Minority dealers have increased their numbers, but many say the industry is still lacking in terms of representing its customer base.
October 2014, Auto Dealer Today - Feature
Al Heggs took ownership of Superstition Springs Chrysler Jeep Dodge Ram in Mesa, Ariz., after participating in Chrysler’s Dealer Candidate Development (DCD) program and investing $300,000.
During the 1995-’96 NBA season, Al Heggs reached the pinnacle of the sports world when he played in four games with the Houston Rockets. As an undrafted free agent who played his first organized game at age 16, Heggs was a long shot to make the professional ranks, but he enjoyed a 13-year career that also included stops in Japan, Greece, Israel and South America.
Like many professional athletes, he faced the daunting prospect of starting a new career once his playing days were over. Before he retired in 2003, he started selling cars at Spring Chrysler Jeep Dodge Ram in Houston, and those shifts became a springboard for a future in auto retail.
“This has been a blessed situation,” Heggs says. “I was extremely humbled to start from the bottom to learn to be a dealer. I was out there chasing customers on the lot just like every other sales guy.”
Heggs soon decided that he wanted to become a dealer. Having saved much of his basketball earnings, he knew that goal was within reach. He entered Chrysler’s Dealer Candidate Development (DCD) program, which was designed to help qualified minority members reach the dealer ranks. Spring agreed to sponsor his participation, so for 18 months, Heggs submitted to a rigorous regimen of classroom and onsite work. Every few months, he flew to Detroit to meet with fellow dealer candidates and the Chrysler team for intense training. He would then return to the dealership for “homework,” which could include shadowing a service advisor, for example, to learn the ins and outs of the service department.
“The class is very extensive. It’s hands-on,” Heggs says. “It breaks down all of the workings within the dealership. I got a Harvard education on a shoestring budget.”
Also participating in his classes was Mitch Mitchell, Chrysler’s senior manager of dealer network development operations. Heggs says he was impressed that the executive team took the initiative so seriously. Mitchell says the program and his participation are a natural extension of the OEM’s desire to serve every potential customer.
“Ethnic minorities can bring diverse and new perspectives to conducting business that will enable our industry to grow and thrive,” Mitchell says. “Increasing our ethnically diverse dealer population conveys to our customers that we value diversity in all aspects of business, including this area.”
Chrysler added 42 minority-owned dealerships last year; unfortunately, 16 failed to launch. Mitchell did not give an estimate of how many minority dealers will be added to the OEM’s roster this year, but he said Chrysler is aggressively pursuing increasing its minority dealer count.
Damon Lester, president of the National Association of Minority Automobile Dealers (NAMAD), says ownership opportunities are still rare, but manufacturers are making an effort to create opportunities for minority members and women.
“We work with all manufacturers on recognizing the importance of diversity in the industry,” Lester says, noting that, while one-third of buying power is in the hands of ethnic minorities who make up about 30% of the U.S. population, but only about 5% of franchised dealerships are minority-owned.
Steve Song took over as president of FH Dailey Chevrolet in San Leandro, Calif., in 2011. Song believes General Motors is invested in creating opportunities for minority members in a changing industry.
As he neared the end of his training, Heggs’ sponsoring dealer began the process of selling Spring to AutoNation. Chrysler’s corporate team took up Hegg’s sponsorship and he graduated from the DCD in July 2012. By the end of the year, he was the dealer principal for Superstition Springs Chrysler Jeep Dodge Ram in Mesa, Ariz., a suburb of Phoenix. Of course, to complete the deal, Heggs had to personally invest 10% of the acquisition cost, or about $300,000.
“It doesn’t just take knowledge,” Heggs says. “It takes a lot of capital.”
Typically, the sponsoring dealer would split the remaining 90% of the investment with Chrysler; considering Spring’s changing ownership situation, the OEM kicked in the entire $2.7 million. Heggs began repaying the balance from the dealership’s net profits immediately, and he expects to have paid the balance in full within three years.
“Chrysler is not in the business of owning dealerships,” Heggs says. “They don’t want to own these dealerships, so they’re investing and expect to be paid back. Then they’ll invest in more dealers.”
Hegg’s advanced training appears to have paid off. He is one of 10 candidates who completed Chrysler’s program and could prove to be one of its greatest success stories. Sales topped $100 million in Heggs’ first year and are up 20% so far in 2014. He has added 70 employees to Superstition Springs’ 50-person staff — including five of his colleagues from Houston.
