Collector Calls it Quits

Ford Motor Co.'s Robert Rewey was bleary-eyed tired as he flew on a company jet from Cleveland back to Detroit through late-night stormy weather in 1997.

As lightning crackled outside, Rewey put down the pinkish pages of the Financial Times he was reading, and spoke to a fellow passenger about H. Wayne Huizenga, an aggressive entrepreneur down in Fort Lauderdale, FL, who had started buying auto dealerships in unprecedented numbers.

Enough dealerships were procured to get the attention of people in the auto industry, including Rewey, at the time Ford's group vice president of marketing and sales.

No, Rewey told his fellow passenger, Ford wasn't “scared” of Huizenga and his fast-forming chain of AutoNation dealerships.

No, Huizenga alone didn't spur Ford's plan to buy and run dealerships in certain markets, an impending move seen as a counter-maneuver against Huizenga's dealership buying spree.

“The pressure was already there,” said Rewey. “Huizenga just accelerated it.”

Looking back, Ford's reaction to that was hardly grace under pressure. The No. 2 auto maker, over many dealers' objections, stumbled into the plan to own dealerships in places such as Tulsa, OK and Salt Lake City, UT.

It didn't stop Huizenga from buying more dealerships. It did infuriate Ford dealers. Ford's three-year-old project ended as an admitted failure in 2001.

General Motors almost did the same thing, but backed off early on in 2000 when its dealers nearly revolted.

Why did Huizenga so unsettle auto makers and others?

They thought this former trash collector with no automotive experience would turn the industry upside down. He changed it. But not in the vast and insidious way that some people imagined.

“I was in Europe when AutoNation started and I know there was a lot of skittishness here in the U.S.,” says Ford COO Nicholas Scheele. “The skittishness was about the public ownership of dealers. That astonished me because many dealerships in Europe are publicly owned.”

Auto makers feared Huizenga would start dictating terms to them if he got so many dealerships.

They worried he'd starting selling different brands in the same showroom, maybe even side by side, with sales people showing no particular loyalty to one make or another.

Some people with active imaginations fretted that AutoNation would brand its own car line for sale at its dealerships.

The National Automobile Dealers Association feared the consolidator movement that Huizenga was spearheading would endanger independent stores.

None of that happened. The revolution never occurred. AutoNation became big, but it also became part of the conventional franchise system, despite some of Huizenga's initial radical plans that never materialized.

Huizenga, who turns 65 this month and retires as AutoNation chairman Jan. 1, stumbled here and there, made some big money early on and lost big money (along with fellow shareholders) as AutoNation stock dropped.

But most people agree now that he had a great retailing idea. Despite some miscues, AutoNation Inc. is by far the nation's top dealership consolidator with 374 new-vehicle franchises and nearly 100,000 vehicles in total stock at any given time.

Auto makers have made peace with AutoNation. “We have a number of Ford dealerships that are AutoNation-owned,” says Scheele. “They are some very successful dealerships.”

The NADA has accepted AutoNation into the fold. NADA's stance softened when the consolidator and its hundreds of stores became dues-paying members.

Today, AutoNation shows what a consolidator can do with economies of scale, a common mission and dealership veterans running the show, such as President Michael Maroone and CEO Michael Jackson, who succeeds Huizenga as chairman.

The retiring chairman says of the impending chairman, “Over the past three years as CEO, he has shown no one has a better understanding of automotive retail.”

As a public company, AutoNation has faltered on the stock market throughout its five-year history, struggling to convince Wall Street skeptics to take it more seriously.

Early in-and-out investors made a lot of money. But billions of stockholder dollars were lost as the stock declined. Still, with AutoNation in the game, dealerships rose in value.

Among the losers were dealers who sold their stores largely for stock, then took a bath as values dropped. The company went from a high of $42.75 a share in early 1997 to about $5 in late 2000. It's now around $12 a share. Market capitalization went from $12.2 billion to $1.4 billion.

Jackson, who once ran a Maryland Mercedes-Benz dealership (where he started as a service technician) and then ran Mercedes-Benz USA, became AutoNation's CEO in 1999. His primary incentive-induced assignment: get the stock up.

“I had led Mercedes-Benz out of a slump in the 1990-91 period,” recalls Jackson. “When Mr. Huizenga offered me this job, the timing and opportunity seemed right, even though the problems at AutoNation were staggering. It was a challenge — and I like challenges.”

Jackson honed in on building metro-market platforms, launching an ambitious nation-wide Internet initiative and focusing on major brands in major markets. Two months after becoming CEO, he closed AutoNation's used-car superstores, saying they weren't worth it.

AutoNation operates within the traditional franchise system, but Huizenga held a radical vision for his dealership collection early on.

Huizenga is a self-made man of Dutch ancestry. His early business consolidating efforts were in waste management and video stores.

He was founder and primary stockholder of the 10,000-store Blockbuster Video chain. Vivacom subsequently bought it for $8 billion. The money Huizenga made there would help bankroll the impending dealership purchases.

