By purchasing rival Driver's Mart Worldwide Inc. for $40 million last week, Republic Industries Inc. killed a flock of birds with one stone.
With a single stroke, the Fort Lauderdale, Fla., conglomerate:
Swept a key rival out of the used-car business
Dramatically speeded up the rollout of its AutoNation USA used-car megastores
Launched AutoNation USA into key middle-market cities.
Eight Driver's Marts will be converted to AutoNation USAs shortly after the deal is closed, and two Driver's Marts nearing completion will open under the new name. AutoNation USA already has 26 stores.
By establishing a relationship with the Driver's Mart dealers, Republic also put itself in position to eventually buy the new-car-dealership groups of the 14 Driver's Mart retailers, including three on Automotive News' list of 1997 Top 100 Dealer Groups.
'You're partnering with some very elite dealers,' said Michael Maroone, president of Republic's automotive retail group and one of the co-founders of Driver's Mart before he defected to Republic in January 1997. Maroone said he is confident the dealers will give 'additional consideration' to the idea of being purchased by Republic.
Driver's Mart is a used-car chain created in 1996 by new-car dealers as a response to the likes of AutoNation USA and CarMax.
The Driver's Mart dealers will still own and operate their Driver's Mart used-car stores, but now those stores will carry the AutoNation USA name and function as AutoNation USA franchises.
The dealers have committed to opening up to 19 more AutoNation USA stores by the end of 2000. The Driver's Mart dealers will be franchisees of AutoNation USA, marking AutoNation USA's entry into the franchise business, at least temporarily.
'With this development it's easier to see the achievement of 100 stores by the end of 2000,' said Maroone. The purchase moves AutoNation USA closer to establishing a national automotive retail presence, he said.
The two companies began talking last year, and reports of a pending merger circulated at the National Automobile Dealers Association convention in early February.
Republic is the largest auto retailer in the country, having acquired or announced plans to acquire 55 dealership groups with 283 franchises since late 1996.
Republic's latest acquisition leaves CarMax Group as the only national used-car rival to AutoNation USA. CarMax has 19 stores; AutoNation USA will have 34 when the Driver's Mart deal is closed, with two more to follow shortly.
Driver's Mart's dealers and management team will divvy up the $40 million in cash from Republic. But the potential windfall for the dealers does not end there.
Steven Berrard, Republic president and co-CEO, said the Driver's Mart dealers also will get financial incentives, which could be Republic stock. Those incentives will be tied to store openings and profitability. Republic will have the right to buy the stores back from the dealers and convert them into company stores. Details of how and when those transfers might take place are not complete.
Said Jim Donahue, Republic vice president of corporate communications: 'The objective is not to start franchising AutoNation stores. Franchising was an expedient way to close this transaction and put 27 additional AutoNation stores on the map in next 21/2 years. Our objective is to own those stores outright. We're looking for share, and this gets us market share pretty quickly in some significant cities.'
Tom Eggleston, Driver's Mart president, said the cost of developing the new AutoNation USA stores will be shared by the franchisees and Republic.
The Driver's Mart management team, including Eggleston, Director of Operations Gary Marcotte and Chief Financial Officer Steve Strader, have signed employment contracts and will move from the company's Grand Rapids, Mich., headquarters to Fort Lauderdale. They will manage the transition of the Driver's Mart stores to AutoNation USA and the new store openings.
Two Driver's Mart stores will not become AutoNation USA stores because they are too close to existing AutoNation outlets: John Bergstrom's store in Tempe, Ariz., and Greg Heinrich's in Las Vegas. Republic will buy those stores but has not determined how they will be used.
Driver's Mart retailers not participating at this point are Herbert Boeckmann II of Van Nuys, Calif.; Roger Holler of Winter Park, Fla.; and Sam Ito of Hoover, Ala. Boeckmann had not opened a Driver's Mart store and decided to pull out of the talks because of his involvement in a planned Ford Motor Co. retail venture in California's San Fernando Valley.
Driver's Mart probably was doomed to become a historical footnote in January 1997 when Republic Chairman and co-CEO H. Wayne Huizenga and his team lured Maroone away. Maroone, then owner of the Maroone Automotive dealer group in Pembroke Pines, Fla., had founded Driver's Mart in 1996 along with Don Flow of Flow Automotive Co. of Winston-Salem, N.C., and Joe Serra of Al Serra Auto Plaza in Grand Blanc, Mich.
They hired Eggleston, a University of Virginia college friend of Flow's and a top Amway Corp. executive, to manage the company.
Driver's Mart was rooted in the belief that dealers know how to sell cars and make customers happy better than outsider upstarts. But the stores opened slowly, and Driver's Mart lagged behind its rivals in establishing a national presence.
Driver's Mart was handicapped because, unlike its rivals, it was not publicly owned and therefore did not have access to Wall Street capital to build stores quickly.
When Huizenga took the automotive world by storm in 1996-97 with his blitzkrieg acquisition of new-car dealerships and rapid rollout of a chain of AutoNation USA stores, Driver's Mart got lost in the hubbub.
Driver's Mart had difficulty gaining traction in the market because it had to keep replacing dealers who defected to Republic or other ventures. With Maroone at the automotive retail helm, Republic bought two Driver's Mart dealer groups: Appleway Auto Group in Spokane, Wash., and Anderson Dealership Group in Palo Alto, Calif.
Prominent dealer groups such as Pohanka Automotive in Marlow Heights, Md., signed on and then bailed out. Other promising recruits, such as Behlmann Automotive in St. Louis and Coggin Automotive in Jacksonville, Fla., got cold feet before they signed up. Driver's Mart had to scramble to find dealers to replace them.
The Driver's Mart dealers flirted with the idea of taking the company public, but the market for initial public offerings by car dealerships turned sour.
While Republic and CarMax spent lavishly on their superstores - up to $25 million per site - Driver's Mart was a bare-bones operation. Average building and development cost for each store was $5 million to $6 million, Eggleston said. That was partially because the stores were in smaller markets.
With about 350 cars apiece, Driver's Mart stores generally are smaller than their AutoNation USA or CarMax counterparts.
This is not the first time Republic has taken a rival out of the used-car business by acquisition. In 1996, Republic bought rival CarChoice for $90 million in stock.
Reaction to the deal was generally positive. Driver's Mart franchisee Bergstrom was delighted, even though his stores will not be converting. Bergstrom opened the first Driver's Mart franchise in Neenah, Wis., in 1996. He said he will open AutoNation USA stores in other markets, including possibly Minneapolis.
'We developed a process of how to take very good care of people and the technology to support it, and we were paid very fairly for it,' he said.
Customer satisfaction guru J.D. Power III, an unpaid member of the Driver's Mart board, said he was disappointed to see Driver's Mart disappear. But he said the move will be good for the Driver's Mart dealers and ultimately the car-buying public. Power will not be involved with Republic.
Rival CarMax had no specific comment on the acquisition that eliminated one of its rivals and strengthened another. Val Brown, a spokesman for CarMax, said only: 'The focus has to be on the consumer and treating the consumer well. Because ultimately they will decide who wins and who loses as an auto retailer.
'The primary objective is to make sure that they're satisfied. The issue is not numbers, but if you're executing on your promise, and that's what CarMax continues to do.'