“I couldn’t believe it,” he says. “I wasn’t moving across town or even 100 miles, I was uprooting from Houston to Phoenix, going three states over, so that meant a lot that these guys wanted to commit to this dealership.”
Supporting the ambitious goals of minority members in the automotive industry isn’t a new concept, but it wasn’t until recent years that the industry put a sharp focus on placing minorities into leadership positions.
Damon Lester is president of the National Association of Minority Automobile Dealers (NAMAD). He says manufacturers recognize that minority members yield tremendous buying power and will benefit from a diverse ownership network.
General Motors was among the first to establish a focused program dedicated to creating new opportunities for minority members. As of the first half of this year, GM had 212 minority-owned dealerships. Now, almost all manufacturers have some sort of program in place, although some, including Ford, have done away with many offerings.
GM launched the industry’s first minority dealer development program in 1972. Today, the OEM vets candidates who could qualify to operate a dealership. Many already work in GM’s dealer network, but not all. All candidates must meet minimum investment requirements, set at 15%, to qualify to become a dealer.
Since bankruptcy, overall minority ownership for GM increased by 18 rooftops, or more than 9%, says spokeswoman Ryndee Carney. GM appointed 13 minority dealers in the first half of this year, compared to nine total dealers added last year.
“We anticipate the momentum continuing,” Carney says. “Our dealer investment group is often imitated but has not been duplicated.”
Steve Song emigrated from his native Korea to the U.S. at the age of 12. Now, he’s a dealer and president of one of the oldest dealerships in the San Francisco Bay Area. FH Dailey Chevrolet in San Leandro, Calif. had been a family-owned business since its founding in 1910, but Song took over in 2011.
“I am very proud to be the first non-Dailey family member to own the dealership,” Song said.
GM approached him in 2006. He met with a regional staff member and recalls being extremely impressed. He had grown up in the Bay Area and had previously owned a Lincoln Mercury Kia in Sunnyvale from 2002 to 2008. Since Song had family in the area, he was interested in staying local, as well as taking over for such a prestigious dealership.
“We are in a very import-dominated market, and I felt that Chevrolet was very much underrepresented and had a tremendous upside potential, which we are seeing,” Song said. As a former dealership owner, Song had a head start on the training, but he says he is appreciative of his relationship with GM. “They were great about communicating and allowing me to understand the nuances of how GM does business,” Song explains.
Beyond the actual operations of the business, Song also believes that GM is doing a good job at providing opportunities to minorities, an area in which he believes the industry overall has fallen short. “GM is one of the very few OEMs who has any ‘real’ minority program or interest,” he says. “Since 2008, most OEMs have either gone away or completely shut down any minority or dealer development programs.”
As Song points out, including minorities in leadership roles is crucial for the industry. “It is important that our dealer body mimics the population. As the minority population has grown, the dealer body has not proportionally kept up. Having a dealer who can better understand the needs of the population will be a tremendous benefit in all business decisions, from future products, marketing and the business process as a whole.”
In addition to the carmakers, the main dealer body — the National Automobile Dealers Association (NADA) — has made attempts to improve the representation of minorities. The organization has a NAMAD member represented on all of its committees — including the Automotive Trade Association Executives (ATAE)’s conference, dealer ops, government relations, public affairs and regulatory affairs.
The NADA also released an educational management guide in 2010 for dealers called “Diversity as a Business Imperative,” which encourages dealers to make diversity a priority in their business plans. “The guide aims to address the entire spectrum of diversity issues affecting dealerships,” said spokesman Charles Cyrill, in an email. “NADA developed the guide to increase dealer awareness of diversity issues related to the workplace and marketplace, so that dealers can make informed decisions.”
NAMAD’s Lester says such initiatives are imperative for the industry moving forward. He notes that most programs were more aggressive back in the ’70s and ’80s when minority dealers were first coming on the scene. Since then, he says, the momentum has slowed.
“By 2043, it is projected that minorities will become the majority of the population,” Lester says. “So we need to have more diversity in this industry, because they will be purchasing more vehicles, and the industry needs to be reflective of those consumers.”
Stephanie Forshee is the former senior editor of Auto Dealer Monthly and F&I and Showroom. She has expertise in dealership operations, sales and F&I.