Cover Story ~ John Anderson
Interview by Michael Roscoe
John Anderson took an unusual path to become a dealer by buying a dealership without having ever really worked in one. John used some very innovative means to grow his store, but after achieving success as a "mega dealer," John exited the business in a nontraditional way by selling all of his stores to AutoNation. Today, John Anderson is back in the business and, as are most of the steps he takes: innovative, unusual and nontraditional, John got back into business in an unusual way...by buying one of his old stores back from AutoNation.
John, how did you get in the car business?
I grew up in a small farming town in the Midwest. I always wanted to be a car dealer from the time I was five or six years old. We would drive around town after church on Sundays and my dad would say, "Hey, there's a big house", and I would ask, "Who lives there?" and he would say, "That's the Ford dealer". Then a few blocks later, we would see another big house and I would say, "Who lives there?" and he would say, "Well, that's the Cadillac dealer." It seemed like the biggest homes in town were all owned by car dealers. So from the time I was five years old, I always wanted to be a car dealer.
Smart kid. Now, fill in the blanks to when you got your first store.
In 1985, I happened to be neighbors with a small Chevrolet dealer in Menlo Park, California. He wanted to sell, I had the opportunity to buy, so I bought his store. Having never been in the car business, I had a tough time getting approved by General Motors. Ron Sobrero, now one of the top marketing guys with GM, was my local zone manager. Ron and I hit it off pretty well and he figured out a way to convince the people in Detroit to approve me as a dealer.
What were you doing before that?
I graduated from Stanford, then got an MBA from Stanford and worked for IBM for a few years in sales and marketing management. Then I started a wholesale distribution business selling air and electric tools, valves, cylinders, mundane industrial supplies and the like. I sold that to my partner when I bought the Chevrolet store.
When you were five years old, you knew you wanted to be a car dealer, but you did not take the traditional path to becoming a dealer. I would have thought you would have entered the business at some lower level.
I spent a lot of time in the summers working at a gas station and for a small Chevrolet dealership, doing minor lube and oil changes, back in the days when it was pretty easy to do. When I got out of college, the immediate opportunity wasn't there, or at least, I didn't see it. I went on to other things.
A dealer tells you he would like to sell his dealership and you just buy it? How did you make that work?
It was a very small dealership, selling about 30 new cars a month, plus five or ten used. It had very low overhead and was making a nice little profit. Fortunately for me, he was willing to sell it. I had enough money to make a down payment and he financed the rest for a couple of years and I paid him off, early in fact.
Tell me about that experience of buying and then running that dealership, never really having worked in one in your life.
I listened to everything the factory guy who was calling on me at the time told me. I did everything he said and I continued to sell about thirty cars a month for the first couple of years. I finally decided that that wasn't going to work. I had to make something happen. I stopped listening to the factory and I went out and bought fifty plus Corvettes from other dealers. I paid sticker price, turned around and discounted them and sold them right away. I got into the Corvette business.
You bought your way into the "Corvette business"?
Right. At one point we were the largest Corvette dealer in the country. A lot of dealers, if you asked, "Would you pay fifty thousand dollars so you could become the largest Corvette dealer in the county?" they would say, "Yes". But if you asked them, "Would you buy fifty Corvettes at sticker and sell them at a thousand dollars under sticker?", they would say, "No way, I would never sell a car for a loss." But I did just that and we started selling a lot of Corvettes.
What was the inspiration behind this plan? It almost sounds crazy when you first hear it.
It was crazy. I had no idea. It was just luck. I liked Corvettes and I understood the distribution system. I figured if I could get them and turn them quickly, I would earn more. I went from selling one or two a year to the position where we were selling five to six hundred in a year. We were receiving forty to fifty a month from Chevrolet. At that time we were getting sticker and above for every one we sold. That really put us on the map and we started to make some money. Next, I did the same thing with Suburbans, just before they came out with the redesigned Suburban in the early 90s. I got a lock on that market to the point that, outside the state of Texas, we were retailing more Suburbans then anyone in the country. In fact, I think, within a short time, I was getting one out of every three going into our zone.
Having the inventory is part of it, but you also had to bring in the people to move that inventory, right?
