Steering an independent motor group: Part 2. From Regional to National
- Steering an independent UK motor group: Part 1. Survival and success
- Steering an independent motor group: Part 2. From Regional to National
In this recession many independent family groups have fared better than their larger PLC neighbours. While some have been survivors, no mean feat in itself, others have been successes. They have grown their businesses during these troubled times. But a small group have progressed even further. They have progressed on the road from regional groups to national ones. How did they do that?
Part 1 of this post argued that independent family owned dealer groups pass through three significant stages of development.
Step 1 is the formation of the business and its emergence as a stable operation, often a single-site franchised dealership. For example, The Harratts Group was started in 1966 as a premium used car trader and achieved its first franchise 19 years later in 1975. Vospers was established in 1946 and took on its first Ford franchise in 1957, eleven years later.
Step 2 is the growth stage. In recent years the 2001 Block Exemption reforms provided the best opportunity for expansion for well placed groups. Many brands reduced their number of network partners and established ‘market areas’. The stronger players had the chance to expand as regional dealer groups. Examples include Lomond Motor Group, CEM Day, Swansway, Halliwell Jones and many others.
On the back of their cash flow some dealers move to a third stage – regional dominance. Some groups, such as Helston Garage Group, added ‘bolt on’ franchises and took over an entire region. Others, such as Ridgeway, added on an entirely new franchise in a different region.
For many family businesses this is a natural place to stop. The business is small enough for the family to handle using their own resources but large enough to generate constant income. Given the acquisitive nature of large groups in recent years, the family can choose to remain active or sell out whenever it suits them.
But a few independents or family groups do go further. What’s their secret?
Three worth looking at are Stoneacre, Johnsons Cars and Laindon Holdings, trading as Toomeys.
Stoneacre is not Richard and Christine Teatum’s first motor trade venture. Yorkshire miner’s son and ex-mechanic Teatum netted an estimated £4MN in 1993 when he sold his TK Group of 7 dealerships to Evans Halshaw. Ironically, it was Geoff Dale, currently the founder and chairman of Johnson Cars who is rumoured to have handed him the cheque. Now both are competing for the crown of who can become a national group quickest.
Since 1995 Stoneacre has expanded to budget and volume cars 25 sites.
While It operates predominantly along the M62 corridor, its footprint is the Durham, Wrexham, Peterborough ‘triangle’ .
Aggressive growth does not define Stoneacre. First it is substantially more profitable than its rivals. In 2008 it reported profits of £5.1M or 3.5%., way ahead of the industry average.
Second, Richard Teatum has a different concept of the auto retail ‘value chain’. Instead of concentrating on after-sales alone, Stoneacre’s parent company, Decidebloom Ltd is heavily engaged in specialist internet websites, e.g.. ‘Cars4Women’, ‘AccessoryPlus’ – multi brand parts, finance products, insurance products – including motor insurance – and auctions.
What Stoneacre has produced is their own value chain. They push prospects via local advertising and the internet to their showrooms using extremely attractive initial finance and insurance offers. They’re alignment to franchises with limited appeal – Suzuki, Fiat – and budget brand Kia, gives them extra leverage, particularly bonuses and access to used cars. Constant reinvestment makes them an attractive partner for brands that need distribution quickly. Finally, while the number of brand ‘sites’ is now 40, the average is only £4.15MN per franchise – much simpler to run than large scale prestige sites with individual turnovers of £15 – £20MN!
In the period from 2005 to 2009, Stoneacre have grown volumes by 6% a year while PBT has remained stable. A remarkable result.
Having been the architect of the rapid expansion at Evans Halshaw in the early 1990’s it was only medical advice that required Geoff Dale to step down from its top job in 1996. Four years later Evans Halshaw was bought by Pendragon. Events may have been reversed if Dale had been able to remain in charge.
However, it’s no surprise to see him behind the wheel at Johnson Cars. It is possibly the fastest growing independent motor group in the UK at the moment.
He led a consortium to buy Johnson Brothers Volvo dealerships in Redditch, Bromsgrove and Worcester from the receiver in 1999. It now has 20 sites in Merseyside, Oxfordshire and the West Midlands. Representing Honda (4) Mazda (2) Lexus (2) Toyota (3) Mitsubishi (1) Volvo (5) VW (3).
