FM Architecture Presents
Exclusive interview with car dealership legend John Hughes
Today we were joined by John Hughes to discuss car dealership market in WA and some important issues regarding business management
Filip: We are going through tough times. How do acquisitions by large corporates on the WA market affect further growth of well-established business like yours?
John: The motor industry isn’t any different than a lot of other industries, where the bigger are getting bigger and the smaller are getting smaller. It is certainly almost to the point in the car business and in lot of other industries where you have the really small finding it extremely difficult to survive.
In the car business it is all to do with competition and with the increasing use of internet. Younger people, up to the age of 35-40 don’t read papers any more. They use tablets and search for the lowest common denominator. My wife is fashionista and she has friends who are wealthy. They will go to some well-established boutiques, see something they like, go home and buy it on the eBay at the lowest price.
It is getting very tough with reduced margins in every business. If your business is going quietly there is only 3 things you can do:
Increase your turnover – easy to say, how you do it?
Improve your profit margin – how, because of so much competition?
Reduce your overheads – there is a limit, you need staff and you need marketing.
The bigger conglomerates particularly in the car business, with their economy of scale and massive numbers can gloss over. A decent size of dealership should make, let’s say a million dollars a year. Much larger public companies may only make half of that. Because they have so many dealerships it is hard to keep the finger on them so may be not that well run. But if they have enough of them to make half million – no one will know. Stake holders will look at dividends, share price, so stakeholders won’t quite follow that.
AHG in particular have done remarkably good job. Because of the sheer scope, every time they buy a dealership in Sydney or Melbourne, the investors will think – that’s great – they are earning accretive.
Filip: How does this apply to pre-owned car operations?
John: The other thing in car business is, it might sound surprising when you look all the cars I’ve got, biggest challenge in our case, is not getting enough good used cars. I am talking about variety – I am Hyundai dealer, KIA & Ford, but I don’t acquire too many Mazda’s, Honda’s or Toyota’s.
We are wholesaling less cars to other dealers than we used to do before. The older cars I am tending to keep. So the smaller dealers stock is drying up. Where do they get the stock from? All major dealers are now keeping more of their own stock. To the wholesalers they don’t give anything except the really bad cars, so the smaller dealers are being squeezed out.
There is no doubt that other big automotive publicly listed companies like AP Eagers will come to WA. Should they be talking to me, they probably will, because they haven’t got an influence at all in WA. AP Eagers will come, like Japanese companies have just taken over DVG and Singaporean companies just bought Bayswater Mazda. Yes, so that’s going to happen.
Filip: So how do you survive?
John: As a small operator yourself, you will understand the pressures. Although the advantage you’ve got Filip is, you can derive a personal level of service and direct care for clients. If you are in a group it might be more difficult, it’s more conglomerate.
To manage what I‘ve got, even in the big business I am, is I get personally involved. I deal directly with my customers, look after them and ring them. I sell cars and I handle complaints. Your advantage is they are dealing with you – you are the one.
There is MBWA management by walking around and there is MBBI management by being involved. That’s what I do, I am very involved. If the phone rings, I pick it up. I have no idea who is on the other end. Could be a customer, or somebody with complaint, might be someone wanting to sell me something, it doesn’t matter. It is only common decency, courtesy and good manners to answer that phone.
Filip: But you are a celebrity?
John: Well, look, I don’t feel like a celebrity. I guess I am but I don’t feel like. I am very humble and I keep my feet on the ground. My father was a bus driver, my mother was a bus conductor, and I shared a very small bedroom with two other brothers. The best thing I had was an early ambition not be like what I grow as. I was fortunate because that was my motivation.
Filip: How would you describe ideal market conditions for your customer to buy cars?
John: The people who have the money need a very strong motivation to spend. Fly in Fly out people have diminished, mining boom is over. Ok, 6% are unemployed but I am looking at 94% that are employed. An ideal market condition would be when everyone is full of confidence, money in their pocket and want to buy a car. That may not going to happen again, that is utopia. But did have that for 3-4 years.
We need confidence in the market, stable government, and people in work. The average public is very easily led and I am not disparaging. They get a bad headline and they back off. They are very influenced by media and fear pressure.
An ideal market will be an orderly market, with competitors behaving rationally. I have competitors that are advertising new cars below cost. That is where the public company comes in. There is a pressure to make the sale. The loss of profit get swollen up by all the others around. Individually not doing very well but the sheer size makes up.
Filip: It is not their money so they can afford to lose it?
John: It is good for the consumer but what level of service do you get? If you go and buy something from someone who doesn’t make any profit and you come up with a problem or you need some help and assistance, you only hope they have made enough profit so they can look after you.
Filip: What is the simple way architects can add value to your growing business?
John: The first thing they should do is knock on my door. Nobody has. Sorry, that’s not true. One rings me twice a year. You asked me what I would do to get business in this tough times. Knock on doors. You cannot beat the personal contact.
Read also at www.johnhughes.com.au/blog/