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Ready, Wheeling and Able--That’s AutoNation USA

TIMES STAFF WRITER

It was an investors’ love fest, and the master of ceremonies was south Florida’s version of King Midas.

The shareholders came here last month to pay homage to H. Wayne Huizenga, a 59-year-old multibillionaire entrepreneur and sports mogul, and to approve a bit of corporate bookkeeping that clears the way for Huizenga to accomplish what Detroit could not: revolutionize the way cars and trucks are sold in America.

It was a rout--99.8% of the proxies were cast for the plan, a stock transaction in which Huizenga’s Republic Industries acquired his fledgling automotive venture, AutoNation USA.

“I wonder who the guy was that voted against it,” the balding, craggy-faced Huizenga mused to laughter.

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Indeed, who would dare vote against Huizenga’s latest and most ambitious venture--a plan to dominate new- and used-car retailing the way McDonald’s reigns over fast-food hamburgers.

The building of the empire is well underway. In the last month, Huizenga--who has never sold a car in his life--has become the nation’s largest new-car dealer in total sales. More deals are on the way.

And it’s not just new cars. He is building a used-car superstore chain under the AutoNation nameplate. He is acquiring National Car Rental Systems for $600 million and has already bought Alamo Rent-a-Car for $625 million. He also wants to give you a car loan and change your oil.

AutoNation’s first Southern California store will be in Irvine and company officials say it is expected to open in January 1998. The city has approved zoning for the 20-acre site, which is much larger than the average car lot.

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“We are creating one of the world’s premier companies,” boasts the gravelly voiced Huizenga, who is chairman and co-chief executive of Republic.

It may sound like bragging, but auto industry and Wall Street insiders say that if anyone can pull off such a feat, it’s Huizenga, a street-smart deal maker extraordinaire with piercing blue eyes and grandiose visions.

Not everyone is buying the Huizenga hype, however.

The skeptics see Republic as a supercharged house of cards, built on stock speculation and a poor understanding of the cyclical and capital-intensive auto business.

“They’re going to go bust,” declared Dick Colliver, a senior vice president of Honda.

That’s a minority opinion. A college dropout who once drove garbage trucks for a living, Huizenga built nearly from scratch not one but two Fortune 500 companies: Waste Management and Blockbuster Entertainment. He’s also a major figure in the world of sports who controls three professional franchises: football’s Miami Dolphins, baseball’s Florida Marlins and hockey’s Florida Panthers.

Republic, a diversified services company, promises to be much bigger than all Huizenga’s previous endeavors put together. By 2000, analysts project, Republic could have $20 billion in revenue--more than what Coca-Cola, Intel, Xerox and Arco generate today.

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Republic, which is based in Fort Lauderdale, has interests in waste management and home alarm systems. But it is the company’s burgeoning auto operations under the AutoNation umbrella that has Wall Street atwitter and Detroit aflutter.

“AutoNation will literally become an automobile empire, revolutionizing the antiquated distribution system in the U.S. auto industry,” said auto analyst Tom Galvin at the New York brokerage Deutsche Morgan Grenfell.

Working with lightning speed, Huizenga has already shaken the auto retailing business by gobbling up six of the nation’s premier dealership groups and beginning a national roll-out of his used-car concept. Using Wall Street money, management skills of longtime associates and expertise of auto experts such as Toyota distributor Jim Moran, he plans to have 80 to 90 AutoNation superstores and 200 to 250 new-car dealerships in the nation’s top 50 markets by early next century.

Already he is the nation’s second-largest rental car operator. Soon he will announce the formation of a captive finance company to provide loans and insurance. He also wants to be a major force in auto repair and is seeking to link up with a top-name auto service company such as Pep Boys.

Huizenga’s buying and building binge is likely to speed up the continuing consolidation of the nation’s 60,000 used-car and 22,000 new-car dealers. Many small to medium-size dealerships could disappear as a result.

“I feel very threatened,” said Jon Lancaster, the owner of a medium-size dealership in Madison, Wis., that sells Chevrolets, Toyotas, Nissans and Lexuses.

The driving force of Huizenga’s move is twofold.

