk to the dealer and say, "Hey, do you think this is a good idea? Do you think this will really work? Is this good for the business?'
I was in a meeting with one of the top domestic executives and they walked into the room and said, "I have a plan and I'm not going to change it." That's the way the meeting started. The successful manufacturers understand their dealers and they're not afraid to talk to and listen to them. We can agree to disagree. I don't always agree with everybody who works here or my wife or anybody else, but that doesn't mean you throw the baby out with the bath water. As dealers, we spend a lot of time trying to give the factories input. Sometimes they ask for input. I don't know exactly where it gets broken down, but somehow the input doesn't get passed on to the next little office. I think that some of the manufacturers may have lost focus. They're trying to do too many things instead of staying focused on what they do best.
Q: Like buying computer and aircraft companies and shoving "retail revolution" down the throats of dealers in Indianapolis and Salt Lake City?
Well, for GM those acquisitions turned out to be pretty profitable deals.
Q: So it was a good thing for their automobile business?
No. That money was really money that would have gone into product development. I think that they diverted money away from their core business and then were unable to develop the engines they wanted to develop. They were put behind in engines and transmissions, and had to play catch up.
Q: How about the four billion dollars that went into Saturn?
I really don't want to get into that discussion and I'll tell you whyI think it leads to another problem that we're facing in our industry today and that's pitting dealer against dealer.
Q: Fair enough. Let's get back to the original question, what should the manufacturers do differently?
Dealers want to know what's going to happen and I think that the manufacturers are missing an opportunity. I personally have told them that. I would encourage manufacturers, whenever the opportunity presents itself, to talk about the future as they see it. There are these little pockets of knowledge that are floating around out there and unfortunately that starts the rumor mill rather than an exchange of real knowledge, but there's no real communication. Now they can hide behind the veil of, "Well, it's not legal to talk about it, our lawyers say we can't." There has to be a way to do it and do it so people can communicate. Some manufacturers have been very reluctant to share information and when they don't share the information they create distrust; they drive people to the legislatures and in the end we all lose. Every time I get a chance to talk to somebody from the factory I say, "You have to share what you see."
Q: Who's doing it right?
Toyota is absolutely tuned in to their dealers. Now I'm sure you could find some Toyota dealers who disagree, but I'm telling you, their overall philosophy and their interaction with their dealer body is one of the biggest reasons for their success.
Q: Earlier, you used the phrase, "pitting dealer against dealer." How do publicly-owned dealer groups fit in the NADA?
I think this business is big and there are big enough tents that we can all fit inside. I really believe that. As long as it's still a business of selling automobiles one at a time and that is the way that it isa person comes in here, they want to smell it, they want to feel it, they want to sit in it, they want to drive it. One of the things that we continually keep forgetting is the excitement that those people still feel about a new car. That's an exciting thing in a family. We take that for granted because we drive a new car all the time. But when you see a family come in here with three young kids to pick up their new car, it's an event for that family.
Q: What's your opinion on the new Ford factory dealer groups in Tulsa and San Diego?
The dealers were the genesis of Tulsa and they brought it forward. The dealers themselves put that together and Ford was very cooperative. It really fell into their whole scheme of things. It made life a hell of a lot easier for them. What I find is, we have dealers saying every day, "Toughen these laws so these people can't do it." On the other hand, I see dealers that are saying, "Hey, wait a minute, this guy wants to pay me X number of dollars for my franchise." So you have this dichotomy within the dealers right now. Everybody's going to make their own decisions and I think we have to be damned careful about the kind of laws we're passing. I'm concerned about these laws, because in the end, the laws that you ask for, you might get; then you're going to have to live with them. If you look at what's happened, the dealers who passed these laws can be very protectionist, they're the laws that allow Republic to buy in those states. Republic has as much right to buy, and the dealer has as much right to sell to those people as anyone else.
Q: What about the dealers who have sold out to, or as Mike Maroone says, have "bought into" Republic? Are they still automobile dealers?
They're very rich managers.
Q: What changes do you see in the industry next year?
Next year, I think, sales are going to be relatively flat. I think you'll see a weakening in used cars. I don't think you'll see continued growth in used cars. I think that's changed for a lot of reasons, but I think probably the big reason is two things: with flat sales you'll see continued programs and low-interest rates, 1.9-2.9. At the same time there's no cheap money for used automobiles or the same degree of cheap money. I think you'll see a continued emphasis on dealers to work their service and parts business and that's coupled with a tremendous growth potential. You'll see continued pressure from the factories to cut warranty expense.
Q: Paul, what do you think the average dealer or traditional dealer needs to do to stay competitive in 1998?
