The public auto retailers aren't the only large dealership groups shopping again for stores. Privately held Staluppi Auto Group is, too.
Staluppi, headquartered in North Palm Beach, Fla., is poised for growth. The group of 21 dealerships last year jumped a notch to the eighth-largest dealership group based on 39,286 new retail unit sales.
John Staluppi Sr., the 63-year-old CEO of the group's eastern division, discussed his company's expansion plans with Staff Reporter Donna Harris.
How did you start in the auto business?
I started as an auto mechanic in 1964 at a Chevrolet dealership in New York. In the late 1970s I became a dealer. We had 40 dealerships all over Florida and New York. When interest rates went up to 20 percent, I started selling stores. Now we have 16 dealerships in New York and five in Las Vegas. My son, John Staluppi Jr., is CEO of the Las Vegas stores.
What plans do you have for growth?
We are going to expand. We're looking for more franchises and eventually look to go into other areas of the country. If we do, we will buy a cluster of four or five stores. We would not just buy one dealership. We're looking for economies of scale.
The brands we have -- Toyota, Honda, Hyundai, Chevrolet, Cadillac and Audi -- are the best franchises and the best manufacturers to be working with.
Any other franchises interest you?
We're starting to look at the German makes -- BMW, Mercedes-Benz and Volkswagen. We'll eventually try to get a Ford dealership. We had Ford in the early days and got rid of it. I wouldn't mind having one or two of them as long as they are big-volume stores.
You say your current franchises are winners, but that wasn't always the case. You had Oldsmobile but shed it before the phaseout.
At one time, we sold over 3,000 Oldsmobiles a year and had four Olds stores. GM was the ultimate franchise to have. Then Oldsmobile made changes and started going downhill.
We spotted Oldsmobile's problems ahead of time and got out early. We probably got rid of the Oldsmobile franchise two years before GM was really phasing it out.
You have to keep your hand on the industry's pulse. We were looking at the products coming down the line, and they were not appealing to the market.
What do you think of GM now?
GM is doing a good job now. Chevrolet and Cadillac are the best GM franchises. We just don't have enough products. If we had cars, we would sell more cars. I would love to get more Chevrolet and Cadillac stores. They're good franchises.
How do you feel about Toyota?
I love Toyota. It had a few bumps in the road, but we've not been affected that much by it. In our stores, we never had people complain. To me, the recall scare was more media hype than anything wrong with the car.
February started slow. Our Toyota business was off 35 percent, but it immediately came right back again the next month. Toyota is still a good car. The problem was short term.
As you shop for dealerships, what size stores are you looking for?
We like to do 200 to 500 new units a month. It's just as much work to run stores that sell 50 new cars a month as it is to run stores that sell 250 new cars a month.
If a store sells less than 100 new cars, it doesn't pay to have it. Our Audi store is not selling 100 new cars, but we will have been a dealer a little less than two years. We're finally getting more and more product. I'd like to sell 150 new Audis a month, and I think we can if the product is available.
What are prices for dealerships like right now?
Guys with good franchises will still demand anywhere between five to eight times pretax earnings. Those with weaker franchises will get three to four times earnings.
The public retailers are looking to see if they can buy stores at three times earnings, but you get what you pay for.
Some guys prefer open points because they think they can make money right away when they're not paying for goodwill. But most open points lose $1 million to $3 million a year until they start generating service and parts business. You're almost better off buying a good existing business.
How do you know when an acquisition is the right fit?
We shop the dealership for a week, sending a mystery shopper to the store to evaluate it. If the store can stand some improvement, that's a store we'll go after. If a store is doing everything right, it is harder to turn around unless we can achieve cost savings.
How did you navigate through the recession?
We brought down our cost of doing business, making more profit last year than the years before. We also maintained our advertising and really gained market share.
We had layoffs and budget cuts, but we were able to maintain our volume. Sales volume went down 2 to 3 percent, but profits were up about 12 percent. This year we're on track for sales to go up 65 percent.
How has your advertising strategy changed?
We stepped up advertising, buying from $14 million to $16 million in advertising when we usually averaged between $10 million and $12 million.
We are getting bigger on the Internet and into mailers. We're also doing a lot of print and getting heavily into television and radio. We were a newspaper-driven company.
Our approach is targeted. Cable TV is getting more advantageous. We can go into different zones and not have the expense of a national campaign.
We get sales data from all our manufacturers to see what markets we're not penetrating. We get those ZIP codes and do a cable TV buy and direct mail to that area to pick up additional business. We are probably bringing in 35 percent new business.
How do you make sure your stores are competitive?
You never know how you are doing unless you mystery shop your own stores. We try to shop each store once or twice a month, sometimes with outside professional shopping services. We also survey customers who buy cars from us and those who don't buy from us.
As good as we think we are, we still find flaws. I think 95 percent of the time we give customers a great experience.
How do you motivate your front-line people?
Our salespeople are paid on volume and gross. We have to keep some of the pay tied to gross or they may sell a lot of cars but not make a profit. The sales force has a sliding commission depending on the car and how much gross they make. All of them have a sales objective. If they hit it, they get an extra cash bonus per car, retroactive to the first car sold.
Have you any concerns?
Our biggest concern is getting people financed. The captives are doing a great job buying deals. It would be nice if we could get the banks to buy deeper.