First, there is money to be made because auto retailing is highly fragmented and inefficient. The overall business generates more than $1 trillion in revenues annually nationwide, so even a small portion of market share represents a huge potential.

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Second, there is widespread dissatisfaction among consumers with the car-buying process. Customers dislike pushy salesmen, say the dealing takes too long and are perplexed by negotiations that leave them feeling they’ve been fleeced.

Huizenga and other like-minded publicly owned consolidators are out to change all that.

They believe that buying a car ought to be as easy as buying a refrigerator or stereo system. Their remedy: contemporary facilities with huge inventories, noncommissioned salesmen who act as consultants, no horse trading because prices are fixed, liberal warranties and easy financing.

Though these ideas are not new, Huizenga is the first to adopt them on a large scale. With his womb-to-tomb services approach, he hopes to use Republic’s large size to wring out untapped savings while making the process both more convenient for consumers and profitable for investors.

“When you put all the pieces together, we can do it cheaper than anyone else,” Huizenga said.

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A frequent visitor to Orange County--he often flies in to John Wayne Airport in his company jet to watch his hockey team battle Disney’s Mighty Ducks of Anaheim--Huizenga picked Irvine for his first foray into Southern California because the city’s demographics are perfect for selling late-model used cars in a no-hassle environment. The city has many two-worker families that need two cars but might not be able to afford two new ones.

Despite widespread objections to the AutoNation concept by established car dealers in other parts of the country, the Irvine Auto Center voted not to oppose the AutoNation facility, which needed a special permit to be located in the Spectrum industrial area.

“We all had pretty negative feelings when we first heard about it,” said Bob Tuttle, president of the auto center’s dealers association and partner in the Tuttle-Click Automotive Group that has seven of the 19 franchises there.

“But we decided that they were coming, and as long as they were, it would be better to have them close by than 15 miles away,” Tuttle said of AutoNation. “We think this will probably increase traffic to our center because people coming to look at their cars will come to the center to compare prices.”

New car dealers fear AutoNation and other used car superstores because most new car dealerships sell a lot of late-model used cars and find that used cars bring substantially larger profit margins than new car sales. Tuttle said his group checked with car dealers in Virginia, where AutoNation rival CarMax recently opened its first used car superstore, and found “that the good, established dealers near CarMax all started doing more business once CarMax opened.”

While nothing has been announced, Orange County auto dealers expect to see CarMax set up shop in their territory too. The company is owned by electronics and appliance retailing giant Circuit City.

“We don’t cherish the thought of additional competition,” said Lewis Webb, president of the Webb Automotive Group chain of eight dealerships in Cerritos, Buena Park, Garden Grove and Irvine, “but we’re not going to fold our tent either.”

In the Irvine center, dealers already are talking about banding to collectively advertise their used car deals and warranties so shoppers realize that the combined offerings make the center competitive with AutoNation and other superstores that may enter the market, Tuttle said.

Competition at the local level doesn’t seem to be a big worry to Huizenga, though.

Harry Wayne Huizenga was born in 1937 in Chicago and reared by working-class parents of Dutch descent. His immigrant grandfather ran a garbage business. His father, an unsuccessful builder, moved the family to south Florida.

After a brief stint at Calvin College in Grand Rapids, Mich. (he dropped out before the end of his second year) and the Army, Huizenga borrowed $5,000 in 1962 to buy a garbage truck and route in Pompano Beach. Working long hours, he had 20 trucks within a few years and was looking for more. Soon he hooked up with a distant relative in Chicago to create Waste Management.

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The disposal industry was rapidly consolidating, and they turned to Wall Street. A public stock offering helped Waste Management expand aggressively. In one nine-month period, it bought 100 mom-and-pop outfits.

Waste Management quickly became an industry powerhouse. When Huizenga departed in 1984, Waste Management, now known as WMX Technologies, had annual profit of $100 million and revenue of more than $1 billion.

Huizenga was wealthy but not ready to retire. In 1987, an associate suggested he invest in the video rental business. He was lukewarm to the idea. At the time, he didn’t even own a VCR and had never rented a movie.

