The Incubator

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future product pipeline THE INCUBATOR NINTH IN A 10-PART SERIES What are the wizards at BMW working on? The Vision iNEXT, an all-electric, semi-autonomous crossover, offers a sneak peek at the future. I PAGE 8 I In the pipeline at Fiat What are the wizards at BMW Chrysler Automobiles working on? The Vision iNEXT, an are midsize pickups from Ram and all-electric, semi-autonomous Jeep, a new line crossover, offers a sneak peek of luxury SUVs, at the future. I PAGE 8 I a high-tech supercar Nissan: Sedans will be back and the company’s rst all-in foray into electric vehicles. I PAGES 15-17 I U.S. chief Le Vot sees decent future; Europe not so sure Lindsay Chappell cars can make a comeback, and his beliefs under- [email protected] score Nissan’s product strategy — at least in the U.S. merica’s historic consumer shift away “We think 30 percent is the bottom,” he told Auto- from cars is a done deal, right? motive News last week. Ram midsize Sedans have slipped from about 50 Le Vot’s logic: Market factors will bring consum- percent of the U.S. market six years ago ers back to the segment. toA roughly 30 percent in 2018 — and below 30 per- “Market intelligence is telling us that Generation and Wrangler cent in August. Z’s favorite body style is sedans,” Le Vot said. “ e So who is talking about a sedan resurgence? big wheel is turning.” trucks buddy ANGELINA CZARNECKI Well, there’s Denis Le Vot. He says higher interest rates will push many Denis Le Vot: “We think 30 e spirited Frenchman who became chairman up in Toledo percent is the bottom.” of Nissan North America in January is convinced see NISSAN, Page 35 Dakota heir body-on-frame Larry P. Vellequette [email protected] Ram’s new midsize pickup will be a body-on- frame truck built in the same plant in Toledo, Ohio, as Jeep’s upcoming Wrangler-based pickup, supplier sources tell Automotive News. e revelation means the Ram pickup, which will compete against the Chevrolet Colorado and upcoming Ford Ranger, will not be a Fiat-based unibody compact, such as the Ram 750 sold in Latin America. Mike Manley, Fiat Chrysler Automobiles’ head of Jeep and Ram, promised the Ram pickup at the automaker’s June 1 presentation in Balocco, Italy. But he provided few details about the truck, which is expected to arrive in U.S. dealerships in 2020 as a 2021 model. Manley: Pledged Manley is now CEO of FCA. midsize pickup Production of Ram’s last midsize pickup, the Dakota, ended in 2011 after a 25-year run. “If you’re going to … expand your Roughly half of FCA’s sprawling Toledo Assem- business, the time to do it is in the bly Complex has been shut for retooling since late downturns,” said Blaise Alexander, left. April, when the last JK Wranglers were built there. He’s one of the entrepreneurs who 10 FCA is scheduled to begin recalling workers there years ago seized the moment. next month. e line regularly built more than I PAGES 20-28 I 230,000 JK Wranglers per year, well more than its planned capacity of 160,000. But the new Jeep pickup is not expected to sell in those volumes, leaving FCA with an underused plant unless it adds another body-on-frame product. a AUTOMOTIVE NEWS ILLUSTRATION The Dakota ended production in 2011.

NEW SPEAKERS

• ADDED See p. 19 NEWSPAPER JANUARY 15–16 DETROIT 20 • SEPTEMBER 17, 2018 INGENUITY UNLEASHED

Part 3 of 4: How American Car Dealers Survived the Great Recession  Opportunists amid the economic wreckage he authentically original surviv- Take Charlie Brown, who 10 years ago Associated Press had dubbed “America’s Automotive Group. But when the reces- al strategies that grew out of the was used-car manager at Chrysler-Dodge- Loneliest Neighborhood” because of busi- sion hit, he sold company founder Tom Great Recession tended to result Jeep of Eugene, in Oregon. While most ness closures. Plugging into grassroots Ganley on creating for him a new position from lateral thinking — that is, the Chrysler dealers frantically slashed inven- energy generated by the crisis, Haydocy overseeing all the group’s service, parts indirect approach; the solving of tory, Brown hit the road in search of prod- helped restore the community, starting an and body-shop operations. Housholder problems through reasoning not uct. He spent the recession traveling from organization that attracted a $400 million soon discovered the soothing powers of immediately obvious. auction to auction, snapping up vehicles casino and altogether more than 40 busi- centralization.

It’s how many dealers and deal- as their values plummeted. nesses. ey were opportunists amid the wreck- ership managers spotted opportu- Dealer Chris Haydocy was operating his Bill Housholder had applied to be a gen- age, and we o er several examples this

Tnity as the crisis raged. store in a section of Columbus, Ohio, the eral manager at a store in Ohio’s Ganley week. a~ SPECIAL SECTION I PAGES 20-28 I “When the bankruptcies “ ended, whoever had the merchandise sold the cars, and whoever sold the cars got more cars. It was a turn-and-earn, and we were in a really Blaise Alexander good spot.” Title then: President Dealership group: Blaise Alexander “Blaise Alexander Family Dealerships Where: Muncy, Pa. Strategy: Over-order vehicles going into the recession, setting the stage for rapid growth afterward

PHOTOS BY DAVID MILLER THE BOLD ONE Blaise Alexander’s daring strategy led to rapid growth after the downturn Larry P. Vellequette were making good, average money, and we were feeling [email protected] good about where we were in business,” the silver-maned Al- t is human nature to run from danger, to seek shelter exander said. “ at’s when our problems started.” when a storm approaches. In late 2008, “our bank that had our oorplan was taken Yet there are always a few — the courageous, the over by Santander, and Santander at the time wanted no gamblers, the crazies — who run toward trouble. part of the car business,” Alexander said. “Our rst objec- ey look at a world in chaos and see opportunity tive was to get out of that bank and into another bank, but and a clear path for bold action. it got harder and harder to talk to any bank.” e Great Recession made most of those who sur- When January 2009 rolled around, General Motors and vived better dealers. But it made Blaise Alexander great. Chrysler — representing half of Alexander’s dealerships — Alexander, now 70, is president of Blaise Alexander were facing potential bankruptcy and he was still hunting Family Dealerships in tiny Muncy, Pa., near the cen- for a replacement oorplan lender. ter of the state. He leaned hard into the recession, “So simultaneously we’re juggling two balls here. We’re zigging as others zagged and buying as others sold. trying to decide how we’re going to get into another bank, And it made him a fortune. and what we’re going to do in this recession: Are we going “I’ve been through about four recessions since to pull our horns in and stop ordering cars and go dark? 1971 when I started as a manager” in a Chevrolet dealer- all in north-central Pennsylvania, with Chevrolet, Pontiac, We had two big decisions, and one of them, we couldn’t ship in nearby State College, Pa., Alexander said. “ ese GMC, Toyota and Nissan represented, along with a Chrys- even address because the banks wouldn’t even return our things come and go, and every situation is di erent. But if ler-Jeep-Dodge-Ram store that he had acquired in 2007 in calls,” Alexander said. Iyou’re going to buy stores or expand your business, the State College. As the storm clouds darkened over his facto- In late January, Alexander went to the National Automo- time to do it is in the downturns.” ry partners in Detroit, Alexander’s dealerships were all - bile Dealers Association convention in New Orleans. A decade ago, Alexander’s empire was a lot smaller than nancially stable, with strong balance sheets and high cus- “I started talking to some dealers, and the majority of the today’s 29 franchises spread across 18 rooftops. tomer and service satisfaction scores. Heading into the recession, the group had eight rooftops, “We were in a nice, comfortable situation. e dealerships see ALEXANDER , Page 28 SEPTEMBER 17, 2018 • 21 INGENUITY UNLEASHED COMMUNITY CATALYST Facing its own problems, group helped revitalize ‘America’s Loneliest Neighborhood’ Alexa St. John ty, which has since spurred the development of more than [email protected] Chris Haydocy 40 businesses in the neighborhood. n the middle of a crisis lies opportunity.” Title then: Dealer principal “ is area would be a ghost town” if Penn National Gam- at quote hangs on the wall of Chris Haydocy’s of- Dealership group: Haydocy Automotive Group ing Inc. had not opened Hollywood Casino Columbus, ce. e president of Haydocy Automotive Group in Where: Columbus, Ohio Haydocy said. Columbus, Ohio, was already reeling from punches Survival strategy: Revitalizing a decaying “It was an opportunity to revitalize the neighborhood “ when the Great Recession hit: the shutdown of two through an unconventional manner,” Haydocy added. neighborhood General Motors franchised dealerships and the clo- “ e alternative to not nding out these opportunities sure of a nearby auto parts plant that decimated the would have been bankruptcy.” neighborhood. en came the nancial crisis, and e vacant neighborhood In addition, Haydocy opened Haydocy Airstream and RV the dealership nearly lost its nancing. surrounding the dealership in the former Oldsmobile building, which has since been a e rst priority for Haydocy wasn’t a short-term posed a unique challenge. steady part of his business. slashing of costs or employees from his operations. e recent closure of a Del- Instead, he addressed the deeper issues confronting phi Corp. auto parts plant Financing his neighborhood. on property directly behind e dealership’s property loan renewal with GMAC was the dealership hit hard, as initially turned down because the nancing company did Adding, losing brands did the closure of other not see a way forward, despite the dealer never missing a Haydocy: After starting in 1954 as a Pontiac dealership, over the nearby industrial properties payment in 60 years. Haydocy reached out to his congress- “Unconventional” years the group acquired GMC, Buick, GMC medium-duty and Westland Mall. e in- woman, who vouched for the dealership as a crucial cor- I grassroots effort truck and Oldsmobile franchises. e group opened a new dustrial area had few small nerstone to the neighborhood. Eventually, Haydocy had building for Oldsmobile keeping the other brands in a businesses. his loan extended. second building just one month before GM terminated In 2009, an Associated Press analysis found nearly 70 “ e experience I had is something I never want to go the Oldsmobile brand. percent of the homes and apartments near Haydocy’s through again,” Haydocy said. “We had to put perfectly the e group was able to recover from that loss. But when buildings were vacant. It labeled the area “America’s Lone- thread through the needle to survive.” Pontiac was axed, its sales tumbled over just a few years to liest Neighborhood.” In 2009, the Haydocy Group sold 457 new and 492 used 29 new units a month from 100 previously. Pontiac had ac- “Business after business shut down, and it became a very, vehicles. Last year, the group sold 545 new and 602 used counted for more than 60 percent of the group’s revenue. very challenged neighborhood,” Haydocy recalled. “ ere vehicles, Haydocy said, along with 331 new and 107 used “It came as a shock to many about Pontiac’s” elimina- was absolutely no outside investment coming in this area.” recreation vehicles. Despite these increases in sales, Hay- tion, Haydocy said. “On a national stage, General Motors To change the neighborhood and work to boost local docy still sees lingering e ects of the recession today. did what they saw best to keep the company running.” sales, Haydocy started a grassroots organization called “We have never gotten back to the level that we were be- To Haydocy, giving up wasn’t an option. “We did not have Weston Vision Inc. to attract new investment along the fore,” Haydocy said. “Our trials and tribulations were very the opportunity to go bankrupt and reorganize,” he said. In- West Broad Street corridor. e organization ultimately at- much so re ected and similar to the total trials and tribu- stead, he saw the opportunity, and need, to revitalize. tracted a $400 million casino to the former Delphi proper- lations of the total neighborhood.” a

