Bob Baker is a highly-successful mega-dealer who has been touched by many of the recent drastic changes in the retail automobile business. Bob is a multi-line, multi-point, import/domestic dealer who has been approached by publicly-held dealer groups and has sold a store back to the manufacturer in a market where import and domestic manufacturers have set up "company stores." Bob Baker has personally negotiated, bought and sold over fifty dealerships. Bob has some unique insights on some of the events and entities involved in the upheaval in retail.
AD: Bob, how did you end up as a successful megadealer in beautiful San Diego?
I practically grew up in the automobile business. I used to ride with my dad, who at one time was the best wholesaler in the Los Angeles area. It was fun being with my father, however, I decided I wanted more of a corporate career. When I got out of the service, I married my present wife of forty-four years and I needed a job. I sold cars while going to business school under the GI Bill and I found out I was very good at it. It got into my blood and at the ripe age of twenty-two, I decided that I wanted to be an automobile dealer. I rose through the rankssalesman, sales manager and so on, and after working for a dealer who had several good dealerships in southern California, I decided that I didn't want to be a dealer anymoreI wanted to be a megadealer.
AD: How did you acquire your first dealership?
Motors Holding, the division of General Motors that helps dealers buy stores, helped me acquire a large dealership in Indianapolis, Indiana. After I moved my wife and five kids to Indy, I bought out Motors Holding in three and a half years.
AD: How did you expand into more stores?
When I went with Motors Holding I had to be a regular C Corporation. Of course, my property was tied into the corporation, but as soon as I bought out Motors Holding, I became a Sub-S Corporation. This allowed me to take all of the profits out and pay tax once instead of twice, which helped me get on my feet and put some money in the bank. When you're buying out Motors Holding in a short period of time, you're doing it through profit or bonusesyou're not accumulating cash.
AD: So how did you end up back in southern California?
I had a good run the twelve years that I spent in Indiana, but the family longed to move back to California. When I came back I had five dealerships, two in Indiana and three in California. (I sold the two in Indiana back to my partners.) After a few years of buying dealerships across southern California, I finally realized the strain that being spread out was putting on my wife and family. I decided that I would run dealerships exclusively in San Diego County and if it cost me a little more to buy the dealerships I wanted, so be it. I sold off my dealerships outside of the San Diego area.
AD: What were the keys to your early growth and success?
Several factors - understanding the used car business thoroughly, because the used car end of the business can make or break a lot of dealerships. Of course, I have an advantage here because of what I learned from my father. Understanding how the service department and parts and body shop departments function are key. In the early stages of my career I realized what all good dealers know - this is a people business. We try to put the right group of people together on a team and promote from within whenever possible. When new people come in, we thoroughly test them to make sure there's a fit with our organization because it's like a marriage. We insist on belief in our philosophy and they should have the same idea regarding how to treat the customer. I try to let the general manager have a piece of the action whenever possible, because this helps fulfill their dreams and builds extreme loyalty and commitment. Since my corporate structure is as a holding company, I can have a partner with up to 20% ownership.
AD: What do you think about one-price selling?
One-price selling is not my cup of tea because I do not believe there is such a thing as true one-price selling. In a new car, we have a manufacturer's suggested price which is governed by the federal new car sticker, because dealers all over the country were marking their cars up to whatever they wanted by adding to their MSRP. With these federal stickers, manufacturer's suggested retail price is pretty much set at certain margins. When these margins were reduced by the manufacturers, dealers started adding additional stickers to help cover their costs. So one-price selling is basically someone saying you can buy this car for that price in the window, but interest rates vary, used car trade-ins vary, leases vary, so I don't believe that there is really a true one-price. Plus, customers do not particularly like to shop that way. In our surveys we find that 50% like negotiating and 50% do not. The 50% that do not never feel they're getting the best price with one-price unless they do some negotiating, whether it's on the lease rate payments, the rate of interest they're being charged or on their used car, they are going to negotiate that to some degree. If they can't, they'll never feel they got the best price. When one-price first gained some recognition, 20% leased - now, 40% lease. One-price selling was a hot item a few years ago; it's cooled down considerably since that time, it's time has passed. Manufacturers have pretty much shrunk our margins to the point where we can't make a profit in our new car departments unless there are a lot of hot models by that manufacturer, with a few exceptions, most notably Honda, Toyota and Lexus. As far as one-price is concerned, over 95% of my customers are satisfied with our sales philosophy that the customer is the bossand we negotiate.
AD: You spent twelve years as a dealer in Indianapolis, why did Ford's takeover fail?
