Honda's family squabble

Using hints from Honda field reps, a small Rhode Island dealership began taking service contract business away from Honda stores around the country. Guess who got mad.

Cora Saccucci, center, and her daughters, Barbara, left, and Carol, say online sales of parts, accessories and extended warranties have helped their Middletown, R.I., dealership survive. Photo credit: NEAL HAMBERG
PROVIDENCE, R.I. — There was something about young, apple-cheeked Gardiner Reynolds that Honda field reps liked.

A couple of them took the energetic, Gen Y computer whiz under their wings. In the process, they helped Reynolds save his grandmother's small, struggling Rhode Island auto dealership, Saccucci Honda.

Reynolds, now 28, oversees one of the nation's top-selling retail Web sites for Honda parts and accessories. Another site he launched at Saccucci Honda may be the No. 1 retailer of Honda-backed extended warranties. These days, the little dealership can hold its own with much larger stores. It sells a huge number of service contracts at cost and rakes in factory bonus money based on volume.

The Honda execs were so impressed with the kid's online operation — which has only two employees — that they brought executives from Japan to see for themselves. American Honda Finance Corp.'s finance and insurance zone manager once stood up at a dealer meeting and called Saccucci Honda's Internet business: "American capitalism at its best."

But not everyone was thrilled. When several big Honda dealerships around the country began to complain about losing business to Saccucci's Web site, Honda got the message. The automaker put a stop to the online sales of Honda-backed warranties. Saccucci sued and now the dispute is in court.

Monthly supplements
Internet sales have provided a nice niche for Saccucci Auto Group. Here’s how the dollars are flowing from cyberspace.
WEB SITEWHAT IT SELLSMONTHLY REVENUES
hondapartsdeals.comHonda parts and accessories$200,000-300000
myhondawarranty.comHonda extended warranties$200,000
myfordwarranty.comFord/Lincoln Mercury extended warranties$60,000

The answer: The Web

Saccucci Honda hasn't had it easy this decade. Honda is having a good year, but the dealership's sales and profit margins on sales of new vehicles are dropping. The family-owned dealership has a tiny customer base on the island city of Middletown, R.I., with a population of 16,000.

And right down the road, Boston-based Ernie Boch operates the largest Honda dealership in the country — famous throughout New England for ubiquitous TV commercials urging customers to "come on down" for the deals.

Saccucci Honda's owners — 83-year-old Cora Saccucci and her two daughters, Barbara, 56, and Carol, 53 — are a conservative bunch. For years, they knew only one way to do business — the old-fashioned way.

Then in 2006, Honda executives began applying pressure. In letters to the Saccuccis, they complained about the dealership's lack of working capital and the store's outdated facility, which also houses a Lincoln Mercury franchise.

The Saccucci women worried and began looking for an answer. It turned out to be right under their noses: Barbara's son Gardiner, a 2003 computer science graduate from Providence College.

The field reps took an immediate liking to Reynolds. They had begun pushing dealers to turn to e-commerce — and the kid seemed to have the right stuff.

"Honda would bring people in from Japan and say, 'Look what this kid has done,' " Barbara Saccucci said during court testimony here last month. "We make very little if any net profit on new and used-car sales. With Gardiner, I felt we were on the right track to enter the new millennium."

Computer whiz Gardiner Reynolds, the son of one of the dealership owners, capitalized on Internet sales to expand the tiny store's customer base. Photo credit: NEAL HAMBERG

Vital to bottom line

But after complaints from Honda's National Dealer Advisory Board, the automaker decided that beginning April 1, it would prohibit Honda and Acura dealers from selling Honda-backed extended service contracts online. On March 28, Saccucci Honda won a temporary restraining order.

The dealer council says Saccucci's low-priced online contracts were undercutting other dealers' in-house sales of service contracts and damaging the brand image.

Barbara Saccucci says the online sales keep her in business.

"Honda has a pump-in, pump-out list that shows where we have sold out of market and where others have sold in," she says. "We lose sales to other markets all of the time, so we have to work hard on the phone and the Internet to bring in sales.

"This is an important part of our bottom line," she adds. "We may have to reconsider keeping the franchise if they take" away the online sales.

Saccucci Auto Group was founded in the 1950s by Cora's husband, Michael Saccucci, who died in 1984. Michael was the general manager of a Lincoln Mercury store in nearby Newport, R.I. He acquired the franchise from the owner and in 1968, bought 5.5 acres in Middletown and moved the Lincoln Mercury store to the site. The Honda franchise was added in 1978.

These days, the store sells about 80 to 100 new and used Hondas monthly and has 53 employees in the small, aging dealership.

Cora, working alongside her husband, handled jobs in all parts of the dealership and brought in the girls to keep it a family affair. Each of the women owns one-third of the business.