 ‘CATCH A FLIGHT. BUY CARS.’ While most dealers were liquidating used inventory, Charlie Brown was building up Alexa St. John [email protected] Charlie Brown hen the recession hit and Chrysler went Title then: Used-car manager, Chrysler-Dodge-Jeep bankrupt, most remaining Chrysler deal- of Eugene ers hunkered down by slashing inventory. Dealership group: Lithia Motors Inc. Charlie Brown built up. Where: Eugene, Ore. Brown, 39, was then the used-car man- Survival strategy: Stock up on attractive used cars. ager for Chrysler-Dodge-Jeep of Eugene, a Lithia Motors Inc. store in Eugene, Ore. He tried to call Chrysler Financial one “People would thin out, and a lot of it was because people day. e phone rang repeatedly. Eventu- lost their job. ey folded up shop. What you really noticed ally, a custodian picked up the phone and was no one was buying. It just became a seller’s market.” told him that the lender was dissolved. Brown: “It was ... “Needless to say, the company’s capital Lack of faith trial by re for being was gone,” Brown, now general manager of Brown’s dealership sta didn’t always have faith in his a young guy” Beaverton Buick-GMC and Portland Cadillac, both in strategy. “It made my general manager ... extremely ner- Portland, Ore., said. “New-car sales were almost impossi- vous because we were going against the ow,” he said. “ e ble with Chrysler in bankruptcy.” was named to Automotive News’ 2018 class of 40 Under 40, vast majority of dealers were going the opposite direction.” W 40 up-and-comers in auto retailing under age 40. Meanwhile, his dealership was slashing expenses and Opportunity “It was the greatest trial by re for being a young guy taking a hard look at sta ng levels. But where others saw looming disaster and retreated, coming through that time,” he said. It all came down to “We made the hard decisions. We had to trim our em- Brown saw opportunity and advanced. He gured con- “being able to physically handle the demand of what it ployees at the dealership in half. Some of it needed to be sumers who absolutely needed to buy a car would buy took to keep the dealership a oat back then.” done anyways. It’s amazing when you come out the other used, and he built up his department accordingly. As Brown racked up frequent-traveler points with Hilton, side of a recession,” Brown said, “you decide who’s a luxury Brown spent much of the recession traveling from auc- he noticed changes at auto auctions. Only a few buyers and who’s a key player in the organization.” tion to auction, picking up vehicles that sold for $10,000 or would be in the lanes. Part of that was because some dealers Despite the doubts, Brown’s strategy worked. His store’s less several times a week. Many of these vehicles had been axed their used-car buyers’ travel budgets and told the buy- new-vehicle sales slumped to just 15 units a month in the as much as $30,000 just a year earlier and were “too good ers to shop online. But the changes were broader than that. recession — in a good month. But having attractive of a deal to pass up,” he said. “When a huge portion of dealers are trying to liquidate used-vehicle inventory helped the store sell 70 to 80 used His routine became formulaic. “It was be there. Work. Catch their inventory just to cover payroll and building payments, vehicles a month right through the recession, and that a ight. Buy cars. Go to another auction,” recalled Brown, who it was just a ood of vehicles on the market,” Brown said. contributed to its survival. n

“We made the hard decisions. We had to trim our employees at the dealership in half. Some of it needed to be done anyways. It’s amazing when you come out the other side of a recession, you decide who’s a luxury and who’s a key player in the organization.” “Charlie Brown 22 • SEPTEMBER 17, 2018 INGENUITY UNLEASHED CENTRAL INTELLIGENCE New xed ops position helped Cleveland-area group increase ef ciency, revenue Rick Popely

[email protected] ust as dark clouds were forecasting hard economic times in January 2008, Bill Housholder stepped into a new job as xed operations director for Ganley Automotive Group. e Brecks-

ville, Ohio, group then had 23 service departments at dealerships in the Cleveland area. Housholder had applied to be a general manager at one of the Ganley stores but instead sold company founder Tom Ganley on a “Typically, when things new position that would oversee all the group’s are good, dealerships “ service, parts and body-shop operations. “I think he saw that the economy was head- get fat. They have ed into a downturn, and he wanted to focus on xed operations,” Housholder recalled. One of the selling excess expense, they points that helped Housholder land the job was to make don’t pay attention to Jbetter use of the talent and resources Ganley already had. details like they once ‘More ef cient’ did. Once they get into “It’s not anything special that I did, but it was a very de- centralized company. Everybody kind of did things on tough times, it really their own, and we didn’t take advantage of our size. By creating this position, we were able to bring people together “makes you step back and become more e cient. One of the things this position and say, ‘We need to did was bring all the parts and service managers together to work as a team,” he said. focus on the basics.’ ” “We were very fragmented in our purchasing, so we start- Bill Housholder, ed purchasing common items together. Simple things like who brought Ganley Automotive our multi-point inspection forms. Everybody used di er- Group’s service departments together ent forms, and some didn’t use any at all,” Housholder said. to work as a team

Bill Housholder PHOTOS BY ENRIQUE ORTIZ Title then: Fixed operations director Dealership: Ganley Automotive Group problem was, they had old, beat-up cars with coat hangers Where: Brecksville, Ohio for antennas and exhaust systems bail-wired up. ese Survival strategy: Get all the Ganley service, parts customers just wanted the lowest price, and it drove their and body-shop managers to work as a team and regular clientele away because they didn’t want to wait in leverage the size of the dealership group line with those who were a little rough in some cases,” Housholder said. “My philosophy has always been that I want the next By coming up with a form that everyone agreed on and group of customers who want value, instead of going after then buying it in bulk, he was able to cut the cost by rough- the lowest-price customers who will leave you as soon as ly 40 percent. “Instead of purchasing a couple of thousand somebody else o ers a lower price. Somebody can always at a time, we purchased around 100,000, so we were able beat us on price; they can’t beat us on value.” to get the price down signi cantly,” he said. Although the Ganley group was focused on cutting costs, ey did the same with other paper products, as well as it also increased spending on training service advisers to soap, mirror tags and other items that the dealerships perform walk-arounds and promote multi-point inspec- were buying from di erent suppliers. tions and menu pricing. In addition, the training sought to But Housholder wasn’t content to just cut costs. He also improve the service advisers’ sales techniques so they found ways to increase revenue. For example, he hired an didn’t alienate customers by presenting them with a bud- outside wholesale parts representative who was well known get-busting list of repairs. they had to spend a lot of money on training technicians in the area to sell factory parts to independent repair and “We taught advisers how to prioritize selling during that and buying a lot of equipment.” body shops, something that most parts managers at the time. We encourage technicians to look cars over for need- In his previous job as a service manager, Housholder vis- Ganley stores had neither the time nor the skills to do. ed services, and we encourage advisers to sell those need- ited service departments at other dealerships and invited ed services,” he said. “But when you tell a customer who managers from other shops to visit his. In both cases, the Stop discounting comes in for an oil change, ‘Your car needs $3,000 worth of outsider often would notice things that those on the inside He also stopped letting service advisers discount prices work,’ you’re going to scare them away.” failed to see. if customers complained or balked at having work done He added, “ e reality is that not all of that work has to “When they created my position, it allowed me to do because of the cost. be done today. Some of it might, like a tie-rod end that’s what service managers don’t always have the time to do. I “Advisers were discounting a lot, and it almost became a ready to fall o ; that’s a safety issue. But we need to explain look at what one dealer is doing that maybe another dealer negotiation. I wanted to get the advisers out of price nego- in more detail to the customer that this repair really needs stopped doing or forgot to do, and we can share those tiations and have fair, competitive, everyday low pricing to be done today, and if not, here is the bad consequence.” things. When you’re a single store with a single manager, — and stick to that pricing,” he said. He contrasted those jobs with the “not today” work, and everyone works within the same four walls, you tend Ganley adopted service prices that weren’t necessarily which the service adviser might describe as, “ is other re- to get tunnel vision. We don’t see things like an outsider lower but were competitive with franchised and indepen- pair you need to start watching, and you can probably do would,” he said. dent shops. Housholder said he also didn’t bait customers that on your next visit.” Housholder has made that a policy within the Ganley with money-losing o ers and then try to sell them addi- group, which now has 30 service departments at dealer- tional services. Grid pricing ships in Ohio, plus one near Pittsburgh and one in South “I wanted it to be very transparent. ‘Here’s our pricing. It’s Moreover, the Ganley service departments adopted grid Florida. Service managers regularly visit other service de- competitive, and, yes, you will nd facilities that are lower, pricing, charging a higher labor rate for di cult jobs such partments in the group, and the managers meet two or but we add value. We wash cars, we have factory-trained as transmission repairs and electrical system diagnosis more times per year to share best practices. technicians, we perform multi-point inspections, we use than for installing brake pads and changing light bulbs. “More than anything, what I was able to do was to bring factory parts.’ A customer is OK with that,” he said. ey still use grid pricing, and Housholder says it has the guys together and get them to refocus on the basics,” One of Ganley’s Ford stores ran a $4.95 oil-change spe- “helped raise our e ective labor rate, and it is a fairer pric- Housholder said. “Typically, when things are good, deal- cial for years before Housholder arrived, but he quickly ing system for our customer. Let’s face it, if somebody is erships get fat. ey have excess expense, they don’t pay ended that. straight-line priced across the board there are going to be attention to details like they once did. Once they get into “It brought in clientele that were strictly price shopping. some things that they’re extremely high-priced on, yet tough times, it really makes you step back and say, ‘We People would drive 30 miles to get a $4.95 oil change. e they probably aren’t charging enough on [work for which] need to focus on the basics.’ ” c SEPTEMBER 17, 2018 • 23 INGENUITY UNLEASHED

Darvish and her fellow dealers lobbied for legislation that would help in what she called the “relentless pursuit of ghting for democracy.”

A CAPITOL IDEA DARCARS’ Tammy Darvish made sure dealers’ voices were heard in Washington Alexa St. John from one dealer were subsequently handed over to anoth- [email protected] er, with little transparency or explanation. roughout ammy Darvish, longtime face of DARCARS Tammy Darvish this process, Darvish and her fellow dealers lobbied for Automotive Group in Bethesda, Md., and Title then: Senior vice president legislation that would help dealers in what she called the now COO at Capital Automotive Real Estate Ser- Dealership group: DARCARS Automotive Group “relentless pursuit of ghting for democracy.” vices in McLean, Va., was in the vanguard of Where: Bethesda, Md. e legislation passed, buried in the appropriations bill. dealership leaders who took their ght for dealer Survival strategy: Advocate for dealers’ rights in at forced then-President Barack Obama to approve it or rights all the way to Congress. Washington delay passing the federal budget. ough many of the Darvish, who was the rst woman to chair the franchises had already been parceled out, some dealers Washington Area New Auto Dealers Association “It was so ironic that we were there together,” Darvish add- were able to get their franchises back through arbitration, and a board member of the National Automo- ed. “Later it became ironic — at the time it was natural.” or at least settle with the automakers. bile Dealers Association at the time, had an ex- It was only later that automakers began trimming their In addition, the legislation prevented a second round of tensive career in the auto industry by the time dealership counts by sending termination letters that can- rejections. “Not only were we ghting for the rejected the recession hit. As a senior vice president for celled dealers’ franchises. e claim was that having too dealers, for me we were ghting for our industry,” Darvish her father’s dealerships, Darvish, 54, had her many dealers cost the automakers too much money. said. “It can’t just be the dealers’ ght. It can’t just be the hands in many aspects of the group’s business. In May 2009, DARCARS received a termination letter for manufacturers’ ght.” DARCARS lost several franchises when General Motors the rst dealership that Darvish’s father bought on his Darvish’s book on the downturn, Outraged: How Detroit and Chrysler Group terminated hundreds of franchises own, a Chrysler store. and the Wall Street Car Czars Killed the American Dream, Tduring the recession. Darvish channeled her energy and “It was a very sentimental hit more than anything, but so was published in 2011. Darvish wanted to create a histori- frustration into advocacy for dealership groups beyond many dealers — that’s all they had,” Darvish said. “You cal account of the initial anger and fear that stemmed her family’s. could see the damage that this [was] creating and the pain from the rejections, lack of transparency and having to re- and the su ering and the job losses.” negotiate nearly every part of the auto group’s operations. At rst, unity Dealerships were stuck with inventory that couldn’t be Darvish, who was named to Automotive News’ list of 100 “Dealers never really want to believe that there’s a dark sold as new after the franchise was taken away. Many Leading Women in the North American Auto Industry in cloud coming,” Darvish said. But this downturn was real. dealers couldn’t pay their mortgages and lost their homes. 2010, stepped back from her 30-year run with DARCARS a In October 2008, Darvish organized a rally in support of few years ago. e group ranks No. 38 on Automotive News’ the auto industry at one of DARCARS’ D.C.-area dealer- Spurred to action list of the top 150 dealership groups based in the U.S., with ships. She was joined by dealer association leaders, other Darvish geared up for action. First, she made sure DAR- retail sales of 21,953 new vehicles in 2018. dealers and even some notable automaker executives, in- CARS would be stable. Second, she brought the voices of But she hasn’t left the industry completely. cluding Jim Press, then a senior executive at Chrysler. many a ected dealers to Washington. She teamed up with “I love the automotive industry. It is an industry that drives “We were together. We were partnered with the manu- dealers Jack Fitzgerald and Alan Spitzer to form the advo- the American economy,” Darvish said. “It’s so important for facturers,” Darvish said. “It was about jobs. It was about cacy group Committee to Restore Dealer Rights. the dealers and manufacturers to continually be as aligned the impact it would have on the economy overall.” Darvish said many of the franchises that were taken as possible because that’s how we thrive most.” n

