Mel Farr is a classic American success story. As with most industry-leading entrepreneurs, there are multiple reasons for Mel's success, but certainly, vision is paramount. As a football player, Mel's vision took him through holes and around tacklers from Beaumont, Texas to All-American status at UCLA. While an all-pro with the Detroit Lions, Mel had the vision to look beyond his athletic career and set his sights on a second career in the automobile business. The Mel Farr Automotive Group is the largest African American-owned business in the country, with just under $600 million in revenues last year. Now, Mel has another vision...providing transportation for America's "urban dwellers."
Q: Mel, how did you get in the car business?
Mel: It all started when I was back in Beaumont, Texas. My father had a real affection for cars. Our weekend outings were going to all the car lots and looking at the automobiles. He started buying cars and fixing them up to sell in the front yard of our house. He sold so many cars they required him to get his dealer license, which he got on July 8, 1960. I left Beaumont as a pretty good high school football player, went to UCLA on scholarship. I was lucky enough to be All-American at UCLA and was drafted by the Detroit Lions as the number one draft choice for 1967. I then became rookie of the year and all-pro. In my second year in the National Football League, I decided I needed to learn something other than football. I had a wife and two kids to support and knew I couldn't play forever. I went out to Ford Motor Company and inquired about a job. An attorney friend of mine knew one of the vice-presidents of a division, a man by the name of John Knot, who hired me. He gave me two options. He said I could either be in public relations, which paid well and I would do a lot of hand shaking or I could get a job in dealer development which paid only a couple hundred bucks a week. I told him I would take the job in dealer development. Ford had put in their first African American dealer in 1967 Chicago. This was right after the riots in Detroit. Ford and the auto makers said they were going make automobile franchises available for African Americans. After I had seen financial statements from some of them I said, "I want to be selling cars." I started looking forward to the off-season and working in dealer development. I did that for seven years.
Q: What did you do in Ford's dealer development program?
Mel: I trained for all positions in a dealership. The first thing I learned was how to sell. Then I ran the office management position. I then ran the body shop, service and parts. After that, I spent a lot of time in sales management because that is where it all starts and ends. The first couple of years I was just learning the business. Then Ford had me do some research to find out how many of their 8,000 dealerships at that time had African Americans in management positions. Through a survey of about 125 dealerships I found that there were four with African Americans who held the title of manager. That was in 1971. I justified to the board that we needed to have a dealer training program specifically for African Americans. I helped to set up the first training program for African Americans through Ford Motor Company. I got involved in hiring the initial dealers involved in the program. I retired from the Lions at age 29 and worked in a dealership as a salesman and sales manager. I was looking for a store to invest in and came across this one where the owner had gone bankrupt. My friends at Ford said "Mel, that is a tough store, you need to get a partner," so I got a man by the name of John Cook as a partner. The first two years the store was called Cook-Farr Ford. John and I disagreed in our philosophy on how we wanted to run the store so it was not a very good partnership. I bought John out and I have brought it up to where we are now. We did about $600,000,000 in sales last year at the Mel Farr Automotive Group.
I bought John Cook out in November of 1978. In March of 1979, there were long lines for gasoline. The gasoline crisis had gas prices going up from 32¢ a gallon to at least 70¢ a gallon. I was selling Grenadas, Fairmonts and LTD's but people were not buying them. Interest rates were up to 20%. It was a very tough time. This was a real crisis and the bottom nearly fell out. Obviously this was a crisis for the entire industry, not just African American automobile dealers. In January of 1979, Ford Lincoln Mercury had 32 African American dealers. In December of 1979, we had 16. We lost half. We had become an endangered species. So the National Automobile Dealers Association went to the White House and President Carter made a deal for $19,000,000 to be available for the SBA to lend money at a reasonable interest rate so we could withstand this downturn. The minority auto dealers did not have the necessary equity to go to the SBA alone. We had not been dealers for very long. Remember we started in 1967 and the gas crisis hit in1979.
Q: That $19,000,000 was for the 16 dealers that were left?
Mel: There were other minorities involved, such as American Indians and Hispanics, and there were also GM dealers and Chrysler dealers who participated in the $19,000,000 that was set aside just for minority dealers. Those loans came directly from the SBA. I got $200,000 and I needed that cash desperately. It rescued me from going all the way down in 1980. That same year I also changed my advertising. I started thinking about what is different about Mel Farr from other dealers here in Detroit. I realized none of them had been a professional football player for the Lions. I thought I would use that. I got together with Billy Sims, ex-Lions all-pro running back and I would say, "I am Mel Farr the Superstar Dealer and this is Billy Sims the Superstar Running Back and we superstars are running back prices at Mel Farr." He would say "Mel, run back them prices for me." We had a lot of fun doing that. People started recognizing Mel Farr and coming in and buying cars. I said to Billy, "You know, super heroes fly." So next we flew in the commercials. Then I thought of animation and I went and got an animator to make me a cape and fly me. Today, Mel Farr Superstar is a household name around here.
