Jack Pohanka says he was the first U.S. auto dealer to sell both foreign and domestic vehicles. He's also the guy who invented the term "megadealer."
In fact, it has been a lifetime of innovation for Pohanka, 78. He pioneered such dealership innovations as the automotive real estate investment trust, which buys property from dealers and gives them long-term leases to continue their operations. And he helped launch the certification of automotive technicians. Pohanka was president of the National Automobile Dealers Association in 1976.
Pohanka's chain of 14 stores, which was founded in 1919, is the oldest dealership group in the Washington, D.C., area that has remained under the same family ownership. Pohanka spoke with Staff Reporter Donna Harris about industry trends.
You were chairman of Capital Automotive REIT, the only publicly held real estate investment trust for auto dealerships, before its recent merger. Why did you believe the introduction of a REIT was important to the industry?
It's a nice way to separate the real estate from the business. Years ago, every dealer had real estate. But over time, the business has changed. Some dealers have separated the properties from the dealerships. Public dealership groups had come on the scene. There is no need for them to own properties.
And certain privately owned dealerships want to become larger. They can sell their real estate to the REIT (for capital) to expand their business and keep it rolling. There also are larger dealers who are getting older and looking for an exit strategy. It can be a good estate planning tool. Dealers can sell the real estate for shares in the REIT, and leave those shares to children who do not want to be involved in the business.
There were attempts to take other auto retail REITs public. Why did your initiative succeed? Did timing have anything to do with it?
Bob Rosenthal (owner of a large Washington-area dealership group) and I conceived the idea of a publicly held REIT for car dealerships. We went to Friedman Billings Ramsey (an investment banking firm in Washington). No sooner did we get public then the window closed.
There was a good deal of skepticism on the part of investors. We showed them dealer profits are very consistent. We were careful in selecting dealers, to make sure we had the right locations. Seventy percent of the dealership properties we bought were owned by the top 100 dealers in the country.
So why was there skepticism?
There was always something that was going to bring about Armageddon. First it was the Internet. I didn't believe the Internet (vehicle marketers) would take over. I would get on conference calls and say the Internet is a good thing. It enables a good dealer to solicit business outside his territory. That has proven to be correct. Investors got over that fear.
Then the manufacturers started getting into the retail business. But they have done that before, and I believed they were going to get out. They don't know how to run retail operations. Suddenly, not only the investors but the competition started to say, "Hey, this is a pretty good segment."
Capital Automotive REIT was taken private through a merger. Why was that a reasonable strategy? Its stock price was strong.
All the REITs were overvalued. We thought there would be a correction in the market. We also saw new competition. Other financial organizations realized we weren't misguided people in getting into this segment. Our stock was at its all-time high: $40 (a share). But the REIT reached its high point.
We were able to get a good price for our stockholders, selling at $38.75 per share to DRA Advisors LLC. DRA invests money for universities. They can do things as a private company that a publicly held REIT couldn't do. They do not have to mess with Sarbanes-Oxley (a federal law that regulates public companies). It cost $5 million to $6 million a year to comply with it.
You pioneered the dual-franchise dealership. How did that come about?
We started diversifying back in 1956, when I became a Fiat dealer. A friend of mine sent me a study on cars people drove. The median income of a Volkswagen buyer was higher than the income of an Oldsmobile buyer. And their level of education was higher than any make of car, including Cadillac.
This was a cultural revolution. These were younger, well-educated people who looked at cars with a pragmatic view. The imports were easy to park, got good mileage and were easy to repair - not ostentatious. Domestic cars were huge boats.
I became the first dealer in the U.S. to sell both foreign and domestic cars. In those days, you were either a foreign or domestic dealer. I dualed Fiat with Olds. I didn't realize what I was doing. I always wanted a better franchise. I started courting Honda before they came east, and became one of the first Honda dealers. Then Acura came along. And then Lexus - I knew that was the right thing to do. I got with that trend early on. A dealer has to hedge his bets. You can't have all your eggs in one basket.
With a dealership in downtown Washington, I got to know the National Automobile Dealers Association and its staff. They asked me if I would go out on the road and give a talk. I said sure. I could meet more dealers and learn more. I went to Lansing and Grand Rapids and Flint and talked about what I saw as the coming of the import cars.
In 1983, I gave a talk on merchandising. I coined the term "megadealer." I went to a dictionary (to find a term for large) and it said "mega." I gave a similar talk in 1993. Things had changed. "Mega" meant not only a dealer who sold a lot of cars, but dealers who thought outside the box in very large terms.
Didn't you help prevent Congress from passing license requirements for auto technicians by founding the Automotive Service Excellence certification program?
The idea was for the (U.S.) Department of Transportation to license mechanics, to provide a minimum level of competence. The legislation would provide the means to take the license away if the mechanic had done something fraudulent.
NADA and the auto manufacturers got together to work on this mutual problem. Licensing would not achieve our ends, or the goals the government was trying to achieve. The level of competence would be so low it would be meaningless. You do not have to be much of a driver to get a driver's license.
We developed a voluntary program involving a written test, with high enough standards to be meaningful. We did the first ASE (Automotive Service Excellence certification) test in 1972.
Did you hit any bumps in developing the test?
The manufacturers wanted to lower the (passing) score. They thought it would embarrass the industry if a lot of people did not pass the test. I said no, it is good if they don't pass the test. It means you have got a tough test. The guy who passed it will excel, and the guy who doesn't pass it will study to pass it next time.
In more than 30 years at this, I know of no technician who was ASE-certified who couldn't do the work. They might be slow. They could be dishonest. But as far as capability of performing, if they are certified, they can do the work.
ASE turned out to be a valid thing and a good thing. It's the best thing I have ever done. It's touched more people.
You've said you would like NADA to add a seminar for dealers on how to establish a family charitable foundation. How would this help dealers?
So much of our time and energy is devoted to accumulating wealth. Very little thought is given to how to spend it. With a family foundation, you get the family involved, teach them the value of money and teach them accountability. You bring the family into decisions. They have the right, as family, to make a recommendation to the trustee on how money should be spent.
What is your experience?
I started a family charitable foundation 10 years ago. I had a lot of stock in (the dealer insurer) Aon Corp. I had been on the board for 16 years. I paid $40,000 for the stock. It grew to be worth $20 million. When you sell stock, there is a huge capital gain. It's smarter to gift the stock in a foundation.
You've said setting up a foundation can teach a family to be charitable. Has that held true in your case?
There's not a bit of greed in my family.
What's the next trend in auto retailing?
I think there will continue to be some reduction in makes. There will be more of a shakeout. Even if you survive the earthquake, you may not survive the aftershock. If you fail to sell new cars, you start to lose your service business. That's when things go under.
You may e-mail Donna Harris at [email protected]