Dealer Shares Expansion Story, Keys to Subprime Success
ATLANTA — Nearly 20 years ago, Jerry Smith opened an independent dealership near Atlanta.
Today, the store has grown into several stores, in addition to adding a separate finance company that not only finances its own subprime customers, but has actually expanded beyond this to team up with other franchise dealers to get their credit-challenged customers into vehicles as well.
Growing the Independent Store
Jerry Smith, a successful barber, opened the independent dealership about two decades ago behind his salon in Riverdale, Ga., which is just south of Atlanta.
And while Jerry Smith enjoyed cutting hair, he apparently found a new passion and envisioned expanding into other markets throughout the metropolitan area down the road.
In June, Autosmith will open its seventh dealership, this time in nearby Union City.
But Jerry Smith tragically passed away in 2005. However, his family carries on the dream.
"When Jerry opened his first dealership 1989, he had a vision back then of growing the business, but it didn't come together all at once. He saw the potential and wanted to take advantage of the opportunity," explained Robert "Bo" Culver, Smith's son-in-law who serves as chief executive officer of Autosmith.
Culver joined the business in 1991, two years after he married Smith's daughter, Michele. He had moved to Atlanta in 1987, taking an accounting position with Arthur Andersen before transferring to SunTrust Corporate Finance, and then ultimately, to Autosmith.
Smith's son, Jeff, also came onboard in 1991 following his graduation from college. By that time, the founder had opened his second dealership about four miles away. So he asked his son and son-in-law to help manage the burgeoning auto business.
Although Jerry Smith was still cutting hair, but he'd invest every spare moment in what was taking place at the dealerships, particularly at the Riverdale location since it was located just outside the barbershop on a piece of property he leased from the owner, the company officials explained.
Apparently, he specially enjoyed interacting with customers and selling them cars.
While Smith focused primarily on retail sales and being the dealership's front man, his son's specialty was inventory purchasing and stocking the store with the right vehicles.
Being a family company, Culver took care of the back office, handling credit and collections. Meanwhile, Jerry Smith's wife, Eugenia, also was active in the business, handling office administration and tag and title work.
Over the years, Autosmith added more stores. The officials indicated that their strategy was to identify good corner locations on high-traffic-count highways.
"We wanted to be all over the Atlanta market," Culver pointed out. "It seems on the surface that we'd cannibalize our own sales by being fairly close in proximity, but that wasn't the case. The business was always there. By getting on a good location and advertising well and delivering excellent customer service, we thrived no matter what area of town we were situated."
When Jerry Smith relocated his Riverdale hair salon in 1995 to Fayetteville, about eight miles away, it was a move that allowed him to bring more attention to his original lot via construction.
They razed the Highway 85/Main Street barbershop building, paved the lot and rearranged the dealership configuration.
"When we did this, literally overnight, our sales doubled," Culver pointed out, laughing in amazement. "That was a wise decision."
Slowly, Jerry Smith cut back on his hair-cutting hours to devote more time to his expanding dealership operation.
Then tragedy struck in 2004. Though fit and in great health, Jerry Smith was diagnosed with lung cancer. He died a year later.
According to Culver, the family members rallied around each other and were able to overcome this sudden and unexpected blow. Eugenia, Jeff and Bo are now the three principal owners of the Autosmith chain of independent stores that today employ about 55 people at six locations, including Riverdale, Jonesboro, Lilburn, Marietta, Smyrna and the latest in Norcross, which opened at the end of 2007.
In May, the Riverdale dealership is expected to move its operation up the street to a two-acre lot and a brand-new 3,800-square-foot facility. The store will be able to increase its inventory from 110 cars to about 160 vehicles, according to the family.
Then in June, Auotosmith will unveil the Union City dealership, the company's seventh store, which takes over a building and 3.5-acre property where a former franchise dealership operated.
Opening at the same time and located nearby will be Autosmith's new reconditioning facility, where all vehicles purchased for the entire operation will get attention to make them frontline ready. The units will then be delivered to the appropriate stores.
On average, the company said each store stocks about 100 vehicles. Typically, the inventory features 2001 to 2006 models that range from 30,000 to 90,000 miles, which generally sell retail for $5,000 to $20,000.