“I love the automotive industry. It is an industry that drives the American economy. It’s so important for the dealers and manufacturers to continually be as aligned as possible because that’s how we thrive most.” “Tammy Darvish 24 • SEPTEMBER 17, 2018 INGENUITY UNLEASHED BALANCING ACT Carlson cut his losses early and rerouted business to keep other stores healthy Alexa St. John [email protected] e Carlson, president of Glenwood Springs Ford and Glenwood Springs Subaru in Colo- rado, said the nancial downturn of 2008 was “brutal in terms of expense reduction.” “For the people who got to stay, I think it was relief that they were able to survive,” said Carlson, who also was the 2016 chairman of the National Automobile Dealers Association. He survived, in part, by cutting stores, people and vendors. Just before the recession, Carlson was president of Glenwood Springs Ford, Glenwood Springs Chrysler-Dodge, Castle Peak Automo- tive Center in Gypsum, Colo., and Summit Ford in Silver- thorne, Colo. Carlson decided to close his Chrysler-Dodge dealership Jin November 2008. ough he had built a new facility for it only a year earlier, he was facing di culties with his lender. Carlson kept the building and leased it to another dealer — one of the rst steps in his multi pronged business strategy that helped sustain his remaining operations. “I didn’t have a huge amount of money tied up in that franchise, so to lose money operating didn’t make any sense,” Carlson said. “If I couldn’t sell it, closing it was going to be much better ... than continuing to operate it with the pending losses.” As the recession deepened, Carlson paid o his Glen- wood Springs Ford facility with money made from selling the Castle Peak store and real estate. e Summit Ford “We resized ourselves and resized dealership was nanced with another lender. our expenses and took a hard look ese sales ultimately kept Carlson’s operations a oat. at everything,” said Colorado dealer “ at business owed to the other two stores to keep Jeff Carlson. them viable,” Carlson said. Castle Peak was cut loose “so

SAIGE MATEO see CARLSON , Page 26

 PEOPLE POWER When GM threatened to shutter Garber Buick, locals began a letter-writing campaign Michael Wayland [email protected] Dick Garber Jr. AGINAW, Mich. — It took a community to help Title then: Owner save Garber Buick. Dealership: Garber Buick “It left a profound One of the country’s oldest dealers of the tri- Where: Saginaw, Mich. impact on me,” Garber shield brand was one of thousands of fran- Survival strategy: An outpouring of says of the letters. chises slated to be terminated during General letters from loyal customers and the Motors’ 2009 bankruptcy restructuring. local business community helped “I remember opening the letter and reading persuade GM not to terminate the it. My heart sunk,” said Dick Garber Jr., a dealership. third-generation owner of the dealership, which opened its doors as a distributor for Buick Motor Co. and GM founder William thank you for the opportunity to voice our Durant in 1907. support of GM and Garber Buick.” Garber, 63, still gets uneasy discussing the And GM listened. Within weeks of the letters day he opened the termination letter in June 2009. e being delivered by Garber to then-GM CEO dealership was his family’s agship store. It was one of the Fritz Henderson, Garber Buick was one of doz- best-performing retail stores in the country and was now ens of stores to be saved from shuttering. Sgoing to be shuttered due to no fault of its own. “It left a profound impact on me personal- ly,” said Garber, who keeps the letters in ‘A bad dream’ three large white binders. “It was pretty re-

“ e whole thing was pretty helpless,” Garber said. “Can- MICHAEL WAYLAND markable that a business would have that didly, this is kind of like a bad dream you try and forget.” kind of support from the community.” But Garber, who became a dealer at 25 in 1980, didn’t sit the dealership, which had invested millions into the com- idle. Neither did the store’s surrounding community. As munity. e letter writers ranged from public o cials to ‘Humbling’ Garber attempted to secure a dealership from Chrysler to store customers and nonpro t organizations. “It was overwhelming,” added Laura Biggins, Garber replace the Buick store and save 80 jobs, members of the “Our goal is to have a healthy, thriving General Motors Automotive Group executive assistant, who was heavily Saginaw-area public, led by the area’s economic develop- Corporation and we believe that Garber Buick is an im- involved in the day-to-day operations of the write-in cam- ment group and chamber of commerce, began a let- portant part of GM’s ability to succeed,” wrote JoAnn paign and dealership. “It was really a community-led ini- ter-writing campaign as a Hail Mary e ort to save the store. Crary, president of the city’s economic development orga- tiative that brought us to that next step. It was just Within days, Garber had received more than 1,200 let- nization, in a June 6, 2009, letter to Mark LaNeve, who was ters, emails and online submissions voicing support for then GM’s sales chief. “We urge your reconsideration and see GARBER , Page 26 SEPTEMBER 17, 2018 • 25 INGENUITY UNLEASHED A TIME TO PARTNER UP Ohio dealership group sought help from a trusted network of outside companies Alexa St. John group as it relates to used cars [email protected] and xed operations today.” artnerships — with automakers, nancing Germain, along with other companies and others — saved Germain Mo- dealers who steered their dealer- tor Co. during the Great Recession, says Steve ships away from bankruptcy and Germain, CEO of the Columbus, Ohio, deal- failure during the crisis, credited ership group. much of his success to the federal “I think even our partners were not quite Cash for Clunkers program. sure what to do, and we all felt like we needed “From that point on — whether each other,” Germain told Automotive News. it was just timing or whether it re- For Germain, one of the early signs that the down- ally impacted the sales process, turn would be severe remains especially vivid. In it’s hard to say — Cash for Clunk- 2008, as it was becoming obvious the auto industry ers was a great event,” he said. “I was deteriorating rapidly, Germain recalls seeing the think it saved a couple hundred front page of his local newspaper’s business section thousand jobs and at the end of one day. On it was an article talking about the auto group’s Steve Germain the day, had a tremendous posi- decreasing sales and falling business. drew on business tive impact on the economy.” While Germain typically left the business section of the relationships Ppaper at home for his wife to read, he brought that one to developed in the Changes that stayed work that day. years prior to the While no dealer recalls the re- “I didn’t think that she needed to see it,” Germain said, recession. cession fondly, Germain in hind- though his wife heard of the front-page story shortly after. sight appreciates the changes that “ e reality set in at that point in time that we had some it brought to his business strate- challenges ahead of us.” gies, many of which remain in e group lost a Chevrolet store, but Germain said it was place. He also noted the group is back to the same sales not a large part of the group’s business. Later, though, the Steve Germain volume it saw 11 years ago. group saw sales at its stores collapse anywhere from 30 to “We’re a much more e cient operation than we were 10 Title then: CEO 40 percent. or 11 years ago as a result of that downturn,” Germain said. Dealership group: Germain Motor Co. “We’re grateful for the opportunity to still be in business.” Where: Columbus, Ohio Germain went back to his roots with the recession, say- Cultivating relationships Survival strategy: Draw on partnerships with Because of this, Germain sought help from outside part- ing it strengthened both personal and professional rela- nance and other companies, rethink hiring ners — many of them relationships he had been cultivat- tionships. policies ing for years. “Good things came of that time, and we’ll never forget “We felt a strong need to rely on partners that we have and always appreciate what we have,” Germain said. “It developed in the years prior to the recession,” Germain tions, identifying candidates di erently and changing who was a time in our industry and in our professional careers said. was hired and how they were onboarded. that hasn’t been forgotten, and the impact that it had and In addition, Germain changed his personnel policies. He “We felt like there needed to be a change in customer ex- is still having on us as individuals and as an industry is ob- began hiring nonautomotive candidates for sales posi- perience,” Germain said. “We’re a much better dealership vious and signi cant.” n

 REGROUP, THEN REFOCUS New York City stores targeted previous buyers, offered enhanced Cash for Clunkers Arlena Sawyers [email protected] Brian Benstock hen the Great Recession hit in 2008, the Title then: Vice president impact was swift, severe and surprising, Dealerships: Paragon Honda and Paragon Acura recalled Brian Benstock, vice president of Where: New York City Paragon Honda and Paragon Acura. Survival strategy: Reduce management Combined sales at the two Woodside head count, then advertising costs by targeting neighborhood stores in the New York City existing customers who were most likely to buy borough of Queens plunged 30 percent from vehicles August to September. Nonetheless, Ben- stock stayed the course through November. “I was slow to react because it was such with the stress, he said. a quick drop. I thought it would turn “I’m not ashamed” of doing so, he added. “If you’re jeop- around quickly,” said Benstock, now 57. ardizing someone’s livelihood, sending somebody who He went through many sleepless nights, was a high earner to the unemployment line at a time bu eted by feelings that bounced between guilt and remorse. when it might not be so easy to get a job and you don’t feel Brian Benstock Eventually, Benstock reluctantly reduced head count. the need to talk to somebody, then you have an even big- devised new sales Salespeople and service technicians were spared. He ger problem.” strategies to Wneeded them to “sell and service us out of this bad econo- ough he didn’t see the recession coming, Benstock recover from the my,” he recalled. But a “substantial number” of managers was warned about it. A dealership broker, during a dealer recession that his were let go. meeting he attended in summer 2008, predicted that a dealerships still e rest of Benstock’s management team took pay cuts. “tremendous slowdown was coming,” Benstock recalled. use today. His employees understood what was going on and took it “I guess this was either July or August and I walked out of in stride. Still, the layo s took a toll on him. “It was so painful that I went to a psychologist” to cope see BENSTOCK , Page 28

