Recession sharpened Germain's focus on core business
AUTOMOTIVE NEWS: You lost a Chevrolet store in the GM terminations. STEVE GERMAIN: That had a profound effect on me. You can't take anything for granted. People looked at me as a very successful, knowledgeable, good car guy. And I got a wind-down letter. That really changed the way that I look at our industry and our business.
For years, Germain Motor Co. had annual look-ahead meetings. Now those meetings are quarterly -- buttressed by twice-monthly "strategic action" powwows.
CEO Steve Germain says the moves represent a new, sharpened focus on the business. That fresh focus was spawned by the recession -- and a wind-down letter from General Motors.
The Columbus, Ohio, enterprise was founded in 1947 by Germain's grandfather, Warren Germain. Today it has 11 brands and 18 stores in Ohio, Florida and Arkansas. It ranks No. 32 on the Automotive News list of the top 125 dealership groups with 14,316 new retail deliveries and revenues of $916.5 million in 2010.
Germain, 56, spoke with Staff Reporter Mike Colias about lessons from the recession, finding new revenue in a market where the seasonally adjusted annual rate of sales has dropped to 13 million units and sharing responsibilities with his brothers, Rick and Bob, who are his business partners.
Q: How did the business evolve after your grandfather founded it?
A: My dad [Bob Germain] was working with my grandfather here in Columbus and decided in 1969 that he would open a Toyota store, against his father's better wishes. Dad opened up a Toyota store and a liquor store across the street from his dad's store, although they remained partners. Then Dad opened up a Lincoln-Mercury store in Naples, Fla., in 1978. His three sons all got out of college in the late '70s and in the '80s and worked for him. We saw opportunities to expand and opened a couple of Lexus stores. In 1995, we really started an expansion plan that over the next 10 years took us to a $1 billion [in revenue].
How is management divided up now?
The recession did clarify a couple things. One of those was the importance of narrowing our focus store to store and not getting caught up in a one-size-fits-all approach. We recently divided the operation oversight responsibilities between the three of us, each focusing 100 percent on a specific group of stores. This has allowed us to become closer to the business, so we can make decisions more quickly. It also allows us to groom our own children as we see fit.
Any examples of how it's run now vs. before?
I don't want to say that good times create bad habits, but we were as guilty of that as anyone. We had never really gone through a recession while actively involved from an ownership perspective. We were always a good group of guys that had great stores in good markets. But the recession required us to make some reductions in our staff, and we had to let some people go who didn't deserve it because of our inefficiencies. So we realized we had to become much more efficient.
What else did you do to survive the downturn?
We used to forecast year to year. We realized we needed to do something differently. A quarterly strategic planning model was developed. That allows us to adapt to changes and focus on solutions. That's really where we got caught in the recession -- not adapting very quickly. We also have [twice-monthly] strategic action meetings. We saw a need to get our corporate staff more involved in day-to-day operations. They are the ones who are on the ground every day.
With the challenges of restrictions on some models and gas prices at $4 a gallon, we've got a long ways to go. We can't worry about what we can't control, so we just have to hope the economy improves. But even if it doesn't, I think now we realize that, at a 13 million SAAR, we're able to generate cash that it took us a 17 million SAAR to do before.
Are earthquake-related production constraints hurting your inventories?
Every day there's uncertainty as far as production or supply. The great thing about our industry and our business is that we do have other options within our stores that we can generate revenue through, like used cars and F&I and parts and service.
Anything you're doing specifically?
In parts and service, our focus has gone from hours per R.O. [repair order] to more interest in driving customer-pay volume through competitive pricing strategy. And we've encouraged our service and our pre-owned departments to collaborate on reconditioning and speed to market. That's had a very positive impact on pre-owned volume. We're driving more traffic in our service departments and that gives us more opportunity to interact with more customers and to increase retention.
Are you looking for growth opportunities now? What regions or brands?
We are looking for opportunities. We're not specific to geographic locations. Last September we did our most recent acquisition, a Honda dealership in Columbus, Ohio. That's worked out very well for us. And just last month we acquired, as a result of the consolidation of the Lincoln dealers in Columbus, the Lincoln-Mercury store next to our Toyota store. So we've since moved our used-car operation and a lot of our reconditioning operations and body shop into that 50,000-square-foot facility.
You expanded to Phoenix a few years ago but then pulled out.
We bought a Hyundai store out there and operated that for about four years. Then last year we realized that situation wasn't in our best interest and sold the store. We wanted to focus on our current operations and then go back out into the marketplace with our new business model and open up some additional locations. We're in a position now where we think we have a solid foundation for expansion.
Didn't Germain have some nonretail ventures, too?
We were partners in an arena league football team for four or five years: the Columbus Destroyers. We are the name and title sponsor for Germain Arena [home of a minor league hockey team] in the Naples-Fort Myers, Fla., area. We have a race shop down in Morrisville, N.C.
Moving forward, I think we're going to evaluate those opportunities more closely. It's a different day and our focus is more narrowed now and one that we think should be specific to the auto industry. For example, I co-host a radio talk show every Sunday morning now in Columbus, Ohio. It's a two-hour call-in talk show called "Auto Smarts." The sole purpose is to drive traffic to our dealership through parts and service or sales or used cars.
You were in pretty early with the Smart franchise. Why?
We felt strongly that, moving forward, whether it's alternative fuels or just smaller engines, we need to reduce our dependency on foreign oil. With cars like Smart and other products, we feel there's a market there. We're a Mercedes-Benz dealer and we understand that relationship between Mercedes and Smart and we support our manufacturers in every opportunity we can, whether everybody thinks it's the right opportunity or not. Smart was in the right place at the right time in 2007 and '08. Now that Mercedes-Benz has taken back the distribution of Smart, I think you'll see some good things happen.
I understand Germain has an aggressive e-commerce strategy.
A lot of efforts are given toward lead conversion and driving traffic to the stores through the Internet. We sold over 8,000 cars last year that we attribute to Internet leads. Our e-business development director, Shaun Kniffin, does a great job managing our Web sites and understanding lead conversion.
How are high used-car prices affecting your business?
You can look at it from a couple of different ways. But from our perspective, it's an opportunity. We have a very turn-oriented philosophy that manages aging very effectively. So the upside is the trade opportunity, which is a very compelling and effective reason to buy a car.
What's next for you?
I currently have a daughter who's attending Dealer Academy at NADA. Because of the enjoyment that she's had in meeting other dealers' children and understanding the challenges they all face, I'm looking to take a much more active role on a national perspective through NADA. The last few years not only had such an impact on my family but on all of our industry. I really am feeling that I have a role or responsibility to help this industry move forward and eliminate some of the mistakes that we've made in the past. I'm currently running for the state representative of Ohio for NADA.
Are your kids interested in joining the business?
Jessica is 29. She's running the Honda store that we bought last September while going to the NADA school. My son who's 26 years old, Zach, works at the race shop in Morrisville and is aspiring to be a NASCAR driver. And I have a son [Austin], 22 years old, in the business school at the University of Miami in Oxford [Ohio], who's very interested in the car business. So I'm working hard to groom our children but not force them into anything. Just give them the opportunities and let them make their own decisions.
You can reach Mike Colias at email@example.com.