According to Culver, the team sells somewhere between 200 and 300 units per month via the stores.
"From the outset, we felt strongly that before we could really take off, we had to have the infrastructure in place first," Culver indicated. "We had to have the personnel, the office space, the technology, the systems, processes and capital all in place first before we could start going out and asking for more business. That was critically important, and as we accomplished that, we felt confident to expand."
As to future growth, Culver commented, "We want to continue our slow, methodical pace of adding on stores, bringing on new dealerships and growing our business."
Separate Company Helps Drive Growth
The CEO pointed out that generally Autosmith customers are younger than 45 and predominantly fall in the 480 to 540 Beacon credit score, but some rank as high as 650.
To handle the financing for Autosmith, the family started Automobile Acceptance Corp. in 1992. It's an entirely separate stand-alone company, Culver said, operating out of a four-store building located next door to the present Riverdale dealership. About 50 people work there, he added.
"Before we underwrite any deal, we diligently look at their credit, at their stability and their job history. We interview everyone and ask some really pointed questions," Culver indicated.
"We try and gauge the attitude of the customer. We know that their credit has some blemishes on it, so we're trying to determine if they have a bankruptcy risk. We know this is going to be a four-year relationship and sometimes five years. So if things don't work out, we will need to be able to locate the person or the automobile," he further pointed out.
"But it's our job to help the customer be realistic with their choice of automobile that they want to buy, that they are not trying to buy too much car for their budget and that they can afford a proper down payment," Culver added. "If they are willing to be reasonable in their expectations, there's no reason why we can't put a car deal together."
When the deal gets contracted, the customer knows that Automobile Acceptance Corp. will be servicing the loan, he went on to say.
But Culver said Automobile Acceptance's portfolio crosses all credit tiers.
"We do have some cash retail deals. We do have a few customers who come in with their own financing and will buy their car through their home equity line of credit or through their own banking relationship," Culver continued. "If they ask us to finance their car for them and they have strong credit and a high Beacon score, then we have to be competitive in order to get that deal."
At the same time, Automobile Acceptance Corp. partners with about 150 franchise dealerships throughout Georgia. It provides financing for customers who purchase vehicles at those stores, something it's been doing since 1994.
"We saw that we were good at financing our own automobiles, so we why not finance automobiles for other dealers," he said.
Culver anticipates this facet of the business to continue growing, especially as other major auto lenders cut back from the number of loans they are financing with credit-challenged customers.
Presently, according to Culver, Automobile Acceptance has three representatives who have carved up the state of Georgia and are on the road visiting dealers on a daily basis. They sit down with them, look at credit applications and follow up on deals they can fund.
"As we see some of the competition retreating from the lower-credit spectrum, we're stepping in there to fill the gap," Culver noted. "We're very comfortable with that segment of the market, and we do that well."
Better Times Around the Corner?
Culver described 2007 as a "good year" but said the first quarter of 2008 dipped about 10 percent. He knows times are tough right now and that the economy has noticeably slowed down, so he's hoping for some positive developments to spark business.
The government rebate checks just may be the first stimulus that fuels consumer spending, Culver said.
"Employment here in Atlanta is relatively strong, so I don't think it's necessarily an employment issue. I think it's more of a consumer confidence issue," he explained.
"When you see your neighbor or somebody in your family struggling, you tend to be a little bit more cautious with your discretionary income," Culver added. "When you're having a hard time making ends meet, you are more cautious with what money you have left over after cashing your check and paying your bills."
Many people, as a result, are deferring any big-ticket purchases, and when it comes to their automobile, many people are holding off upgrading to a newer vehicle, he further pointed out.
"So the stimulus check may be very, very timely," Culver noted. "It will come in handy. For new customers, we hope that folks will come in and buy a car. The rebate check will help with their down payment. With our current customers, we may not see it on the sale side with Autosmith, but we may see it on the Automobile Acceptance side by customers getting current on their loan or maybe even paying ahead.
"Regardless, we just hope that people will understand that the world is not coming to an end. We'll just have to let this cycle run its course. Eventually, we'll get some good news coming through the media, and it will encourage people to get back out and start spending again," Culver concluded.