Cover Story ~ Herb Chambers
Interview by Michael Roscoe
Herb Chambers has grown his business, the Herb Chambers Companies, into one of the largest franchised automobile dealership groups in the United States. But it's not the first multi-state sales and service organization he has grown to industry-leading status. Read on to learn how a man sold paper door to door to start one of the country's largest office equipment companies and parlayed that into success in the retail automobile business.
Tell me, Herb, how did you get into the car business?
I got started in the copier machine business when I got out of the Navy. I was in the Navy for four years as an enlisted man, I was an aviation electrician and when I got out of the military I answered an ad that was in the Boston newspaper...
To fix copiers...
Yes, because to repair photocopy machines you had to have an electro-mechanical background, which I had. So I applied for and got the job, but once I got into the business I realized that the money in that industry was not in fixing the copy machines, it was in selling them. The sales guys drove the fancy cars and the technicians like me drove the old clunkers. So I made that transition and went into sales and very quickly went from sales into management. There were a lot of companies at the time that were selling supplies for copy machines, because at that time the copy machines used sensitized paper. It was like selling razor blades for razors. The company would go out and sell the "razors" and then you could put them on a different type of "blades." And so there was a whole other business in selling supplies for those existing copy machines. Today, that doesn't exist because all the machines use plain paper and there's not a lot of profit selling plain paper, but at the time it was sensitized paper and it was very expensive. I started my own business selling supplies and then transitioned into selling copy machines.
I had signed an restrictive covenant with the company I worked for that stated I would not compete with them for a period of one year or within a hundred miles. So I looked at a map and said, "What's a hundred miles away? Hartford, Connecticut." So I moved there. I was 23 years old and had about a thousand dollars. I bought a $1,000 worth of the special paper that these copy machines used and peddled it door-to-door and when I had sold off the $1,000 worth, I had $2,000. I bought $2,000 more paper and doubled it to $4,000 and so on. Eventually, I bought one or two copy machines and kept adding on and that's how the company started. It was in a closed barbershop in Hartford, Conn. We probably had about 300 square feet and then shortly after, maybe it was two or three months, I started hiring salespeople on straight commission and paid them a high percentage of what they sold and that was the beginning of having a sales force. Ultimately, in 1983, I sold that company. I had it for 18 years and when I sold it I was up to about 500 salespeople and had a total of about 1,300 employees. We had 37 offices from Washington, D.C., north, going up the East Coast. I became very familiar with how you run a sales organization, recruiting, training and motivating people. Whether it's cars or copiers, it's all the same.
When I had sold the company I had to sign a restrictive covenant that I wouldn't compete in the business equipment field any place in North or South America for a period of two years. During that period of two years, I did mergers and acquisitions for that company, but I decided I really didn't like being in a large company, a Fortune 500 company, and I wanted to get into a more of an entrepreneurial environment and not be traveling all over the country. So I decided I'd buy an automobile dealership.
What really brought it to fruition was when I went into a small Cadillac/Olds dealership in New London, Conn., to buy a Cadillac Eldorado convertible in 1985. The dealership looked like it might be for sale. Weeds were growing up through the pavement and it just didn't have a real sharp look to it. I hung around waiting for the owner to come back and I actually bought the dealership in about 45 minutes.
I sat down with him, made a deal, we wrote it on a yellow pad of paper, he signed it, I signed it and we closed on it 90 days later. But it necessitated me bringing in a fellow named Tom Birdie who had automotive experience. I made him a 25% partner in the deal and then I bought him out a year or so afterwards, once we were up and flying. Once we had the first dealership under our belt, then we had the green light to go ahead and buy other dealerships because, theoretically, we had, or I had, at that point "automotive experience."
What made you think you could run a car dealership?
When you look at the automobile business, it's not terribly different from the copier business. In the copier industry you deal with new copy machines, you deal with used copy machines, you've got a service department to service them, you've got a parts department to supply the service department with parts and you have an administrative group that ties the whole thing together. And then from a sales standpoint you sell new ones and used ones, you've got discounts, you've got leasing. It's not terribly different. I found that the automobile business was a lot easier than the copier business, because the automobile business is an inbound business and the copier business was an outbound business. We had to go out and prospect and knock on doors to sell copy machines. In the automobile business you open the door in the morning, turn on the lights and the people walk in to buy them. The second thing was, from a training standpoint, it is far easier to train your people when the customers are in your showroom than when we used to go with that salesperson to a client's office that could be 10, 20, 50 miles away to do a presentation. You can only train one person a day, whereas in the automobile business you can be training 15 or 20 people at a time.
