In its most recent deal, United Auto Group Europe became a co-owner of Heiner Tamsen's automobile showroom in Hamburg. Werner spoke to Automobilwoche's Franz W. Rother about the US corporation's growth strategy for Europe.
A vast number of the 42,000 German dealers and service garages have financial difficulties and are looking for investors. How often are you being asked to help?
Very often. But during negotiations it is not always the money that is the focus of attention. The companies we have bought share in are in a good position. All they wanted were finances for further growth and support for a strategic development. If our partnerships were only about money they would be one-sided partnerships. And we are not interested in buying businesses that have declared bankruptcy. That would mean we would need special teams whose job it would be to quickly turn around the business.
What are the most acute problems in the auto trade? You probably get a good view during your negotiations.
Beside the succession of generations, businesses are primarily looking for ways to procure capital, specifically against the backdrop of the new Basel II credit guidelines. From the banks' point of view, the auto trade is capital-intensive, has a low rate of return and is subject to considerable cyclic fluctuations. That is why they are hesitant to grant loans. Another subject during those negotiations is the fact that dealers have got new and more responsibilities within the market, due to the new block exemption and the restructuring of the dealer networks. The business has become incredibly complex.
UAG is also an investor. How do you choose your partners?
We are always undertaking due diligence, of course. But to us the management of the operational side of the business is just as important as the analysis of the finances and refinancing. It is easier to lead a company with good operational management to success than a corporation with good finances but unprofessional operational management. One can often get an idea of a company's situation by just walking through it.
What makes UAG so attractive to its partners if it is not only about the money?
The companies look at our corporation's financial power, of course. However, they are also looking for the means that are available to us, our experience within the trade, the good relationships with the manufacturers and the know-how regarding processes. With the next acquisition that we are currently working on it is not so much about money but about political connections and organizational support regarding reporting for example.
When will the partnership be finalized?
It could be by January 1. But I hope to finalize the partnership in 2004.
Can you give us a name?
No, I cannot. This would not comply with our philosophy. According to the dealer contracts, the contract partners have to be the first to be informed of a change of ownership. And once we are in agreement with the company we always first ask for the auto manufacturer's blessing before making the next step.
What other plans do you have for 2004?
There are two possible acquisitions that would significantly expand our portfolio.
Is one of them an Opel dealership? As former Opel district manager you should appreciate the brand.
Opel is something close to my heart as I really enjoyed my time there and I owe a lot to the organization. However, there has not been an opportunity yet to realize this desire.
As soon as there is an opportunity, we will be happy to get involved with Mercedes-Benz.
What scale are you striving for in Europe?
We defined our strategy at our start-up four years ago, which in some points is significantly different to that of our parent company. We did not agree on any targets such as for example to sell 70,000 cars a year by 2007 or anything like that. In the past four years we have made five acquisitions in Germany and Great Britain. We invested $350 million in Europe in 2003 alone, compared with $300 million in North America. And we will continue to grow in 2004. My only goal is quality before quantity. That is why I always take a lot of time for our negotiations.
How large are the shares you bought?
That varies. We do not like buying less than 50 percent as we do not want to be seen as an investor, a quiet sponsor. We are an operator if you like and an ordinary car dealer, just a little bit bigger than others.
Do you interfere with your partners' operational side of the business?
No, hardly. That is what our partners are there for. We discuss strategic matters but not how a car should be placed in a showroom. Here we fully rely on our partners' operational competence.
Is your involvement paying off? All dealers complain about falling profits.
Our involvement does pay off. We are extremely satisfied and so are our stockholders. In the USA our target is a minimum return on investment of 15 percent. In Europe we are currently significantly above 20 percent. And that is not because we paid little money for the acquired businesses. In some cases we even paid a lot. It is because we enabled those companies to do things that would have been much more difficult to do on their own. And the result is something to be proud of. In Frankfurt we managed to significantly increase Toyota's market share. The location has developed very positively for Toyota, our partner Nix and us.
How much are you planning to invest in 2005?
I do not have a specific investment target. Our only aim is to become the best.
In what respect?
With respect to customer, manufacturer, employee and stockholder satisfaction.