Bigger Is Better.

Anthony March and Ernest Hodge have joined forces and dealerships to make March/Hodge Holdings an auto powerhouse

When Anthony March met Ernest Hodge in January 1998 in Atlanta, it was a chance for two friends to indulge in one of their favorite, but less frequently enjoyed pastimes, golf. "When I was at General Motors, my handicap was about plus three; now it's more like plus five or plus seven," says March. On the wall behind his desk is a picture of a lone golfer hitting a long shot across the green. "Next to work, that's about the only other thing that I do," he says.

Hodge, CEO of the Heritage Automotive Group in Atlanta--No. 16 on the 1998 BE AUTO DEALER 100 list with $79.9 million in sales--and March, CEO of Tony March Buick GMC Saturn in Hartford, Connecticut--No. 58 on the 1998 list with $35 million in sales--have been friends since they met at the General Motors Dealer Academy in 1984.

"Something just clicked between us," says March, 48, who sees in Hodge a brother. Ditto for Hodge, also 48, who grew up as the only boy among three sisters. The two had culled a relationship from their days at the academy, and although they'd gone their separate ways afterward, they'd stayed in touch over the years, comparing sales strategies and dealer tales, using each other as a sounding board or for advice.

So when they met at Hodge's private country club, Eagle Landing, neither was surprised to discover they each had expansion plans in the works for their dealerships, with offers for more deals on the table. As they walked and played the front nine, both wondered out loud how to take advantage of the many opportunities being offered without overextending their companies' capital reserves and resources.

The two began to think it might be time to go the way of their larger competitors and business trends in general--merger. The duo were treading on turf as new as the freshly manicured lawns on which they were golfing. Never before had two African American dealers brought together their two separate dealerships under one umbrella with one co-management structure. Maybe it was an idea whose time had come.

"This is the first minority holding or management company that's been put together this way within GM," says Eric Peterson, general director of GM's Minority Dealer Development program. "Tony and Ernie have had the foresight and understanding [of the changing retail landscape], and joined ranks to establish a holding company that puts them in competition with the big players," explains Peterson.

By the time March and Hodge teed off on the back nine, they had a gentleman's agreement--"partners." The benefits of merging their two businesses would offer tremendous opportunity, from increased size to lower operating costs. By May 1998, the two companies had formally merged into March/Hodge Holding Co.

For 1998, March/Hodge (No. 4 on the 1999 BE AUTO DEALER 100 list) reported sales of $184 million on its 13 dealerships and 7,000 units (cars and trucks) sold by year end. This was possible despite a major strike by GM workers for 54 days which shut down production around the country. Had the dealerships been combined the previous year, they would have had $114.86 million in sales (based upon their BE 100s sales), for a 60.2% increase. By press time the new company had bought or started another five franchises under its joint umbrella, bringing its current total to 18 dealerships in six states (Connecticut, Florida, Georgia, Maryland, Massachusetts and Tennessee) with projected 1999 sales of $312 million on almost 12,000 units. The March/Hodge goal is to own 30 stores (franchises) that will generate $1 billion in sales within five years. "That's their goal, their dream. They want to be very successful and they're doing just that," adds Peterson.

Because of its approach to competing in the shifting auto retail industry, using economies of scale, a consolidated management philosophy to define its structure, and strong sales and acquisition success, March/Hodge Holding Co. has been recognized as the BE Auto Dealer of the Year.

Competing in a consolidating industry

There's a new way to do business in the automotive industry these days; it's called consolidation. Not since the late 1980s has the auto industry enjoyed this level of sales success. The Big Three--GM, Ford and DaimlerChrysler--have had the longest sustained period of growth in their history, no doubt due to the increased popularity of sport utility vehicles, multi-car families and a robust economy. As manufacturers look to increase their profit margins and diversify their product mix at the lowest possible costs, they too have set their sights on acquisition and consolidation. The Big Three's strategy: acquire their foreign counterparts and reduce expenses through consolidation of nonproduction operations.

