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JULY 16, 2012

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Bigger sales, smaller margins

Jamie LaReau and Amy Wilson
jlareau@crain.com

INSIDE TODAY

As sales rebound from last years earthquake-constrained levels, dealerships new-vehicle revenues are soaring. But theres a wrinkle in the good news: Since the second quarter began, many dealers say gross profit margins per new vehicle sold have been falling back to more normal levels, down from the inflated levels of a year ago.

With normal supplies, dealers per-car profits slip below inflated 2011 level
A year ago, with few popular Toyota, Honda or other Japanese brands available, dealers were able to command prices close to sticker. Thats not true now. Dealership profits remain high as expenses remain under control and higher volume softens the reduced per-vehicle gross profit. The slide in new-car margins is not enough to really get us worried, since we have another two quarters to go, but its definitely weaker than it was last year, says Morrie Wagener, owner of Morries Automotive Group in Long Lake, Minn., which sold about 17,000 new and used vehicles last year. His 10 stores sell

Bentley, Maserati, Mazda, Ford, Lincoln, Kia, Subaru, Cadillac, Hyundai and Nissan. He says his per-car profits are down on average by about $150 per vehicle. Customers who were willing to pay top dollar last year, when Japanese brands were short of inventory, are looking for deals now. On average, consumers are paying
see MARGINS, Page 60

Green light for red-hot Lexus?

The flashy LF-LC concept looks ready to roll | PAGE 8 | Supplier Speaks: News from Delphi, ZF | PAGES 46, 48 | Automakers stand firm on production plans | PAGE 57 |

For mpg, Jag to add 4-banger

Diana T. Kurylko
dkurylko@crain.com

The car without a driver

The technology is here; fine-tuning, legal tussles ahead
Nick Bunkley

Jaguar hasnt offered a four-cylinder engine since 1948 and no V-6 since the small, lackluster X-Type was pulled from the United States four years ago. But in an era of mpg obsession, even this proud British luxury brand is changing its spots. Jaguar will offer four- and sixcylinder engines in two of its three car lines starting this fall. We have only V-8s in a market that has moved to six-cylinder, said Andy Goss, CEO of Jaguar Land Rover North America. A 2.0-liter, 240-hp turbocharged four-cylinder from the Range Rover Evoque will be available on the XF sedan, the four-door that competes with the BMW 5 series, Cadillac STS and Mercedes-Benz E350. A supercharged 3.0-liter V-6 in two variants 340 hp and 380 hp will be offered on the XF and the larger XJ sedan. The V-6 is based on the 5.0-liter V-8, now the only engine Jaguar offers on U.S. cars. Goss said the V-6 in particular will be a game changer for Jaguar. About 70 percent of cars in the segment in which the XF competes are sold with V-6 engines, he said. With the V-8, we are fishing in a small pond, he said. Both new engines will be teamed with an eight-speed automatic transmission, replacing a six-speed automatic. Fuel economy ratings wont be available until August. The new engines and transmissions wont be available on the XK convertible and coupe. c

SPECIAL SECTION INSIDE

nbunkley@crain.com

Young, talented and ambitious

Inside youll find Automotive News inaugural listing of 40 high-achieving auto dealership owners and managers under age 40. Who are they? What have they achieved? And why are they being recognized as the leaders of tomorrow? | STARTING ON PAGE 15 |

Self-driving cars have become a hot topic, but it will be a long time before drivers can sit back and let the car do all the work. Even so, while few drivers may realize it, the technology that ultimately will permit an autonomous revolution has been creeping into cars for decades. Some cars already can park themselves and automatically adjust their speed to keep pace with the traffic ahead. The technology is so close and is making such great strides that I think its going to come a lot faster than people realize, says Lindsay Voss, senior program development manager of the Association for Unmanned Vehicle Systems International. Indeed, no-hands, no-feet driving is already on the horizon. And a handful of automakers are working to combine adaptive cruise with automatic steering so a vehicle eventually can battle traffic on its own. Before that happens, though, the industry must hash out numerous issues that self-driving cars raise, including legal and regulatory ramifications, insurance issues and public skepticism. Among the biggest hurdles is automakers fear of being held responsible either in court or just in the publics eye when
see DRIVERLESS, Page 59

