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Armageddon
I
never doubted for a moment that Bruce would save the
world...again.
Sitting
on the edge of my seat, shoving handfuls of popcorn in
the general direction of my mouth, much of it ending
up in my lap. The Aerosmith sound track reverberating
through my soul. We were seconds away from total
global annihilation and the only hope left was whether
or not Bruce Willis could push the button in time and
blow up the giant asteroid.
There’s
something about placing the fate of every human being
on the planet in the hands of Bruce Willis. It’s
sort of like believing that "The Keebler
Elves" can save General Motors.
In
the pure Biblical sense, Armageddon is the battle
before the end...The war before the onset of Chaos.
Well sports fans, I believe that is more than an
appropriate title for this issue’s article. More
than one crackpot is predicting the end of the world,
at least the world as we know it.
As
of this writing, it seems to me that the manufacturers
are locked in a contest to see which one can do the
most incredibly stupid things. Going into the home
stretch, General Motors has a commanding lead but Ford
Motor Company is closing fast.
Republic
Industries continues to embarrass themselves from the
top down as their failures become more evident.
Although these guys are excellent financial
manipulators, let’s face it, they can’t run
dealerships. In the very beginning, I was the first to
take a public stand that the Republic Industries’
model was flawed and that their business concepts
wouldn’t work in a "Real World" automobile
retail environment. Now their financial reports
document the facts that although they’ve acquired
some of the formerly best performing dealerships in
the country, They are marching steadily backward in
sales volume. Wait a second, didn’t I have that in
print more than a year ago? I have repeatedly pointed
out that, although it has been hard to document, I
believe Republic has gone backward, not only in unit
sales but also in market share in relationship to the
other dealerships they compete with. In other words,
the traditional franchised dealers are kicking their
butts in almost every market. Republic’s track
record appears so bad that I find it absolutely
incredible that Ford Motor Company would even consider
allowing these people to run their Ford Retail Network
of Dealerships, except for the obvious conclusion
that, maybe Ford doesn’t have a clue themselves.
For
some time now I have been acutely aware that there is
serious trouble brewing in Camelot. There have been
harsh words and angry interchanges in the hallowed
halls of Fort Lauderdale. In the past, Republic
Industries’ Dealers always presented a rosy public
image that everything was wonderful. Every Republic
dealer I spoke with was wearing a perpetual
"Smiley Face".
That
is certainly not the case today. There is some open
dissention in the ranks. Republic Dealers have been
quoted in national publications publicly criticizing
Republic’s policies. Pointing to the aborted 1.2
billion-dollar acquisition of the Van Tuyl Dealerships
as an example. This is significant. As far as I can
recollect, this is the first time Republic’s
Stockholders haven’t "Rubber Stamped"
decisions made by Wayne and Steve. Comparing Republic
Industries philosophy and the Van Tuyl operating
procedures could be like comparing Bambi to Godzilla.
Steve
Berrard (by all reports, a real sweetheart of a guy)
has actually placed full-page newspaper ads and
editorial space in Miami area newspapers to dispute
criticism in the November 8th edition of
the Sun-Sentinel Newspaper with the sub-headline
"Dealers Frustrated as investors still leery of
stock". The article actually quoted some Republic
dealers who appeared less than excited about their
decision to sell to Republic.
According
to his editorial, It appears to me that Berrard blames
Republic’s problems on media attacks and the fact
that, early on, AutoNation earned a reputation for
over-priced used cars and trucks. Remember this is the
same company whose original business plan included
media manipulation and Wall Street dominance.
Now,
in the Denver market, Republic Industries is drawing a
line in the sand. Berrard has put the entire future of
Republic Industries on what happens in the Denver
Market. Sometime after the first of the year, the plan
is to rename all of the Republic Denver dealerships
under a single brand to establish the AutoNation logo
along with the name "John Elway". They will
also change all of the existing dealerships to a
"One-Price/No-Haggle" sales process.
He
has been quoted in several mediums as having said, on
the record, "If buying and consolidating
dealerships is all we get done, then our business
model is flawed."
Another
quote attributed to Steve presumably in reference to
the Denver project,
"If
nothing else, Republic is not going to be underpriced."...
"We will turn this thing into a bloodbath if we
have to just to make sure we’re not undersold."
Ummm-umm-umm.
That certainly sounds like sour grapes or one of my
ten year-olds tantrums. Mr. Berrard has certainly
achieved one thing here. If the Denver project fails,
financially or in terms of market share or same store
sales...Then Mr. Berrard has admitted, in advance,
that Republic Industries is not a viable player in the
industry.
