THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Sunday, February 2, 1997 TAG: 9702010574
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 146 lines
The blue-and-yellow CarMax signs proclaiming ``The Auto Superstore'' have not yet appeared in Chesapeake.
Neither has the Driver's Mart planned for Virginia Beach.
When they do, these used-car superstores could spark in Hampton Roads the sort of upheaval seen in auto retailing elsewhere in the country.
An abundance of low-mileage cars coming off leases, along with consumer demand for a simpler shopping, has prompted CarMax, Driver's Mart and others to offer large selections of late-model cars at no-haggle prices.
The competitive pressures will be intensified by auto manufacturers' efforts to reduce the number of new-car dealers they use.
``I'd compare it to the consolidation in banking,'' said Thomas W. Eggleston, president and chief executive of Driver's Mart Worldwide Inc., based in Grand Rapids, Mich.
For several decades, thousands of little banks thrived in their communities until the arrival of statewide and then nationwide banking. In the process, many of these institutions disappeared, Eggleston said.
The prospect of heightened competition in Hampton Roads has already spurred talk of mergers among local dealerships. In recent weeks, sources familiar with Virginia Beach-based Hall Auto World Inc. and Checkered Flag said the two companies have been discussing a merger. Both are major retailers with several dealerships under their names.
Kenneth Hall, chairman of Hall Auto Group, said he has talked occasionally with Edward B. Snyder, Checkered Flag's president, about the topic. ``We don't have any agreement,'' Hall said.
``I hear the rumors every day,'' he said. ``I had a dealer call me the other day and say `Buy me.' I'm not buying anybody at this point.''
Nationwide, the number of new-car dealers has dropped to 22,700: fewer than half the total during the late 1940s.
Hampton Roads hasn't witnessed that sort of decline. In fact, the number of new-car dealerships in this market has increased from 82 four years ago to 89 at the end of 1996, according to the Virginia Automobile Dealers Association. While some smaller dealerships in the region have folded over the years, a handful of large companies have emerged with several dealerships.
One is Hall Auto World, with more than a dozen dealerships and combined sales of $229 million in 1995, the industry newspaper Automotive News reported last year.
With 5,270 new vehicles sold at retail in 1995, Hall Auto ranked 90th on an Automotive News list of the country's 100 largest auto retailers.
Large auto superstores, such as CarMax, may be the biggest impetus for change. Starting with single lot in Richmond three years ago, the subsidiary of electronics retailer Circuit City Stores Inc. has opened five others in the Southeast and plans to have as many as 90 within six years.
CarMax has eyed a site in Chesapeake near I-64 and Battlefield Boulevard for one of its stores.
Another rapidly growing chain of superstores is AutoNation USA. The Florida-based company was launched by a veteran of the auto-auction and distribution business and H. Wayne Huizenga. Huizenga attracted attention in the 1980s with the way he expanded two other companies, trash-hauler Waste Management and the Blockbuster chain of video-rental stores.
AutoNation is being folded into Republic Industries, a Huizenga-directed company with holdings in waste hauling and security alarms.
Last year, several large auto dealers responded to the rise of CarMax and AutoNation by banding together and forming Driver's Mart. The company, whose 21 members include the owners of Checkered Flag Motor Car Co. group of dealerships in Virginia Beach, plans to open 100 within five years.
Each will have an inventory of several hundred low-mileage cars and will sell them at set prices.
Driver's Mart also plans to expand its Internet home page this spring to enable consumers to shop for a car and line up financing and insurance from home, said Eggleston, the company's CEO. By making the shopping process more convenient, Driver's Mart hopes to reduce the amount of time customers have to spend on the lot looking at cars, he said.
Some auto dealers in Hampton Roads acknowledge that CarMax has been successful at luring customers with attractive facilities and its no-haggle pricing. However, these dealers question whether giant retailers can prosper in a cyclical business.
``One thing they have is money, but they may have difficulty attracting and keeping people, particularly general managers and upper staff,'' said Charles Barker, president of the Virginia Beach dealership group bearing his name.
Even when faced with the larger auto retailers, local dealers can prosper by fostering greater loyalty among their customers, said Tom Barton, a Virginia Beach Ford dealer.
In the past, too many dealers have relied on balloons and gorilla costumes to attract car buyers, Barton said.
``My message to our people is, `Quit worrying about what you don't have and concentrate on what you do have by taking care of customers.' ''
The pressure to streamline auto sales is coming as much from big automakers as from disgruntled consumers. General Motors, Ford and Chrysler have cut costs and improved the efficiency of their parts buying and vehicle assembly, said George Hoffer, a Virginia Commonwealth University economist who monitors the industry.
But the process of getting a new car from the factory into the hands of a buyer still accounts for a hefty 26 percent of a new-car price tag, Hoffer said.
``That part hasn't been touched,'' he said.
During the past year, all of Big Three automakers have announced plans to reduce the number of dealers they have in the United States. Ford did not disclose a target. General Motors, with more than 8,000 dealers, said it would cut that number by as much as 30 percent over a dozen years. Chrysler said it expected to cut its number from 4,600 to 4,000 by the end of the decade.
The consolidation among dealerships is being fueled by a robust stock market and automakers' diminished resistance to public ownership of new-car dealerships.
The availability of additional capital and publicly traded stock has made it easier for expansion-minded companies to buy out dealerships, especially those owned by dealers approaching retirement. At least three dealership groups tapped the stock market for capital last year, and the investment community expects more to go public.
Circuit City Stores Inc. is about to raise additional capital for its CarMax subsidiary. The Richmond-based retailer recently filed with the Securities and Exchange Commission for a public offering of a new class of Circuit City-CarMax common stock.
The planned offering of 18.86 million shares is expected to raise about $285 million, which Circuit City said it will to use to finance CarMax's expansion and to repay debt. Circuit City will still own 80 percent of CarMax after the offering.
CarMax, Driver's Mart and other large auto retailers aren't satisfied with gaining a share of the used-car market. Each of the big chains has plans to move into new cars. CarMax already has a franchise from Chrysler to sell new Chryslers, Plymouths, Jeeps and Eagles at one of its Atlanta-area stores.
Driver's Mart probably will buy a new-car dealership in about 60 days and expects to buy others, said Eggleston, its CEO.
As part of its drive to expand business at the AutoNation superstores, Republic Industries recently agreed to acquire companies with new-car dealerships in Ohio, Florida and California.
For now, the contest between traditional new-car dealers and the superstores is over sales of used cars, an important source of business for dealerships because they have higher profit margins than new-vehicle sales.
Last year, sales of used vehicles accounted for 36 percent of profits at new-car dealerships, according to National Automobile Dealers Association. Meanwhile, sales of new cars generated only 17 percent of their profits, the NADA said.
What could make CarMax a tough competitor is a mix of small details, including its strict financial controls and an ability to track each vehicle in its inventory. The chain also monitors closely what kinds of vehicles prospective buyers are seeking, said Hoffer, the Virginia Commonwealth University economist.
``At any one moment, they know exactly how many people are looking for a 1991 Grand Prix,'' he said.
``It's big and impersonal, but it's very efficient. ILLUSTRATION: Color photo by CHARLIE MEADS, The Virginian-Pilot
Virginia Beach-based Hall Auto Mall has more than a dozen
dealerships and combined sales of $229 million in 1995.
Charts
Text and research by Tom Shean