Jump-Starting Profit : Auto Dealership Finds New Energy When Son Joins Father’s Business
Joseph Herrera grew up at his father’s used-car lot in East Los Angeles. Although the business flourished in the ‘70s and ‘80s, it began to seriously decline in the ‘90s. When Herrera graduated magna cum laude from USC in the spring with an undergraduate degree in business administration, he came in to help his father, Louis, revitalize sales and update management procedures. The Herreras were interviewed by freelance writer Karen E. Klein.
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Louis Herrera: I came to Los Angeles in 1959. A car lot guaranteed me I could make $100 a week selling cars, so I got into the business, working in Glendale and then East L.A. before I opened my business in August 1968.
Joseph Herrera: I worked at the business from the time I was 10. Instead of playing with friends after school, my dad took me to the lot and to the car auctions. I always enjoyed working with money and business so it was a natural for me to major in business administration with an emphasis in business economics and finance.
Louis: When he graduated, I knew he planned to eventually continue his education and get his master’s degree. But he needed to work in the private sector for a couple years and earn some money. So I invited him to come and work with me. He took full control of the used-car sales, and he’s making a tremendous mark.
Joseph: I thought it was a good idea to start running my dad’s business. Dad is 60, and he is ready to retire somewhat from the day-to-day operations. Sales had been declining progressively over the past five years because my dad lost focus. We just needed new life.
Louis: He caught me at a point where I wanted a change, but I didn’t know it.
Joseph: I started working seven days a week, 10 hours a day. When I came in, we were selling about $50,000 a month. A few months later, we are now up to about $100,000 a month. I began advertising aggressively, putting up banners and taking out newspaper ads. I had some conversations with a couple of the car dealers on the neighboring streets. I took their secrets, and I put them together with what my dad had taught me.
In economics classes I learned about volume selling. Dad always held out for a larger profit margin on each car sale. I encouraged higher sales volume and the result is that our sales have gone up.
But our profit margin is also greater than it was in the past. I accomplished that by bringing down costs. Once you sell a car, you sell the paperwork to a finance company. My dad was only working through one or two finance companies, and they had a lock on him. I went out and got seven or eight finance companies to start working with us and now it costs less because we negotiate better prices with them.
I also started buying newer cars. We were mainly selling Fords and Chevys, ‘85s to ‘90s. I started buying Nissans and Mazdas, newer sport-utility vehicles. Those are our best-selling vehicles now.
Then I put in incentive plans for our employees. The employees who clean and detail the cars used to work for straight wages. I told them that for every car they worked on that we sold, I’d give them $20. I saw right away they were working longer hours and really making that chrome sparkle.
The salesmen used to work on straight commission, so no matter what the car sold for, they got their commission. Now, I pay them a base salary plus a certain percentage of the gross margin we make on the sale. That gives them an incentive to make as much money on the car as possible. This way, they have equity in the car and they know if they discount it heavily, they will not make a lot of money. It makes them think like owners. That’s another key factor I learned at USC.
Louis: You know, young folks come in and believe their education is very strong and that they can help the business an awful lot. I think he knows more than I do, with all the knowledge that I’ve acquired over the years! I doubt it, though.
Joseph: I think there is always some conflict and some kind of power struggle when a new generation takes over. He’s been doing this for so many years, he thinks he’s got all the answers.
Louis: I guess I resisted a little, especially the first week when he made a lot of changes right away. But I saw the changes were effective very quickly, and I knew my old-timer ideas were not working anymore. If it makes money, how can I resist?
I was working about 80 hours a week before, and now I’m down to 50 hours. I don’t work Sundays and I leave about 5 or 6 p.m. I’m enjoying it because I know the business is doing as well or better when I’m not here.
I think I raised my kids good. Now I’m tired. I was there for them, and it looks like they’ll be here for me.
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AT A GLANCE
Company: Herrera Auto Sales
Owners: Louis and Joseph Herrera
Nature of business: Used-car sales
Location: 1111 S. Atlantic Blvd, East Los Angeles
Year founded: 1968
Number of employees: 7
Annual revenue: $1 million