Early on, I stated that there was no way Ford was going to be able to put that deal together. I know those Ford dealers. Ford didn't understand the dealers, period. They didn't understand that they had a lot of toys, because some of them in the Midwest have dealerships in other states; therefore, they have airplanes, they're flying back and forthcountry clubs, etc.they have boats when they go to Floridathings that they use in their business. Finance companies are involved, extended warranty companies are involved and I think that Ford didn't realize all these entities that the dealers had to cope with when they went in there saying, "We'll give them a fair price, but we're not going to let them steal us blind in what we're going to pay them for." Well, they blew themselves right out of the water. The dealers felt that if Ford was going to come in there, that first of all they had to recognize the various things that dealers had to give up; most of the dealers were about my age, I know a lot of them. Ford went in there with a price that didn't make sense to the dealer. After all, we had Wayne Huizenga who had all kinds of publicity on paying large multiples.
AD: So Republic raised the bar?
That's right. Republic bought out a good friend of mine, Lou Grubb, but the price they state is not his true price. In other words, if Lou got $100 million for all his dealerships, included in that total price were mortgages, capital loans, partnerships in real estate ventures, offshore accounts, etc., etc.. We don't know about loans that Lou had on his real estate, we don't know what his capital loans were, but you have to subtract that from the price that he got in order to know what he really got. Indianapolis Ford dealers were looking at high multiples because the publicized price was $100 million. So when Ford went to Indianapolis, the expectations from the dealers to get those kinds of multiples were not met, so they didn't trust the factorythey felt the factory was underpaying them. Then Ford could never sit everybody down because one dealer didn't know what the other dealer was getting and after all, they do have a lot of pride and they're all good dealers. We had a Ford new car showing here this year and I asked a couple of questions of Ross Roberts. He could not give answers that I felt were sound enough to justify their plan for me, if I were a Ford dealer in Indianapolis.
AD: Then they go to Salt Lake City
Which was an even worse move.
AD: They never considered what many of those dealers' forefathers and ancestors went through just to get there, let alone build successful businesses.
Right.
AD: What about Tulsa?
I'm sure that Ford learned from their previous experiences how to work more closely with the dealers. Plus, Tulsa is a much different market than Indianapolis and a different market and culture from Salt Lake City. As far as Ford was concerned, the Tulsa market was dominated by just a couple of dealers. They pretty much ran the market themselves already. But school is still out on that experiment.
AD: Nissan has their own "experiment" working here in San Diego. How do you view it?
Nissan is really troubled because they can't keep up with Toyota and they're finding all kinds of solutions. The San Diego market is a market where Ford and Toyota are pretty strong - we're both kicking Nissan pretty hard. Nissan decided that San Diego was going to be their test market for a Saturn-type approach. So one good dealer, who is a good volume dealer, was picked to be the dealer in San Diego. At first it was only Metro, but because he bought a dealership in the county, now it's the whole county of San Diego. He owns all the Nissan stores except one, but he hasn't been able to improve the market penetration. Does that tell you that maybe he's increasing his gross a little better than he did before? Is it harder for him to replace all those used cars? Did Toyota just stand by and let Nissan take advantage of a situation? Nissan didn't improve their market share. They may, eventually, because the dealer is a good dealer. Now, in San Diego, we have the Lincoln Mercury dealers and the Nissan dealers who have been negotiated with and pushed out - Lincoln Mercury has been able to accomplish all the Metro market here in San Diego, with only one left in the county of San Diego. Nissan still has one dealer to go and the way they did it was quite alarming to me. I'm surprised that Nissan is not in court today with some of the tactics that they used.
AD: You sold one of your stores back to Nissan, didn't you?
Yes, I sold my store, but I cannot divulge too much information. I was the second-to-last to sell either to the dealer or to the factory. They gave me my price, but they did a lot of coercing and many audits over a few years, forgiving the audits then throwing enough money at me for me to sell out to them. The dealer that was buying the Nissan stores was so overwhelmed - finding management staff was such a problem for him, finding the locations, dealing with the real estate - consequently, he was difficult to deal with. So finally I told the factory, "I've had enough of you guys, I cannot operate the way that Nissan wants me to operate because of the way your incentives are set and the programs you've put in place, etc., etc. But I will negotiate with Nissan and I'll sell directly to Nissan and I'll worry what I'm going to do with my land. That is what I need in order to make it work." And they did. They bought me out and then they gave the dealer the point.
AD: Have you had any experience with Republic?
Republic would be my choice if I was going to sell. I believe that they have the best philosophy of the publicly-held dealer groups. We've had discussions with them. It was right during the time that they had - and I can't give too many details because it was done under an agreement not to divulge any information - but they were in the fights with Toyota and with Honda on the purchasing of dealerships and hadn't yet worked out their deal with Saturn. Mike Maroone was supposed to come to San Diego, but he couldn't because he had to go to Toyota headquarters in Los Angeles. Another fellow came in and he didn't have any of the proper figures; he didn't even know how to negotiate a deal properly, he wasn't prepared. The conversation only lasted an hour and I said, "When you come in and you don't have the right facts and you don't know my organization, you're wasting my time. You're not really ready to deal in southern California or in the San Diego market area." And I don't think they were. I think they felt that if they could buy for a small times earnings they would buy, otherwise they weren't really ready to tackle San Diego. If you look at what Republic Industries has done, there haven't been that many deals bought in California. They've had quite an experience with Magic Ford and they eventually realized that California is a different market and there's no way to compete with Bert Boeckmann because Bert is one of the best dealers in the country. So they've got a lot to learn yet.