But once Huizenga saw a Blockbuster store, he changed his mind. He and his partners invested $18.5 million in Blockbuster and launched an explosive expansion that prompted analysts to dub the company McVideo.

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It grew from 19 stores in 1987 to more than 3,500 in 1994. At one point, Huizenga’s team was opening a new store every 17 hours. Sales jumped from $43 million in 1987 to more than $2 billion in 1994.

Looking to the future, Huizenga took on Hollywood in an effort to build Blockbuster into an entertainment giant. Among his acquisitions were Republic Pictures and Spelling Entertainment. But with the specter of video-on-demand via cable TV shadowing the prospects for Blockbuster, Huizenga did what he does best: make a deal. After a convoluted mating dance, Huizenga sold Blockbuster to Viacom for $8.4 billion in 1994.

In the meantime, he launched himself into another entertainment venue: sports. In quick succession in the early 1990s, he bought the Dolphins for $128 million, the expansion Marlins for $95 million and the expansion Panthers for $50 million.

His sports interests have brought Huizenga greater public visibility than his much larger corporate holdings. It also prompted criticism because he’s made it clear that he is in the game as a businessman, not a fan. Winning to him means not only triumphing on the field, but also turning a profit off it.

Huizenga is trying to do both. His expansion Panthers went to the Stanley Cup finals last year in just their third year of existence. Taking advantage of their success, he recently took the Panthers public, only the second sports franchise to be traded on Wall Street. The team lost $15 million last year and is not expected to see a profit before 1999, but the stock price has more than tripled, from $10 to $32, on Huizenga’s name.

Investors were watching closely in 1995 when Huizenga and partners put up $27 million to acquire controlling interest in Republic, a small waste disposal company. The stock price jumped immediately, from $2 to $10 a share.

Huizenga said he would use Republic as a vehicle to build a diversified services conglomerate with interests in waste disposal, home security systems and auto retailing. Although this may seem like a bizarre combination of unrelated businesses, there are common threads that run through Huizenga’s operations. He sticks to service businesses, loves recurring revenue streams and high margins, and looks for fractionalized businesses that are ripe for consolidation.

Wall Street appears to love anything Huizenga touches and has pushed Republic stock to about $40 a share after a 2-for-1 stock split. The stock rise, in turn, has allowed Huizenga to expand rapidly without taking on debt.

Republic will be aggressive operationally but conservative fiscally, Huizenga said. It eschews debt and uses stock--no cash--to make acquisitions that bring Republic increased earnings.

“This company will never be highly leveraged,” he said.

Huizenga and his partners, many of whom made fortunes with him in Waste Management and Blockbuster, are drawn to auto retailing and its related business by their sheer size.

“Just think of it. A trillion-dollar industry,” Huizenga said. “Two percent is $20 billion. Five percent is $50 billion. We just want our share--50%.”

Jesting or not, Huizenga is serious about doing for the retailing side of the auto business what Henry Ford did to the manufacturing side in the early part of the century.

The man charged with implementing the strategy is Steve Berrard, co-chief executive of Republic. A former Coopers & Lybrand accountant, he has been Huizenga’s right-hand man and confidant for 16 years. Republic’s approach is to grow quickly both internally and through acquisitions. The ultimate aim is to make AutoNation the first brand name in automotive retailing.

The opportunity is there because the auto-retailing process is so inefficient, accounting for up to 30% of a vehicle’s cost. Consumers are disgusted with high prices and the tedious, contentious buying process.

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The heart of Huizenga’s empire is AutoNation superstores. Used cars generate an estimated $310 billion in revenues a year. It is the most profitable side of the business but the worst run, with no dominant players.

The first AutoNation store opened in October in Coconut Grove, Fla. It has an inventory of 1,000 late-model used cars. The showroom is bright and airy. Customers can browse the inventory by price or model via computer. Every car sold comes with a 99-day bumper-to-bumper warranty, seven-day money-back guarantee and 24-hour roadside assistance for a year.

Analysts project that each AutoNation store will generate $100 million in sales a year. With a minimum of 80 stores planned by 2000, including six in California, that would mean $8 billion in revenue from AutoNation alone.