NEWSPAPER

866-684-3175 dealersocket.com

JULY 16, 2012 15

Heres how we chose the 40

Several hundred candidates for our 40 Under 40 list of up-and-comers in automotive retailing were nominated by colleagues, bosses or themselves. Most of the nominees then supplied information about their careers so they could be considered for Automotive News inaugural 40 Under 40 list. Automotive News editors reviewed the information and called references to learn more about the candidates. We also asked candidates to provide proof of age. We dont presume that these 40 high achievers are the absolute tops in their age bracket. But they are definitely standouts in an industry with many, many high achievers. We congratulate them and think you will enjoy reading about them in the following pages.

OUR LIST

PAGE

Families and public groups make 1st-generation dealers a rare breed

Nick Bunkley
nbunkley@crain.com

f your last name isnt already on the sign in front of a car dealership, getting it there has become a tough goal to achieve. Thats not to say that starting and overseeing a multimillion-dollar business was ever easy, but first-generation dealers are an increasingly rare breed. Without having a dad in the business, one, youve got to be willing to work hard; and, two, youve got to get some breaks, says Jason Hachmeister, majority owner at Sterling Chevrolet in northwestern Illinois. Thankfully, both happened for me. Hachmeister was drawn into the business by a dealer he caddied for while attending school. Dealer Ed Bozarth persuaded him to abandon plans for medical school and attend law school instead. After moving up the ladder at Bozarths stores in Colorado and Kansas, Hachmeister branched out on his own, INSIDE buying Sterling Chevrolet in 2007. Dealers kid syndrome: In the past, ambitious Help or hindrance? | PAGE 43 | youngsters wanting to break into automotive retailing would start at the bottom and gradually work their way up to general manager, hoping eventually to buy out the owner or go off on their own when an automaker opened a new point. That scenario doesnt happen much anymore. The opportunity still exists, but its harder today than it was 10 years ago, says Robert Glaser, president of the North Carolina Automobile Dealers Association. I dont think the factories want that new guy to come in. Theyd rather it sells to a consolidator, an AutoNation or whatever, than that young entrepreneur whos got a lot of fire in his belly but not necessarily a lot of money in his pocket.

From left, Florida dealers John, Tatiana and Will Dyer, who got parental help to enter the car business. Says Tatiana: Thats where we learned to be entrepreneurs. These days, only a tiny percentage of the nations dealerships go on the market in any given year, and many manufacturers are trying to shrink, not expand, their retail networks. When a store does come available, the cost
see DEALERS, Page 43

John Altman .................37 Todd Bondy ..................29 Jason Brickl..................26 Philip Brooker ...............22 Matt Browning ..............39 Matthew Buchanan .......29 Peter Catanese III .........39 Jamie Darvish ...............41 Brendan Downey...........24 Tatiana Dyer .................28 Dodge Earnhardt...........16 Fred Emich IV................41 Angela Falzon ...............29 Bobby Gery ...................40 Jason Hachmeister .......16 Matthew Haiken ...........26 Shannon Harper ...........18 Raymond Herrera ..........29 Brian Kramer ................40 Steve Ladrido ...............37 Scott Lee .....................38 Jeff Lupient ..................28 Chadwick Martin ...........37 Mark Mason Jr. ............20 Jamaal McCoy ..............18 Michael Morais .............39 Steven Myers ...............16 Shep Nelson ................18 Hooman Nissani ...........39 Adam Parks..................40 Nicholas Parks .............40 Brad Scott ...................24 Scott Simons ...............41 Patrick Southward .........16 Alison Spitzer ...............42 Nick Tallman ................22 Daniel C. Toomey .........38 J.R. Toothman III ..........37 Hieu Thanh Vo ..............20 Ricky Wood ..................42