"My husband always told me he would die before me," says Cora, an octogenarian who comes to the store every day. "He told me not to ever take on a partner and, if I do sell the franchise, to keep the land," which court records show is valued at nearly $3 million.

The three women hope to pass the franchise on to Reynolds and his 23-year-old cousin, Michael Meyer, Carol's son and the store's sales manager.

Building business

"When Gardiner came to the business, he knew how to make the Internet work," Barbara said. "Everybody at Honda and at the dealership were happy because they knew this was a new revenue source."

Reynolds started in sales when he joined the dealership out of college. According to court testimony, he soon came under the mentoring of Dan Enderley, the dealership's parts and service rep from American Honda.

Enderley "felt the Internet was the future; he lit that fire in me," Reynolds said. "He came by often and would take me out to lunch. He knew we were small and thought we were too caught up in the family dealership. He thought the Internet could help us compete with bigger stores."

Under Enderley's tutelage, Reynolds launched Hondapartsdeals.com in May 2004. The Web site initially sold only accessories. The next year, Reynolds added Honda's entire parts business, which brings in $200,000 to $300,000 a month. That's the same amount the dealership sells in parts and accessories in-house.

"So we doubled our parts business," Reynolds said.

Bonus payments

Then Reynolds said he became friends with Bobby Wilkinson, an F&I rep from American Honda Finance.

Reynolds said it was Wilkinson who encouraged him to sell factory-backed extended service contracts known as Honda Care and Acura Care online.

"I knew nothing at all about service contracts," Reynolds said. "Bobby taught me."

Reynolds also testified that Wilkinson told him about Honda's performance-based allowance incentive — a quarterly cash payment based on the number of extended warranty sales, whether the sales are made online or in-house.

"He would tell me off the record what other dealers were making," Reynolds said. "That piqued my interest. So I researched it and built the site."

Myhondawarranty.com went live in 2006 and now sells 200 to 250 Honda extended service contracts monthly. The store sells about six in-house.

Saccucci sells its online contracts at cost but reaps $60,000 to $95,000 a quarter in incentive payments from Honda. Last year, it took in $300,000 in bonus payments.

A hearing on the Saccucci suit began Aug. 25 in federal court in Providence but was abruptly halted Aug. 27, after only one day of testimony. The judge imposed a gag order. No date has been set for the hearing to resume.

Due to testify were Stephen Smith, senior vice president of American Honda Finance, and Dan Spafford, the manager in charge of Honda Care.

Caught in the middle

Honda executives decline to comment on the case. But according to the company's pretrial memorandum, dealers had complained of losing Honda Care sales to online sellers, who often sold the contracts at cost.

The court filing also maintained that online sales were damaging relations between dealers and customers, who felt they were being ripped off by dealers who sold the product in-house at a higher cost.

One dealer cited in the memorandum, Mike Muller, said he no longer would promote Honda Care at his Highland Park, Ill., dealership.

"If a customer can save money buying online, that's fine," Muller told Automotive News. "But who do they talk to if they have an issue or a misunderstanding? They come to the local dealer, who has to explain it. Then the local dealer's integrity is in question. We're in the middle of something that's no fault of our own.

"We're spending time, money and effort on a sale we never participated in."

Muller now promotes extended warranties backed by GE Capital. He sells Honda warranties only if customers request them.

Because of complaints like Muller's, Honda says it has the right to make changes it deems necessary for the good of the franchise.

"The policy of banning the vehicle service contracts falls squarely within that provision," Honda attorney Michael Keating said in his opening statement. "It's not that the dealers were losing sales, but their customers were upset because they saw them online cheaper, and they felt they were being ripped off."

Saccucci attorney Geoffrey Millsom says the new policy is anti-competitive and anti-consumer.

"The complaints came from dealers who want to protect their profits," Millsom said in his opening statement. "Honda is attempting to shut down small stores to protect larger dealers not selling online. Only 1 percent of the contracts are sold online. That still leaves 99 percent of them in the dealerships."

Honda wholesales the contracts to all dealers at the same price. Depending on the terms, they range from $420 to $790 for a Honda Fit with a $100 deductible to $540 to $1,265 for a sporty S2000 with a $100 deductible. Dealers can mark them up as they choose.

While Saccucci sells its online contracts at cost, in-house warranties are sold at a profit ranging from about $475 to $600.

Saccucci Auto also sells about 50 Ford and Lincoln Mercury extended contracts online monthly. Ford has not challenged its policy.

"Honda has always encouraged the use of technology," says Barbara Saccucci. "So why have a guideline restricting selling and posting prices online?"

"We found a way to make money using the Internet where other dealers haven't gotten there yet," she says. "I can't imagine a company surviving today if they aren't on the Internet. I couldn't understand why Honda did this. I still don't." 

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