“It was so painful that I went to a psychologist. ... If you’re jeopardizing someone’s livelihood, sending somebody who was a high earner to the unemployment line at a time when it might not be so easy to get a job and you don’t feel the need to talk to somebody, then you have an even bigger problem.” “Brian Benstock 26 • SEPTEMBER 17, 2018 INGENUITY UNLEASHED NO STONE UNTURNED After Corina Diehl’s husband died, loyalty to him and their workers kept her ghting Alysha Webb e downturn made Diehl learn every cost detail of run- [email protected] Corina Diehl ning a dealership, she said. “I had to take every stone and hen Corina Diehl’s husband unexpected- Title then: Owner lift it to see what was there.” ly died in April 2007, the stay-at-home Dealership group: Diehl Automotive Group She discovered, for example, that the group’s health care mom was devastated. But she was deter- Where: Butler, Pa. paid 100 percent of costs. “It was insane,” said Diehl. It mined to keep the Chrysler, Dodge, Jeep, Survival strategy: Cut costs everywhere — parts switched to a deductible plan. Ram and Toyota dealerships that Mat- inventory, health insurance, vendor contracts, head thew Diehl owned in the family. count and staff pay — except for service Service techs A few days after his death, she took over technicians; expanded into commercial truck sales One group of employees didn’t see pay cuts: the service as president of Diehl Automotive Group. and service technicians. “We needed them to stay,” said Grossman. ere were times when, Diehl says, she “We needed to retain our [service] customers, and the way would close the o ce door and cry from we were going to retain them was to have good sta .” the pressure. But with the help of the dealerships went into the recession with 126 employees, e group even expanded into the commercial-truck group’s longtime employees, Diehl but that dropped to a little over 90 at the low point. business during the downturn because of its service com- learned the ropes. She now sees her hus- Chrysler was going through bankruptcy at the same time ponent. “If you have a good reputation,” said Grossman, band’s death as the crucible that helped the group survive and closing stores. “ e beauty of it is, I was too naive to be- commercial-vehicle service “work is almost endless.” the Great Recession. lieve they would close us down,” she said. Dave Spithaler, service shop foreman at the Toyota store, was in the same position then. W‘Survived … thrived’ ‘Whatever it takes’ ough service department employees were uncertain “I can honestly tell you that [surviving] e group’s employees, many of whom about Diehl when she took over, she proved herself, he was such a collective e ort that we all had worked there for decades, decided to said. She also treated sta very well, helping employees look back and realize that not only did we take pay cuts and do “whatever it takes” with interest-free loans and even paying for dental work survive but we thrived,” Diehl told Auto- for the group to survive, said Rich Gross- for one tech, he said. motive News. man, the group’s general manager. Gross- eir pay decreased during the downturn, but that was Diehl, who had a 12-year-old daughter man, 54, has worked there for 35 years. natural because it was production-based, Spithaler said. and an 18-year-old son at the time of her “People love Corina,” said Grossman. But Diehl kept investing in the service department, buying husband’s death, had been running the “ ey realized the position she was in equipment when it was needed, he said. two dealerships in Butler, Pa., for about a and everybody had to step up and do “She has taken [the dealership] to much higher levels” than before she took over, he said. “I couldn’t be happier.” year when the market downturn began. Diehl: A “collective effort.” their part.” e Toyota store’s business held up fairly Other money-saving measures includ- Spithaler, 45, gures to stay with the Diehl group until he well, but the Chrysler dealership’s sales plunged to as few ed cutting paint inventory to zero weeks’ worth and selling retires. as 20 new and used units a month, from as many as 100. all parts inventory more than 12 months old to companies Today, the group has grown to eight locations, seven of “I was watching the deposits diminish and having to do that would pay 50 cents on the dollar — anything to free up which use the Diehl name, and has added Volkswagen, payroll,” recalled Diehl. cash, said Grossman. Buick, Cadillac, Chevrolet and Fuso franchises. Diehl’s son At a regular management meeting in the Toyota dealer- ey revisited vendor contracts, from car lifts to toilet pa- and daughter work in the business. In retrospect, Diehl ship, Diehl had to call the group’s managers in “one by per. “If we were paying 4 cents more for a roll, we would said, the Great Recession “absolutely” made the group one,” and tell them their pay was being cut by 25 percent. change vendors,” he says. stronger. “It broke my heart. ey had [only] known me for a year. It e air conditioning was set at a higher temperature and Loyalty — to her husband, herself and “to my family, wasn’t a great experience,” Diehl said. the heating at a lower one. Customer services, such as free which is all of us” — was the glue that held everything to- And that was for the sta ers who kept their jobs. e state inspections and free car washes, were dropped. gether, she said. n

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Carlson also credits his business lon- CARLSON Jeff Carlson gevity for helping him survive the down- GARBER continued from Page 24 Title then: President, Glenwood turn. After all, he had seen economic re- continued from Page 24 that the other two stores would maintain Springs Ford, Glenwood Springs cessions in the 1980s. unbelievable and really humbling to be a volumes that allowed us to operate.” Chrysler-Dodge, Castle Peak “I was a young dealer then, and I gotta part of that and see the support of the com- As other dealerships in the area closed Automotive Center and Summit tell you, all of the scars of those days were munity.” — including stores with Chrysler, Dodge, Ford helpful in making it through in 2008,” e letters, Garber believes, had a “signi - Jeep, Ram, Chevrolet, Honda and Volvo Where: Glenwood Springs, Colo., Carlson said. “We knew we had to cut be- cant impact” on GM’s decision to allow his franchises — Carlson was able to pick up Gypsum, Colo., and Silverthorne, cause we had seen it before. ... We had family’s agship store to retain its franchise. extra service business from orphaned Colo. experience with the bottom falling out.” Garber says he has not read all the letters vehicle owners. Survival strategy: Sold 1 store to Carlson described his operations as “a because he becomes “too humbled.” Howev- Carlson saw this part of business ip pay off a more successful store; bit of a hometown store” and said that er, they are a constant reminder of the bond within three years from the start of the capitalized on excess service throughout the recession, he took risks, between the community and the dealership, recession. Initially, his parts and service business after other area continued to maintain a high level of which one letter referred to as a “mainstay of business skyrocketed while vehicle sales dealerships closed service and kept loyal customers despite the community.” tumbled. Later, sales recovered, but the uncertainties that were looming in “It wasn’t in General Motors’ best interest there weren’t as many vehicles in opera- the industry. to close the store,” Garber said. “Everybody tion to come in for service. is balanc- “We’re constantly looking for ways to “Nothing was pleasant during that won in the long run. Everybody won.” ing act between sales and xed opera- drive expense out of the operation,” time period,” Carlson said. “It’s not And Garber has made the best of the deal- tions remained for several years follow- Carlson said. “We’re very careful in how pleasant to tell people that they didn’t ership’s second chance. He annually donates ing the downturn. we structure things. We’re very careful have a job. It’s not pleasant to have to roughly $1 million to the area and has grown Carlson, like many of his peers, also re- anytime we add any expense ” and ask “if unwind things. It’s not pleasant to have Garber Automotive Group from eight fran- negotiated and rebid his contracts with it’s absolutely necessary.” bankers threatening you.” a chises in 2009 to 19, including the Chrysler- vendors to ensure his business stayed Dodge-Jeep-Ram store he was initially pur- a oat. He continues this practice even suing to replace Garber Buick. e Buick now, re-evaluating vendor contracts ev- dealership made Automotive News’ list of the ery 18 months. 100 Best Dealerships To Work For in 2014 “We resized ourselves and resized our and 2017. Other Garber stores also have expenses and took a hard look at every- made the list. thing,” he said, compressing “the opera- “It was an emotional roller coaster. We are tion down to where we could be pro t- very grateful,” said Garber, whose dealership able — albeit for a while, marginally group surpassed $1 billion in revenue last year pro table.” and employs roughly 1,800 people. “I think the Carlson also cross-trained his employ- experience has made our organization better, ees as he decreased his sta by nearly Jeff Carlson re-evaluates and we feel very fortunate that General Motors half, to 80 employees from 150. He found vendor contracts every 18 months. reversed their decision, and we’re proud to controllers who could run two stores at represent their products. We don’t think any- once, for example. SAIGE MATEO body does it better than we do, anywhere.” n 28 • SEPTEMBER 17, 2018 INGENUITY UNLEASHED

Alexander said. “But one thing I knew for sure was ALEXANDER that we were well capitalized. We always keep our continued from Page 20 dealerships above the capital standard prescribed by dealers I talked to were very, very pessimistic. ey the manufacturer, so we had some breathing room.” were in retreat,” Alexander said. “ at was the error Alexander eventually got a meeting with PNC of the whole NADA that year.” But there was one Bank. He laid out his nancial records on a giant bright light: hearing Jim Press in the Chrysler dealer conference room table, along with the glowing cus- meeting. “He was so emphatic, so adamant that we tomer and service satisfaction scores for each of his were going to get through this thing, and I left that dealerships. FREE WEBINARS! meeting believing him, and believing in him.” e strategy worked, and Alexander solved his - Alexander did a little guring in the convention cen- nancing squeeze, with a big boost in oorplan ca- ter hallways. To “satisfy my promise to Jim Press,” Alex- pacity as a kicker — nearly $30 million, up from $14 ander had to order 35 additional vehicles — a giant million with Santander. SEPTEMBER 18 • 2PM ET commitment for a small dealership with a typical inventory of just 70 vehicles. Turn and earn “When the bankruptcies ended, whoever had the Oldsmobile lessons merchandise sold the cars, and whoever sold the But then Alexander remembered his experience cars got more cars. It was a turn-and-earn, and we from 2004, when Oldsmobile shut down, and how were in a really good spot,” Alexander said. “We con- the Olds Bravada had held its value on used-car lots tinued to over-order, growing our inventory, and our even as the brand disappeared. sales grew” because other dealers in the region, who “If you have a good unit, it doesn’t had cautiously retrenched, had little Turn One-Time Visitors Into matter if the brand goes out. It’s a to sell. good, solid product and people will Now armed with growing sales and Lifetime Customers buy it,” Alexander said. He knew that, an enthusiastic lending partner, Alex- As vehicle sales decline and margin compression even in a worst-case scenario in ander reinvested in his dealerships which Chrysler and GM went under, and bought others. It didn’t hurt that, continues to squeeze sales profi ts, dealerships he still had Toyota and Nissan stores just as his businesses were expanding, need to seek growth opportunity. Attend this where he could retail his inventory. his region experienced a boom from webinar to see the truth behind common vehicle “So, what we committed to, and hydraulic fracturing, or fracking, tur- ownership myths and learn how your service what we knowingly did right then and bocharging his commercial-truck op- department can reshape the customer experience there, was over-order,” Alexander said. erations. to meet—if not exceed—rising consumer “When everybody else backed away, “We were always in the buy-and- we leaned in.” close mode,” clearing out eight small- expectations. He called his store managers and er competitors in his region, and opened the oodgates, quickly max- strengthening the throughputs of his ing out his oorplan, which was still stores, he said. Meanwhile, Alexan- held by Santander. DAVID MILLER der’s two sons, Aubrey and Adam, SEPTEMBER 25 • 2PM ET “I think we surprised them. We were took on larger roles, installing busi- upwards of $14 million when the bank nally came ness development centers in all of the dealerships in and said that they were shutting down the line, but and strengthening and growing service operations. it was too late,” Alexander said. Santander threat- Before the recession, Alexander’s small group of ened to call his loans, but Alexander knew it was an dealerships collectively sold about 6,000 new and used empty threat. e bank wanted out of the car busi- vehicles a year. Last year, the group sold 18,091 new ness, not a deeper investment. and used vehicles, and wholesaled another 9,000. Chrysler entered its expedited bankruptcy in April And that initial savior $30 million line of credit 2009 and exited in June. GM led for Chapter 11 pro- from PNC? It’s now $220 million. tection in June. “In this business, the key to any situation — and Grow Profi ts by Getting Meanwhile, in Muncy and elsewhere, Alexander’s the saving grace for us — was having our capital at Hyper-Local lots were stu ed with new vehicles. the proper levels and having our customer satisfac- “Let’s say that those rst three or four or ve months tion and our service satisfaction at the proper levels,” Today's dealers often make million-dollar decisions were not the easiest. at wasn’t the most pleasant Alexander said. “If you have those things in order, based on gut feel. They think they know their thing, looking out the window at all that inventory,” you can weather any storm.” a customers and competitors, but often these  assumptions don't align with real-world data. This Cash for Clunkers. In June 2009, before the highly webinar tells dealers how they can use data to BENSTOCK anticipated Cash for Clunkers kicked o , Paragon better understand the unique customer niches in continued from Page 25 advertised it would pay $500 to $4,500 to customers their markets and how the data will help reshape there thinking, ‘I don’t really get this,’ ” he said. He who traded their vehicles for new, fuel-e cient ones their marketing strategies and media plans. was in the midst of a 2008 that was shaping up to be a but didn’t qualify for the federal cash. record year for the two dealerships — until the bot- e federal Cash for Clunkers started July 1, 2009. tom fell out in September. In August, Paragon’s new-unit sales soared almost 50 After the layo s, Benstock regrouped and re-ener- percent from the previous August and more than SEPTEMBER 27 • 2PM ET gized. By spring 2009 he was ready to go on the o en- doubled compared with its average sales in the rst sive. quarter of 2009. As bad as the recession was, some good ideas grew Target customers out of it. He and his advertising agency slashed his advertis- Building on his data- and equity-mining strategy, ing costs by a third by crafting a single marketing Benstock later devised a plan to coax customers in message. Paragon’s service waiting rooms into new vehicles e message was targeted to customers in Para- that had monthly lease payments lower than their gon’s extensive lease portfolio who were nearing the current payments. end of their leases as well as those who had equity in He said he immediately began selling two or three Desktop is DOA: Three Ways to their vehicles. It was conveyed through all of the new vehicles per day to customers who brought their dealerships’ advertising platforms, including digital, vehicles in for service. Take Your Digital Showroom to the websites, broadcast and direct mail. Next Level “ ey were customers with the highest statistical CPO, F&I bene ts probability of doing business now and in the [near] e strategy paid o beyond the new-vehicle de- Mobile traffi c has reached an all-time high with future,” he said. partment. over 65% of visitors browsing with mobile devices. “We did early database mining. It’s commonplace Most of those sales brought trade-ins that helped Yet most website development is still focused on now, but it was cutting-edge at the time. e digital populate his certi ed used-vehicle inventory. Certi- desktop-rich features that only matter to a fraction strategy is still in use now — more like hunting with a ed-used sales became a critical pillar of his busi- of visitors. Attend this webinar to create a mobile laser rather than a shotgun,” he said. ness. shopping experience that’s better aligned with your e federal government’s Car Allowance Rebate e strategy generates business for his F&I depart- System initiative, also known as Cash for Clunkers, ment. In addition, used-vehicle certi cation helps customer’s preferences. helped a lot, too, Benstock recalled. It o ered $3,500 keep his service and parts departments humming. or $4,500 to consumers who traded in their cars and “From that day forward, I’ve had a sales team and light trucks for more fuel-e cient ones. an F&I team working the service lane,” Benstock To extend Paragon’s reach, he created a variation of said. “It’s an integral part of our business.” c autonews.com/powertraining Mercedes-Benz spokesman USA Rob intheU.S. arrive will next month, built at the automaker’s plant in Pune, overcapacity. with faced andIndianket are struggles factories occurs as the Indian domestic mar is onvehicles andauto parts. It also trade relations roil over punitive tar from India comesasU.S.-Chinese the U.S. no indication that to it would export base, toty anexport but ithas given itsIndianverted automaking capaci subcompact crossover from Chennai. year began itsEcoSport importing cent hub. asanauto export Ford last thesubcontinent’sscoring rapid as as asource forU.S. vehicles, under Fordjoins Motor Co. intapping India motive News from itsplant India, inwestern compact crossover, into theU.S. ing itsbest-selling vehicle, theGLC isstepping onto thestage: India.try facturing base, anotherAsian coun Jackson: Voice oftheindustry Who can prod and persuade like Mike? W rising exporthub M-B latesttotap NEWSPAPER the U.S. role for nds its India SEPTEMBER 24, 2018 Deliveries of the Mercedes GLC, oftheMercedesDeliveries GLC, e sudden appearance ofvehicles automaker luxury e German Mercedes-Benz import begin will Urvaksh Karkaria Urvaksh [email protected] cal market andmanu has learned. rise of China as a criti rise is trans xed onthe hile theU.S. industry see base, has con an Indian sales to develop forts thwarted initsef tors, meanwhile,

