Running Car Dealerships Requires Some Luck, Lots of Work

Luck has been on Michael Brown’s side as he has moved up the ranks and acquired winning dealership franchises.

But it’s not all luck when it comes to running a major dealership group. It also takes hard work and know-how, as evidenced by Brown and business partner John Pickett, who own a 40% stake in the Atlantic Automotive Group based in West Islip, NY.

The group, founded by John Staluppi, who remains a stakeholder, runs 17 stores on Long Island’s north and south shores. Franchises include Toyota and Lexus, Honda, Hyundai, Nissan, Chevrolet, Cadillac, Audi and Volkswagen.

Eight of its dealerships rank individually on the Ward’s Dealer 500.

Part of what Brown describes as luck has meant looking at a crisis as an opportunity.

When the Toyota recall debacle hit in January 2010, and Toyota asked dealers around the nation to take good care of customers, “we decided ‘let’s blow them away,’” Brown recalls.

Customers bringing their Toyotas in for fixes were treated to fruit plates, massages, nail manicures, shoe shines and more. Toyota became a stronger for it, as did dealers who responded in kind, Brown says.

As Toyota customer retention scores soared, the owners spread the special services to other brands, figuring it is a small price to pay for satisfied, returning customers.

Co-owners John Pickett, left, and Michael Brown split management duties at Atlantic Automotive Group.

When it comes to managing more than 1,700 employees, Brown says he and Pickett adhere to the KISS principle (keep it simple, stupid).

“It’s real simple with us,” he says. “It’s about people and process. I don’t want it to be that complicated. We want to tackle the basics better than anyone else. You don’t have to change who you are to do that.”

Group revenues continued a solid growth pattern after 2008, when the auto industry began to stumble and the Atlantic group saw revenues drop 12%. Its total annual revenues for 2009 were $1.2 billion, rising to $1.6 billion in 2010 as the economy began to recover.

This year is looking good so far, Brown says. “We expect another healthy increase over 2010.”

The only concern “is how we will be affected with what’s happening in Japan right now,” he says, referring to auto production shutdowns following the March 11 earthquake and tsunami that crippled much of that nation.

“Nobody saw that coming,” Pickett says. “Although the inventory shortages are temporary, it will cause quite a disruption in our business.”

Brown and Pickett split up management chores and see eye-to-eye on big issues. Staluppi has them run the day-to-day operations, but they still turn to him for his vision and on long-term strategic decisions. “We still consider him our leader and mentor,” Brown says.

That means training on the fundamentals and then requiring accountability for actions. They hold managers accountable for implementing programs, sales and service training methods and hiring new staffers.

After the economic crisis hit U.S. dealers hard in 2008, the owners focused on a plan they had in place for employees called compensation-to-gross. Brown describes it as a metric that’s carefully measured.

The plan takes into account all forms of compensation to determine the profit picture.

“We’ve always tracked it, but it became a huge focal point in 2008,” Brown says. “We take all of the compensation – including commissions, salaries, employee benefits, pensions, paid absences, wages and payroll taxes – and divide it by the total gross,” he explains.

Managers are the ones focusing on the system, says Brown. It affects the job descriptions that are designed for each manager and their staffers.

“We look to stretch the runway of each and every employee,” Brown says. “We also would look to pick up gross profit, which in turn can help drive this number down.”

Such monitoring has led the group to be more realistic about profit-loss statements. It shows Atlantic can sell less, but still record profits.

Brown readily shares a pet saying with employees and applies it to himself: “There’s nothing like a good confrontation to promote success.”

That doesn’t mean yelling at or reprimanding employees, but rather encouraging an entrepreneurial spirit and free-style discussions. He is put off by “yes men” and slackers.

“We’re here to serve the customer,” Brown says. “If we make employees happy, they’re going to make customers happy.” So far, the partners are proud of low employee turnover rates attributed to an aggressive compensation structure and advancement opportunities.

They also believe they have emulated Staluppi by wisely choosing which brands to represent.

The group owns four Hyundai stores, with Atlantic Hyundai ranking as one of that brand’s top dealerships in the U.S., with sales of 5,632 new units in 2010.

Lexus of Rockville ranks as one of Atlantic’s sales leaders. “Both of our Lexus stores do quite well,” Pickett says. “Long Island is a very competitive market for this segment with some great dealers. Good competition keeps you sharp.”

He eagerly anticipates “much needed new product” from Lexus, expecting it will help dealers get back some market share lost to competitors. The group expects to acquire more dealerships. It looks at high-volume clusters of stores, not small operations. But the owners look to buy stores that need improvements, much as Staluppi did in building the chain.

“We’re definitely looking and willing to move out of the New York market area, if can find the right stores somewhere here,” Brown says.

The more recent franchise acquisitions – Audi two years ago and VW this spring – were open points. “Both facilities went up very fast,” Pickett says. “Each store was built in less than 90 days.”

It is sometimes hard to keep employees motivated, especially in down cycles or when a crash hits the market. But Atlantic managers have learned that adversity is a supreme teacher.

“Almost all of our employees need to work, so we tell people that we might as well pull together and make the best of it,” Pickett says. “That’s what we feel is so special about our organization.

“The adversity in 2008 made us stronger, and we proved to ourselves what we are capable of,” he says. “We saw how resilient our people were, and for that we are very grateful.”

Brown adds, “If you hunker down and focus on the business in tough times, you weather it. For the most part, we were pretty damn lucky.”

He is particularly keen on the Hyundai brand, calling John Krafcik, Hyundai Motor America’s president and CEO, “brilliant.”

Brown praises Dave Zuchowski, HMA’s sales chief, for working closely with dealers “to create the brand excitement needed to go along with the hot products.”

Cadillac too is “gobbling up market share,” after General Motors went bankrupt and restructured, Brown says. “Luckily, we got through that period relatively unscathed.”

He also is a fan of Toyota. “It’s one of the great brands, and a very resilient company. I’m sure they’re all over it in Japan, figuring out the supply issue. We believe in our partners. They’ve never let us down before.”

What: Atlantic Automotive Group with 17 dealerships

Where: Long Island, NY

Owners: Michael Brown became involved in dealership sales after earning a master’s degree from Boston University in business. As an undergraduate, he attended BU on a football scholarship. He worked for the Penske Automotive Group from 2000-2007.

John Pickett, a Long Island native, has worked in the automotive business for John Staluppi his entire career, from service to sales.

Over the years, he has focused on achieving an upper-management rank. This year, he realized his dream by becoming a chief partner in the group along with Brown.

John Staluppi entered the business in 1964 as a mechanic at a Chevrolet dealership. In the late 1970s, he bought his own franchise and later expanded to 40 dealerships between New York and Florida. He now oversees multiple holdings, including the remaining Staluppi dealerships.