Sources
in Denver tell me that they are watching this scenario
unfold in minute detail. Colorado has specific laws
against unfair trade practices that involve selling at
a loss to run other dealers out of business. Republic
certainly has enough cash in their "War
Chest" to go into the market with a lot of
questionable dirty tricks if they chose to do that. Be
advised, however, there are a number of powerful
political and legal forces standing in the wings,
watching their every move, prepared to step on them
hard if that were to happen.
I
am going to assume that they intend to play fair. In
that case, I predict that this is the battle of
Armageddon. Once and for all, I predict that Republic
Industries, in desperation, has put it all on the
line. Their entire credibility is on the table. If
they lose, nobody will ever take them seriously again.
Of
course, you all know where I stand. There is not a
doubt in my mind that this goofy
"One-Price/No-Haggle" strategy is going to
put them deeper in the toilet than they have ever
been. I know the dealers in Denver and they are not
going to lay down and give up the market to Republic
in a fair fight. Steve Berrard and I are in total
agreement on one thing...There is going to be a
"Blood Bath" in Denver.
I
am on-record as having said that "One-Price"
has never worked in a competitive market." We
have seen major players like Ford, General Motors,
CarMax, AutoNation and a series of other well-financed
players throw major money into trying to make
"One-Price" work and the public has still,
repeatedly rejected the concept by buying elsewhere at
negotiating dealerships.
As
I write this article, Republic Industries’ stock is
@ $17.00 a share and sinking...again. Just one year
ago they were hovering around $36.00 a share. It has
recently been as low as $10.00 a share.
Casting
skeptical, raised eyebrows in Republic’s direction,
Wall Street is becoming increasingly and openly more
disillusioned with Republic’s performance as more
and more Wall Street analysts, buyers and insiders are
publicly saying that the Republic model is
flawed...will not work...and that they’ve changed
their strategy so many times they’ve lost
credibility. Hell, they could have read all of that in
this column three years ago when they were all lining
up cheering for Wayne like a bunch of Lemmings
marching into the sea.
Well
folks, there it is. Steve Berrard has thrown down the
gauntlet in Denver. In that I have several really
great Dealers that I work with and consult in the
Denver Market, I will have the privilege of personally
being involved in the battle.
I
really don’t wish them bad luck. Many of the dealers
that have sold their dealerships to Republic have been
friends of mine for many years. I still talk to many
of them regularly. If Republic plays fair...and if
this thing is successful, I will be the first to say
so and will openly admit that I have been wrong. I am
willing to do this because Mr. Huizenga and Mr.
Berrard will never again be taken seriously in the
business world if they don’t pull this off after Mr.
Berrard opened his mouth and laid it on the line here.
Makes
me want to lean back by the fire in my "Lazy
Boy" recliner, swirling a snifter of cognac up
toward the light...After all, it’s the Christmas
season as I write these words. Makes me want to
sing... "Roasting Chestnuts on an open
fi-i-i-i-ure."
More
Food For Thought...
Last
year and the year before I wrote several articles
about the accelerated decline of retail leasing. Now,
one of the biggest players in the industry, GE Capital
Auto Financial Services, has instituted a policy that
many dealers will see as a blatant
"double-cross".
Initially
I got a call from a friend of mine, Dave Anderson,
General Manager of the five Anderson dealerships in
the San Francisco Bay Area. Dave told me that he was
having a problem With GE Capital contacting their
customers 90 days before lease termination and
offering them a direct 5.9% APR rate to buyout their
lease... circumventing the dealer. He told me that on
one occasion, when they called GE Capital on the phone
for a payoff figure, the representative from GE said
"Put the customer on the phone." That’s
where it got weird...Anderson says that GE Capital
told their customer to leave the showroom and go home
and call them back and they would finance the lease
buyout at 5.9% for them.
Several
other dealers I have spoken with have related similar
stories about GE Capital AFS policies. What the Hell,
I called Sam Falcona, VP of Corporate Communications
for GE Capital AFS in Barrington, Illinois.
After
looking into it, Sam said to me... "It is not our
intent to take customers away from the dealers".
He pointed out that GEC AFS does give the dealer a
notice 120 days out of the lease terminations.
"GE Capital AFS doesn’t contact the customer
until 90 days before termination. If the customer
desires to purchase the vehicle, we will work with the
customer. Sometimes this involves incentives."
When
I re contacted Anderson, his position was unchanged. I
feel many dealerships are going to view this GE
Capital AFS policy as a serious
"double-cross". I predict that unless they
reconsider, it is going to blow up and cost them a lot
of business.
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