I never doubted for a moment that Bruce would save the world...again.
Sitting on the edge of my seat, shoving handfuls of popcorn in the general direction of my mouth, much of it ending up in my lap, the Aerosmith soundtrack reverberating through my soul, we were seconds away from total global annihilation and the only hope left was whether or not Bruce Willis could push the button in time and blow up the giant asteroid.
There's something about placing the fate of every human being on the planet in the hands of Bruce Willis. It's sort of like believing that "The Keebler Elves" can save General Motors.
In the pure Biblical sense, Armageddon is the battle before the end...the war before the onset of chaos. Well sports fans, I believe that is more than an appropriate title for this issue's article. More than one crackpot is predicting the end of the world, at least the world as we know it.
I was the first to take a public stand that the Republic Industries' model was flawed and that their business concepts wouldn't work in a "Real World" automobile retail environment. Now their financial reports document the fact that although they've acquired some of the formerly best performing dealerships in the country, they are marching steadily backward in sales volume. Wait a second, didn't I have that in print in this magazine more than a year ago? I have repeatedly pointed out that, although it has been hard to document, I believe Republic has gone backward, not only in unit sales but also in market share in relationship to the other dealerships they compete with. In other words, the traditional franchised dealers are kicking their butts in almost every market. Republic's track record appears so bad that I find it absolutely incredible that Ford Motor Company would even consider allowing these people to run their Ford Retail Network of Dealerships, except for the obvious conclusion (maybe Ford doesn't have a clue themselves).
For some time now I have been acutely aware that there is serious trouble brewing in Camelot. There have been harsh words and angry interchanges in the hallowed halls of Fort Lauderdale. In the past, Republic Industries' dealers always presented a rosy public image that everything was wonderful. Every Republic dealer I spoke with was wearing a perpetual "Smiley Face."
That is certainly not the case today. There is some open dissension in the ranks. Republic dealers have been quoted in national publications publicly criticizing Republic's policies, pointing to the aborted 1.2 billion-dollar acquisition of the Van Tuyl Dealerships as an example. This is significant. As far as I can recollect, this is the first time Republic's stockholders haven't "rubber stamped" decisions made by Messrs. Huizenga and Berrard.
Steve Berrard (by all reports, a real decent guy) has actually placed full-page newspaper ads and editorial space in Miami area newspapers to dispute criticism in the November 8th edition of the Sun-Sentinel Newspaper with the sub-headline "Dealers frustrated as investors still leery of stock." The article actually quoted some Republic dealers who appeared less than excited about their decision to sell to Republic.
According to his editorial, it appears to me that Mr. Berrard blames Republic's problems on media attacks and the fact that, early on, AutoNation earned a reputation for over-priced used cars and trucks. Remember this is the same company whose original business plan included media manipulation and Wall Street dominance.
Now, in the Denver market, Republic Industries is drawing a line in the sand. Sometime after the first of the year, the plan is to rename all of the Republic Denver dealerships under a single brand to establish the AutoNation logo along with the name "John Elway." They will also change all of the existing dealerships to a "One-Price/No-Haggle" sales process.
Mr. Berrard has been quoted in several mediums as having said, on the record, "If [buying and consolidating dealerships] is all we get done, then our business model is flawed."
Another quote attributed to Mr. Berrard, presumably in reference to the Denver project, states that "We will turn this thing into a bloodbath if we have to just to make sure we're not undersold."
Mr. Berrard has certainly achieved one thing here. If the Denver project fails, financially or in terms of market share or same store sales, then Mr. Berrard has admitted, in advance, that Republic's business model is flawed.
Sources in Denver tell me that they are watching this scenario unfold in minute detail. Colorado has specific laws against unfair trade practices that involve selling at a loss to run other dealers out of business. Republic certainly has enough cash in their "War Chest" to go into the market with a lot of questionable dirty tricks if they chose to do that. Be advised, however, that there are a number of powerful political and legal forces standing in the wings, watching their every move, prepared to step on them hard if that were to happen.