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[email protected] Amy Wilson can AutoNation? steps downfrom thebully pulpit that is can car dealers whenMike Jackson 34

So who will dothetalking forAmeri whowill So e ebullient dealership me former For that matter, what otherdealer ------talklike Mike Jackson? Entire contents©2018CrainCommunicationsInc.Allrightsreserved. DARK DAYS up insmoke in2009? grand experimentofthe1990sgo WouldAmerican autoretailing. the test forthepubliclytradedtitansof The GreatRecessionwas astress INGENUITY - - pipeline future AutoNation CEOtakesnewrolenext year makers andeven theU.S. government. blunt force able to sway giant auto a lator ofissues weighing onalldealers; anin-your-faceof theindustry, articu — has nothing less been than thevoice chanic —AutoNation’s since 1999 CEO ose areose mighty big to llas shoes AUTOMOTIVE NEWSILLUSTRATION UNLEASHED

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[email protected] Michael Martinez sparks littleinterest Subscription service experiment ownership rethinking Lincoln the math work.” arelot of people to struggling make have said thisisthe next big thing. A had asked meayear ago, Iwould pressa Lincoln event here. you “If told and service, Lincoln’s director of marketing, sales of ownership,”type Parker, Robert ple are genuinely interested in that if it’s to grow thepilot. beyond getting dealerships more involved — havethey’ll to alter it—including continue theprogram, ocials say cancel months. after only oneortwo who signthose up mand. Many of has had little de year inCalifornia this pilot itstarted saysLincoln the expensive, and tag surprisingly make theprice a program can of operating such ance. But thecost take careof maintenance andinsur hicles often andlettingelse someone for theconvenience ofswapping ve Consumers pay a monthly ary: fee rst large-scale experiment. on thelackluster interest inLincoln’s thing after all. At least not yet, based ing orleasing, aren’t thenext big hyped alternative to traditional buy vehicle subscriptions, amuch- “I’ve how fewpeo surprised been has Lincoln While noplans to dis soundrevolutionSubscriptions SANTA Calif. BARBARA, —Maybe les.com $159/YEAR; $6/COPY autonews.com see - Automotive News

LINCOLN role fordealers? Bigger Parker: , Page 34 ® at at ------SEPTEMBER 24, 2018 • 19 INGENUITY UNLEASHED

Part 4 of 4: How American Car Dealers Survived the Great Recession  APOCALYPSE LOOMED How the public groups navigated the crisis — and were transformed by it n two tumultuous days in September 2008, Lehman Brothers and mega-insurer AIG col- SPECIAL lapsed, and Bank of America acquired Merrill Lynch, which was on the verge of sinking. SECTION e Wall Street panic and credit crunch that I PAGES 19-24 I ensued devastated the U.S. auto industry. Apocalypse loomed. e publicly traded ti- tans of American auto retailing were gravely exposed. One question stood above all: Could they avoid bankruptcy? Several of the key players in that era spoke to Automotive News reporters.

Houston, we have a problem An ominous signal from the West Coast was the rst hint to Group 1 Automotive executives in Houston that they needed to prepare for disaster. O In the third quarter of 2007, the company’s California dealership operators spread word of a housing crisis. “We started to see behavior in Cali- fornia with customers using, basically, home equity to nance car purchases,” said CFO John Rickel. When Rickel assessed how Califor- nia’s housing woes could a ect the Rickel: Housing broader business, he had visions of a woes rst clue nancial tsunami. In February 2008, Rickel gave the company’s general managers a bleak forecast for the industry and the U.S. economy, adding a powerful call to action: “Get your house in order because it’s going to get tough.” AUTOMOTIVE NEWS ILLUSTRATION

‘You’re not going to stuff me group at its scale required. ruptcy with Lehman Brothers, that total catastrophe, was far like a Thanksgiving turkey!’ After the fall “When I got to Asbury, I felt a sense of worse than anything I even imagined.” If he hadn’t already done so, AutoNation Change in Q1 new-vehicle deja vu,” said Monaghan. “It felt just like During Group 1’s fourth-quarter 2008 earnings call, CEO CEO Mike Jackson emerged as a voice of retail sales from 2008 to AutoNation had been when I joined that Earl Hesterberg was re ective. He told analysts the com- the industry in 2007 and 2008. He had a 2009 company seven or eight years earlier.” pany knew the economy would signi cantly worsen after clear objective: Change the way automak- Monaghan initiated many of the same the Lehman Brothers’ bankruptcy “but AutoNation –43% ers indiscriminately pushed inventory on- changes he had made at AutoNation. But had hoped that similar to earlier nan- to their dealers. He famously told GM Lithia Motors –41% the most important act the CFO undertook cial blowups, this would be a some- CEO Rick Wagoner at the Detroit auto Asbury Automotive –38% in his rst few months was to completely what temporary reaction.” show in January 2007: “You’re not going to Group 1 Automotive –37% restructure Asbury’s nancial support. Any such hopes were dashed by the stu me like a anksgiving turkey!” Penske Automotive –32% Months before Lehman Brothers col- end of October, though, when it became Jackson said last week: “I go back into Sonic Automotive –25% lapsed, Asbury replaced its nexus of 20 clear that the fourth quarter was in a 2006 or 2007 when I rst was privately or so regional banks with Bank of Amer- “much steeper decline than we had an- Source: Company reports warning the manufacturers, particularly ica, JPMorgan Chase, Wells Fargo and ticipated,” Hesterberg said. the domestics, that they are living on bor- an assortment of the captive nance e industry sales rate was down more Hesterberg: This rowed time, that they had structural problems, that this was companies — a smaller group of big players that knew the than 35 percent from the year earlier in wasn’t temporary. not going to have a happy ending and that they needed to space. It was the right move. October, November and December. make signi cant changes — I basically ran into a brick wall.” “In looking back at history in prior recessions, we don’t be- The blowup lieve anyone could have realistically predicted the rapid de- ‘Perfect’ ... then the perfect storm e public groups all spotted warning cline to the levels we saw in the fourth quarter,” he said then. In May 2008, Craig Monaghan signed on as CFO of As- signs, but the events of September 2008 bury Automotive Group. He had recently retired after six were more traumatic than expected. Buying back assets — at a discount years as CFO of AutoNation and a ve-month stint as “We were battening down the hatches, As the economy unraveled, Rickel worried that Group 1 Sears’ nance chief, but he was approached by a head- preparing for a very rough period from would violate its debt covenant, which could put its loans hunter about taking the CFO slot at Asbury, then the 2007 into 2008,” said Jackson. “I remember and bonds in jeopardy. To quell rumors, the company sixth-largest auto retailer. being on [CNBC’s “Squawk Box”] in the took the unusual step of posting detailed calcula- Monaghan wasn’t sure. Working for Asbury seemed like summer of ’08 where I said something tions of its debt covenants on its website for in- it would be the same experience as working at AutoNation like ... things are going to get a vestors to see. — but on a much smaller scale. He took a meeting with As- hell of a lot worse before they Nonetheless, the value of the company’s bury CEO Charles Oglesby anyway. get better. Now what nally debt fell rapidly as investors shunned At Sparks Steak House in New York City, Oglesby won happened with the bank- anything connected to the auto industry. Monaghan over by outlining his ideas about the future of Group 1’s convertible debt was linked auto retail, which involved technology, training and Craig Monaghan, left, found to the sinking stock price. And the con- restructuring of compensation — and with the Asbury ill-prepared for vertible debt and its xed-rate bonds promise that Monaghan would be in the run- any type of crisis. were trading at deep discounts. ning to replace him as CEO. Mike Jackson, Management decided to buy back “At that point, it was perfect,” Monaghan said. right, said the its assets, ultimately taking back But the job proved to be more of a challenge Lehman Brothers than expected. Asbury was ill-prepared for any collapse was see CRISIS , Page 20 sort of crisis, let alone the Great Recession. worse than he It turned out the company was paying divi- imagined. dends it couldn’t a ord and carrying too much debt. e management structure was bloated and lacked basic control mechanisms a dealership 1-column x 6-inches (Run20 on • SeptemberSEPTEMBER 24, 24, 2018) 2018

