Bernie Moreno's unexpected U-turn

As a kid, Bernie Moreno "hated" car dealers and never wanted to be one.

He still doesn't want to be one if it means selling volume brands.

"At one point, maybe 10 years ago, I had this idea of having 100 dealerships and so forth," Moreno, president of Bernie Moreno Cos., told Automotive News. "But it was becoming too much brain damage."

The "brain damage" results from what Moreno says are the overwhelming number of factory performance targets many nonluxury dealers must hit to get cash from the manufacturer -- cash that is often crucial to a dealer's profits.

So late last year, Moreno -- an ambitious and savvy Colombia-born businessman -- decided to downsize. He sold most of his nonluxury dealerships, including a high-profile Nissan store in Ohio, for which he won financial support from Nissan North America.

Moreno sold another Nissan store and Kia, Mini and Acura stores. The sale of his Volkswagen store is pending.

It is an unexpected U-turn for Moreno, who last year at this time was on a fast track to expand.

Then, he owned 15 dealerships in Ohio, Kentucky and Massachusetts that generated more than $700 million in annual revenue. He was building a new Infiniti store in Coral Gables, Fla. He told Automotive News that he was open to adding stores, "anywhere between Miami and Boston, if it makes sense."

Today, Moreno, who turned 50 last month, has metamorphosed from an aggressive dealer willing to invest big in volume brands and drive heady sales growth to a pensive man who values the merits of a smaller realm focused on luxury brands.

Buy-sell adviser Mark Johnson said "portfolio purification," which is divesting from assets that a dealer is not comfortable operating, has grown increasingly common as dealers learn that the luxury store sales process and culture differs greatly from that of a volume store.

Johnson represents a dealer who is selling eight to 10 nonluxury stores in the dealership group. The dealer still will own 10 luxury dealerships and wants to add more, but luxury only.

"It's the dealer's mindset of how they're going to run their business, and when they decide they're not going to pound the customers [for deals] and they want to operate a different business, well, luxury is a really different business," said Johnson, president of MD Johnson Inc. in Seattle.

Johnson said the luxury culture is not "transportable."

"If you're a luxury retailer, your culture is totally different from a volume retailer," he said. "It all comes down to the sales process. It is so much different in the volume brands."

He said most retailers learn how to be good at one or the other, but it's difficult to operate both well because of the deal-based volume brand culture vs. a customer service-based luxury brand culture.

Bernie Moreno Cos. in North Olmsted, Ohio, will own 10 dealerships when the VW deal closes "soon." It will sell about 13,000 new and used vehicles this year, Moreno said. He projects finishing 2017 with about $896 million in annual revenue after making improvements at his remaining stores and adding the Infiniti store.

Even though his dealership count is shrinking, Moreno says he remains open to "great opportunities."

"That hasn't changed, but now [I am] only focused on luxury," Moreno said. "We will absolutely expand in Boston, Cincinnati and Miami, where we only have one dealership now. Boston will be our first-priority market."

Moreno said he has some "options" in Boston, but he declined to be specific.

Moreno's love affair with luxury is grounded in his confidence that he can foster long-term relationships with luxury-brand customers who value the vehicles and customer experience more than the deal. That relieves Moreno from the frantic pursuit of factory incentive targets often associated with many nonluxury brands, he said.

"In some of the [nonluxury] volume brands, you're chasing these crazy figures," Moreno said. "That's the way those brands are built, and you have to have a culture that is centered around that. We just don't do that that well."

Moreno said he hit the sales targets at his nonluxury stores, "especially at Nissan of Streetsboro" in Ohio. Airport Nissan of Cleveland "very rarely missed" any of its sales targets, he said.

And Moreno admits some luxury brands push factory incentive programs, too, but it's a "little fire" there compared with a "raging forest fire that's out of control" in the nonluxury arena.

Another reason Moreno is shedding nonluxury brands is the proliferation of ride-sharing services and the advance of autonomous vehicles. Both developments will make volume-vehicle ownership passe someday, he said.

"The luxury model will be relatively safe, whereas the volume model will be in trouble," Moreno said.

