Go Back   DealershipForum.com > Dealer Talk > Automotive Discussions

Notices

Automotive Discussions Car People talking about the Car Business – This is the place where it happens

Reply
 
Thread Tools Display Modes
Old 07-14-2008, 12:48 PM   #1
XDCX
Administrator
 
Join Date: Nov 2007
Posts: 14,869
Default Public Dealerships -vs- Private Dealerships

There's no question that the past 12 months have been tough for the Auto Industry. The combination of high gas prices, the housing crisis, the stock market collapse and poor consumer sentiment have all taken their toll.

Current sales levels suggest that 2008 will be the poorest year on record for new vehicle sales in the last 15 years. Worse, dealership closings and bankruptcies are expected to reach levels not seen since the late 1970s.


Wall Street has hammered the Retail Auto Stocks in the past 12 months:
  • Penske Auto Group (PAG) - down 40%
  • CARMAX (KMX) - down 50%
  • Sonic Automotive (SAH) - down 60%
  • AutoNation (AN) - down 60%
  • Lithia Auto (LAD) - down 80%
The topic of this thread is to review the question:
Which is better suited to deal with the weak car market - public dealerships or private capital dealerships?
XDCX is offline   Reply With Quote
Old 07-15-2008, 08:27 AM   #2
XDCX
Administrator
 
Join Date: Nov 2007
Posts: 14,869
Default Public Auto Groups hit hard when Sonic cuts Earnings Forecast

If you thought that the Public Auto Groups were under pressure based on yesterday's share price, it's even worse today.

The whole sector is getting hammered due to Sonic's Press Release indicating that they're going to cut there Earnings Forecast.

Are the Public Dealers in a better position to weather this storm due to Policies and Procedures they've implemented across their stores?

Or are the Private Capital Dealerships better positioned because they don't have the expense associated with being a large company and complying with SEC regulations and Sarbanes-Oxley?

Finally, how long will this downturn last?
XDCX is offline   Reply With Quote
Old 07-15-2008, 09:25 AM   #3
SHACOS
Super Moderator
 
Join Date: Jan 2008
Posts: 838
Default

I don't think Sarbanes adds too much in regards to expense. SEC guidance on the Sarbanes Oxley law has changed quite a bit. A couple of years ago, Lithia had every control documented including "The Body Shop Manager has meetings weekly". Now it is a more risk based approach which allows big public companies to focus their view and get to the real heart of the matter.

Internal Audit and External Audit expense is there, but I don't think it's a major advantage for private dealerships. In the end, you still have to get people in your doors.
SHACOS is offline   Reply With Quote
Old 07-15-2008, 09:52 AM   #4
XDCX
Administrator
 
Join Date: Nov 2007
Posts: 14,869
Default

Quote:
Originally Posted by SHACOS View Post
I don't think Sarbanes adds too much in regards to expense. SEC guidance on the Sarbanes Oxley law has changed quite a bit. A couple of years ago, Lithia had every control documented including "The Body Shop Manager has meetings weekly". Now it is a more risk based approach which allows big public companies to focus their view and get to the real heart of the matter.

Internal Audit and External Audit expense is there, but I don't think it's a major advantage for private dealerships. In the end, you still have to get people in your doors.
That's good to know that Sarbanes is not too difficult to manage. Based on what I've always heard on CNBC I got the impression that it added a great deal of complexity/expense.
XDCX is offline   Reply With Quote
Old 07-15-2008, 11:30 AM   #5
SHACOS
Super Moderator
 
Join Date: Jan 2008
Posts: 838
Default

Don't get me wrong, it's still complex. But we've had five years to learn about what we were doing wrong.
SHACOS is offline   Reply With Quote
Old 07-16-2008, 08:31 AM   #6
XDCX
Administrator
 
Join Date: Nov 2007
Posts: 14,869
Default Ability to retain Talented Managers

The one thing that I've noticed with almost all of the Public Auto Dealers is the statement that they cannot retain talented managers.

Whether that's true or not, I don't know but it seems to be a topic of conversation with Lithia, Sonic, AutoNation, etc.

The most common concern seems to be that the managers in the store lose the ability to control the dealership because of corporate mandates or forced centralization.

Do private capital stores have an advantage here? Or is it really a non-issue that just generates a lot of conversation between a few disgruntled employees?
XDCX is offline   Reply With Quote
Old 07-16-2008, 04:15 PM   #7
carbizwiz
New Member
 
Join Date: Jul 2008
Posts: 2
Default Keeping Good GM's

Most entreprenurial car dealers were at one time General Managers, Sales Managers, etc. The moves made by the consolidators to squeeze the "fat" out of pay plans has been counter productive for this reason. The best managers look for exceptional compensation for exceptional performance or they may lobby for an equity stake in the store they manage.