Then you get into the service aspect of it and with the copy machines, you've got to go to their office to repair it and here, the customer brings the broken thing to you. Also, in any business the question becomes the supervision of people and the accountability of people. It's far easier if they're all under one roof as opposed to being spread out all over the East Coast. So I think it's an easier business to train in, it's an easier business to manage in.
Did you see these similarities between the office equipment business and the car business fully before or after you got in the car business?
I actually saw it before. I saw it before because I knew of the different aspects of the business, the parts, the service, the sales, the administration. The thing I didn't understand was how much easier the automobile business would be than the copier business. You know, once I got involved, I got to appreciate that. People actually came to you to buy. Maybe that should be a no-brainer, that I should have seen that going in, but it's like a lot of other things in life that you don't recognize it until you're involved in it. "Gee, this is really terrific," you put an ad in the paper and people come down. You put in an ad for copy machines in the paper, people aren't knocking your doors down to come in and buy them, believe me.
Were you planning on running just that one store happily ever after?
Yes. The initial thought was that I would go into owning this dealership and it would be a nice business that would be 10 or 15 minutes away from my home in Connecticut. I would have a business that I could dabble in, it would keep me somewhat occupied and it would also provide me with some people that could do the administrative things that I have to have done in my life, like my accounting.
Without actually paying for it.
Yes. So the concept was never to build a company to what I have today, it was basically to buy that one dealership. We got the dealership at a very good time, it was 1985 and that was when Oldsmobile was really at their peak. They sold over a million cars that year.
So at the time I came into the business we financially did very, very well with that dealership in the first 12 to 24 months and it enabled me to be able to give a good buyout to my partner, and with that capital he was able to go on and buy his own dealership. I became very intrigued by the automobile business and the next thing we did was open up a Hyundai dealership in Hartford, Conn. Hyundai was a huge success coming out of the gate and we were selling 200 to 300 Hyundais a month and making an awful lot of money. At that point I started scratching my head and saying, "Boy I've spent the last 15 years wasting my time in the copier business. I wish to heck I had been in the car business for the last 15 years." We then bought another Cadillac dealership in Providence, Rhode Island, that was a marginal performer and we turned that dealership around. We had the capital to go in and do the advertising and take chances. Most guys, when they buy a dealership, really can't risk spending a lot of money on advertising. But we had the capital to get in and play the game and we could take a chance on stockpiling the inventory and loading up with cars and spending the money. So we did that, and that store became a success. Then we bought a dealership in the Boston area, Foreign Motors, which had Mercedes Benz, BMW, Porsche and Audi. Right after we bought it, the stock market crashed, and at the same time real estate started plunging, the economy went into a kind of a tailspin, which was the late '80s. And then I started scratching my head saying, "Boy, did we do the right thing or not?" But we never really had an unprofitable year. When you put all of the stores together, we were still doing OK. Then, as things started getting difficult at that time, we went on the acquisition trail trying to buy some more stores, and that's what we've been doing. We've been pecking away at these things over the last 12 or 14 years. We buy one or two stores a year.
You're going to continue to add a couple stores per year?
That's the plan.
Your copier business stretched from Washington, D.C. up the East Coast, but you've stayed in a two-state area with your auto business. What's the thinking behind that?
I think that we'll gradually expand out further, but there is so much opportunity where we are already and it seems like the further away that you get, the more difficult it is to control them. We are constantly approached about buying a dealership in Texas, or buying a dealership in Florida, down in the Sunbelt, and believe me, those are great stores down there, great opportunities. But we have so much opportunity in our backyard, there's no need to go traveling a 1,000 or 2,000 miles. I think the other thing is we've got a very good reputation where we are in our market, and if we jump down to Miami or Houstonwe have no reputation there. The reputation is for two things-one is for selling the vehicles, and the second thing is for recruiting people.
So what is it you look for in a dealership?
We seldom buy a dealership that's a real top performer. We like to buy underperformers that we can add something to, because top performing dealerships are very expensive. We like to find a dealership that has good CSI and is in a good location. We'd like it to be an underperformer. Then we can make the dealership pay off at a much higher rate than it's paying off right now.
What are the different makes that you handle, Herb?
