To: Mr: Dale WettlauferThe key phrase in your commentary in" Management Matters" re: United Auto Group is " without good background". I assume based upon the commentary's content you were referring to your lack of background?FINANCING IS THE CORE OF BOTH THE WHOLESALE AND RETAIL AUTO BUSINESS.You should also note that since the beginning of time, December has been a non-existent month for productivity and sales in the retail auto sector. You might consider this point in your future fourrth quarter analysis.Perhaps, you'd have a better feel for the business if you actually visited a dealership and shopped a few cars. Bring your car in for service, order an accessory part through a parts department.Then analyze.
Far Rockaway,I've known car dealers and I have'nt found that financing is necessary to the success of a car dealership. The disclosure on their finance business is nearly non-existent, which I would stay away from as an investor. I don't offer any earth-shattering insights into this sort of business, I just bring up some things to look at.On the seasonality issue, I'm not the one that took the write-off, the company did. Did I say anything about seasonal trends or that this is a horrible business because earnings and sales were down sequentially? Not all at.Tell me...how many times in its history did McDonald's write off a about 10% of its franchises in one fell swoop because of bad capital allocation on the part of their HQ? McDonald's pushed it when they were young, but they ran super-successful businesses. If this is to be a successful business, they will be process-driven and customer driven. Making money on the finance business is fine, but your service has to make the customer want to beat a path to your door to want to be served by you. Writing off 10% of the franchises seems as those these things aren't happening. So, you've either got a company with its attentions divided or you've got mediocre capital allocation people running the business. I don't know which it is, but I don't think I'm off-base to try to muse aloud as to why this company took the big bath.Dale
<<I assume based upon the commentary's content you were referring to your lack of background?>>Your background on shopping for a few cars and having them serviced is as little a basis for being intimately familiar with the workings of auto dealerhips as my background is in those areas, IMO.What I said about background was meant as a comment on the absolute lack of frank discussion and analysis from the company's officers on the conference call. What was even more interesting about their lack of detail was the array of softball questions from the analysts covering the call.As for the finance business, they don't make money on that unit. It looks as though the sales and service end of the business is the anchor of the company right now. What I see is a pretty ugly cash flow statement and a company that is trying to grow its way out of a problem with their write-off. Maybe it's just that I'm a curmudgeon, but I'm just not a fan of the big-bath accounting treatment. I don't have to be an expert at the car dealership business to see these very basic things.Dale
I'm not a curmudgeon, I'm a CARmudgeon... my expertise in "shopping and servicing a few cars", actually stems from having visitied over 5000 dealerships in the past twenty years as a vendor to the automotive industry.Your analyzing history as it unfolds... These companies UAG & their competitors are not for the curmudgeon-like investor. Their paths and methods are being charted by men and women who don't "play well" on a general ledger. NOT MR. COGAN OR MR. HUIZENGA, but the Sales Managers, Office Managers, Svc. & Pts. Managers controlling 50+ million in revenue, never having gone beyond the 12th grade.
Your comparison to McDonald's is at the heart of the investment community's problem with the publicly owned dealerships. How many variations have you seen on the BIG MAC? How many different models of cars are there? Factor in all USED CARS. What is the potential loss if a customer brings back a WHOPPER to the counter, complaining about an improperly installed onion!This is the ultimate retail capital investment commodity. The companies share little comparision in any other field.Listen... the profit margins in fixed operations are slim in comparison to the variable end & the costs in fixed ops are astronomical. Fixed ops represents a great avenue for customer retention, but the customer will remain with these large national chains because they'll offer the product variety that they crave. Oh yeah, it's the fact that a standardized customer process IS NOT going to work on a national basis in this business, that's causing a lag in the economy of scale benifits to kick-in. Too many aspects of the retail car business are affected by regional trends, e.g. economy, meteorology and geography, etc, etc... Some places put ketchup and mustard on the burger... but other than that fries are fries.... Parts ain't parts except on Mr. Perdue's chickens
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