Q: That's fabulous, because the majority of advertising that dealers do is for share of market; to sell a car today. They should also advertise for share of mind so that somebody six months down the road, when they are ready to buy a car, will think of them. You advertise for long-term share of mind as well as short-term share of market.
Mel: That is what I wanted to do and that is what helped me turn the corner. Also what helped was understanding that I am dealing with people. Our mission statement says we want to sell, but we also want to satisfy every customer so that they are going to want to come back and do business with us again and for the least amount of cost to them, and for us to make a profit. We are in the people business. You know, all of the car manufacturers hire engineers and Ph.D.'s to put together and build high-powered driving machines. All this does not amount to a hill of beans without that salesperson on the showroom floor selling those cars one at a time to the customer. It really starts with the salesperson. I believe strongly in motivation. Illusion of knowledge stops one from being motivated. A great example of that is the world before 1492. Everyone had the illusion that the world was flat and that they would fall off if they went too far, so it stopped them from being motivated to learn more. I tell my salespeople, "You have a big job. Look what you create. Look how many jobs you create, how many people you put to work." I tell them, "Do not have the illusion that you, as a salesperson, are not important." My highest paid salesperson was a female last year who made $155,000 and this is just her third year selling cars. What I am saying is that if you are a car salesperson you may make more money than the Marketing Manager for Pepsi-Cola with an MBA. This is what I try to get across to my salespeople. You each are very, very important. Selling cars is an important business.
Q: Tell me about your automobile program for "urban dwellers."
Mel: I have a strong desire to succeed. I bought a Lincoln Mercury store in Pontiac, MI that was going down for the third time. I stayed there for three years and then I relocated to a new facility in Waterford, MI. My brother is the general manager of that particular store. He played professional football, too. We have the distinction of being the only two generations of brothers to play in the NFL. My brother and I played and my two sons played. Anyway, I told my wife when they bury me, put on my tombstone, "Here lies nothing." I want to use up all my energy and knowledge. Why leave it? Right now I am doing something that is totally radical when you look at what the industry is doing. Mel Farr Automotive Group has decided to go into the urban market place and not concentrate on buying any more dealerships in suburbia. I am going to provide automobiles and financing for the urban dweller. I saw what was happening in the market back in '81 and '82. When I started the business here in 1975 there were at least 75 or 80 new car dealerships in the city of Detroit. Today there are 6. The three most important things in owning a dealership are location, location and location. It is true. I am going back into the urban market place, which the auto industry has abandoned. I am going to do business successfully in that market place. In 1986 I started my own finance company called Triple M Finance Co. We have about $60,000,000 out there and about 8,000 customers on the road. We finance those financially challenged customers. We are financing basic transportation for the urban customer. This is not only an opportunity to do something good but also an opportunity to make money because of the fact that there is almost no competition. I am putting up my superstores in the urban market places while the competition is putting theirs in the suburbs. The average used car that we sell retails at $10,000. We finance them internally. For nineteen months I have been trying to become the first African American to securitize these types of loans. On August 20 (1999) we closed our $37,000,000 secured loan. I have just been with Rev. Jesse Jackson and President Clinton in East St. Louis, Illinois, and in the Watts section of Los Angeles. The President announced that he and financial institutions got together and to help provide financing for Triple M Finance Co. that will make transportation possible for the urban dwellers with poor credit.
Q: So you are doing it in Detroit now and you want to take it to other cities?
Mel: Yes, in similar markets across the country.
Q: Do you have a third party handling the administration of this?
Mel: No, it is my own. The urban dweller is not even sub-prime and this is why it took me so long to convince the institutions to loan me the money. I am talking about urban credit. Some of my customers have never, ever instituted credit. I tried to explain to Wall Street the difference between this and sub-prime because Wall Street is very shaky about sub-prime. They are saying "urban, what is that?" They are thinking it is worse than sub-prime. But these people have to have an automobile. Some of these people come in begging for an automobile so they can get to their jobs. You see, it is the same way here as it is in East St. Louis or any other major metropolitan center. All the new jobs are either in central downtown Detroit or out in the suburbs and these people cannot get to these new jobs without transportation of their own. There is no mass transportation system for these folks. The mass transportation that has been developed is for the suburbanites to get to the city, not the city dwellers to get to suburbia where the jobs are. So I saw this great need. The mother of invention is necessity. The urban environment is heavy African American so there is this strong desire for Mel Farr to go into that market place.
