Car Dealers to Team Up on Used-Car Superstores

In an unprecedented move, nine of the nation’s largest automobile dealers are joining to build a chain of 100 used-car superstores around the country, including in Southern California.

The new company, to be known as Driver’s Mart Worldwide, represents by far the most ambitious effort by retailers to come up with new ways to sell cars, and it marks the first strategic response by existing auto dealers to a new wave of competition by deep-pocket outsiders.

The nationwide alliance, with an estimated initial investment of $100 million, is to be announced today in Dearborn, Mich. It underscores the growing importance of used cars to dealers and the changing dynamics of auto retailing.

Giant electronic retailer Circuit City Inc. has opened four CarMax superstores in the Southeast and plans to open seven more this year. Two other groups with retail experience are also building used-car mega-store chains.

“We hope to go beyond what CarMax has done,” said Bert Boeckmann, one of the founding partners in Driver’s Mart and owner of Galpin Ford in Los Angeles, ranked as the nation’s largest single dealership in terms of retail sales.

Collectively, the nine partners operate more than 100 new-car dealerships with annual revenues of more than $3 billion. They sell virtually every make of car.

Dealers are worried about the growing competition in used cars, which can be more profitable than new ones and have boomed in sales as the price of new cars has soared.

“Used cars are like the goose’s golden egg” said Ted Orme, a spokesman for the American Automobile Dealers Assn.

Traditional auto retailing is under attack because it is inefficient and consumers dislike the car-buying experience. Consumers have sought out more friendly buying venues, such as those advanced by Saturn Corp., several luxury car dealer groups and CarMax.

Driver’s Mart promises to focus on consumers by offering them a large selection, good service and low prices on late-model used vehicles. The outlets will offer no-haggle pricing and feature computer kiosks that allow customers to easily view the inventory.

“We want to take the Wal-Mart approach,” said Donald Flow, chairman of Driver’s Mart and owner of nine North Carolina dealerships.

The dealers will run their own outlets but under strict guidelines set by the parent company, to be based in Grand Rapids, Mich. The corporate office is responsible for obtaining inventory and providing financing to buyers. Profits will be shared equally among the partners.

One advantage Driver’s Mart expects to have over competitors is better access to late-model used cars coming off leases. These vehicles are often acquired by the captive finance companies of the auto makers and sold at closed auctions to new-car dealers.

In addition, Donald Kiethly, a partner in J.D. Power & Associates, an Agora Hills auto marketing consultant, said that by bringing dealers together throughout the nation, Driver’s Mart will be able to build its name-brand franchise much quicker.

“They can have an immediate nationwide presence,” he said. “They will be out of the box and up and running as fast as anyone could.”

Thomas Eggleston, president and chief executive of the new venture, said Driver’s Mart hopes to sign 30 new-car dealers in all to provide nationwide coverage for the concept. He estimates that 100 superstores, which will have inventories of 350 to 650 used cars and trucks, could be opened within three to five years.

“We could have eight operating in a year,” he said.

Eggleston is a former senior operating executive of Amway Corp., an international consumer products distributor. He oversaw the initial public offering of Amway’s Asia Pacific unit in 1993.

He said a decision on whether to take Driver’s Mart public will depend on the capital needs of its financing unit. But several dealers said it will probably tap the public equity markets. “It will likely go public,” said Galpin.

The Driver’s Mart dealers are not only large, but all rank high in customer satisfaction ratings. Flow referred to them as a “dealer dream team.” J.D. Power III, who is credited with helping spur the quality revolution among U.S. car makers, will be a member of the board.

In addition to Galpin and Flow, Driver’s Mart founding dealers are John Bergstrom of Neenah, Wis.; Henry Faulkner, Trevose, Pa.; Albert and Michael Maroone, Fort Lauderdale, Fla.; John Pohanka, Washington; Albert and Joseph Serra, Flint, Mich.; Carl Sewell, Dallas; and Gregory Sutliff, Harrisburg, Pa.