INGENUITY UNLEASHED Joe Verde

but it took on higher interest rates on here,” he said. “I arrive in AutoNa- “Every time somebody CRISIS $86 million in debt and higher quar- tion in 1999; I have a meeting, and I comes to me with a terly fees. It also issued 857,000 shares say we need to run a disaster scenar- request for somebody Performing ‘in a of stock to raise $4 million. io and see what it means for the company and make a disaster plan. new, I always say, disaster scenario’ “ Remember November ... “So, somebody says, ‘You mean if ‘Be very, very careful.’ continued from Page 19 2008 the selling rate falls to 14 million?’ I Because November $100 million of its convertible bonds Roger Penske, the then-72-year- say, ‘No, let’s say the selling rate falls 2008 doesn’t seem that for just $40 million, or 40 cents on old CEO of Penske Automotive, de- to 10 million. What happens to the far away to me, and the the dollar. e company also bought scribed the fourth quarter of 2008 as company?’ Everybody says, ‘Well, back some of its senior notes at a 20 “one of the most challenging periods Mike, that will never happen,’ and I “next cycle, you don’t percent discount. on record in the automotive indus- said, ‘I’m the new CEO, and you’ve want to be in a similar “ e combination of that allowed try.” His company posted its rst got to crunch the numbers.’ So we situation where you us to take about $180 million o of quarterly loss in a decade. do, and it was ugly. have to take out large our balance sheet and really rmed Robert Kurnick, who had been “So then I said, ‘We’re not going to portions of the work 4 x 2 does not = 8 up our ability to pay debt,” Rickel said. president since April 2008, said the make some plan that’s going to sit on force.” Hard work: I spent 5 years as personnel cuts that began the shelf; we are going to change the the 8 car guy. Then I realized I ‘Oh, good Lord, what in November was the low company so that we can perform in a Robert Kurnick wasn’t even an 8 car guy, I was are we going to do?’ point for Penske, then as disaster scenario. We are not being Je Dyke had just been now the nation’s sec- swept away by some disaster.’ Out of just took that attitude and did any- just a 4 car guy working 2 shifts. promoted to executive vice ond-largest dealership that came what I call the diversi ca- thing we could to tighten our belt.” After I learned to actually ‘sell’, president of operations for group. To this day, hiring tion strategy.” For Bryan DeBoer, president of Lith- I went to 30+ overnight, my cus- Sonic Automotive in Octo- decisions at Penske require at meant: one-third American ia Motors, the problem was obvious. tomers loved me, and I earned ber 2008 but was in no mood senior level approval. brands, one-third Asian and one- “Our company was 73 percent do- more in 7 months than my rst 5 to celebrate. Dyke said he “Every time somebody third German. e geographic split mestic sales, primarily General Mo- bell-to-bell years combined. hardly had time to grab a Dyke: Anything comes to me with a request would be: one-third East Coast, based tors and Chrysler,” he said. “ Most of cup of co ee in his new role to tighten belt for somebody new, I always in Florida, one-third central, based in the newspapers were talking about You also have a lot of 30 car before things got really ugly. say, ‘Be very, very careful,’ ” Texas, and one-third West Coast, the dissolution of those two compa- guys stuck at 8 units a month. He remembers the banks essentially Kurnick said. “Because November based in California. nies. ere was a fair amount of fear, The difference – the training being closed. 2008 doesn’t seem that far away to me, “If I had not done that,” Jackson obviously, with 73 percent of our and daily management they “ ere were a lot of questions and the next cycle, you don’t want to be said, “we would not have base of business going need to change and improve. about, ‘Oh, good Lord, what are we in a similar situation where you have to made it through the storm, bankrupt.” Train your managers and your going to do? Bankruptcy? Or are we take out large portions of the work because AutoNation was salespeople and start getting going to issue equity?” force.” 75 percent domestic the ‘The worst thing the results you deserve today! A month later, Sonic came to agree- day I walked in. And what you can ever do’ ments with more than 85 percent of did the industry selling rate Hundreds of millions in Call us now... ‘I’m the new CEO ... you’ve bondholders to re nance its debt and got to crunch the numbers’ fall to in the great crisis? 10 cost was jettisoned by the ultimately avoid going under. With the Jackson says AutoNation was ready million.” public groups. Penske JoeVerde.com/grow new deal, Sonic could postpone its when the storm hit. Automotive had made a Call Now ... (888) 277-9069 $90 million debt payment until 2012, “I’m going to strain your belief Late-night phone DeBoer: “A fair number of moves since fall calls from the factory amount of fear” 2008 to conserve cash and As Group 1’s sales contin- slash expenses. It cut about ued to plummet, the company got 10 percent of its global head count, or serious about inventory manage- 1,500 workers, suspended its quar- ment, trying to limit vehicles on lots terly dividend, reduced executive to what each dealership truly need- and director pay and suspended the ed. at meant the executive teams company’s 401(k) match in the U.S. took “pretty desperate phone calls” By June 2009, it also had reduced CUSHMAN & WAKEFIELD from automakers, Rickel said. Chrys- inventory by about $500 million ler, for example, called senior execu- from a year earlier but continued to tives at their homes at night, asking look for ways to cut overhead. Since is now in the them to take more cars and trucks. the company leased most of its real “We basically had to explain to them estate, it sent letters to landlords ask- we couldn’t transfer their liability to ing for rent reductions and suspen- our balance sheet,” he said. sions, which Kurnick said helped BUY-SELL BUSINESS! At the worst part of the downturn, with expense control. just a few large dealership groups still In September 2008, Group 1 had had open oorplan lines, and Group implemented a plan to cut $100 mil- 1 was among them, Hesterberg said. lion in selling, general and adminis- “ at’s why they kept calling us. I trative expenses in 2009 compared think a lot of smaller dealers, if they with 2008 levels. By February, it had didn’t lose their oorplan, they boosted the target to $120 million. probably just shut it down and put Hesterberg and his team resized themselves on hold,” he said. “We the group and did many things “you BLUE SKY SELLER had more than enough inventory, don’t ever want to have to do.” MORTGAGE PRIVATE MANAGEMENT DISPOSITION ANALYSIS REPRESENTATION FINANCING EQUITY BUYOUTS but many of the OEMs saw us as an “You basically had to pull every le- open oorplan line throughout the ver you could nd because we didn’t entire crisis.” know how far it was going to drop,” BUYER ACQUISITION VALUATION STOCK SALES ACQUISITIONS BUYER PROPERTY & ASSET CAPITAL the CEO said. REPRESENTATION VALUATIONS ‘Quit pushing Group 1 even eliminated the match SALE-LEASEBACK the color button’ on its 401(k) plan, which Hesterberg FINANCING DEBT & EQUITY TRANSACTION & SOLUTIONS In early 2009, Sonic’s future may called “just the worst thing you can ev- MARKETING EXECUTION have been the bleakest of the public er do. In many cases, that’s a retirement INVESTMENT BANKING REAL ESTATE SERVICES groups. e company’s stock price plan basically for our employees.” had dipped below $1 a share, closing Every quarter, the executive team BUY-SELLS at a low of 95 cents on March 6. Audi- evaluated how quickly it could bring tors doubted Sonic could continue back the match. as a “going concern.” Bankruptcy for “People on the front lines out in the the third-largest automotive retailer dealership ... a lot of them are not CONTACT JAMES AND ERIN seemed a real possibility. high-income people,” Hesterberg said. President Scott Smith, Dyke and “ ey rely on our ability to continue to FOR ALL OF YOUR DEALERSHIP CAPITAL NEEDS CFO David Cosper hit the road in the pay them a competitive wage and ben- spring of 2009, visiting every Sonic e t. We had to cut back further than we store, reassuring sta that they were wanted in 2009.” going to be OK — but admitting that In July 2010, Group 1 brought back JamesJames S. MitchellMitchell ErinErin E. RiceRice times were tough. 401(k) matches at half the pre-reces- ExecutiveExecutive ManagingManaging Director ViceVice PrePresident,sident, Dyke recalls a conversation he had sion level and resumed full matching DealershipDealership CapitalCapital ServiServicesces DealershipDealership CaCapitalpital ServiServicesces with Cosper during the recession. e in January 2011. Direct:Direct: +1 220202 440707 81281200 Direct:Direct: +1 202202 407407 81281211 CFO told him, “ ‘Listen, when you use e company was still fending o Mobile: +1 703 589 44910910 Mobile: +1 941 284 31393139 the copy machine, quit pushing the [email protected]@cushwake.com [email protected]@cushwake.com color button. Do black and white.’ We see CRISIS, Page 24 SEPTEMBER 24, 2018 • 21 INGENUITY UNLEASHED

AUTOMOTIVE NEWS ILLUSTRATION

markedly. We reported on dealers who were opening used-only stores, including buy here-pay here outlets, in some cases. Others began to keep and retail all vehicles they took as trade-ins, even the 8-year-old units they previously MEGATRENDS shunted o to auctions. Why not? With new-vehicle sales in the doldrums, dealerships were keeping a tight rein on inventories and had plenty of space on the lot for another used vehicle. e margins might be smaller on an older car, but a pro t was a pro t. It was more than a temporary reaction to the recession. MAGNIFIED Today, the trend continues, with public retail giants such as Sonic, Penske, AutoNation and Group 1 aggressively Recession accelerated practices already in place expanding their used operations. rises spur change. Just as technical advances Parsing service explode (often literally) during a war, the Web rules e next trend Pollak cited was service department Great Recession accelerated trends in auto Internet spending as a percentage of the optimization. Consumers who weren’t buying needed to retailing that were slowly percolating average dealership’s total advertising budget keep their current vehicles running. “ is is when the idea previously. 50 took hold that every car that comes in for A, B or C was Take online used-vehicle auctions. Travel is one inspected for D, E and F — in case that work also could be of the rst budget items cut in bad times. When 30 sold,” Pollak said.