Republic is also developing a secondary chain of used-car shops known as Valu Stop. These outlets specialize in older used cars or those with excessive mileage.

The company is also building reconditioning centers capable of processing 50,000 cars a year in each market it enters. The company had hoped earlier to obtain reconditioning centers as part of its $5-billion takeover of security firm ADT last summer, but the deal fell through.

The key to success in used cars is supply. To secure vehicles, Republic has moved into the new-car business and the rental car industry.

The new-car business generates about $300 billion in revenues a year. Hendricks Automotive--a Charlotte, N.C.-based owner of 67 dealerships, the most of any group--did an estimated $2.3 billion in sales in 1996, less than 1% of total industry sales.

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On Dec. 23, Republic announced its first new-car dealership purchase. Since then it has acquired four of the nation’s top mega-dealers as well as Magic Ford in Valencia and the biggest Dodge dealership in Phoenix. Its 22 new-car dealerships give it estimated annual revenue of $2.5 billion.

“It’s a power play,” said Donald Keithley, an auto-retailing expert for J.D. Power & Associates. “It’s a preemptive strike to grab some of the best dealerships in the nation.”

Michael Maroone, owner of the Maroone Automotive Group in Pembroke Pines, Fla., said he sold out to Huizenga for $200 million in Republic stock because their retailing philosophies focusing on customer service are similar.

“He isn’t looking for a quick buck,” said Maroone, who will head new-dealer operations for Republic. “He is willing to invest for the long term.”

More dealer acquisitions are expected, and Republic executives say new-car revenue should hit $2.7 billion in 1997. But Berrard says the company will acquire only the dealers with the best reputations, profits and operations. The new-car operations will become feeders for the used-car operations by focusing on leasing. In fact, they are likely to feature 18-month leases, six to 18 months less than typical now.

Vehicles coming off lease could provide 50% to 70% of the company’s used cars. The rest will come from rental cars, auctions and fleets.

Berrard describes a scenario in which National and Alamo might take an 18-month-old off-lease vehicle from a new-car operation, use it for six or 12 months and then shift it to AutoNation for lease or sale.

With its broad range of operations, Republic predicts significant savings in advertising, financing, vehicle acquisition and reconditioning costs.

“Our vision is much broader than anyone else’s,” said Berrard.

While Huizenga may be leading the charge, he is not alone in pushing for change in the auto-retailing arena.

Circuit City is rolling out a chain of 100 CarMax used-car superstores. Top mega-dealers are doing the same with a used-car network known as Drivers Mart. At the same time, some big new-car dealers are on the acquisition trail trying to gain enough clout to survive the shakeout. Some are tapping Wall Street for funds.

All this activity has not gone unnoticed by dealers and Detroit. Many smaller and medium-size dealers are fearful that the new players will run them over and leave them in the dust. All the changes were hot topics with the dealers at their annual meeting this weekend in Atlanta.

“AutoNation and CarMax are a wake-up call,” said Fred Richart, a dealer in Columbus, Ohio. “We’ve got to get rid of the plaid suits.”

Auto manufacturers couldn’t agree more. But they have had limited success in trimming dealer ranks or getting the retailers to change their bad habits.

Ford Chairman Alex Trotman said the new, larger retailers could bring more standardized operations but that it is too soon to determine whether they will be better than individual dealers closely tied to their communities.

“There is more myth than math in this right now,” he said. “There is no proof that the big-box retailers are going to do it better.”

There are certainly those who question whether Huizenga can work his Midas touch in the auto business. Selling cars isn’t like picking up garbage or renting movies. Its boom-and-bust cycles can eat up cash faster than a poorly tuned jalopy guzzles gas.

Huizenga says cycles are a given. But history shows that when recessions hit, new-car sales go down and used-car sales go up. And whether there is a recession or not, you keep collecting the monthly lease or loan payments.

Time will tell. In the meantime, Detroit is trying to figure out what is driving Huizenga to bring Wayne’s world to its universe. He puts it quite simply: “It’s the fire in the belly. The enthusiasm. It’s the thrill of victory and the fear of defeat.”

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Also contributing to this story was Times staff writer John O’Dell in Orange County.


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