40under 40
Hooman Nissani

JULY 16, 2012 39

H
Michael Morais

In a little more than a decade, Age: 39 Michael Morais went from the COO showroom floor to COO of Open Open Road Road Auto Group, helping it beAuto Group come one the largest dealership Bridgewater, N.J. groups in the United States along the way. Morais was named COO of Open Road Auto Group in January 2010. That year, Open Road increased retail newvehicle sales 28 percent from 2009 to 19,597 units and revenue to more than $1 billion from about $860 million, despite having two fewer dealerships than in 2009. Morais started in 1998 as a sales associate at Open Road Honda in Edison, N.J. Later, as the general manager of a newly opened Acura store, he took just two years to make it the third-highest volume Acura dealership in the country. In 2003, Open Road CEO W. Rodman Ryan made Morais a first vice president with management responsibility for four of the groups dealerships. Since then, Morais has overseen the acquisition of seven of Open Roads 19 dealerships. As COO, he has pushed Open Roads dealerships to operate as a group, rather than a collection of individual stores. For example, he set up Performance Advertising Group in 2009 to handle all advertising and marketing for the group, saving hundreds of thousands of dollars annually. We began processes how we staff a store, how we view a store, how we evaluate a stores profit potential and what a stores return on investment could be, he says. Morais has dedicated much of his time lately to operating Volkswagen of Manhattan, which opened in January inside a six-story building that will soon contain a new Audi dealership as well. Volkswagen Group of America funded a $125 million renovation project to house the dealerships. Open Road leases the building from VW and holds franchises as the dealer operator. Michael is a proven leader with a wealth of knowledge and experience in running successful Volkswagen and Audi dealerships, Jonathan Browning, Volkswagen Group of America CEO, wrote in an e-mail to Automotive News. As a Volkswagen dealer council member, Michael brings both keen insights and the innovation needed in this business. Morais credits his colleagues for the groups success. From entry-level position to high level, I believe our place attracts and retains the best people in the business, he says. This award isnt about me. Its about the Open Road Auto Group. Ryan Beene

Hooman Nissani is living Age: 33 the American dream. President Straight out of high school Hooman Automotive and with no family backGroup (Toyota-Nissan) ground in the automotive inLong Beach, Calif. dustry, Nissani started his career as a car salesman. By age 24, he had acquired a General Motors store. By age 31, he had added Toyota and Nissan dealerships in the hypercompetitive Los Angeles market. It started when Nissani went to Lexus of Beverly Hills to buy a car. He had done so much research that the impressed salesman sent him to the general sales manager to do the deal, who then offered Nissani a job at the nearby Nissan store. Nissani, barely 18, quickly hit 50 sales a month, putting the money away while still living with his parents. Within five years, he had saved $2.8 million. With a team of backers, Nissani bought a downtrodden Buick-Pontiac-GMC store in Culver City in 2003. I was young. I had never been a general manager. But when GM looked at my energy and what I had done, they gave me the opportunity, Nissani says. Other dealers thought I got the store from my dad, but my dad is in real estate, not the car business. Within 60 days, his stores sales had doubled. Within two years, volume had soared eightfold. Nissani used profits from separate real estate investments to buy Long Beach Toyota in 2008, which was slumping against tough local competition. The store became one of Toyotas fastestgrowing dealerships, jumping from No. 72 in sales in the

L.A. region to the mid-30s, with more than 200 employees. When GM soured, Nissani dumped the Culver City store and leased the land to a neighboring Chevrolet dealer. In 2010, Nissani acquired a shuttered Nissan dealership in nearby Signal Hill, which now has 100 employees. Nissanis secret? Customer loyalty. Both dealerships have a VIP program in which every new-car buyer, for as long as he or she owns the vehicle, gets free oil changes, tires, car washes and access to a 200car loaner fleet for anybody whose service takes more than two hours. Nobody wants to sit around for service. Nissani says. So we treat Toyota customers like Lexus. Mark Rechtin