the economy nose-dived, used-vehicle buyers at PERCENT Tied to that was “the rise of equity mining out of the dealerships across the country were told to curtail 10 service lane,” Pollak said. trips to out-of-state auctions. ’05 ’10 ’15 Some dealerships had tried placing salespeople in the Many buyers had Source: NADA Data service lane before, including the Cadillac dealership already dabbled in online where Pollak once worked, he noted. But that practice was auctions. Some were e main changes Pollak recalled centered on the used- neither widespread nor particularly successful. It was the already pro cient at it. But almost all car and xed ops departments, as well as how dealerships recession and the rise of analytics that allowed buyers had to learn, fast, how to nd dealt with the Internet. dealerships to tap data to know when to pitch sales to and acquire the cars and trucks they In the years before the recession, dealers had been folks who came in for service, Pollak said. Cneeded online. mesmerized by the soaring new-vehicle market, Pollak Used-vehicle prices had soared, helped by the federal is trend really picked up speed in said. Industry sales were cannonballing along at nearly 17 Cash for Clunkers program. But consumers often had no the last two or three years, when a ood million a year . Automakers were o ering employee idea what their current vehicle was worth. Equity mining of o -lease vehicles prompted all parties JAMES B. pricing for everyone. Dealers wanted to ride that train. allowed dealerships to identify customers whose vehicles, — buyers and sellers — TREECE But when the downturn hit and new-car sales collapsed, as trade-ins, could cover a down payment. to do all they could to move those units managed dealers realized they had to refocus on the operations that Automotive News reporters also noticed an increased online before the tsunami could clog the Automotive News’ actually brought in pro ts, Pollak said. Used cars were at focus on service and parts. Before, many dealers we auction lanes. But that was only possible retail coverage the top of the list. interviewed had paid only lip service to xed ops. But because buyers became comfortable from 2013 until during the recession, those same dealers were laying out with online buying in 2009 to 2010. his retirement in ‘Sea change’ detailed plans to add service capacity. But that’s just my opinion, based on August. Our reporting found the same. ird- and fourth-generation dealerships — those what I heard at the time from dealers “It was a colossal sea change,” recalled News Editor which had survived the Great Depression and World War and other Automotive News sta ers. Lindsay Chappell. “I can’t remember II thanks to service — renewed their emphasis on xed how many dealers I talked to over ops as the cornerstone of their business. Automakers’ Pollak’s perceptions the course of those dark days who e orts to expand express-service lanes and insist on Dale Pollak has had a front-row view of the changes in proudly told me they were going to service loaners, rather than relying on o -brand vehicles auto retailing before, during and since the recession. get into used cars.” from a local rental agency, gained traction. Pollak, the founder of vAuto in 2005 and now a Cox After hearing that repeatedly, “I Again, this trend picked up steam in the recession and Automotive vice president, has visited hundreds of suddenly started asking out loud, hasn’t slowed since. Dealerships have continued to nd dealerships, crossing all brands and segments. ‘Wait — you mean you weren’t already ways to expand service capacity to take advantage of the Last month, Pollak delivered the opening convocation selling used cars?’ And typically, the increased number of vehicles on the road. And they’ve address at Northwood University in Midland, Mich. After response would be ‘No.’ ” expanded the parts and services they sell, most notably tires. he did so, and spoke with students and faculty about Or, if they had been Pollak also remembers the recession as the time when changes he expects at dealerships and how they should selling used cars customer relationship management software really came prepare for those changes, he and I talked about the Pollak: Used before, they stepped trends that gained momentum during the recession. cars, xed ops up their game see TRENDS , Page 22 the big changes 22 • SEPTEMBER 24, 2018 INGENUITY UNLEASHED AUTOMOTIVE NEWS ILLUSTRATION 40 ways to cope with a crisis t the height of the Great Recession, every new- vertising; bought digital media in bulk across all stores in features and bene ts to shoppers, rather than the low car dealership in America had its own set of a group monthly lease payment problems and own set of solutions. But some  Terminated less successful franchises and used the pro-  Retrained salespeople to sell vehicles through retail con- tactics, we found, were fairly ubiquitous. ceeds on the stronger ones in their groups tracts when captive nance company abruptly stopped of-  Paid employees hourly if they were willing to work 35 fering leases  Aggressively expanded used-vehicle oper- hours instead of 40  Obtained inventory at auction from dealerships that ations  Turned used cars at little front-end pro t; focused on closed  Optimized service operations selling warranties and aftermarket accessories  Paid department heads based on net pro t instead of  Bought new stores at low prices  Held community events at stores to keep customers fa- gross pro t  Launched analytics-based equity mining miliar with sta and management  Showed up at 7:30 a.m. to greet customers on the service to identify customers whose vehicles, as  Chased xed ops business from customers of dealer- drives trade-ins, could cover a down payment ships that had closed  Hired nonautomotive candidates for sales positions to  Made extensive use of online auctions  Siphoned leftover gasoline from used vehicles to new diversify skill sets  Placed salespeople in the service lane vehicles  Coached sales teams to sell late-model, o -lease CPO  Aggressively priced used vehicles at market rates  Bought co ee and vending machines and turned them vehicles  Overordered new vehicles going into the recession, set- into small pro t centers  Spent more time in xed ops meetings; took a hard look Ating the stage for rapid growth afterward  Used community outreach as inexpensive viral marketing at previously delayed requests from service managers for  Centralized parts and body shop operations across groups  Analyzed sales performance metrics new equipment and tools, such as front-end alignment  Began targeting existing customers who were mostly  Switched from generic email response to email leads to machines and diagnostic equipment likely to buy vehicles personalized emails and calls  Refurbished service reception areas  Helped revitalize the surrounding neighborhood to im-  Wrote scripts for salespeople  Held more frequent groupwide manager calls and meet- prove the local economy  Leaned out parts inventories ings to gather and hear in-store updates  Combined reconditioning centers  Resolved to turn used cars in 30 days; became disci-  Adopted a positive attitude with sta  Cross-trained employees to be able to take on multiple plined about shu ing vehicles that didn’t sell in the allot- “You had to tell yourself: ‘I can’t go in and tell these guys jobs ted time back through the auction the world is falling down,’ ” said one dealer. “ ‘We have to  Commenced hospitality training for sta  Tried event marketing make some changes and everybody is going to go through  Sharply reduced print advertising in favor of online ad-  Hired trainers who focused on how to pitch vehicles’ it together.’ You have to look everybody in the eye.”



success. e theory is based on an awareness that As dealerships reviewed all aspects of their operations TRENDS dealerships no longer hold all the cards in price during the recession, they were forced to acknowledge the continued from Page 21 negotiations with consumers. In an era of Web-enabled growing importance of the Internet — a trend that has into its own. ese programs had been around, but most transparency, customers know the prevailing price in only accelerated since. dealerships “weren’t really maximizing them.” But with their market for both their trade-in and the vehicle they the recession, he said, “Dealers realized, ‘ ere aren’t that want to buy. Online advertising many people coming in. I’ve got to really start paying Rather than hold out for yesteryear’s fat margins on each In 2006, online advertising accounted for 11.5 percent of attention to those who did come in.’ ” vehicle, the Velocity approach says dealerships should the average dealership’s advertising budget, up from 9.9 In contrast, the recession put an unfavorable spotlight embrace transparency, price their vehicles appropriately percent in 2005, according to NADA Data, an annual on lead generation, as practiced by companies such as and turn their inventory faster. report from the National Automobile Dealers Association. Autobytel and others, as the be-all and end-all of sales at was more than direct mail, at 10.2 percent, but it strategies, Pollak said. ‘Dial-up’ trailed every other category: newspapers — the leader, at “It was the crash that really broke its back,” he said. He It wasn’t a message many dealerships wanted to hear. 27.3 percent — TV, radio and “other.” believes that in the recession, dealers took a hard look at For one thing, Pollak recalled, many auto retailers still had In 2009, in contrast, online advertising accounted for the return on investment of everything they did, and lead- not embraced the Internet, while others largely ignored it. 22.2 percent of the average dealership’s ad budget, just a generation services just didn’t make it on a price-value is was well before the rise of business development shade below newspapers’ leading 22.4 percent. And the equation. centers. If a dealership had any online presence, he Web continued to grow. By 2016, online advertising Lead generation, CRM systems, analytics-driven equity recalled, “It was a dial-up connection.” soaked up a third — 33.6 percent — of dealerships’ ad mining — all of these point to a sharp rise in the To get his message out, Pollak wrote a book, Velocity: spending. And in 2017, online advertising dwarfed all importance of the Internet to dealership operations and a From the Front Line to the Bottom Line, which came out in other media combined, accounting for 55.4 percent of the closer scrutiny of what works online and what doesn’t. paperback in January 2009. Suddenly, instead of “getting average dealership’s ad budget. Here again, Pollak saw it rsthand. thrown out of dealerships,” Pollak said, he was getting e recession didn’t radically remake auto retailing. But Before the recession, he had been promoting his calls from dealers and general managers wanting to learn it unleashed trends that continue to change how Velocity theory to dealerships, usually with limited more. dealerships do business. SEPTEMBER 24, 2018 • 23 INGENUITY UNLEASHED THE OUTLIER With the right products at the right time, Subaru of America de ed the odds Jack Walsworth crisis years was kind of nothing com- [email protected] pared to what we went through in s Tom Doll watches planes land at Philadel- the early 1990s through the mid- phia International Airport from a window at 1990s,” Doll says. Subaru of America’s new headquarters in Memories of bloated inventories Camden, N.J., he’s reminded of what was go- and U.S. sales totals barely cracking ing on at the company a decade ago. 100,000 vehicles hadn’t gone away. “ at was us,” says the CEO, referring to the But above all, what aided Subaru planes stacked up for landing. “In 2007, 2008 the most during the Great Recession and 2009, Impreza, Forester and Outback were those vehicles coming in for a were coming in for runways, and we knew we landing. Subaru was one of the pio- had to get those planes down. If we did, we neers in the crossover segment in the were going to be successful. We had to push 1990s. By the time the economic cri- ourselves through it. It was our shot.” sis was in full swing, it had brought Subaru de ed the odds of the Great Reces- out its latest and best e orts in those sion. It was the only mainstream automaker to post sales categories. increases through the worst days of the recession. Parent Subaru Corp., then known But like everyone else, Subaru felt the pressure when as Fuji Heavy Industries, had rede- ALehman Bros. collapsed on Sept. 15, 2008. signed nameplates that were bigger Doll was on a business trip. and better looking. Most important- “I remember being on a plane, going to Portland to visit ly, the vehicles were tailored to U.S. some retailers on that Monday when it all started to come customers. down,” he says. “I arrived in Portland and I saw all these “We had great fuel economy and people gathered around a television screen. I remember great utility in our cars,” Doll says. immediately nding out what was going down, getting on “People were downsizing from larger the plane and coming back.” trucks and SUVs, and they were mov- “It was scary times. I don’t think people around the ing into the products that we had.” country at the time really knew how, e ectively, com- Doll: Subaru’s struggles in In 2008, Subaru’s U.S. sales totaled merce kind of stopped for like four or ve hours during the 1990s helped prepare 187,699 vehicles. In 2009, the num- that day as banks were trying to shore up their liquidity po- it for the Great Recession. ber grew — to 216,652. By 2010, sales sitions. We were lucky from the standpoint that we had had jumped to 263,820. Subaru was Chase as our nancial partner [and] Subaru Motors Fi- defying gravity. Last year, the com- nance, and so we just went right through it.” through the system. So, let’s go back to the way we had pany’s volume hit 647,956. Its market share has risen from Doll’s message to retailers was to stay calm, stay the been doing things. We’ve got better products, but did we 1.4 percent in 2008 to 3.8 percent last year. course and don’t re salespeople, administrative sta or maybe need to incentivize them?’ ere was a great ten- “When we were small, we weren’t as important, perhaps, technicians. dency to do that. But we had to say, ‘no, no, no.’ ” to the overall retailer’s nancial well-being,” Doll said. “We stuck to our knitting,” he says. “We didn’t panic. It It turned out that the years when Subaru struggled in the “ ey could a ord to take a leap of faith. “ ey said ‘OK, was tough because some retailers, as well as some people U.S. market prepared the company for the Great Reces- we’ll see what happens.’ Obviously, they’re happy they did in our sales and marketing departments at the time, were sion. and so are we. You have to have a partnership with your saying, ‘Geez, we’ve got to make sure we push these cars “In many respects, what we went through in the nancial retailers in these di cult times.” n

 ‘I HIT THE WALL’ California dealer Dan Roseland survived the recession, but the ordeal took its toll David Muller and the incoming technicians were well- Silveira, whom he had known for years: [email protected] versed in imported vehicles. Roseland Silveira had a dealership in Healdsburg, an Roseland bought a struggling dealership in said at the time that it was a big part of Calif., about 40 miles away. a picturesque and popular tourist town in being able to boost his service business, Roseland had reportedly turned down Northern California just before the Great Re- with the region being “the land of im- several o ers from large operations in cession. He weathered the economic storm ports.” the years since emerging from the eco- through grit and ingenuity, but the experi- As the recession took hold, he was nomic downturn. ence took its toll. forced to halve sta to 14 employees. Re- “Small-town dealerships take extra Sonoma Chevrolet was not doing well when maining personnel had pay reduced, and Roseland time and e ort because they are so rela- Roseland took over in 2006, and in the years health insurance was cut. e daily tional compared to large stores, which leading up to the worst downturn since the cleaning service was cut, too, so all em- are so much more transactional,” Rose- Great Depression things only worsened. Rev- ployees had to pitch in to keep things ti- land wrote in an email. enue and vehicle sales were trending down- dy; Roseland himself was cleaning toilets Roseland said the sale came after he ward. In late 2008 he wondered if the dealer- and taking out the trash. felt burned out, having weathered the Great Recession ship would survive. “It took drastic measures to make it, and it was awful with 80- to 85-hour workweeks while cutting expenses to As business slowed, he focused on his service depart- tough,” Roseland told Automotive News in 2010. the bone. ment, guring — correctly — that people would buy fewer As his dealership struggled, Roseland remained creative. “I laid o people until I hit breakeven and I did whatever cars but would need to x and maintain those they had. When a local Ford store closed in 2009, he painted the needed to be done,” Roseland wrote. “ at’s really all there DRoseland overhauled the service department, hiring a words “Ford customers welcome” on his store’s windows, was to it. I did do some damage to myself. I think all those new manager who had a track record of customer service, which faced a local highway. He survived as the last re- hours pulled from my future, i.e. in the last year I hit the and that new hire in turn attracted good mechanics. He maining dealer in the town of 11,100. wall like a marathon runner and that was a factor in the positioned his dealership to service all makes and models, Last summer, Roseland sold Sonoma Chevrolet to Scott sale of my dealership. I guess I was just tired out.” a