I am going to assume that they intend to play fair. In that case, I predict that this is the battle of Armageddon. Once and for all, I predict that Republic Industries, in desperation, has put it all on the line. Their entire credibility is on the table. If they lose, how can anybody ever take them seriously again?
Of course, you all know where I stand. There is not a doubt in my mind that this goofy "One-Price/No-Haggle" strategy is going to put them deeper in the toilet than they have ever been. I know the dealers in Denver and they are not going to lay down and give up the market to Republic in a fair fight. Steve Berrard and I are in total agreement on one thing: there is going to be a "blood bath" in Denver.
I am on-record as having said that "One-Price" has never worked in a competitive market. We have seen major players like Ford, General Motors, CarMax, AutoNation, and a series of other well-financed players throw major money into trying to make "One-Price" work and the public has still, repeatedly, rejected the concept by buying elsewhere at negotiating dealerships.
As I write this article, Republic Industries' stock is at $17.00 a share and sinking...again. Just one year ago they were hovering around $36.00 a share. It has recently been as low as $11.25 a share.
Casting skeptical, raised eyebrows in Republic's direction, Wall Street is becoming increasingly and openly more disillusioned with Republic's performance as more and more Wall Street analysts, buyers, and insiders are publicly saying that the Republic model is flawed...will not work...and that they've changed their strategy so many times they've lost credibility. Hell, they could have read all of that in this column three years ago when they were all lining up and cheering for Wayne Huizenga like a bunch of lemmings marching into the sea.
Well, folks, there it is. Steve Berrard has thrown down the gauntlet in Denver. Since there are several really great dealers that I work with and consult in the Denver market, I will have the privilege of personally being involved in the battle.
I really don't wish Republic bad luck. Many of the dealers who have sold their dealerships to Republic have been friends of mine for many years. I still talk to many of them regularly. If Republic plays fair, and if this thing is successful, I will be the first to say so and will openly admit that I have been wrong. I have promised publisher and editor Mike Roscoe that I will take out a full-page ad and apologize to Messrs. Huizenga, Berrard, and Maroone if, in the end, they succeed. I am willing to do this because I am confident they cannot pull this off after Mr. Berrard laid it on the line in Denver.
With a clear conscience, I lean back by the fire in my "Lazy Boy" recliner, swirling a snifter of cognac up toward the light...after all, it's the Christmas season as I write these words. Makes me want to sing..."Chestnuts roasting on an open fi-i-i-i-ure."
More Food For Thought
Last year and the year before I wrote several articles about the accelerated decline of retail leasing. Now, one of the biggest players in the industry, GE Capital Auto Financial Services, has instituted a policy that many dealers will see as a blatant "double-cross."
Publisher and editor Mike Roscoe told me to call Dave Anderson, General Manager of the five Anderson dealerships in the San Francisco Bay area. Dave told me that he was having a problem with GE Capital contacting their customers 90 days before lease termination and offering them a direct 5.9% APR rate to buy out their lease-circumventing the dealer. He told me that on one occasion, when they called GE Capital on the phone for a payoff figure, the representative from GE said, "Put the customer on the phone." That's where it got weird. Anderson says that GE Capital told their customer to leave the showroom and go home and call them back and they would finance the lease buyout at 5.9% for them.
What the hell, I called Sam Falcona, VP of Corporate Communications for GE Capital AFS in Barrington, Illinois. After looking into it, Sam said to me, "It is not our intent to take customers away from the dealers." He pointed out that GEC AFS does give the dealer a notice 120 days out of the lease terminations."GE Capital AFS doesn't contact the customer until 90 days before termination. If the customer desires to purchase the vehicle, we will work with the customer. Sometimes this involves incentives," he added.
When I re-contacted Anderson, his position was unchanged. I feel many dealerships are going to view this GE Capital AFS policy as a serious "double-cross." I predict that unless they reconsider, it is going to blow up and cost them a lot of business.
Jim Ziegler is President of Ziegler Supersystems, Inc. If you have specific questions or require more information about this subject, please check the appropriate box on the reader response form on page 3.