Q: How do you avoid what could be disastrous collection and receivable problems?
Mel: I have a device that is called the "On-time payment protection system." This device is in the vehicles right now. It shows a green light up until three days before your next payment is due. It will then blink three times in a red light to let you know you have three days before your payment is due. Two days before it is due it will blink two times, one day before you are due it will blink just once. The day of your payment it will beep continuously to let you know your payment is due. After that, the engine is disabled and the car will not start once it has been shut off.
Q: They go to the location where they bought the car and make their payment?
Mel: Either that or mail it. Then we give them a six-digit code to put into the key pad and their car starts. We give them three emergency codes that allow them three extra days to make their payment, but it does cost them. When they purchase the vehicle they are made aware of this. I am developing the data on this right now. It is going to have a significant effect on how your payment is collected. We are going to re-create the collection market. We have the database to do it and we have the device to do it.
Q: What do you see as your timetable for bringing on additional markets?
Mel: My timetable is based on performance. I feel that the "On-time" device we have is going to let us be a lot more aggressive in the market. We are going to have less expense in collections as far as repossessions because the customer will not get so behind. We are going to make these customers do something that they are not capable of doing on their own. Every customer has to go through a two-hour seminar before they take their car. We tell them about the "On-time" device and the importance of making their lease payments on time. They view a video about budgeting. Every two months they have to bring the car into the service department so we can change the oil in the vehicle. Since I own the vehicle I can dictate to them how to take care of the vehicle. The oil changes are free of charge. They are built right into the deal.
Q: So your are leasing these vehicles.
Mel: Right.
Q: How long do you think it is going to take to show Wall Street that you know what you are doing and you are ready to move on?
Mel: I think it will show up fully in three months, almost immediately. In three months you can have about one year's worth of data because we have weekly payments. They will have a very good feel on what we are doing and how we are doing it. I have a valuable product out there and I am interested in doing business in this market and I know what I am doing. My finance company, my operations and my used car superstores are not being created on Wall Street, they are being created here in reality. We know what we are doing. We put used cars on the road and we rebuild engines in these automobiles. We put good parts in them. The customer is looking for good basic transportation. It costs me a lot of money and now I am going to put into practice what I have learned to capture this market which has been ignored. There is a lot of potential for good money to be made. It also provides service to customers who need it. It all goes back to Ford, who made the automobile affordable for the average American back in the old days. What I am doing is making the automobile available and affordable to today's urban dweller.
Q: When you go into other markets, such as East St. Louis, how are you going to brand?
Mel: We will create a brand. We are looking at Mel Farr Superstore as a brand such as John Elway Autonation.
Q: How do you plan to market to these folks and make them aware that they can get a car?
Mel: Through television and radio. We are always going to have new car franchises in the areas where we have our used car superstores. Not just for inventory, but also to upgrade the customer. If they have been with us in a used car, we can upgrade them to a newer or a new car. There are two things I want to do, own the car and own the customer. The cure for bad credit is education and discipline. The "On-time" device is discipline.
Q: It is artificial discipline.
Mel: That is right. I have these folks do something they want to do but they just don't have the discipline to do it. It is very difficult for a customer who is not very disciplined to pay on a monthly basis. But car people don't want to get involved in that weekly system because it is too cumbersome. It is very labor intensive. I have a device that takes that labor out. There is no telephone call. They have that beep, beep, beep, and there no illusion that they can ride free anymore.
People ask why go through this whole ordeal? And I think to myself, "If I don't do it, who will?" Think of a utility bill, such as lights or phone; if you don't pay, it gets turned off. If they didn't and continued servicing you, pretty soon you would be behind $2,000 and you could never pay them back because you would never have that much money. They turn you off if you get behind. That is the same way with us. The car is rendered inoperable if you are behind and this way it keeps you motivated to pay.
Q: Mel, you know there are some people who are going to say that you're taking advantage of these people.
Mel: I am not forcing these people to take a car. If you are going to take it you are going to have the "On-time" device installed. You have to pay on time, otherwise the car is not going to start. It is an opportunity for them to have reliable, personal transportation that is not available now. I believe that these people deserve it. After World War II the government said they want Americans to aspire to own a home. So they created Fannie Mae for homebuyers. The urban dweller should aspire to be able to come and go as they please. Sure, they may not have had all the opportunities that you and I have had, but why should we exclude them? I say give them an opportunity to lift themselves up, but not with a handout. The "On-time" device is going to increase the size of the entire market. We are going to make it possible for customers who are not used to buying be able to buy. We are going to have an impact on the entire market. That is my intention.