“I laid off people until I hit breakeven and I did whatever needed to be done. That’s really all there was to it. I did do some damage to myself. I think all those hours pulled from my future.” “Dan Roseland 24 • SEPTEMBER 24, 2018 INGENUITY UNLEASHED

said he told the task force. “And that prob- Kurnick said Saturn was unique and at- posted pro ts higher than in the third CRISIS ably was a factor in the decision to do the tractive, with nearly 350 dealers in its net- quarter of 2008. continued from Page 20 deal with Fiat and save Chrysler. So I think work. e deal included Saturn parts, the pressure from automakers to take more AutoNation really served the industry, not right to distribute vehicles and parts Bruton never blinked cars, but the strategy was succeeding. By only our own company.” through the Saturn dealer network and Today, Sonic’s Dyke praises the manage- the end of March 2009, the company had that GM would continue to produce the ment team, including founder Bruton reduced inventory by $209 million from ‘Holy cow, this could be it’ Aura sedan and Vue and Outlook cross- Smith, then CEO, who remained calm in the year-end 2008 level. It had slashed On March 31, 2009, Sonic disclosed a overs on a contract basis. At the same the darkest days. new-vehicle stocks by approximately $658.8 million fourth-quarter loss from time, Penske was in talks with Renault “He never even blinked during that 7,000 units, considerably more than its continuing operations (a $4.8 million loss Samsung Motors to become the successor whole thing. It was just a non event for initial target of a 6,000-unit reduction. from continuing operations when factor- manufacturer for the Saturn vehicles. him,” Dyke said. “ Whether behind the ing adjustments). A day later, Smith told “I thought it was sort of a very interesting scenes he was concerned or whatever, you Punch in the gut analysts that despite a nosedive in new-ve- way of accessing the U.S. market,” said would never see that out of him. He was e net loss Asbury posted in the fourth hicle sales, the dealerships were perform- Kurnick. “Not only do you have the exist- just so strong. For us, it gave us a lot of quarter of 2008 was its rst since going ing well as they turned to used vehicles ing dealer market, you’re able to have all strength, a lot of con dence, a lot of cour- public in 2002. e stock price plummeted and parts and service for revenue. the warranty and the service for the units age, and we plowed through and came out from around $13 a share to just under $3. But looming for Sonic was an early May in operation under brand and under Sat- the other side a cleaner, leaner company.” Between October 2008 and September 2009 due date on $90 million in debt and urn. And then you had the ongoing parts Indeed, the Great Recession changed busi- 2009, the company sliced $100 million out lots of uncertainty whether the retailer operation, which put us in a situation ness practices at the groups. Before the crash, of its cost base, or about 15 percent. Asbury could restructure that debt. where we thought we could be pro table Sonic didn’t own any of its real estate. Today, also moved its headquarters from New “ e situation that we nd ourselves in fairly quickly.” it owns more than 45 percent, Dyke said. York to suburban Atlanta, axing a quarter today is not the result of Sonic’s inability to Still, the deal fell through. “We’ve spent a lot of time shoring up our of its corporate sta , and shuttered region- service our debt or a re ection of our on- “Ultimately, we couldn’t get a deal from balance sheet, creating cash and putting al o ce after regional o ce. But in March going ability to generate cash,” Smith said Renault Samsung that made good eco- ourselves in the position of strength ver- 2009, two weeks before Asbury was to le April 1. “Rather, it’s a result of a weak capi- nomic sense for us,” said Kurnick. sus a position of weakness,” he said. “So, if its 10-K report, accounting rm Deloitte tal market condition and the current in- this were to happen again today, we would issued a “going concern” notice. ability to look to the capital markets to re- ‘Packaging became toxic’ be ne, and we wouldn’t have some of the e auditors worried that if Asbury violat- nance our existing debt maturities.” e balance sheets of the public groups struggles that we had in the past. ed its debt covenants with lenders, it would Today, Dyke says: “ ere’s not many times were improving, but overall market condi- “We all came out of that time stronger,

go under. e notice delayed the 10-K ling in history that you kind of look over the edge tions were not . During Group 1’s third-quar- wiser, better people. And our company is and raised the alarm on Wall Street. of the cli and say, ‘Holy cow, this could be it.’ ter 2009 earnings call, Hesterberg pointed just a much stronger company today than For management, it was a punch to the Because if you go back and look at our com- out that lenders were rejecting more appli- it was then. It’s now allowing us to do solar plexus. “It wasn’t the banks that pany, our stock price went below $1. How cations and requiring higher down pay- things like EchoPark,” he said, referring to

caused the crisis at Asbury — it was the many companies had their stock price drop ments to make up for reduced loan-to-val- Sonic’s used-only stores, “to invest in auditors,” Monaghan said. below $1 and either don’t go bankrupt or get ue ratios and increased interest rates. technologies and to do some things that Asbury’s lending agreements allowed the bought up and survive something like that? “ e credit markets are really the life- we wouldn’t have been able to do before.” banks to call back all their loans unless the We always look at ourselves — we’re the Lit- blood of the automotive industry. at’s company could get 51 percent of its syndi- tle Engine at Could.” “ what made business so Change of perspective cate to grant relief. Oglesby and Monaghan By June 2009, Sonic put dire,” he said. DeBoer says Lithia used the crisis to immediately went to talk to the banks. 15 stores up for sale and “Being faced with Many of the automakers’ change its top-down culture. “ e ‘going concern’ opinion questioned stopped most facility proj- nonexistence captive nance arms, as “Our earnings had tailed o , and we had our viability going forward and gave the ects. Dyke said discipline changes your well as banks and other become more of a ... company where our banks the right to unwind our oorplan and in facility decisions has perspective and lenders, funded their oper- leaders were looking to corporate for an- credit lines,” said Monaghan. “It also caused stuck with the company ations by selling loans o as swers, and di erent parts of the company us to postpone our year-end earnings re- when it weighs expensive makes you more securitized receivables or were responding di erent ways,” he said. lease, which alarmed Wall Street.” improvements. proactive the rest packaging loans and selling “Starting in late 2008 and 2009, we began But more than half of the lenders quickly By September, Sonic had of your life.” them o in the as- to challenge our eld teams and opera- agreed to loosen the covenants, and within raised about $266 million set-backed securities mar- tions to really think on their own.” a week, all of them had. from a sale of stock and “Bryan DeBoer ket. In good times, the the- Would the change have occurred with- “ at was probably the single biggest convertible debt notes, ory was that a package of out the crisis? ‘take a deep breath’ moment, and from which it used to re nance debt. many thousands of auto loans was a safe in- “Being faced with nonexistence changes there, we were o to the races,” Monaghan vestment; a few loans might go sour, but your perspective and makes you more pro- said. “We knew we could do it. We just Diversify, diversify most of the borrowers in any given package active the rest of your life,” he said. “With- needed some time.” Lithia sold about 33 stores in 2008 and would pay their loans in full and on time. out that, I don’t think our team would be as 2009. It also cut employment at headquar- But that theory was proving false in the proactive and innovative as we are today.” ‘The industry is worth saving ters. mortgage market. As concerns spread — don’t throw it away’ “We had to right-size our teams,” said about consumers’ ability to pay their auto ‘We are not going Jackson emerged as a key adviser to the DeBoer. “We went from about 550 people loans, “packaging became toxic,” Rickel to waste the recession’ U.S. government as it pondered the future to 245 people at corporate, who believed said. “Nobody wanted to buy an automo- Monaghan, who retired as Asbury’s CEO in of the auto industry. in our value base, which is that our cus- tive security, even though the issue ulti- January, says: “It was nowhere near as bad as “I engaged with the automotive task tomers are our customers for life. Along mately was proven to be mortgages and it seemed. Nowhere near. ere was only force in Washington, D.C., made many with that, we began our diversi cation. home-backed items.” one quarter where we generated operating trips to Treasury, and I made the following We were at about $2 billion, $2.4 billion in At that point, consumers, especially loss, and we never left cash- ow positive.” passionate plea: is is the opportunity to revenue at the time, and we had been those in the subprime segment, struggled Rather than halt the innovations Oglesby address the structural issues in the indus- butting up against that number for years. to obtain auto loans. had used to entice Monaghan over steak try that exist, and we cannot let it go by, We began to think about how we diversify and scotch, the recession forced change at but the industry is worth saving — don’t from having such a domestic plan.” Weathered the storm Asbury on an accelerated timeline. As- throw it away.” So, although Lithia cut dealerships, De- Still, a year after Lehman Brothers failed, bury’s stores were united under a common Jackson insisted that the 10 million sell- Boer said, “Our earnings and our revenue the publics had managed to restructure dealership management system. By the ing rate the industry had plunged to was really did not fall because our cultural ful- for a much smaller market. New-vehicle rst quarter of 2009, Asbury was experi- misleading. He said he told the task force: llment began to take hold and our people sales were tracking at a 10.4 million annu- menting with salary-plus-commission pay “We have demand in our dealerships of a began performing at much higher levels.” al pace, down dramatically from the 16.2 plans. A renaissance was underway. selling rate of 13, 14 million units a year, Meanwhile, by 2010, Lithia was at 60 per- million in 2007, but exceeding the publics’ “My predecessor had this great line. He but we have no credit to nance the cus- cent domestic and 40 percent import/luxury. worst-case forecast of 10 million. said, ‘We are not going to waste the reces- tomers. So this is a nancial crisis that has Group 1 could switch from playing de- sion,’ ” Monaghan said. “We just did restricted volumes on new-vehicle sales. Studying Saturn fense to playing o ense. Rickel said that things; we didn’t play around; we didn’t So yes, restructure the industry, absolutely, Slashing expenses helped Penske Auto- because of the “cost reductions being so waste time. It was a very bizarre, healthy but don’t structure it to 10 million units.” motive turn pro ts in the rst and second proactive, the fact that we never lost mon- time for the company.” e feds asked Jackson to prove it — and quarters of 2009. Indeed, Penske’s nanc- ey in any quarter [of 2009], the fact that we During Group 1’s fourth-quarter 2009 he could. es were in relatively good shape — so generated over $100 million of operating earnings call, Hesterberg noted a silver “We had the scale from coast to coast, much so it began looking for opportuni- cash ow in 2009,” the company was lining to the tumultuous period. and we had the systems, and we had traf- ties amid the chaos. One was the Saturn well-positioned to start thinking about ex- “ is is the rst recession that has a ect- c counts, and we had the credit pro les,” brand, which was on the chopping block pansion soon after the economy began to ed the automotive retailing industry since he said. “We were able to show what was at General Motors as the automaker faced rebound. the automotive retailing groups went pub- being turned down by the banks to make a bankruptcy reorganization in June 2009. In 2010, Group 1 was back in acquisition lic more than 10 years ago,” he said. “And compelling case that the 10 million was On June 5, Penske announced it had mode. Indeed, the six public groups that it’s given us the opportunity to prove what because of the nancial crisis, not because signed an agreement to buy Saturn from grew out of the industry revolution in the we have been saying for years about the of the crisis in automotive.” GM by the end of September, subject to 1990s were weathering their rst big storm. stability, exibility and resiliency of our “ Automotive is worth saving,” Jackson due diligence and regulatory approvals. In the third quarter of 2009, the six groups business model.” a