We have three Honda dealerships, two Toyota dealerships, Lexus, two Mercedes Benz dealerships, two Dodge dealerships, Chrysler/Plymouth, Hyundai, two Saturn dealerships, two Kia dealerships, two Saab dealerships, Mazda, Cadillac and we just acquired a Ford dealership.
What, if any, experience have you had with some of the consolidators? I guess it's a little different when they talk to you in that you've already been through that process once with your office equipment business sale.
Yes. We had spoken to AutoNation and I think that those guys really have a good operation going, and I think that they're going to be very successful. I think that Roger Penske has a great organization. We had spoken with AutoNation a while ago and we just couldn't strike up a deal that was right. I wasn't terribly keen to do it because, as you said, I had already been involved in selling my last company in a rollup type of environment and worked for a big company, and that wasn't something that was terribly exciting to me. I'd still like to stay in this business for another 15 years, so I'm not really anxious to sell it.
You didn't get into it for money.
True.
You already had the money.
Well, in reality I've never worked for money a day in my life. I basically do it for the enjoyment. I always say, "I've never worked a day in my life." It's always been fun.
What are you doing in regards to the Internet?
As a matter of fact, I'm a speaker at the dealer roundtable for J.D. Power that's going to be in Boston in the next couple of weeks talking about the Internet. The Internet is one of those things that you just can't turn your head on it, it's here. And it's going to become more and more of a factor every single day. We don't have a fear of it; there is no point in worrying about it. It's here, it's not going to go away and the question is how can you use the Internet to your advantage. We have our own Web site, we have 1,000 to 1,500 used cars on that site. It gives us the ability to sell more used cars. I happen to believe an educated customer is a better customer. Our customers now are coming in and they know more about the cars, they know what they cost. Six months ago or six years ago, before the Internet, there were books that were in every drugstore that told you what the cost of the car was and there were also books in there that had the value of used cars. The bad part was that those books might have been printed six or eight months before the customer actually went to buy a car.
People were checking the value in those books and by the time they came in to buy a car, guess what? The value of the car wasn't what it was in the book. Now, people can get up-to-date information as to what their car is worth, they find out what the dealer cost is on a car, they understand that I'm in business, I can't pay them all the money for their trade-in and sell them a car at cost. I think there are a large number of people out there who used to think if you were selling a $20,000 car that you've got $10,000 to negotiate with. At least today they know that if the car has a retail of $20,000 you probably paid $18,500 for it and they know that there's only $1,200 or $1,500 to negotiate with, and that makes it a hell of a lot easier. Now what are we doing internally with the Internet is we have an Internet general manager and he has about 25 or 30 Internet salespeople. These people work in the dealerships. We don't have a central boiler room operation; there's a couple of them in each store and they answer to a corporate Internet manager. I think the Internet represents about 10% of our sales right now.
When you say represent, you mean the Internet has been involved?
Yes. In making a deal with a customer that particular month, 10% of our sales. That doesn't mean that people are ordering a car over the Internet. They're doing the research, they're contacting one of our Internet sales reps, we're dealing with them on the Internet or on the telephone, then they ultimately come into the dealership and they buy the car. People have always had a tremendous passion for cars and I know myself I would not go out and buy a car without going to drive it first. So you still have to go to the dealership-you want to try the car out. I think that if you're going out to buy a Mercedes, if you're looking at an SL that's five years old, it looks like the exact same SL that we have today. Yet, if you were to drive the car, it's a totally different car. They're more comfortable, they're faster, their transmissions are different, so you really have to drive it and that's something that you're not going to be able to do on the internet. I think it's all about internet research coupled with the showroom experience.
I bought my car without ever seeing it.
What did you buy?
E-320 Cabriolet.
E-320 Cabroilet, smart move. If you had taken the time to go out and look at it, it probably would have been gone.
Herb, what do you see for the business in the next 12 months? What do you think dealers have to keep their eyes on? What do you think they need to look out for?
Well, the fear that we have right now is the economy cooling off and a drop in automobile sales, and I think what we have to do is we have to keep our eye on our dealerships, focused on good management. I heard something the other day in a Lexus meeting and they said that good times create bad habits, bad times create good habits. And right now it's good times and we're creating a lot of bad habits. But what we have to do is focus on the back end of the business and to continue to run our companies efficiently. Because it's not a question of "if" it's going to happen but "when" it's going to happen. It always has been and the longer it goes, the more likely it's going to happen sooner and probably for longer, so start working on those bad habits and start developing good habits now.
