Softer economy is a good time to buy more dealerships

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Auto sales reached a record level in 2000, and that truth is reflected in this year’s Ward’s Megadealer 100, which has evolved from just a list of the most successful dealer groups to a barometer of the automotive retail marketplace.

Fueled by a record year for selling vehicles, the “century club” brought in $101.5 billion in revenue last year, up 13% from the previous year. Their total new and used units sold in 2000 went from 4.7 million to 5.1 million.

The ante to get in the high-stakes 100 Megadealers game keeps increasing. Last year, Melbourne, FL’s Kelly Management Corp.’s needed $235.6 million to place 100th on the list. This year, Chesapeake, VA’s Southern Hospitality Group’s takes that spot with $241 million. Kelly moves up to 94th with revenue of $261.8 million.

The industry’s top dealer group, AutoNation of Fort Lauderdale, FL, however, saw a slight dip in revenue, from $20.9 billion in 1999 to $20.4 billion in 2000. The top megadealer also maintains the status quo with its dealership count at 290.

Although AutoNation stood pat, the number of dealerships reflected by the Ward’s Megadealer 100 increased 129,from 1,596 in 1999 to 1,725 in 2000. Not long ago, AutoNation alone would buy that many in a year. The record-setting vehicle sales of 2000 caused a general slowing down of acquisitions. Yet, as 2001 shows signs of a market slowdown, consolidators expect to pick up the pace again.

Why? Because independent dealers are less likely to sell their stores in good years, and more likely to sell when the economy tightens.

“It’s a hard decision for an entrepreneur to sell when times are at a peak,” says Brian Kendrick, CEO of the fourth-ranked Asbury Auto Group of Stamford, CT. “We think this (dip in the market) is a great opportunity to continue consolidation. We believe that consolidation will continue in this environment.”

Says Gregory Goodwin, CEO of Beaverton, OR’s Kuni Automotive, 62nd among the Megadealer 100, “I’m excited by the opportunities in the industry for acquisitions with measured growth.”

Sonic Automotive of Charlotte, NC, in a give-and-take, sold a bunch of stores, and bought a bunch more, increasing its count from 112 to 116. The sold stores were considered under-performers, the bought stores just the opposite. Consequently, O. Bruton Smith’s company almost doubled its units and revenue. Unit sales went from 166,473 in 1999 to 283,503 in 2000. Revenue increased from $3.3 billion to $6 billion, which puts Sonic second among the Megadealer 100.

Sonic’s year-over-year increase of 80.6% pales in comparison only to its 108.9% gain from 1998 to 1999.

Jackson, CA’s Halvorson Family Dealership Group moved from 11th to ninth with $2.1 billion in revenue, up from $1.3 billion the year before. Wilson Automotive Group of Orange, CA, jumped from 25th to 14th with just over $1 billion in revenue and the Chuck Peterson Dealerships went from 82nd to 60th on the list with $435 million.

On the opposite side of the ledger, Russ Darrow Group of West Bend, WI, dropped 37.5% and fell from 38th to 81st. Mel Farr Automotive Group of Oak Park, MI, suffered a 31.5% drop and fell from 53rd to 86th. Notable newcomers on the 2000 Megadealer 100 include the Penske Automotive Group of El Monte, CA, which checks in at No. 15 with over a billion in revenue, and Vienna, VA’s Jim Koons Automotive Companies, which debuts at 18 with $978 million.

Other new Megadealer 100 faces are Ray Catena of Edison, NJ (36th), Ken Garff Automotive Group of Salt Lake City (51st), Jeff Wyler Automotive Family of Cincinnati (53rd), Pierre Auto Centers of Seattle (77th), the Hansel Dealer Group of Petaluma, CA (78th), The Jerry’s Group of Alexandria, VA (89th), Vista, CA’s The Automotive Group (90th) and the Southern Hospitality Group of Chesapeake, VA at (100).

One player who would have been high on the list is Planet Automotive, based in Coral Gables, FL. Through an oversight, they missed the deadline to file. They took in approximately $1.3 billion in revenues last year.

“Big boys are getting bigger,” says Henry Hansel of Hansel Dealership Group. “I don’t see that they have a particularly competitive advantage. What they learned is what we already knew.”

That is that some of the economies of scale just aren’t there and that layers of management are ineffective.

“In our case we tried to consolidate our offices. It didn’t work,” Mr. Hansel says.

Asbury’s CEO agrees.

“There are very few synergies to be reaped from a national (consolidation) strategy,” says Mr. Kendrick. “Most of the synergies in our business exist with local level advertising. We’ll continue to do that. We believe that is the right strategy. I think we’ve seen everybody come full circle around to that.”

He adds, “We’re all coming closer to the model that is the right model for large megadealers/consolidators in this marketplace, which is to run it close, to run it with operators at the local level, to focus on the retailing aspects and to fine-tune our retail strategies.”

AutoNation, with its 290 dealerships around the country leads in almost every category based on sheer volume. It sold 489,000 new vehicles, 255,000 used vehicles, 158,000 fleet vehicles, and is tops in revenue in F&I, service, body shop and parts.

But when you break down the various dealership departments by percent of the total revenue, a very different picture appears. This is where you find the megadealers who really are excelling at different aspects of the business.

Ward’s Megadealer 100 newcomer Ken Garff Automotive Group’s used-car department leads that category at 43.9% — $218.8 million.

Sage Auto Group of Los Angeles unseats the Mel Farr organization in F&I category with 6.4% — $23.5 million. The Farr group posted 14% last year. It drops to fourth in the category with 4.7%.

The Lou Fusz Automotive Network of St. Louis owns the lead in the service department revenue as a percent of the total with 7.3% — $37.8 million.

Ed Voyles Dealerships of Marietta, GA, strengthened its hold on the top body shop spot with 4.9% — $12.6.million. The group led the way last year as well with 4.6%.

Hyattsville, MD’s Lustine Automotive Group continues its hold on the parts department title with 36.8% — $101.1 million — of its total coming from parts and accessories.

The Halvorson Family Dealership Group still is the king of the revenue per dealership category, averaging $719.2 million for each of its three stores.

Once considered an industry threat — when AutoNation first started scooping up stores in the early 1990s — megadealers and their tastes for acquisitions are here to stay.

But that doesn’t mean that the little guys are doomed. At least not all of them, says Mr. Hansel.

“The ‘family owned’ dealership will continue,” he says. “But the single-point dealership will be a thing of the past over time. People who love this business will grow with it. Those dealerships where there is just one store might get out. It takes love and passion to do this.”