NEW YORK - Backed by a Canadian corporate investor, ex-Subaru of America president Tom Gibson is forming a company to buy megadealer chains.
The firm, to be called Asbury Automotive Group, could eventually go public, but Gibson downplayed that idea. He said that for now, the company wants to buy a small number of megadealership operations, maybe only two or three, and identify 'best practices' for running them. On-the-spot management will own a piece of the business.
In Gibson's scenario, the company will be in a better position to buy more dealerships, at better prices, when the next cyclical downturn comes.
'We are not doing this to make a quick hit,' he said. 'We are building a good, customer-oriented, stable business.'
Gibson's backer is Toronto-based Onex Corp., which owns or controls a laundry list of companies, including Sky Chefs, the airline caterer; Purolator Courier, the courier service; and three of North America's top 100 auto suppliers.
Onex hasn't bought any dealerships yet - Gibson said last week that so far, he's the only full-time Asbury employee - but the company joins a growing number of corporate investors that are entering the auto retail business.
Roger Penske is one. Another is New York-based United Auto Group Inc., which has 41 franchises at seven locations in New Jersey, New York and Connecticut and is looking for more. United -*which bought the former DiFeo Auto Group of Jersey City, N.J. -*hired advertising veteran Carl Spielvogel as chairman last November.
EXIT STRATEGY
In separate interviews, Gibson and Spielvogel described their business as a good 'exit strategy' for older dealers who can't turn the dealership over to a family member and who are too big to be bought out by 'the guy down the street.'
Onex is big enough. It had revenue of more than $4*billion (Canadian) and net earnings of $90*million (Canadian) in 1993.
In the first nine months of 1994, its earnings grew to $156.7 million (Canadian), largely by buying and selling businesses or pieces of businesses.
The auto suppliers in the Onex group are:
Automotive Industries, which makes interior trim systems.
Dura Mechanical, which makes parking brakes and window regulators.
R.J. Tower Corp., which makes structural-steel assemblies and components.
Onex's share in those suppliers ranges from 35 percent to 80 percent.
The combination of corporate capital and car dealerships isn't a new idea.
Lex Service PLC, a publicly traded company in Britain, owns several dealerships in California. Dah Chong Hong, a Hong Kong-based trading company, also owns a group of U.S. dealerships.
RISKY BUSINESS
There have been some private placements - for instance Sunrise AutoPartners on Long Island, N.Y., which went out of business- but nobody yet has succeeded in taking a U.S. dealership group public.
'There are a lot of risks,' said Timothy Collins, senior managing director of Onex Investment Corp. in New York.
He is in charge of financing Gibson's venture. Onex will hold the biggest stake in Asbury; Gibson will hold the rest.
'You could run into fraud; you could have something like the Honda (bribery) scandal; you could go public at the top of the cycle, then the cycle goes down, and your earnings fall out of bed,' he said.
Therefore, Onex wants to take it slowly.
'We have got to have a successful model, or we may do this once and then drop it, and never take it public,' Collins said.
'Whether this is replicable depends on how well we develop the structure.'
Still, the possible rewards are great, too.
Car retailing is 'the biggest industry in private hands,' Collins said.
'By far,' he added, in unison with Gibson.
Gibson said the top 100 U.S. megadealers represent sales of more than $30 billion a year.