A luxury car, Moreno said, is a "desire," not a deal.

"If all you say is, "What can I get for $200 a month?' It's easy to then say, "I don't need a car at all. I'll just take Uber.' The minute they take a driver out of a car, it's going to be a real problem," Moreno said.

The luxury model will face trouble, too, he said, but, "That's a generation out."

Moreno's history with nonluxury brands has been audacious.

In 2012, he made a deal with Nissan North America around his purchase of North Coast Nissan, later called Airport Nissan of Cleveland. He paid a $4 million premium to buy Airport Nissan and a $550,000 premium for a nearby Infiniti store. He built glistening new facilities for both near Cleveland's airport.

Nissan initially agreed to pay him over five years $650,000 toward building the Infiniti store and $3.75 million for the Nissan store. Later, he said, he and Nissan agreed to a lower amount of just over $1 million for the Nissan store.

He collected the full $650,000 on the Infiniti store but never got the full amount for Airport Nissan, Moreno said.

"Nissan got the value of that," Moreno said. The money Nissan offered was "a fraction" of Moreno's relocation and facility costs.

In an email, Nissan North America spokesman Nick Twork wrote, "We don't comment on our individual business relationships with retailers."

Moreno said, "I never got all that money." But he said he has no hard feelings and maintains a good relationship with Nissan: "It's theoretical money over a long period of time, and I didn't hold the store for a long period of time."

Moreno sold Airport Nissan and Nissan of Streetsboro in Streetsboro, Ohio, to dealer Chris Lucas in October. The sale of Volkswagen of Streetsboro to Lucas is pending.

Moreno sold Airport Acura and Airport Mini to dealer Colin MacLean in November.

MacLean renamed the stores Crown Acura and Mini of Cleveland and says they are performing well.

Moreno's selling spree began in late 2015. That's when, he said, Lucas approached him with an offer to buy Kia of Streetsboro in Streetsboro, a town about 12 miles northeast of Akron.

Lucas did not return several calls for comment.

Moreno's sale of the Kia store prompted introspection about what he wanted for his future.

"See, I never wanted to be in the retail side of the car business," Moreno said. "As a kid, I wanted to be the chairman of General Motors."

A native of Colombia, Moreno grew up in Florida. He graduated from the University of Michigan in 1989 with a bachelor's degree in business administration and the dream of working for an automaker. It was a deep-seated dream. In 1982, at age 14, Moreno was so enamored with automakers, he wrote a letter to General Motors' then-CEO Roger Smith, suggesting ways Smith could improve GM. (See story, above.)

Despite a stint with Saturn from 1987 to 1993, Moreno segued into auto retail. He spent 12 years working for Herb Chambers' dealership group in Boston before striking out on his own in 2005, acquiring a Mercedes-Benz store outside Cleveland

He's made peace with being a car dealer, but after selling the Kia store, he knew he wanted to refocus to luxury stores, he said.

Moreno's remaining dealerships sell luxury brands except for Buick-GMC of Beachwood in an eastern suburb of Cleveland. Moreno said he will not sell that store because many of his Mercedes-Benz clients live nearby and buy Buick or GMC vehicles as winter cars, he said. Also, the store sits next to his Infiniti of Beachwood dealership, giving him economies of scale. Then there's the sentimental tie to GM and Smith, he said.

In the meantime, a federal lawsuit filed by two Cleveland-area dealers against Nissan for its 2012 alliance with Moreno awaits a trial date after a federal judge last year denied Nissan's motion to dismiss the case. The two dealers allege Nissan's confidential agreement to provide Moreno with millions of dollars in support amounts to a discriminatory incentive program that violates U.S. and Ohio law. A lawyer for the plaintiffs said Moreno's sale of Airport Nissan does not impact the case against the manufacturer.

Likewise, Moreno said the lawsuit did not factor into any of his latest strategic business decisions.

"That's just life. You have ups and downs. Business can't always be good. The critical question is: If you could do it all over again, would you?" Moreno said. "I would.

"When we bought [Airport Nissan], it had 30 people working there. Fifteen of them still work there, even though we don't own that company. I wouldn't trade that for all the crap I've gone through."