I had a couple of young salespeople who worked for me that had integrity. I promoted one to sales manager, then to general manager. I had a good service advisor who I made my service manager. They eventually became my partners when I bought other stores. I made a point of hiring non-automotive people who didn't have a lot of the bad habits and away we went. We are located in a very import-oriented market. The guy I bought the store from was quoted in both Fortune magazine and The Wall Street Journal, saying, "The reason they call us domestic car dealers out here is everybody buys our cars for their domestics." At one point in the early 90s, the import registrations within a ten mile radius of me, were approaching 85%. Yet there I was, selling Chevrolets and making a damn good living. Actually making a lot more money than any of the import dealers, just because of the ability to get the products people wanted: Suburbans, Tahoes, Blazers and Corvettes. I eventually did the same thing in trucks and became a pretty decent sized truck dealer.
When you decided that you were going to buy Corvettes and sell them at a loss, how long did it take for you to realize that the crazy plan you had just might actually work, and what was it like before you got to that point?
(Laughs) Memory fades a lot of those things.
Sometimes that is a good thing.
It is probably a good thing. I remember all of my employees thought I was crazy. Why would we want to lose money? My salespeople thought it was great though, because they were finally getting the inventory that they needed to sell.
How did you teach yourself the rest of the business?
I think managing a dealership is lot like managing any business. You have to merchandise and sell your product. You have to manage people, you have to manage inventory, you have to manage the office and receivables. If you are doing all of those things and paying attention to detail, and I'm a firm believer that retail is detail, if you are watching all of the details, paying attention, the business will do fine. I'm a worker. I'm not out playing a lot of golf. I'm not out pursuing other activities. I think if you put your nose to the grindstone and you have got something between the ears and you pay attention to the details, you can succeed in this business.
So you got the Chevy store going, you are paying attention to the details, you have obviously learned which details are importanttell me about your next store.
In 1990, I had an opportunity to buy another Chevrolet store about twenty miles away, down in the San Jose area. It was in pretty sad shape too. It was basically going under. I bought it and built it up. It took about a year, a year and a half with some struggles to try to get the right formula and right people in there. We finally did and it became a nice little store selling 150 to 200 cars a month and making a lot of money. I managed to get some inventory to them so that they could turn it quickly. During all those years, I don't think I ever had a year where I had a net expense bill for flooring. It was always a credit. I was managing to turn the inventory very quickly on Suburbans and Corvettes to make up for any flooring charges for cars that weren't selling. The whole system just fell into place. Probably a lot of it was just luck, but it did work.
How about your next store?
In 1994, Hank Torian came to me...
We did a cover story on Hank a few years ago. Then he sold to AutoNation.
He was a very successful dealer, but he had one dealership in Palo Alto, a Honda dealership, that just was losing money hand over fist and he wanted to sell it.
That doesn't sound right, a Honda dealership, out here, losing money?
I know, but it was losing so much money that I wouldn't buy it. In fact, he couldn't find anyone else to buy it, so he came back to me about nine months later and we finally struck a deal. It was selling about twenty or thirty cars a month. I think it was dead last nationally in Honda CSI measurements and there were only about ten or twenty Honda dealers in the country selling fewer cars. I bought it from Hank in early '95.
Most of the other Honda points in the country had a lot less overhead as well.
That's right. But we gradually grew it. It took a year or two to get the right formula and the right people in place, but it has done pretty well since. In fact, it's currently the sixth largest Honda dealership in the country.
How was that store similar and how was it different from your other stores?
I had a huge advantage with Chevrolet because I was advertising in the same market with two stores, two convenient locations, with Jim Boldebook of CBC Advertising helping me with all the radio and television. Chevrolet was an easy add when I added the second one. When I went to Honda, it was a totally different buyer, totally different advertising. It took me a while and was a struggle. The Honda store has only about a thousand people drive by it in a day. About four hundred of them are in dump trucks going to the dump. About two hundred are people going to play golf and the other four hundred are the people who work on that dead end street. There is no drive-by traffic at all and I've had to figure out the formula of how to draw people to this location. It has to be the worst location of any major dealership of this size in the country.