I think over these last couple of years we have not paid as much attention to expenses as we should. There will be some manufacturers that have great sales gains, but by-and-large I think that we're looking at a relatively flat year as far as sales of new cars. Dealers are going to have to spend some time reassessing some of the expense structure that they've allowed to creep up over these last couple of years. I think there will be real pressure on profits. I don't know that anybody knows what the long-range implications of this Asian situation are going to be on this business. I think it's a two-edged sword. Those manufacturers that bring their products in for a lot less because of the value of the dollar versus whatever their currency happens to be, also have to be very careful because you don't really want to fuel the protectionists' sentiment in the Congress. As we start to grind closer to the elections, I think you'll hear people talking more and more about this, so they are going to have to walk very softly. I don't think you're going to see this country flooded with cheap imports in automobiles. In addition to that, the majors - Toyota, Nissan and Honda - make a lot of products here and they're committed to this market. I don't know what effect it's going to have on our industry, but I think that we're going to see situations where dealers are going to be pressed next year. I think it's going to be a real battle to maintain the same profit levels that we've enjoyed the last couple of years. I think the market has softened a bit, even now. We've been very fortunate in my stores - from 1967 on we've never had a red year, but I think we're going to have to be very careful in controlling expenses. And it's not that we've had tremendous pressure on wages, but I think that we've allowed things to creep up into our business that we may not have been paying as much attention to because things have been so good. We're just going to have to be careful.
Q: Describe the dealers who will be tomorrow's winners five or ten years down the road.
They are people that have reinvested in their dealerships, that have taken advantage of the technologies that are available. I think dealers, and it's not only dealers but any business person, who doesn't invest and educate their people is making a terrible mistake. We spend a lot of money on training, we spend a lot of money on education. I really believe in education. I think that's something that, in NADA, we can do a better job of. NADA has to be more tuned in to using the technologies that are available. The interactive delivery of a program is a beautiful thing. We're using teleconferencing right now in holding seminars over the telephone, actually with the accountants and the office managers and people around the country on the Lifo ruling. We had one scheduled that sold for $79 and it's just a break-even deal. NADA does not make money in that area. It's a service we deliver and what we found was that one wasn't enough, two wasn't enough, three wasn't enough-we've put 200 people on the telephone. That's the maximum we can do. It is conducted from Washington and goes out across the country. When a dealer gets through they can ask a question. If they can't get through immediately, they can fax it in and we can get back to them. But getting back to what dealers are going to be doingdealers have to rethink the way their facilities are configured. I think they have to say to themselves, "What do I really need to do the job?" We have to do a better job of using our facilities to the utmost, the maximum capability of the facility. In the past, what we did was add service stalls when we got busy. Maybe we should have really added hours, maybe we should work the current stallsnot just ten hours a day, but sixteen hours a day or whatever. Two out of five dealerships are open on Sundays, two of five are giving service on Saturdays and we even have 24-hour service available via a beeper. You have to keep thinking, and stay one step ahead of what these customers want. Have people who are trained and deliver the service once you get them in here.
Q: How do you view yourself and your fellow dealers?
I think that successful people, by and large, like what they're doing and they like the people they're with. The automobile business is a strange business in a lot of respects. It probably has more integrity built into it and is the least understood of any industry I know and that really bothers me.
Q: What do you mean by that?
I'll tell you-if you look at the image of the automobile dealer, we are constantly the brunt of jokes, thrown into the same category as the guy that sold land underwater in Florida or whatever. Take, for instance, a remark like, "Would you buy a used car from this guy?" and all of that. This is an industry that does more for local communities than any other industry I know. We're the ones who sponsor the Little Leagues, we're the ones who do the things with all of the charities and you know something? We do it not because we're looking for a payback. The people that are in this business genuinely care about people. When I go to meetings, it's the easiest thing for me to do - call another dealer and get money for a charity or somebody that needs help. I've never called a dealer that hasn't given of themselves. They may not be able to give as much as I wanted to get, but they've never said no. I've seen dealers send kids to school, pay doctor bills, all kinds of things. Dealers are good citizens.
I can pick up a phone today and call another dealer and say, "I'm looking at a Porsche and this is the way the car looks," and he'll say, "What do you need for the car?" I'll tell himit could be $75,000. I'll make a deal based on that $75,000 and if I describe the car accurately, I know that money's good. There are very few businesses that are handled the way our business is. There are no contracts drawn, there are no lawyers involvedthere's no purchase and sale agreement. And people don't understand that. They don't understand, "How do you know that car is worth that?" Because he said it is! This business is one of the last businesses that's really done on a person's word. And I mean that. People who are outside this industry have no idea. Do you ever go to church on Sunday, look around and say, "I wish he didn't belong here?" Well, we have a few of those, too. But not very many and not very many compared to the number of people that are involved in this industry. I find that the people that are involved in our industry have more integrity and do more business on someone's word than any other activity I have ever been involved with I've been involved with nursing homes, real estate, retirement centers and the health care industrynobody does anything without a signature. I find that customers and the public and the media just don't understand and are very reluctant to give dealers their due credit. We don't make these automobiles. I don't think people understand the pressure that's generated in a service line. I don't think they understand the kind of talent it takes to satisfy that customer, and I don't think we give our own people enough credit. In 1998, my number one job is to tell the dealer's story.