Two opportunistic dealers are looking for more Volkswagen stores

Dealers Clay Cooley and Jason Kuhn are contrarians: They have been buying Volkswagen dealerships despite the company's slumping sales and its ongoing scandal over diesel-emissions cheating.

Cooley, who owns Clay Cooley Auto Group in Dallas, bought two Volkswagen stores last month.

Kuhn, president of Kuhn Automotive Group of Tampa, Fla., which already owned two VW stores, bought another in Atlanta in January 2015 and will break ground in “a few months” for a VW store in Columbus, Ohio, aiming to open it in the second quarter of 2017.

And they're not done. Each dealer wants to own more VW stores, even as buy-sell advisers have downgraded the value of the brand's stores to practically nothing.

“The pendulum has swung too far,” Kuhn said. “Valuations for VW stores have come down to a point where they are a screaming 'buy' for us.”

Kuhn admits: “Volkswagen has work to do to get past the financial issues caused by this crisis, repairing U.S. consumers' perception of the brand and to rectify the damage done to the brand by the diesel fraud. It won't be easy.”

But he believes VW will do exactly that, which is why he's willing to “take the risk to continue to invest our money behind the VW name.”

That risk is mitigated by the fact that Cooley and Kuhn can look beyond new-car sales to make a living. Both are known for their used-car sales savvy — used vehicles outsold new ones 2-to-1 at one of Kuhn's VW stores last year, for example — and strong service businesses. They view VW stores as moneymakers in those areas until the brand fixes its problems and its new-vehicle sales rebound.

VW's diesel-emissions scandal erupted in September. Some 580,000 U.S. vehicles have been identified as having been equipped with “defeat devices” that allow them to pass laboratory emissions tests despite exceeding federal standards when they are driven on roads.

The scandal has made many VW stores difficult to sell. Many dealers worry about the financial impact the scandal will have on VW and the ding to its image. VW brand's new-vehicle U.S. sales through March slumped 13 percent in a light-vehicle market that rose 3.3 percent. In 2015, VW's sales slid 4.8 percent against a 5.7 percent market gain.

Dealers who want to sell a VW store can expect to receive little, if any, blue sky, the intangible value of a dealership beyond its hard assets, buy-sell advisers say. For example, Alan Haig, of Haig Partners in Fort Lauderdale, Fla., has VW's blue sky listed as a flat dollar amount — not the traditional multiple of earnings — because the brand is worth so little. Haig lists it at $0 to $2 million per store.

Still, Haig said, “One man's trash is another man's treasure.”

He said some dealers have “had enough” and are looking to sell. Some East Coast dealers are even charging only for the real estate and assets and still struggle to unload their stores.

“But others believe they'll make a great return in today's market,” Haig said. “They can buy in low.”

Kuhn, a fan of Wall Street value investor Warren Buffett, said: “Buffett built a company by taking advantage of the buying cycle, and this is a good time, with the VW brand, to buy low.”

Last year, Kuhn Volkswagen of Marietta, Ga., sold about 500 new vehicles and 1,000 used. Kuhn expects the Ohio VW point to sell about 700 new and 1,200 used vehicles a year.

“After we have Columbus built out, we will have about $60 million invested in the brand,” Kuhn said. Until VW gets its ship righted, Kuhn will lean on used-car sales.

“We've always been very good used-car dealers,” Kuhn said. “The pre-owned end of the business has been integral for us. As a VW dealer today, it's become a bigger part of the business.”

Cooley bought Clay Cooley Volks-wagen of Richardson and Clay Cooley Volkswagen of Park Cities, both near Dallas, in mid-March because he liked the high-traffic locations and is bullish on the brand's ability to rebound.

A source familiar with the deal said AutoNation Inc. sold him the stores. A spokesman for AutoNation declined to comment. Cooley declined to name the seller or discuss terms of the deal, other than to confirm he paid a blue-sky value because “we're in Dallas.”

Cooley owns two Nissan, one Chrysler-Jeep-Dodge-Ram, one Chevrolet, one Kia, one Mitsubishi and two Volkswagen stores, all in Texas, as well as a Toyota-Scion store in Missouri. About 60 percent of his group's roughly 25,000 vehicles retailed last year were new vehicles. He said he expects the VW stores to add about 3,600 new and used sales to the company this year.

Cooley has a history of doing things differently yet surviving. He started as a dealer 18 years ago, selling used cars on a dirt lot. He got his first new-car franchise, Isuzu, in 2003. But he didn't have enough cash to close that deal, so he put $300,000 on credit cards.

“But I don't look at it as risk,” Cooley said. “I just get up every morning and sell cars.”

The only time Cooley was nervous was in 2009, he said. He owned a Buick-Pontiac-GMC store and a Chevrolet store. General Motors, then in Chapter 11 bankruptcy, was terminating dealerships.

Cooley survived, but the experience taught him how to be profitable when an automaker is in the pits. “I was selling 80 percent used and 20 percent new. I was really focused on the used,” Cooley said.

He applies that lesson to his current VW stores. “I'm concentrating on the new-car sales and building my fixed operations,” he said. “But if I can't get the new-car sales volume, I can always pick it up on used.”