Private Lives of Dealers

Only six dealer groups have gone “public” since the mid-1990s, when H. Wayne Huizenga pioneered the trend with what became AutoNation Inc.

Why so few?

There are some 22,000 franchised dealerships in the U.S. Only 884 have been “collected” by publicly owned corporations. That leaves about 21,000 which have stayed in private hands, including 94 groups on the Ward's Mega 100.

On the New York Stock Exchange and the NASDAQ are thousands of companies with stock ownership in public hands. Yet only six focus on franchised dealers, not counting used-car superstore network CarMax with its 10 franchises.

Veteran dealer Don Massey had one explanation for staving off the Initial Public Offering promoters seven years ago when his then privately held Massey group of Cadillac, Olds and Honda stores appeared consistently on the top megadealer lists.

“Wayne Huizenga approached me for a buyout and Wall Street guys offered to take me public on my own IPO,” Massey said back then.

“But I couldn't see my guys working their best to sell Cadillacs, or any other cars either, if the stock price was up or down every morning. If the price rose, they would become lazy. If it fell, they would become over-eager.”

Was Massey's response outdated in a world where every industry, including virtually every retail industry, is accustomed to being publicly owned and listed in daily stock gain-loss columns?

As the owner of a wide dealership network that extended from Arnold Palmer Cadillac in Florida to Don Massey Cadillac in Michigan, Massey felt he did not need either the regulatory constraints or the potential for capital gains that a double-edged IPO brings.

But Massey, in his early 70s at the time, and lacking a family heir to whom he could leave the business, may have missed a point that today's public dealership groups have grasped.

Stock in a dealership can become an incentive for pepping up performances of managers and employees, whereas 100% family control leaves managers with cash bonuses as the only incentive. Sorry, no stock options.

As it happened, when Massey held firm in his personal determination not to sell out to AutoNation or any of its peer dealer groups on his own, General Motors stepped in to find a secure haven for its leading Cadillac dealer. A $1 billion buyout of Massey's dealership holdings was arranged with Sonic Automotive, the third largest megadealer, whose chairman, O. Bruton Smith, is a lifelong Southern buddy of Massey's.

Unlike Massey, Smith had welcomed the opportunity to form Sonic as a public entity from the get-go. Otherwise, the pair are alike in many of their approaches to auto retailing.

There are various reasons why more privately held large dealership groups have not seen fit to go public.

One is that the publics faced early rocky times with sagging stock prices. Silicon Valley it wasn't. Many dealers with extensive holdings felt going public wasn't worth the trouble nor did they feel they needed to.

On the other hand, the ones that did go public seem comfortable with it. And they have different approaches. For instance, Lithia Motors CEO Sid DeBoer found a niche among the “public” sextet — amassing dealerships in midsize markets ranging from Anchorage, AK to Boise, ID.

Obviously, public ownerships comes with regulatory requirements and the like. But UAG CEO Roger Penske (a former Chevrolet dealer), AutoNation Chairman Mike Jackson (a former Mercedes-Benz dealers) and AutoNation President Mike Maroone (a former Ford dealer) have found the public efforts rewarding.

What's so great about being a “public dealer” when the stock prices often are only slightly above earnings? Nobody's perfect, much less Wall Street (sometimes called Bawl Street). Publicly owned dealership stocks are undervalued, but those dealers have fared well, while many of their factories have faltered.