Peter Catanese III

There are drivers in Tahiti and Age: 32 the Australian Outback whose Parts Internet Jeeps run better today because Pemanager ter Catanese III recognizes a good Central Chryslersuggestion when he hears it. Jeep-Dodge-Ram Catanese is the brains behind Norwood, Mass. JustForJeeps.com, a Web site that has transformed his familys dealership outside Boston into a go-to source for Mopar parts for Jeep vehicles worldwide. The Web site, which was started seven years ago, draws about 3,000 visitors a day and generates dozens of parts orders that are shipped all over the world daily including tropical islands and Down Under. In 2011, JustForJeeps.com generated almost $2 million in Internet-based parts sales. Well ship everywhere. Ive shipped Jeep parts to places that I never thought I would, Catanese said. He started at the dealership shortly after finishing college, earning a bachelors in psychology from the College of the Holy Cross in 2002, and worked in the dealerships Internet sales department for new vehicles. But he didnt like it. It wasnt my thing, he explained. One day in 2004, the dealerships Mopar sales rep was visiting and told Catanese how a dealer in upstate New York was turning a profit by selling Mopar parts online. She suggested Catanese do the same. Catanese took her suggestion and ran. He started JustForJeeps.com by himself in a closet in the dealership, often taking just a single order a day. He now has a full retail store in the dealership, with six employees taking 40 or 50

orders a day. Hes the owners son, but youd never know it, said Tom Eysie, general sales manager of Central ChryslerJeep-Dodge-Ram. Hes done an amazing job with the JustForJeeps program. Asked whether he ever thanked the dealerships Mopar rep for her suggestion that led to millions in additional sales, Catanese laughed: Shes the one thanking me because theyre the ones making all the money. Larry P. Vellequette

Matt Browning

When Matt Browning told his dad he wanted to get into the auto business, Kent Browning replied, Great, why dont you go get yourself a job? So Matt Browning spent a year working in a variety of positions for Toyota of Sunnyvale, Calif., before joining his fathers Browning Automotive Group of Cerritos, Calif., in 2006. I got paid to go to school, Browning said of his time in Sunnyvale. I dont feel it would have been the best thing for me to go and sell cars at the store I run now. With my name on the building, I just didnt feel like that was going to be as productive as it could be going somewhere else. During and immediately after college, Browning wasnt

Age: 33 General manager Cerritos Acura Cerritos, Calif.

sure he wanted to work in the family business at all. After spending his teenage years stocking parts and selling cars at the southern California group, he knew he needed to do something different. Brownings gig at the Toyota store came after college and four years working for Bank of America. It was the best move he could have made, Browning said. In techsavvy Sunnyvale, home of Yahoo! and numerous other technology companies, Browning amassed a wealth of knowledge about Internet retailing. He came back to the family business and put that education to use. Browning restructured the dealership groups Web sites and digital marketing. He started pay-for-click advertising in

2007 when it was still relatively new. By mid-2008, the portion of the groups sales generated online had jumped to 40 percent from 20 percent previously. By 2009, Browning took over management of the familys Acura store and helped pull it through the recession, which cut the groups new-car sales by half. Customer satisfaction is up in part because he empowered employees to do things like give rides beyond the dealerships standard shuttle radius or get food for a customer stuck waiting at the store. While he doesnt have ownership in the Acura store, Browning, an avid cyclist who rides at least 100 miles a week, has become an equity partner in recently purchased Kia and Dodge-Chrysler-Jeep-Ram dealerships. Those acquisitions brought the group to eight stores total. And Brownings not done learning. A major focus now is improving the Acura stores not-great record on sales employee turnover. Amy Wilson