July 2009, Auto Dealer Today - WebXclusive
State Park Motors and Onaway Auto
For more then 30 years, Willard “Bill” Davis has maintained two successful pre-owned operations on sound business practices. Davis’ roots in the automotive industry run deep. His career started on his brother’s used Jeep lot, where he worked for 13 years before beginning an 18-year career with Hertz. While at Hertz, Davis was in fleet disposal and still selling used vehicles. As new cars were delivered to Hertz to replenish the rental fleet, he “traveled around and sold the used cars for them.”
Towards the end of his career at Hertz, in 1972, Davis and his son opened State Park Motors in Steubenville, Ohio. He purchased his second store, Onaway Auto in Onaway, Mich., about four years ago. It seems his history in the industry helped mold the way he operates his businesses. He said, “To be successful in a used car operation, you need three operations. You need the dealership. You need the finance company, and you need a rental company.” While some people may question the need for a rental company, it is a vital part of the operations at both dealerships. Not only is it a profit center, but it also brings in new customers who may soon be in the market to purchase a vehicle.
Although more than 500 miles separate the dealerships, they both operate under Davis’ philosophy. He instituted non-commissioned sales at State Park Motors decades ago to help ensure his sales force abides by a no-pressure sales philosophy, and he instituted the same policy when he took over Onaway. He said if he discovers any of his salespeople are pressuring a customer, they won’t last at his store. “We want no pressure on our customers; we want them to be comfortable and relaxed,” he stated.
While the two stores operate under the same selling philosophy, they cater to very different groups of customers. Onaway Auto caters to subprime customers, while State Park’s customer base consists of prime buyers. General Manager Mitchell James, who manages the daily operations at Onaway Auto, said Onaway sells anywhere from 30 to 50 SF units a month. In addition to placing deals with finance companies like Westlake Financial and Chase, many of the SF deals are financed through Davis’ related finance company (RFC), Onaway Auto Finance.
Davis said the advantage to owning an RFC is the additional income. He elaborated, “If you have your own finance company, you can collect the interest. You can’t get much for your money today. Financing the cars, you can charge the interest you need to make everything work.” As far as disadvantages to an RFC, “There’s really none at all in my mind—if you have a good collections program.”
While it’s important to maintain a good relationship with all customers, he especially stressed the importance of having good relationships with customers financed through an RFC. “If they have a problem and they can’t pay anything this month … you try to work with them so they can get along.”
While that may sound similar to the mantra of a buy here pay here dealer, owning a related finance company is different than BHPH. A related finance company operates separately from the dealership, meaning the customer is not financed through the dealership. With a BHPH operation, the dealership is providing vehicle financing to customers.
Davis doesn’t own another RFC to operate in conjunction with State Park Motors, which retails 75 to 85 units per month to customers with credit scores around or above 700. The finance manager there works with local banks and other finance companies to secure financing for the dealership’s customers.
Another difference between the two stores is inventory. For Onaway, Davis said he looks for good vehicles under $5,000, which he said are “very scarce.” While some special finance dealers with an RFC can open up the RFC’s parameters to be able to place subprime customers in much more expensive cars, he opts to stay around the $5,000 mark. He knows one dealer who will finance a car over $20,000 and has over a half-million dollars out on the street. He said, “That’s a different relationship than what we have or what we want to do.”
According to James, some particular models of vehicles that sell well on the Onaway Auto lot include: Impalas, Malibus, Tauruses, Caravans, and other mini-vans and four-door sedans he referred to as “mom and pop” cars. Most of the inventory on the Onaway lot is model-year 2000 or newer, which further limits the ability to find cars under the $5,000 mark.
Davis said dealers looking for such inventory would most likely find it at local auctions. In fact, when more of the right inventory is in, Onaway Auto can sell more cars. He said, “Onaway did 80 [units] last month; that’s higher [than average] … but we had the merchandise to sell last month and that made a difference.”
To stock the State Park Motors lot, he looks to buy domestic vehicles that are between $5,000 and $8,000. He has built relationships with companies that maintain fleets of cars and purchases the fleet vehicles that are being replaced, so he’s still in “fleet disposal,” just on the other side of the transaction. Sometimes he can find several of the same kind of vehicle on the market for cheap, which he’ll buy up.
In addition to purchasing off-fleet vehicles from locations all around the country, he purchases used Ford and GM vehicles through their online auctions, as he prefers to have those makes on his lot. Davis said, “GM and Ford are building the best cars in the world, and Chrysler is not bad either, so we stock heavy in GM and Ford.”
For several years in a row, Davis was the largest purchaser of GMAC SmartAuction vehicles. He managed to get that title because in addition to selling pre-owned vehicles on the two lots, he regularly wholesales 100 to 200 units a month. Over the years, he’s built up a network of dealers to whom he sells vehicles. He said at the beginning of 2009, he had at least 800 vehicles in stock between the two lots.
All that’s left is marketing, and for the most part, both dealerships rely on the best marketing that money can’t buy—word of mouth. Both dealerships are located in small communities and generate very high levels of repeat and referral business. In towns like Onaway (population, less than 1,000) and Steubenville (population, less than 20,000), Davis said, “You live on repeat business, and if you don’t take care of the customer and have the repeats, you’re not going to [survive]. It’s very, very simple.”
James said Onaway Auto “picks up quite a few sales each month” through its referral program. He tells all his customers that he’ll “write them a check if they can send us another customer.”
In addition to repeat and referral business, the dealerships do limited newspaper advertising and maintain Web sites to generate business. Davis likes to keep his cost per unit sold much lower than the average dealer. He said, “The average dealer spends $500 to $600 [a month in advertising] for every car he sells … We think we should spend about $100 for each car deal.” He’d rather be able to offer his customers free loaners for when their vehicles are in service. “I think that’s much better money spent than the ads in the paper or TV.”
Davis does everything he can to keep his customers happy and coming back. He’s truly looking to change the opinion that many people have of used car dealers. “The used car dealer has a terrible image, and I work to eliminate that image. For so many people, the last thing in the world they want to do is go buy a car because they think they’re going to be cheated.” And for his customers, he has at least changed the way the look at him as a used car dealer.
Special Finance Insider Vol. 3, Issue 3