So what did you do?
Just a lot of advertising. Most of the people that we get in here now, it's all because they have heard our name. We are on the radio and we are in the paper. We don't do events. Every weekend, we have the same ads running; one or two prices and a huge presence on the radio, just reminding people of where they want to go if they want to get a great deal on a Honda. Jim Boldebook's theory is keep pounding and pounding a constant message. That is what we have done and it is working very well.
What was the next step?
In '96 I bought a Lexus dealership. That was a tremendous opportunity that I was very fortunate to get involved with.
Where was that store located?
It was over in Fremont, just across the bay.
Where Hank Torian's stores were?
Yes, why Hank didn't buy it, I'll never know. It was right across from Hank's main office.
It would have been a natural.
Right. Anyway, I bought the Lexus dealership. Then I began to think I was so good that I could sell anything and I bought a Cadillac Oldsmobile dealership. This is the dealership that Roger Penske had gotten rid of, which should have been a clue. Why I thought I could make it work when he couldn't, I don't know. That is the only one I have ever bought that we have really struggled with. That was in late '96. In early '97 I made a deal to buy a Chevrolet and a Chrysler point in Cupertino, California, about half way between the other two Chevy stores. That was it, my acquisitions were over.
In retrospect, as you look back, what were some of the keys to the growth of your dealership group?
The market out here is so strong, and has been strong since the early 90s. I think a lot of it was just luck. I was in the right place at the right time, had a lot of good people so I could populate these other stores. I could basically hire and promote from within. That helped a lot. I tried to put a partner in each store, a minority share holder, and that helped as well. I also had consistent advertising that really worked.
So what happened next?
I was one of the original investors in DriversMart. I really felt that that was a concept that was going to work and would be successful. Of course AutoNation came out and pre-empted us in terms of getting to the market.
Probably saved you guys a lot of money.
Yes. I'm sure glad they did. You're exactly right.
So how did you end up selling to AutoNation?
I knew Mike Maroone and he called me when his deal closed with AutoNation. We stayed in touch and over time he eventually convinced me that it was a good way to go. Believe me, I truly thought it was at the time. In retrospect, I'm glad I did and I wish I hadn't. That is probably the best way to say it.
Say that again?
I'm glad I sold it to them and I wish I hadn't at the same time. I mean that in a very positive way. I'm glad I did it, I would probably do it again. On the other hand, part of me wishes I still had all my stores.
John, what was it that led you to want to get back to being a dealer?
My association with AutoNation was always a very positive one. I think they had strong people and they had some very strong policies in place. Certainly, there were some things that I might have done differently, but overall, they were doing a lot of the right things. I was so far away, out here in California, they more or less let me do my own thing. I rarely saw anybody. I just kept running the stores to the best of my ability. But I began to realize after a year and a half that I wanted to be my own boss again.
You missed that part of it.
Yes, I missed that part of it. Exactly. The opportunity came up and I had the inkling that they would be willing to sell one or two stores and I approached them and managed to work it out to buy this dealership back.
The Honda dealership here in Palo Alto?
Yes, this Honda dealership in Palo Alto.
Do you see things any differently now? Did you learn some things that you think will allow you to do a better job than if you wouldn't have been involved with AutoNation?
I think I learned a lot from them about budgeting and personnel issues and how to handle some of the things that I was probably a lot more lax with than I should have been before. Over the two plus years that I worked for them, the Internet became such a huge part of the business. To me, that is where the future is, certainly around here. It is a different means of bringing people into the dealership.
How did you go about approaching AutoNation to see if they wanted to sell a store?
I just called out of the blue one day. I laid awake one night thinking, "I wonder if they will think I am crazy? Will they fire me because I want to do this?" Then I just got up the courage and picked up the phone early one morning and left a message for the gentleman who I worked for and said, "Would you guys be interested in selling this store, because I want to buy it". They said, "Yes".
How long did it take to get that answer?
I think it took them maybe a week.
That's pretty quick.
Yes, to say they would do it. Of course it took a lot longer to put the deal together.
