New Take On Industry

Earl J. Hesterberg is president and CEO of Houston-based Group 1 Automotive Inc., a 31-brand dealership chain with annual revenues of $5.4 billion. He joined publicly owned Group 1 a year ago, coming from Ford Motor Co. where he headed North American marketing, sales and service.

Ward's interviewed him on a range of issues, including what troubled domestic auto makers can do to recover; what this year will be like; and what's up with various auto executives (including himself) entering the dealership world.

Here are excerpts from the interview:

What is your take on the industry and the domestics right now?

They have to size their companies for their level of business. The urgency is increasing because the competition is increasing.

It is difficult to deal with the fact that you're not going to be as big as you once were. That is hard to come to grips with for some people.

Nissan had to go through that a few years ago, and become realistic about the size of the company. (CEO) Carlos Ghosn had a mandate and the freedom.

There are a lot of constraints facing these companies that are 100 years old. And they don't have the complete freedom to do whatever they want.

What are your impressions of new products coming out?

Products like the Toyota Camry are going to continue to rock the world and will put pressure on the domestics restructuring efforts.

I know the Ford Edge (cross/utility vehicle), because I did a little bit of work on it while I was with Ford, and that will be a good vehicle for the company.

The first thing we are interested is General Motors' full size SUVs. While we are underrepresented with GM franchises — GM is about 7%-10% of our business — we are big with them in areas such as New Mexico, Texas, Oklahoma and Denver.

We're positive they will do well.

What about General Motors' new pricing strategy?

It is directionally correct, but the real issue is how they balance supply and demand. Taking something out of the published margin is just an irritation for dealers and doesn't get to the root of the problem. The discrepancy in pricing is caused by not having enough demand and/or having too much supply.

It is just throwing perfume at a symptom. I would rather see something that brings more customers into the showroom. All dealers know how to close the customer. We need more customers. I don't see the new pricing strategy as the answer to that.

What are you forecasting for 2006?

It will be another good year, close to 17 million sales, primarily because the U.S. economy still is reasonably robust.

What brands are you looking to add?

It's no big secret, and we're no different than anyone else, that we want to add import luxury brands.

We just acquired the only Toyota and Lexus store in New Hampshire and we picked up a BMW store there last year.

That is getting pretty far North for you.

We are big in Boston. New Hampshire is much friendlier for used-car sales. Massachusetts has several regulations that make it tough to do big volumes in used vehicles.

Used cars are one of the areas we are trying to drive this year.

Ford marketing and sales VP Steve Lyons retired and will have a Ford franchise; Allan Gilmour (retired Ford Motor Co. vice chairman) is a dealer. And you left Ford for Group 1. A trend starting?

Allan at Ford had an incredible sensitivity toward dealers and was able to talk more intelligently to me about them than other executives.

The great experiences I had were when I was with Nissan of Europe and Ford of Europe because we operated dealerships there. I could see the problems we were creating for our dealerships and knew the private guys were having the same problems.

One time I had my own guy yelling at me that we owed ourselves money. That was a very enlightening period of my life.