Brian Kendrick, CEO of Asbury Automotive Group, says he is resigned to keeping the company private - at least for now. That is an easy choice, he points out, because stock prices are low for publicly traded auto retailers. But Kendrick's hope is that the auto retail segment has bottomed out, leaving it nowhere to go but up.
Asbury, which is based in Stamford, Conn., is the nation's second-largest dealer chain after AutoNation Inc., according to the 1999 Automotive News list of the Top 100 U.S. Dealership Groups. Asbury has 85 dealerships, with estimated revenues for 2000 at around $5.2 billion. Kendrick, 47, joined Asbury one year ago, after a year as president of DFS Group Ltd. of San Francisco, a retailer of luxury goods. Before that he was COO of Saks Inc., the department store chain. Kendrick led Saks during an initial public offering in 1996. Asbury is his first auto-related job. Staff Reporter Jim Henry interviewed Kendrick in New York on Nov. 21.
It's safe to assume no IPO for Asbury any time soon, right?
The markets clearly haven't been very friendly. But the gas is just about out of telecom stocks, Internet stocks, B2C - all that - and when the tide turns in the market, there is no better value stock, with better cash flow, than we are. I think 2001 is going to be a good stock year for this segment. People are just not going to ignore good fundamental cash-flow companies like ours.
Did it require a major change in mindset, realizing that an IPO is not in the cards right now?
Clearly, we hope to take advantage of the public markets some day, but that's not imminent. That means in the meantime you've got to be more selective in what you buy. We still manage ourselves as if we were a public company. You still hold yourselves to the same benchmarks: return on invested capital, managing your assets, working on maximizing your performing assets, working on growing profitability - all the things that as a public company you would do. It's true we have to count a little more on our debt partners than we would have anticipated, at this point in our lives.
I take it your position is that the business plan is not contingent on an IPO?
Sure, we need capital to buy good, attractive dealership assets, to add value to them, and to generate a good return on invested capital. We are looking for other ways to raise money. Fortunately, we've got great backers in (investment firms) Ripplewood Holdings and Freeman Spogli & Co., and the captives, and others. There is no lack of capital here so far, and we don't think there will be.
Do you buy 100 percent of all your dealerships?
No, our strategy in the big platform acquisitions is to keep the dealer principal in the franchise. We'll buy a majority of the shares, but the dealer principal will keep up to 49 percent, to as low as the 20s. For a 'tuck-in' - a single store that we add to an existing platform - in most cases it would be all-cash (to buy 100 percent).
Other than acquisitions, and absent an IPO, what do you have going on behind the scenes?
We have finished the rollup. We bought individual megadealers and then did tuck-ins. But in effect we had eight individual companies, which is an inefficient way to run things. It was difficult to move money around. Now we have one company, one balance sheet, one audit. We can do one master (borrowing) facility.
What acquisitions have you done lately? Are you slowing down at all?
We had a tuck-in, which is now part of the Nalley group. (In October, Asbury acquired Troncalli Jaguar in Roswell, Ga., and renamed it Nalley Jaguar.)
There are several pieces in the pipeline.
We expect to end this year with about $1 billion in acquisitions - that is, acquisitions that generate $1 billion - plus or minus a couple of hundred thousand. That was right on plan, and I expect next year will be about the same, the same target.
Is it good or bad for you if auto sales slow down? It might not be all bad, would it?
First off, being a retailer, I'd always like to see sales being bigger every year.
But, yeah, it could be an opportunity in a couple of ways, even if it is perverse, as you say. The Internet myth, that the Internet was going to 'disintermediate' dealers (that is, eliminate dealers as a middleman) has been blown up; the myth that consolidation doesn't make any sense has been blown up. The last myth is cyclicality. We would almost welcome a down cycle to prove that we can perform in a down cycle as a strong cash-flow business.
Now that you've got a slowdown, well, the opportunity in a cyclical business - and this is still a cyclical business - is when you've hit bottom, right?
Marshall Cogan (former UnitedAuto chairman) took a lot of heat for not being a 'car guy,' even though he thought he had car-guy credentials. How have you found the transition?
Marshall Cogan was a financier. I'm from retail.
There are far more similarities than differences (between autos and retail). Yeah, the differences are there: As an auto retailer you've got the F&I side of the business to cover. You've got a much bigger dimension to vendor relations, for instance. But in both industries, the bedrock assumptions are the same:
The customer is king.
You've got to recruit and motivate and train employees, and compensate them correctly.
You've got to mine your customer data bank.
If we don't do those things, if we don't have good customer satisfaction, if we don't run a good business, we're going to fail.
Retailing is a rough business. It's tough sledding, let me tell you, to get the manufacturer to help move the merchandise when it sits. In autos, the manufacturer is highly motivated to help move the metal, to keep his factories running, and to get retail paper moving. It's a semiprotected environment compared to retail (clothing). There are few OEMs. There is franchise law protection.