Only when they feel adequately compensated and appreciated wil they give their best. When you factor in loss of control over advertising, inventory stocking levels and other variables it looks a lot less promising than it originally did. Also, having to put up with out-of-control egos and regional management interference just makes your job that much harder. The car business is challenging enough without having to play corporate politics and most good managers have a little "maverick" in them.

Another aspect concerns dracnian policies designed to keep expenses low and assetts in line. Nothing is more deflating than to have a decent month and then have to shave off tens of thousands of dollars off the net before additions and deductions line to satisfy some obscure inventory control policy.
carbizwiz is offline   Reply With Quote
Old 07-17-2008, 09:29 AM   #8
XDCX
Administrator
 
Join Date: Nov 2007
Posts: 14,869
Default

Quote:
Originally Posted by carbizwiz View Post
Most entreprenurial car dealers were at one time General Managers, Sales Managers, etc. The moves made by the consolidators to squeeze the "fat" out of pay plans has been counter productive for this reason. The best managers look for exceptional compensation for exceptional performance or they may lobby for an equity stake in the store they manage.

Only when they feel adequately compensated and appreciated wil they give their best. When you factor in loss of control over advertising, inventory stocking levels and other variables it looks a lot less promising than it originally did. Also, having to put up with out-of-control egos and regional management interference just makes your job that much harder. The car business is challenging enough without having to play corporate politics and most good managers have a little "maverick" in them.

Another aspect concerns dracnian policies designed to keep expenses low and assetts in line. Nothing is more deflating than to have a decent month and then have to shave off tens of thousands of dollars off the net before additions and deductions line to satisfy some obscure inventory control policy.
I smilied when I read the "maverick" comment - I couldn't agree more.

It seems in some ways that the GMs that are best at cranking out units and generating gross profits are also the ones that hate the corporate politics the most. It's not that they don't understand the game - they just don't want to play.
XDCX is offline   Reply With Quote
Old 07-21-2008, 05:55 PM   #9
Durden's Soap
New Member
 
Join Date: Jul 2008
Posts: 1
Default

I agree with carbizwiz that the operators of their respective dealerships do lose some control as to how they want to run their dealerships, but in the end the public companies have to do what is best on the whole. In the end, if an initiative comes down from the home office, it has to be pushed through to the dealership base in its entirety. Otherwise, if some dealerships were allowed to do as they please; no one would follow any guidelines that were set out. I also think it is important to note that public companies are not playing a zero-sum game with GM's - sometimes I think GM's do not see it that same way.

To the original question, I believe that public companies are better suited for a downturn in the market. One, they are better capitalized - if they have a dealership losing money every month, they have other dealerships that can carry the weight. On the other hand, a mom and pop operation can only sustain those same losses for so long before debt starts to weigh not only on the dealership, but also the owners of the dealership. Can you imagine a single owner losing over $200k a month - how long is that sustainable if the owner is not reasonably wealthy? I know public companies have dealerships that lose a fair amount of money each month, but they have more time to try and get in the store and turn it around - before creditors start knocking at the door for cash they do not have.

Secondly, I think that the sheer size of public companies helps their overall sustainability. Public companies can leverage the size of their contracts to negotiate better contract terms, which only serves to save cash when gross dollars are falling. Something as simple as office supplies is an example - the public company goes and negotiates savings that can be realized at each respective dealership, where the private owner is sort of stuck with the prices that they are offered.

However, I think private owners do have an upper hand in the fact that they do not have to try and please Wall St. Private owners do not have to make cuts just to make sure SG&A is below what Wall St. would want to hear. This is not to say that private owners do not have to make tough decisions during tough times, just that they have more flexibility in how quickly and how large those cuts would need to be made.

So, public companies are better suited, but their business is publicly owned and judged differently. Come to think of it, in some ways, public companies are to Wall St. as GM's are to public companies - always trying please someone to whom they don't necessarily want to please.
Durden's Soap is offline   Reply With Quote
Old 07-22-2008, 09:36 AM   #10
XDCX
Administrator
 
Join Date: Nov 2007
Posts: 14,869
Default

Quote:
Originally Posted by Durden's Soap View Post
I agree with carbizwiz that the operators of their respective dealerships do lose some control as to how they want to run their dealerships, but in the end the public companies have to do what is best on the whole. In the end, if an initiative comes down from the home office, it has to be pushed through to the dealership base in its entirety. Otherwise, if some dealerships were allowed to do as they please; no one would follow any guidelines that were set out. I also think it is important to note that public companies are not playing a zero-sum game with GM's - sometimes I think GM's do not see it that same way.