In a decade Dale has established significant businesses in 3 regions. It takes many family businesses a lifetime to establish itself in one! Dale has leveraged a lifetime of relationships with banks and franchises to achieve relationships with Honda, Toyota, Volvo and VW.
Clearly Geoff Dale’s deal-making skills remain as sharp as ever. The 2010 acquisition of the ’Motorworld’ businesses involved coordinating a three way deal: buying the group of ten franchises and then selling on the assets that didn’t fit almost overnight to two separate parties. Johnson ended up with the 5 that fitted their portfolio.
But it’s the group’s marketing that is most interesting. It remains stubbornly ‘family’ and regional. By keeping the unremarkable ‘Johnson’ trading name many buyers think they’re dealing with a local company. Very few customers realize the size and scope of the total business. It’s as if Geoff dale has recognised that traditional ‘branding’ has little merit for a motor retail business. Establishing a recognizable retail name has little impact compared to the voice of the manufacturer’s brand. However, a solid local reputation does make a difference.
Laindon Holdings trading as Toomeys
Started as a motor business in the mid 1930’s and appointed as a Vauxhall dealer in 1947. These facts underline the traditional start of this Essex business. It remains an Essex based motor retail group but is equally important in contract hire, leasing, rental and construction.
This is not an accident. Toomeys have two guiding principles: “be prepared to diversify in response to market forces and reinforce management structures with the appropriate expertise before embarking on new ventures.”
So, why is it remarkable? Because it is creating the one of the most developed vertical as well as horizontal integrations in the business. It makes money or spends less on every aspect of the retail business. It has put in place an extremely robust value chain which makes it extremely attractive to every franchise. It can deliver registrations in the most severe economic conditions. It has a remarkable capacity to innovate.
If you ask most dealers to name the most expensive part of their business, most would say property, construction, re-fits and so on. Toomeys is a construction business. Big enough to build all of the group’s dealerships since the mid 1960’s. Skilled enough to handle the their 28-acre multi-brand site at Southend on Sea. Traditionally 25% or more of a build cost is gross profit.. A £6MN build hands almost £2MN to the developer. In Toomey’s this cash flow stays within the group. The construction business is stand alone, but it’s in-house.
Toomey began in hire and leasing in1973. This spawned a series of linked businesses: self drive hire, cab and courier fleet, insurance services and fleet management. Not just in south Essex. Toomey bought businesses in Birmingham and Derby.
A significant strength is that the group controls a very wide range of channels for distributing cars. Their Hire & Leasing operation is in Fleet News’ Top 25. So, while the retail market may be impaired, they can ensure the highest return to the group through bonuses, etc. As you would expect, the vehicle distribution is also in house. So too is vehicle exporting.. Oh and it owns its own auction site.
The core of the group remains its motor activities based in Essex. Eight franchises centred of two motor park locations at Basildon and Southend, as well as a multi-franchise site at Orsett.
Clearly, Laindon Holdings has achieved much, but has more opportunities ahead. It is not yet aligned with a growing franchise, so its franchise portfolio looks weak. Most dealers would consider Chevrolet, Saab and Mitsubishi as long term bets at most. It suggests that Toomeys may have missed a trick since 2000 when franchises such as Kia and Hyundai were available and they might have wooed Honda, Toyota or VW group.
Apart from Saab they have kept away from prestige cars. Its hard to see the logic. With all that said, their continued growth in leasing and contract hire and their property portfolio are extremely valuable prizes in their own right. Michael Toomey has been at the helm since the late 1960’s and steered the group to where it is now. Perhaps he’ll consider passing the baton so that a new growth era can start built on his legacy.
Lessons learnt …
If there is one common thread among all of these businesses it is the restless energy of their senior management. Literally, they do not stop. While managements in traditional independents achieve their objective and stop, these managements simply do not. It’s as if the notion of consolidation has no place. Instead, they find management, pass the responsibility for the latest acquisition, and move on to the next opportunity. In this way at least, they match the business school stereotype of an entrepreneur.