Cox Automotive: A 'house of brands' becomes a retail powerhouse

For many years, the universe of vendors to auto dealerships was stable. There was Reynolds and Reynolds and there was CDK Global, formerly ADP Dealer Services. After those two 400-pound gorillas in the space came everyone else -- a host of vendors, each with its own niche.

Seemingly overnight, Cox Automotive has burst on the scene as a rival to Reynolds and CDK. Its multiple brands offer services to dealerships that include online marketing, floorplanning, service scheduling, car hauling, used-vehicle auctions and reconditioning for retail sales. Cox's brands even include a dealership management system, albeit a minor one, which has always been Reynolds' and CDK's core strengths.

In the U.S. "we touch three out of four vehicle transactions in some way," says Cox Automotive President Sandy Schwartz.

While there are advantages to offering a full suite of products to dealers, Cox Automotive runs the risk of becoming too much like Reynolds and CDK in dealers' eyes. Those two vendors' sheer size and importance to dealership operations have led some dealers to view them as arrogant and insensitive to an individual dealership's needs. Those criticisms may be invalid -- dealers understandably are leery of becoming too reliant on any one vendor -- but are hard to shake. 

Many of the changes at Cox this decade are tied to the increased role of digital tools at dealerships. Cox Automotive has a clear vision of how online auto retailing will evolve and is positioning itself to be part of every step of that online transaction.

It's an ambitious goal for a company that, for three decades, was content in the automotive space to run an auto auction and publish car ads.

Cox Enterprises, a privately held Atlanta company, is the third-largest cable TV provider and one of the largest broadband communications companies in the United States. It owns The Atlanta Journal-Constitution and other newspapers, radio and TV stations, plus direct- and digital-marketing units. Its revenues in 2015 rose $1 billion, or 5.8 percent, to $18.1 billion.

A family-owned business, Cox Enterprises was founded in 1898 when James Cox bought the Dayton Evening News. He went on to serve as Ohio's governor and in 1920 ran for president with Franklin Roosevelt as his veep; they lost to Warren Harding. Company insiders still refer to "the governor" to distinguish the company founder from his son, James Cox Jr.

Today, Jim Kennedy, 68, is the third-generation chairman of the company. His cousin, Alex Taylor, 42, is the COO and heir apparent to run the company. At a recent gathering, the company's top managers were asked to lay out their succession plans. Taylor pulled out his smartphone, said, "Here's mine," and showed the group a picture of his 1-year-old son. 

Cox Enterprises got into the automotive world in 1968, when it bought Manheim, an auction company founded in 1945 in Manheim, Pa. In 1999 Cox joined private-equity investors to fund the launch of Autotrader.com, an online alternative to print auto classified ads, with Chip Perry, now TrueCar's boss, as the startup's first employee. Both businesses chugged along, growing successfully -- Autotrader topped $1 billion in revenue in 2011 while Manheim now is the largest auto-auction company in the U.S. -- but hardly setting the industry on its ear.

Then the company shifted into acquisition mode.

In 2010 Autotrader bought rival Kelley Blue Book and used-vehicle inventory management trailblazer vAuto. In 2012 Manheim snapped up Ready Auto Transport and merged two lending units to create NextGear Capital.

In 2014 Cox Enterprises united all its automotive businesses under the Cox Automotive brand, naming Schwartz as the unit's president. It also bought Xtime, which helps dealerships schedule service appointments. In a 2015 blockbuster move, Cox Automotive bought Dealertrack -- which included Dealer.com and a dealership management system company formerly known as Arkona -- for $4.5 billion, including debt that Cox assumed. 

When Manheim and Autotrader were run independently, "we had clients asking us, "Why aren't you working more closely?'" recalls Janet Barnard, president of Cox Automotive's Inventory Solutions group, which includes Manheim. Cox employees were asking the same question. So under the mantra "Better together," Cox put them together as Cox Automotive. 

"When we did that, of course, we realized we had a number of gaps in our ability to serve clients," says Barnard, who came from Cox's cable-TV operations. "That's when we did the Xtime acquisition and then later Dealertrack."

Cox Automotive has sought to merge and integrate related properties where it makes sense, even as it keeps their distinct identities and brands. The name "Cox Automotive" appears more frequently these days but generally less prominently than the more well-known brands such as Manheim, vAuto and Dealertrack. "We're a house of brands, not a branded house," Schwartz says.

Schwartz, the son of Holocaust survivors who emigrated to the U.S. before he was born, is a former journalist who has held 17 jobs during 31 years with Cox Enterprises. He is a rapid, self-deprecating speaker who is quick to give credit to others as part of what he calls "distributive management."

His "house of brands" approach has helped the company retain a number of the entrepreneurial, innovative founders of the companies it has bought, including vAuto's Dale Pollak, Dealer.com's Rick Gibbs and Dealertrack's Mark O'Neil.

Moreover, the company insists that dealerships should be able to pick and choose which Cox products to use and easily integrate those with any other company's offerings. Says Schwartz: "We're never going to say, "You gotta buy 'em all.'" And if one brand can better serve its customers by working with a Cox rival, so be it.

Still, Cox's rapid expansion and massive reach was on display at the National Automobile Dealers Association convention in Las Vegas in late March. Cox Automotive's numerous entities occupied more square footage on the exhibition floor -- 27,200 -- than Reynolds, CDK and General Motors combined, deploying 600 employees.

Cox isn't slowing down. "We are absolutely a growth company," Schwartz says. It expects to grow at a double-digit clip this year and to continue doing so for the next 20 years, according to Cox Enterprises' long-term plan.

In interviews, most dealers indicate they aren't particularly worried about Cox becoming too dominant of a vendor. But some are reserving judgment.

Brian Benstock, general manager of Paragon Honda in New York has used vAuto tools to manage his used-vehicle operations since before it was acquired by Cox Automotive. He is also a customer of Manheim, Dealertrack and Autotrader.com.

He was concerned at first about Cox Automotive's acquisition of vAuto because "Dale [Pollak] carried vAuto on his back."

But after seeing how Cox Automotive's many companies and platforms create "incredible" integration opportunities for dealers -- from vehicle acquisition to pricing to merchandising -- Benstock is sold. He said he also likes that the products "play nice" with his CDK dealer management system.

"These guys know what the heck they are doing," Benstock says.

Greg Kostern, business operations director at Johnson Automotive, a dealership group in Raleigh, N.C., says of Cox, "They're incredibly successful at everything they touch, [which is] indicative of management-side" strength.

But he warns that the company has to maintain the personal aspect of their client relationships. If that stops, he says, it would be the downside to Cox's growth. "At this point," though, "it's not happening," he says.

Joe Pritchard, owner of Pritchard Family Auto Stores in Iowa, says: "If they remember where they came from, bigger doesn't concern me. But if they forget where they came from, I would be concerned. Just because you're bigger doesn't mean you're better."

Pollak, Schwartz and others at Cox understand those sentiments.

"You know what? The only thing I can tell our dealers is judge us on our actions," Pollak says. "When you show dealers you will put their interests before yours, they will reward you for it."

Before Cox Automotive bought Dealertrack, Schwartz sounded out dealers. Would the company become too big? Would they resent signing very large checks to Cox?

The response was, he recalls, "If this works, I don't care who I'm sending my money to. If it doesn't work, you're out of here."