At the same time, auto manufacturers are consolidating the number of dealer franchises, so that profit margins will improve at the wholesale and retail level. This has triggered a great deal of interest and attraction in owning superstore retail franchises--multiple car brands from different manufacturers sold in one location--by large publicly traded companies. Companies like CarMax, which is owned by Circuit City, the appliance retailer, and AutoNation USA (formerly known as Republic Industries), are the new behemoths.

With thinner profit margins, increased competition from fewer owners with multiple stores and manufacturers wanting fewer dealers with larger territories--the landscape of the auto business is changing at warp speed. To survive and thrive, most dealers are looking for ways to get bigger by selling more brands, acquiring more dealerships (and dealerships specializing in a particular niche or brand), spreading locations or a combination thereof.

"The day of single line dealerships cannot continue to exist in this market," says March. "I remember looking at Ernie and saying 'Why can't we do this?' That's the moment that the lightbulb went on," he explains. "The second half of the round was spent planning."

Their plan included moving some of their management teams into positions within the new holding group. As the company builds or acquires new stores, the March/Hodge strategy is to offer equity partnership stakes of at least 25% to the dealer/principal running that dealership.

"We've grown so fast in the past year that we've moved some of the sales staff into positions at some of the new stores," explains Hodge. "But we will not put anyone into a dealership unless they have a partnership stake in that store," he adds. Why? "You'll have a more committed person. His money is also at risk. We will not go into any store unless we have an equity partner running it."

Jim Cunningham, former GM regional director for the Southeast, has been on the board of directors for Heritage Automotive since its founding in 1991 as the representative for Motors Holding Co., the finance arm of GM. After leaving GM,Cunningham became CFO of a white-owned dealership in Atlanta before being lured to come on board as the CFO for the new holding company. His financial background and industry knowledge of acquiring dealerships helped in the merging of the two businesses.

"We've all basically grown through the process," says Cunningham. "Both guys took over stores that weren't very successful and made them grow. They understand the fundamentals," he says. "This business is about people. If you don't have the right people, it's not going to work," he adds.

The philosophy drives both March and Hodge in their goals and management styles. "Enthusiasm sells cars," explains Hodge. "I want people to feel good about what they do." And he points to his dealerships' four goals: employee satisfaction, customer satisfaction, market leadership and good corporate citizenship as a statement of that fact. "Most dealers think they need to have their hands on everything. But, if you bring them [employees] up and empower them, even letting them make mistakes, they'll be more effective," explains March.

Bobby Thigpen, a former sales manager at Heritage Cadillac in Atlanta, is now president and an equity partner in the company's Daytona Beach, Florida, stores--Lloyd Buick and Lloyd Cadillac Oldsmobile. He'll also be managing Lloyd Infiniti, the holding company's new import franchise under construction in Daytona Beach. "We try to promote from within first," says Hodge. Even Cunningham will be giving up his CFO post to take a stake in the holding company's new Kennesaw Lincoln-Mercury dealership under construction in the northeast Atlanta suburb.

Merging business and styles

In 1977 Tony March was 27 and a highly successful engineer--the youngest engineer in management (black or white) at GM's Fisher Body Division. A Howard University graduate with a degree in electrical engineering, March was a native of Daytona Beach who'd financed his college education with a swimming scholarship and summer internships at GM. He says he saw plaques on the wall of his then GM boss' office for design patents held on various systems and decided that he could have one too. He does: three of them, to be exact--one for a "Vehicle Power Seat Adjuster Control System" (the electrical unit that moves a car seat back and forth) and two for a "BiDirectional Electric Motor Control Circuit" (the motorized pull-down unit that automatically closes a car trunk). He'd only been out of college four years when he got his first patent in 1977.

