'Big gorilla' of car sales hits town World's largest seller of autos enters Baltimore market

Purchase of Fox a start

Republic aims to lead in top 50 markets, boost auto sales to $60 billion

August 23, 1998|By Ted Shelsby | Ted Shelsby,SUN STAFF

H. Wayne Huizenga never seems to do anything on a small scale.

He won national recognition and enormous wealth by turning Blockbuster Entertainment Corp. and Waste Management Inc. into industry giants, then was vilified for turning his Florida Marlins baseball team from world champions into also-rans in a matter of months.

Now he is bringing his fast-lane approach to automotive retailing to town -- and the Baltimore market might never be the same.

Twenty months ago his company, Republic Industries Inc. of Fort Lauderdale, Fla., began a nationwide buying spree that turned it into the world's largest auto retailer.

Republic established a foothold in the Baltimore market last week with the purchase of Fox Automotive Inc., one of the state's largest new-car outlets and the 47th-largest in the country.

The move is expected to accelerate consolidation in Maryland.

"I won't be surprised if the Baltimore market is controlled by five new-car dealership groups, including Republic, in 10 years," said Michael Flynn, associate director of the Office for the Study of Automotive Transportation at the University of Michigan.

"I would be scared, mighty scared if I were still in the business," said Jeffrey Legum, who last year sold the Chevrolet, Oldsmobile and Cadillac dealership his grandfather started 77 years ago in the Park Circle section of Baltimore.

"I glad I'm not going head-to-head against these guys," he said. "I sold [the dealership] because I saw the handwriting on the wall."

Legum said Republic's size allows it to significantly reduce its advertising costs and to obtain lower interest rates to finance the cars it purchases from manufacturers.

There's another big advantage related to size, he said: Manufacturers give the big dealers a higher percentage of hot-selling, more profitable models.

The acquisition of Fox will add nine outlets and about $390 million in revenue to Republic. But no one thinks Republic will stop there.

"When Republic goes into a city it's with the intent of grabbing a significant market share," said Bruce T. Allen, professor of economics at Michigan State University. "They are not going to stop at one acquisition. You can count on that."

Cheryl J. Bostater, an automotive analyst with Chatfield Dean & Co., said, "They don't enter a market without taking a leadership role in the market."

Republic declined to disclose its plans for the Baltimore-Washington market, but a company spokesman acknowledged that additional acquisitions are likely.

"Look at what we did in South Florida, which is fully developed," said Jim Donahue, vice president of communication. "We have approximately 30 new-car retail stores and three used-car mega-stores."

In Houston, Republic has four used-car outlets and 19 outlets selling new cars.

"Republic is more than a collection of dealerships," said Donahue. "Anybody can open their checkbook and do that."

He said the company's approach is to boost the value of its investment by cutting costs. A top goal is to reduce the 30 percent of the cost of a new car that is tied up in marketing and distribution.

Donahue said advertising accounts for about $500 toward the cost of the average new car.

"We think we can cut into that and other costs, but the only way to deliver economies of scale is to have a critical mass in a market.

"To own one dealership or dealership group in a market wouldn't make sense, because it wouldn't allow us to deliver on these efficiencies."

Republic has 339 new-car outlets in 18 states and 36 used-car outlets in 14 states. Donahue said the company's automotive sales are running at an annual rate of $14 billion.

The company as a whole had $10.3 billion in sales last year, $6.1 billion of it from automotive sales. The company also is in the auto-rental business and has a solid-waste disposal operation.

Republic's goal is to become the leading automotive retailer in the top 50 markets in the United States.

'Pick the best'

Huizenga told investors at the company's annual meeting in May that he hopes to have revenue of $60 billion a year from autos by 2000.

"Our philosophy is to pick the best and make them better," Donahue said.

After taking a breather this year to digest its previous acquisitions, the company is on a buying spree. Fox was one of eight dealership groups it acquired in 10 days.

To help finance its aggressive growth, Republic announced in May that it was spinning off its solid-waste division. "This should give us about $1 billion in cash, and we will be investing much of that in the purchase of new-car dealerships," Donahue said.

Republic also plans to open two huge AutoNation USA used-car stores in Baltimore and four in the Washington area.

More profit in used cars

"They are going to be the big gorilla in the market," said Legum. "They could dominate the used-car market, and that is where a lot of the profit is."

According to the National Automobile Dealers Association, the average profit on a used car is $175, compared with $55 for a new model.

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