When you bought your first dealership, you must have been thinking, worrying as you were laying awake at night. There you are, fifteen years later and you are laying awake at night wondering if you can get a dealership. Which time were you more anxious, the first dealership, or getting this Honda store back from AutoNation?
I was probably more nervous and worried the first time because I didn't have a clue what I was doing. Probably more anxious thinking about buying back from AutoNation because I really knew what I wanted to do the second time.
So you were more worried the first time and more anxious the second time because you didn't know if you could even do it the first time. This time you knew you could do it, you just didn't know if you could get it.
Right.
John, you're not a guy who is used to having just one store, what are your future plans?
Right now I am really focusing my attention on this one store, trying to make it optimal, to get it running to perfection. I've got some things I want to get done here, particularly as it relates to selling more cars over the Internet. Then, I imagine, in the not too distant future, I'll be out there prowling around again.
Would you say that if the right opportunity came up you would be open to entertaining it today?
I suppose, but right now I am happy focusing all of my attention on this. It's got to be the right deal at the right time.
You mentioned technology and the Internet. I have run into you a couple of times at some of these Internet conferences. I am always surprised that there are so few dealers there. You are in the belly of the beast out there in Silicone Valley, how are you looking to involve technology more into your dealership?
As margins continue to shrink, we have got to be more efficient, even more able to reduce our costs, and I think technology is going to be the answer. I have certainly stumbled and made a lot of mistakes trying different things. That's why I am at those conferences, trying to learn everything I can about how to sell more cars on the Internet, how to streamline our entire sales process, to automate as much of the functions as we can so we can be that low cost provider. We are not there yet, but we are getting closer. Right now, we are selling about 450, some months up to 500 cars a month and we are selling about 40% of those over the Internet. The Internet, in my opinion, is not a new way to sell cars, it is just a different advertising medium to get somebody's attention. The key is how you handle that lead from then on. I don't think there is anything scientific about that, it is just doing it, managing it. It is no different than anything you do on the regular retail side of the business, it is just trying to automate it and do it better and deal with these people the way that they want to be dealt with.
You have a separate department for your Internet sales?
We actually have a separate building. We have twelve people total in the department. We are making a lot of money. We are actually making higher grosses on Internet sales than we are on our regular retail customers. In this regard, I was very fortunate to have been associated with AutoNation. They have a fabulous Internet operation, and I was able to learn a lot from them in my two years.
What percent of your business comes through lead generators?
We get about 25% to 35% of our deals from our own web site and that is what we are concentrating on, trying to generate more and more leads through our own site. Internet customers, certainly, are looking for price, but contrary to what everyone says, a lot of them are looking for a process or looking for ways to be taken care of with speed. There's a lot more to it than just price. Most want a fair price and to be treated well. There certainly are some who want absolutely the lowest price and truthfully, we don't sell to a lot of those guys.
Don't you find that, for the most part, as far as price is concerned, people just don't want to get screwed?
I think that is a good way to put it. They just want a fair price.
They don't have to have the absolute best price, but they sure don't want to be a sucker.
Exactly.
What about technology in other areas besides selling cars? What are you doing to take advantage of technology that is available for other departments?
I'm exploring it, I'm looking at it, I'm going to go there. I'm making some major changes in the front end with some improved technology and CRM software and some processes that deliver cars faster and better. We are installing terminals for the techs and are using a paperless R.O. system in the shop. We are looking at a lot of other things as well. I can't say that I am a leader in any of them, I am just trying to figure out where I want to go. Overall, we aren't there yet, but we are going to be soon.
John, what would you say to the dealers of America in regard to retail automobile technology?
My one last parting shot would be to stay the course on all of this technology and the Internet. It's not going to replace you, but it is going to be a huge opportunity to increase your business, make it more efficient, really change it forever and change the customer experience forever. The only way you are going to know what to do is to listen to everybody you can, go to every conference, go to every class and learn as much as you can about it. Your kids know it, your grandkids know it and you have got to know it.
Would you not agree that the biggest challenge is not to decide to go that direction, but figuring out how much to do at what pace, so that you don't get left behind or so that you are not on the "bleeding" edge.
The pioneers are the ones with the arrows in their backs, but you also don't want to be the guy who gets left behind, back in the old country.