March only decided to go to the GM Dealer Academy after a fellow employee, Chandler Lee--another BE AUTO DEALER 100--asked him to sign his letter of recommendation for the academy. While looking over its brochure, he and Lee began discussing the possibilities of ownership. "That's the reason I left GM; I wanted to own something," says March. "My wife, Gail [also an engineer], and I were looking to buy an electrical company at the time, but the books weren't good. This was a way to get into a business I knew about."

March found a sponsor in Bill Cook, owner/operator of Bill Cook Buick in Farmington, Michigan, who would also train him while he attended the academy. Ernest Hodge of Norfolk, Virginia, also signed up.

Since 1977 Hodge had been working in the car business as a salesman for Colonial Chevrolet in Norfolk. A graduate of Norfolk State University, Hodge had put himself through school working the graveyard shift at a local Christmas tree manufacturing plant. He says a friend convinced him to go into car sales after graduation from college when he was between jobs. That was in mid-January 1977. He sold six cars in those two weeks and sold a record 26 cars in the shorter month of February, clearing about $6,500--almost half of what he'd made the year before.

"I never wanted anyone to tell me how much money they could pay me. Give me an opportunity and let me go; I'll decide how much money I can make," says Hodge, who went on to become Salesperson of the Year at Colonial.

After working at the dealership for several years, rising from salesperson to general manager, Hodge applied to the academy with sponsorship from his employer, Josh Darden. "He just had a salesman's personality," recalls Darden. "Long before we had an opening, we promoted him to finance manager, then to sales manager."

After graduating from the academy in 1985, Hodge returned to the Colonial dealership and became a part owner in a Cadillac dealership in Virginia Beach with Darden and another partner. He stayed for four years before deciding to fly solo, taking a shot at a Chevy franchise in Maryland via GM's "Fast Start" program in 1989. But it quickly became clear to Hodge that this store was in a dying area and after five months he elected not to purchase the dealership. He went back to Colonial and waited for another opportunity.

It came in 1991 when a Cadillac franchise in Atlanta became available. He moved south and never looked back. The deal cost a cool $2 million to $3 million in floor plan--that is, the actual cars in inventory--plus another $500,000 in equipment and $1.5 million in capital. Hodge put up 15% of the capital loan; Motors Holding Co. put up the rest. The loan repayment schedule for the franchise was seven years; Hodge owned his Cadillac store free and clear within two years.

By the time March graduated from the Academy in 1985, he'd saved enough money to buy his first store that same year--a decaying, downtown dealership in Hartford whose owner was 83 years old and not very involved in managing the store. He says it was typical of the kind of opportunities offered to minority dealers. Although the dealership had lost money for five years in a row, the purchase price was $2.3 million.

March says he took the same product line, the same location and the same group of employees and made a few changes to the look of the place--painted the paneling, reupholstered the chairs and desks to the tune of an additional $100,000 above the $110,000 in cash he'd put up front for the franchise. He'd turned it around so that it seemed different not only to the employees, but to prospective customers as well.

"[The dealership] made $51,000 in its first month after losing money for five years in a row. Our first full year in business, we made $500,000 in profits," says March of his original store, Tony March Buick. Motors Holding Co. also held the note on his franchise; he paid them off in 30 months, almost four and a half years ahead of schedule. That store has now been relocated to a seven-acre flagship location just off Highway 91, one of the city's main arteries. Its sleek, rotunda skylight showroom highlights just one car model, and is decorated in the gray, burgundy and blue of the Buick emblem. Its customer service area is open and airy with modular sofas, and bistro tables and chairs where customers can relax with a cup of coffee, the latest magazines and newspapers, or watch a little television while they wait. In 1990, during an overall market slump, March expanded to include the GMC line of trucks and sport utility vehicles.