AD: What do you think about AutoNation?
I like the concept, but I think they're just too big. It's like trying to turn around an aircraft carrier in a bathtub.
AD: What's it going to take to be a successful megadealer?
The dealers are going to have to keep their hands on the business. They're going to have to communicate downstream to management. The type of corporation they are is important. How they pay their general managers to gain their loyalty is important. The cost of money is one of the big keys. Megadealers can succeed if they leave their toys alone, attend to their business, figure out how they're going to compete with these public companies with lower-cost money and make sure that they don't do too many foolish things in the interim while they're trying to master the control. How they manage their cash, how they manage their legal problems, how they manage the training of their people - all are important. How they control their used car inventories so that they don't get out of line, how they manage their bank accounts are all critical. If they do that, then yes, they will be so successful that someone may come in and make them such an offer - they may even just want to join a group or become part of an organization.
AD: What about smaller dealers, single franchise or multi-franchise/single point?
I think they can be very successful, providing that they keep their cash in the business, they tend to the business, they get more sophisticated and they forget about the toys, forget about going to the country club and playing golf every day. Enjoy golf, but you don't have to have a ten handicap. Cash is going to be a very key issue for those dealers. How they treat their customers and what they learn about how to get aftermarket products into their business and how they can make additional monies in financing and in aftermarket products and services, paint materials, fabric materials. They must make sure they have a good body shop. It's going to be an expensive ordeal, but if they're willing to devote the time to the management and make it a team effort, they'll succeed. It's a good business, but if they want to go out and play, the playtime is over. It's time to get back to work.
Saphura Long Sales & Marketing Who's Running Your Dealership?
Who is running your dealership - customers or salespeople? In response to the question posed in the title, you would probably say, "Of course, we value the customer's opinion, the needs of the customer drive our dealership." In reality, if you sat down and investigated, would you not say that the salespeople are in charge? All of us have those few "super stars" who know their customers and follow-up and care for them. However, those folks are only about 10% of the sales force. The rest of our salespeople flounder, mistreat or do not respond at all to our customers, and the outcome is that we all lose.
You ask, what can I do to correct this situation? Before an answer can be given, you first must ask yourself, "Am I truly willing to follow-up on our customers? Am I going to take responsibility for our clients? Do I see them as the clients of the dealership or do I believe they belong to the salesperson?"
If you think that your customers belong to a salesperson and that it is only their responsibility to know and care for them, then we know who's running your store. However, if you believe that the entire dealership is the beneficiary of the customer's business, then you need to assume that this customer is just as much the responsibility of your top managers and yourself. Here I refer to a customer not only as one that has already purchased, but also one who came in to your dealership and for one reason or another did not buy.
It's easy to blame poor follow-up on the salespeople and say that they don't contact their customers, but when was the last time that you personally looked over the customer list and the customer comments concerning yesterday's experience at your dealership? We all roll our eyes and say follow-up is not possible because salespeople won't give the appropriate information about the customer. Then do you suggest that one should give up and just let them run the store? We all know what will happen next.
The buck stops at the top! Take the initiative and the time to go over the list of clients and sales opportunities with each and every salesperson once a week or even once a month. Show interest and discuss results - you'll be amazed at how many ups you will see from that salesperson the next month.
You say, "I don't have time for this!". Then buy a system that easily provides you with simple to read, easily accessible reports. Learn to access these reports yourself! Learn to read these reports. Make a point of letting your managers as well as your sales force know that periodically you will access reports yourself. This will keep everyone on their toes, because they will never know when you might pop in.
Don't ever give the impression that proper customer follow-up of 100% of your customers, sold and otherwise, is an option and not a mandate. The salespeople must know that customer information is checked regularly by a competent customer relation manager and your top managers daily, and by you periodically. We all know that for every "sold" customer there are at least four or five "unsold" who contacted your store. If in your reports the numbers don't correspond to the above, then someone is holding out on information!
A customer relation manager who provides proper reporting, contacts all customers, generates all specific letters and generally cares for your customer base is a mandatory position in today's dealerships of any size. She or he is as important as any of your other key employees, since this position has the pulse of your clients at hand.
You might be getting all you can from your customers, but do you know this for a fact? And if you do somehow know this for a fact, then what are you doing to retain your customers? Sending a box of cookies when the car was purchased does not guarantee their loyalty to you or your company for future purchases. It's time to wake up and provide definite direction - show that you have made a decision and that you will stick with it. Follow-up is here to stay and it is not a choice to be made by your sales force.
This is a changing time in the automobile business. There's no place for the weak at heart. A strong follow-up of your clients can and will set you apart and put you a step ahead of the "megas" and the rest, not like the guy next door who is still waiting for his salespeople to call "their" customers.