Huizenga foresaw his dealerships as sharing a common brand and look, like readily recognizable Blockbuster Video stores.

That was the idea going in. It was later decided that the “AutoNation” name would not be a major part of the individual stores' identities lest it strip them of the personal touch that draw car buyers to dealerships.

Some industry insiders say Huizenga indeed wanted to sell different vehicle brands in the same stores, either side by side or at least in their own sections. It would have been the auto makers' worst fears realized. But dealership veterans Maroone and Jackson weren't about to do that.

The idea for AutoNation started with a south Florida boat ride off the coast of Fort Lauderdale, Huizenga's hometown where he's a highly regarded community leader and benefactor.

At the time, Huizenga had all that money from selling Blockbuster. He was deciding what to do next with his Republic Industries Inc. (In 1999, it would be renamed AutoNation Inc. as the firm sold off its waste management and car rental businesses.)

A dealer friend invited him on his yacht. The dealer told him: You're looking for something to do. Why don't you buy car dealerships, leverage them in the market and take advantage of the economies of scale.

Huizenga thus set his consolidating sites on the auto industry. He started acquiring high-volume dealerships.

In 1996, he bought his first dealerships: Ed Mullinax's Ford store in Cleveland (one of that city's biggest Ford outlets) and a Mullinax Ford store in south Florida.

Other early acquisition were Maroone Ford and Maroone Dodge in south Florida. Second-generation dealer Michael Maroone ran those stores. AutoNation's corporate business model intrigued him. The day-to-day running of a dealership didn't.

Young, smart and charming, Maroone became an AutoNation executive, rising to the presidency. He filled a role Huizenga needed badly: a dealer guy who could relate to dealers.

Soon many other big-time dealers joined the fold such as John Lance in Cleveland, Marshall Chesrown in Colorado, John Shanks in Tennessee and Steve Moore (son-in-law of Bob Lund, who once headed General Motors Corp.'s Chevrolet division and now runs a high-volume Cadillac dealership in Arizona).

Many of those early sellers stayed on with the consolidator. Lance, who had worked at his family's Cleveland Ford store since 1960, was put in charge of overseeing 35 Ford stores that Republic scooped up in less than two years.

Lance said of Republic at the time, “They gave us a lot of money, and I want to show them that this concept of theirs, which also happens to be ours of longstanding, is going to work.”

The dealerships kept coming in, almost like a domino-effect as 1997 became an active acquisition year for consolidators, none more than Republic. It paid 14 times over annual net profit for the prime dealerships it wanted. The industry average is 6-7 times.

One of Huizenga's greatest legacies is that his acquisition of stores, at the prices he was paying, enhanced the value of dealerships in general. Fifteen years earlier, many dealerships were going under with no one offering to buy them.

“Dealerships sat vacant and abandoned, and many thought that raging inflation, soaring gasoline costs and out-of-control interest rates had doomed the personal automobile and the dealerships that sold them,” recalls industry observer C. D. Bohon, former editor of Ward's Dealer Business.

But AutoNation's purchases — often characterized as “buying sprees” — were not willy-nilly. Specific geographical areas and dealerships were targeted.

Except for that initial buy in Cleveland and a major foray into Denver, AutoNation set its sites on the Sunbelt. Maroone wanted platforms in major markets, especially high-growth, warm-weather locales. The plan hasn't deviated much since.

In one of its quickest acquisitions, the consolidator bought three dealership groups in Denver, including those owned by Denver Bronco quarterback John Elway, adding 18 stores almost all at once.

Eventually all those stores would sport the “Elway” name. “Desert” brands all the Las Vegas stores. In south Florida, it's “Maroone,” a corporate affirmation of Mike Maroone's place in the company.

The harshness of the used-car marketplace blinded one of Huiznga's early visions. He wanted to create a network of used-car superstores that would change the way people bought pre-owned vehicles.

AutoNation had 26 used-car superstores when Jackson, three months after becoming CEO, pulled the plug on them.

“We found your costs are too high when you focus on the used-car market, which proved to be volatile,” he said.

The killing off of the used-car superstores was a major shift for AutoNation.

So was this:

In the early days, standard operating procedure when buying stores was to keep the dealer principals aboard to run them. But many former owners, rich from selling and no longer working for themselves, tended to lose interest in the dealerships. Today, AutoNation is likely to put its own managers into purchased properties.

For all its growing pains, AutoNation is a major force in the industry, selling 2,000 cars a day, servicing 35,000 daily and taking in more than $20 billion a year.

“AutoNation has come a long way from concept to reality,” says Huizenga, who now plans to focus on “new entrepreneurial opportunities.”

Gone are the hostile relations with skittish manufacturers. That's thanks largely to Jackson, the former dealer and former auto executive, convincing auto makers that AutoNation is not out to radicalize the world — just sell a lot of cars in it.

Bohon says the bottom line for any dealership — whether independently owned or part of a huge group — is the consistent ability to sell to enough customers at a profitable enough price.

“Whether John Doe or Wayne Huizenga owns the dealership won't change that,” he says.