Not long after, he bought into Saturn of Hartford and became one of the first 24 dealers in the country to have a Saturn franchise. Last year, March added a Mazda and Mitsubishi franchise to his holdings, along with another Saturn franchise in nearby Berlin, Connecticut. Meanwhile, in Atlanta, Hodge added two Volkswagen franchises to his group--and another one, in Douglasville, Georgia, is still under construction. According to Don Hughes, area executive for Volkswagen North America, VW had pulled out of the southeast side of Atlanta and Hodge won the bid for the return of the stores as an "open point" from some stiff area competition, including one of the manufacturer's largest dealers, Jim Ellis of Atlanta. "He's doing an exceptional job rekindling the VW business on the south side. People talk about customer service, but don't really put it into practice," says Hughes. "They [Heritage] were ranked No. 4 in the southeast region for customer satisfaction and in the top 5% of all dealers nationwide," he adds. The dealership is now averaging 55 new car sales per month versus the five cars a month sold by the previous owner of the franchise.

Planning to merge two businesses on either side of the Mason-Dixon line isn't easy. The merger and holding company structure took about five months, hundreds of phone calls and dozens of trips between the two regions. In the meantime, as the partners figured out how to combine their separate operations, they began to acquire some of the dealerships they'd been offered. Besides the acquisition of the healthy Lloyd franchise in Florida, the new March/Hodge team purchased three Galaxy GM franchises and an Isuzu franchise in the metropolitan Baltimore area. Both were among the deals they'd considered while solo.

"Merging companies doesn't necessarily mean merging your businesses. You can share things like equipment that you both need. All the money goes to the bottom line. We're attacking and consolidating the expense items. You can still own 100% of your business, but have an advantage when you consolidate. You can borrow money at a lower interest rate--[if you were] formerly paying 1% over prime, now [you can] borrow at 1% below," explains March. The duo--and Cunningham--explain that it's not only because of the number of franchises, but because there's a centralized process. This way banks, insurers, data processors and others are only dealing with one centralized office, so the company is able to achieve economies of scale.

For example, in Hartford, March has one body shop where all his brands are repaired and is building one parts shop that will service all of his franchises. There's only one parts director who will supervise and do all the buying of parts for the four brands, plus one service director for all of the stores. Similarly, in Atlanta, Hodge is building a new reconditioning center that will service three different franchises--Cadillac, Oldsmobile and Volkswagen.

Once a month, the senior sales managers of March/Hodge gather for a joint sales and marketing meeting to discuss plans and strategies. To provide a cohesive marketing image while increasing cost-effectiveness, the company has created its own advertising agency--Galaxy Advertising. The agency, which started in January 1999, is responsible for creating and buying all the dealership's advertising, from direct mail campaigns to newspaper, radio and television ads. Their purpose in creating the spin-off: "To have a team that can consistently share what's working at one place with another," says its director, Gina Healy.

The two say the credit for their success lies with those who helped them along the way, from getting into college to working through and getting sponsored for the GM Academy. To that end, they, too, are trying to "give back." Last October, Hodge pledged a gift of $100,000 to his alma mater, Norfolk State University, the largest gift ever by an alumni. Its new president, Marie McDemmond, credits that gift with helping the college raise $600,000 of a $1 million campaign. Similarly, March's philanthropic interests have run from serving as the state chairman for UNCF since 1991 to setting up his own foundation in 1996 to donate $100,000 in UNCF scholarships. He adopted a local sixth-grade class at Domenick Burns Elementary in Hartford in 1993. Both are fathers, March of a 19-year-old daughter who's a sophomore at Northwestern University in Chicago, and Hodge of two sons, an 18-year-old freshman at the University of Alabama and a 22-year-old junior at Morehouse College. Both say that education was the critical part of their lives and helped to make their big dreams realities.

Their business partnership, like their friendship, is not unlike a marriage--melding goals and philosophies for a common good, building on each other's strengths and agreeing upon a course of action. They talk about five times a day and see each other about every five days--somewhere among their properties. "I've had offers to join others before," says Hodge, "but I never took the offers. Tony is probably the brother I never had."

Their union made sense. "In partnership, the key to it is that people can come together and agree on things; you've got to be on the same page. We don't care who gets the credit," says Hodge, "only that we're successful.

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