To the original question, I believe that public companies are better suited for a downturn in the market. One, they are better capitalized - if they have a dealership losing money every month, they have other dealerships that can carry the weight. On the other hand, a mom and pop operation can only sustain those same losses for so long before debt starts to weigh not only on the dealership, but also the owners of the dealership. Can you imagine a single owner losing over $200k a month - how long is that sustainable if the owner is not reasonably wealthy? I know public companies have dealerships that lose a fair amount of money each month, but they have more time to try and get in the store and turn it around - before creditors start knocking at the door for cash they do not have.

Secondly, I think that the sheer size of public companies helps their overall sustainability. Public companies can leverage the size of their contracts to negotiate better contract terms, which only serves to save cash when gross dollars are falling. Something as simple as office supplies is an example - the public company goes and negotiates savings that can be realized at each respective dealership, where the private owner is sort of stuck with the prices that they are offered.

However, I think private owners do have an upper hand in the fact that they do not have to try and please Wall St. Private owners do not have to make cuts just to make sure SG&A is below what Wall St. would want to hear. This is not to say that private owners do not have to make tough decisions during tough times, just that they have more flexibility in how quickly and how large those cuts would need to be made.

So, public companies are better suited, but their business is publicly owned and judged differently. Come to think of it, in some ways, public companies are to Wall St. as GM's are to public companies - always trying please someone to whom they don't necessarily want to please.
Wow, another great post from a first-time poster.

Your points are excellent. In summary the Publics should have the upper hand because of capitalization but the Privates have an advantage because they do not have to make unwarrented cuts to please Wall Street.

I also agree that the diversification of the Public's franchises makes them better suited to the downturn. There have to be thousands of Private Capital dealerships that have been losing money for over the past year. How long can that last before they decide to sell or close their operations? Even with Sonic's recent earnings cut, they're still going to be profitable.

Thanks again for a great post - I especially liked the last paragraph.
XDCX is offline   Reply With Quote
Old 07-23-2008, 05:48 PM   #11
mtrhead
New Member
 
Join Date: Jul 2008
Posts: 3
Default

Unwarranted cuts? Most of the cuts made in the public sector dealerships are unwarranted? They are just making the tough decisions in a bad market to right size the supoort staffs in their stores. The public's as a whole out perform the private cap stores in terms of pre-tax profits and net to gross. They also have better policies to protect the operators against ligation from maverick F&I producers. Their capitalization ensures they can ride out the market downturn in a specific deaerlship if they choose to.
mtrhead is offline   Reply With Quote
Old 07-24-2008, 10:25 AM   #12
XDCX
Administrator
 
Join Date: Nov 2007
Posts: 14,869
Default

Quote:
Originally Posted by mtrhead View Post
Unwarranted cuts? Most of the cuts made in the public sector dealerships are unwarranted? They are just making the tough decisions in a bad market to right size the supoort staffs in their stores. The public's as a whole out perform the private cap stores in terms of pre-tax profits and net to gross. They also have better policies to protect the operators against ligation from maverick F&I producers. Their capitalization ensures they can ride out the market downturn in a specific deaerlship if they choose to.
To the extent that they are better capitalized the Publics may come out of this market slowdown in better shape then they went into it.

If they can weather the storm they can look forward to a marketplace with fewer competitors along with the opportunity to purchase additional stores at favorable terms.

It will be interesting to see how each of the Public Groups does as they release their earnings and hold their Conference Calls.
XDCX is offline   Reply With Quote
Reply

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off

Forum Jump

Similar Threads
Thread Thread Starter Forum Replies Last Post
Federal agents raid dealerships crowe Automotive Discussions 2 07-01-2010 09:33 AM
Two More Burt Dealerships Sold SHACOS Automotive Discussions 3 02-10-2010 09:32 AM
At least 1,550 Dealerships file for Arbitration XDCX Automotive Discussions 5 01-27-2010 02:13 PM
Closed Dealerships that still appear on Chrysler's Website XDCX Sales 5 04-15-2009 06:17 PM
R.I.P. - Dealerships Closed in 2008 XDCX Automotive Discussions 1 01-07-2008 08:18 PM


All times are GMT -7. The time now is 07:23 AM.


Powered by vBulletin® Version 3.8.5
Copyright ©2000 - 2024, Jelsoft Enterprises Ltd.
Copyright DealershipForum.com - 2008 - 2016