Maroone back in the retail business

DETROIT — For legendary dealer Mike Maroone, retirement didn't take.

After stepping down in 2015 from his longtime role as COO of AutoNation Inc., the country's largest new-vehicle retailer, Maroone pondered his next steps. Getting back into auto retail was his goal — but with a different purpose this time around.

Maroone joined AutoNation in 1997 when he sold his family's dealership group to the growing auto retail chain. He became a key architect in AutoNation's expansion over the years. During his absence from the retail world, Maroone tended to an array of ventures unrelated to the auto business. He also joined the board of upstart online used-vehicle retailer Carvana Co.

When Maroone decided to get back into auto retailing, it wasn't because he missed day-to-day oversight of dealerships. Instead, Maroone intended to transfer his knowledge about the business to a younger generation. He is working with his nephews and son-in-law in the Maroone USA dealership group, formed in 2017.

Maroone, 66, spoke with Tom Worobec, editor of Automotive News TV, at Automotive News' office here in October. Here are edited excerpts.

Q: Why did you come out of retirement and re-enter the dealership space?

A: I've got a real love of the auto retail business. I love the product. I love the people in the business. It is their willingness to serve guests and to adapt in a business that is basically variable compensation. They are not working off big salaries and big overhead. Instead, we are lean entrepreneurial businesses, and it takes a certain kind of person to be successful in that.

In 2017, you acquired four dealerships in Colorado Springs, Colo., from your longtime friend and fellow dealer Joe Serra. How did that deal happen?

I was at a meeting with him, and he talked about these stores in Colorado that he was going to sell. We quickly made a deal. And then I asked him if he would stay and be a partner. He is a 20 percent partner in the stores, and it gave us the learning from Serra Automotive, a best-in-class retailer, and gave me a very trusted partner and confidant.

Maroone USA has equity partners in its dealerships. How does that work?

You can only be in so many places and do so many things. When I was at AutoNation, one of the things I learned is you've got to be able to scale yourself. And I wanted to be able to attract great partners and people that could really serve our guests better than others in the marketplace. So we hand-pick our operators and offer them an opportunity to buy equity in the company. I loan them the money, and they pay me back out of profits. I got the idea from Joe Serra, who has done it very successfully all through the Midwest.

You have expanded to six stores. Are you in growth mode?

We are seeing prices [of dealerships] moderate. We are seeing much more choice out there, and it is an opportunity to look for the right businesses at the right time. You've also got very low interest rates. But you have to be careful. You can't let low interest rates push you into high-cost transactions.

How do you assess potential acquisitions?

There are probably a hundred different things you look at. But the first thing we try and do is drive the community and see what kind of vehicles are parked in driveways [and] shopping centers. Trying to understand what the traffic flow is. Trying to understand the strength of that brand in that market. Then as you get deeper into the deal, it is all about the talent.

In the store we just bought in Longmont, Colo., one of the great attractions was a core group of associates that were just outstanding. The general manager, who could have made a lot of money cashing out, instead decided to roll his equity in. That was a really good sign to say, "I believe in the business, I believe in the community and I believe in the team." And those are the things that are really important. After you get beyond the location, the demographic, the mix, then it is all about the team.

How do you manage costs and maximize profits in a slowing new-vehicle market?

We know there is going to be a downturn at some point. We are hoping it is not around the next corner, but it is going to be there. One of the things you want to think about is, how do you retain the talent you have in a downturn? We do a lot of asset-management meetings. But we do an awful lot of development work so that we can have this really strong work force — that if we have to downsize at some point, this core group can help us get through any difficult times.

Is the fixed-operations side of the business the key to helping dealerships weather an economic downturn?

The service department is a critical part of the dealership. We see our guests more in service. We don't have to wait three or four years to meet a guest again. So, we have an opportunity to make an impression. It also provides us with great gross margins. And it is something that frankly can't be disrupted by an e-commerce retailer of any sort. It is a very personalized relationship. The other area that is critical is the used-car business. When people talk about the new-vehicle selling rate is going to be 17 million or 16.5 million, I'd rather focus on the used-vehicle selling rate that is always between 39, 40, 41 million. If you add those two together, that is your real market. Sometimes with affordability [concerns], people are going to go used instead of new. Sometimes incentive plans drag people one way or another. But I look at it as a 57-million-unit business, not a 16- or 17-million-unit business.

You have talked about the importance of dealers protecting their capital. Are factory image programs needed in today's environment?

You've got to prioritize your capital needs very carefully. We do it on an annual basis. It is not set in stone, but we try to look forward and say, "What is it that we need to serve guests? What can we do to create a competitive advantage to be a great place to work?" One of the things that goes in that is the OEM image programs. And to be candid, those have some of the lowest return on investments of any of our capital. However, if you are going to be a good partner, you have got to look the part; your store has to fulfill the image.

But there are things underneath that that are very important and some of them are very expensive. There are times where, as retailers, we just have to push back and say, "That is not cost-efficient. I have higher uses of my capital. I want to expand my service. I want to increase my technology platform. I want to put more money into training. I want to do more things to advance the business. And yes, I'll give you the look and feel you want, but I am not going to knock down walls and expand things that just don't make sense."

Have you had success negotiating with automakers on image programs?

I don't think it ever works out perfectly. But there is a good, two-way dialogue. If you find a way to meet somewhere in the middle — you can with many; others are not quite as flexible — you have to have that discussion. Capital is a finite asset, and you just want to be very careful how you use it.

What is your take on stair-step incentive programs?

They are terrible. They are bad for the industry. They are bad for the guest. They are bad for associates. What they create is a feeding frenzy within a brand, where you are competing against your fellow dealers of that brand. And you are trying to beat them on price and price alone. And what happens is, your objective vs. your performance has gaps. You can have two people in the same neighborhood that bought the exact same car from the same retailer and pay two very different amounts of money. In an age of transparency and information, it is really bad for the business. I think it has destroyed some brands. I won't name names. But those that have been most aggressive have not been successful over a period of time.

I would imagine the aforementioned scenario prevents dealers from building trust with customers.

Our guests believe we control the price, not the manufacturers. We don't sit down and talk to guests and say, "Well, we have a stair-step incentive, and if we get to this number, we'll get $500 back a car, and I can do this for you." There are times you could almost give away a car to hit a number and still make it profitable.

How do dealers balance between brick-and-mortar and digital retailing?

It is the question for the industry. I am privileged to sit on the Carvana board. Carvana is a true e-commerce retailer that doesn't have brick-and-mortar and doesn't have showrooms other than their reconditioning centers and some of their vending machines. And I live in the world of brick-and-mortar. There is going to be tremendous pressure on brick-and-mortar.

You have to be very prudent with your capital of how much real estate you buy. How expensive the real estate is. How expensive your facilities are. But the key connection that the e-commerce retailers can't have is that ability to service the guest and earn their business based on a service experience. And that should be a core product.

Our product is the guest experience. It is not just the automobile or the truck. We have an opportunity to differentiate. But when you watch the growth of e-commerce in every segment, you can't put your head in the sand. You have to think about how you can be light on your feet. And light on your feet doesn't mean building $80 and $100 million facilities.

What is your philosophy toward the customer?

My philosophy is, "Let's do anything we can do within our power to make a happy guest." I think that it extends yourself at every point in the transaction. Let the guest dictate the pace. Let the guest dictate what product we have. And let's make sure we encourage people to get vehicles they can afford and vehicles that fit their family needs. Let's be great listeners, not great talkers. I'd prefer a sales consultant that really listens to the guests' needs and adapts to those needs and helps them find the right vehicle at the right price. It really should be a service industry.