Photograph by George Sakkestad
Jim McHugh (left) turned over his Lincoln Mercury dealership to his son, Harlan, in 1995.
Family Ties
Some dealers have been in town for generations. Will the trend continue?
By Sandy Sims
When John Moore was a boy in the 1960s, he tinkered with cars in his parents' garage, much as his father had done in his youth. Automobiles were not just a hobby for the family of Ed Moore. Ed had bought the Buick dealership in Los Gatos in 1951.
Photograph by Tom Moore
This 1963 photograph shows Moore Buick when it was on E. Main Street.
Today, the dealership is still a family business, but John's son, Bret, doesn't play under the hoods of cars the way his father and grandfather did; instead, he putters with computers--and that may be the saving grace for this longtime Los Gatos business.
All seven of the town's auto dealerships are trying to keep pace with the online world even as they continue to sell cars the old-fashioned way, with good customer relations and positive word-of-mouth advertising. But with the changes going on in the retail world today--from Internet sales to conglomerate takeovers--no one, including Los Gatos' homegrown auto dealers--is quite certain where their businesses are headed.
Just last year, Republic Industries, the Florida-based conglomerate, acquired Anderson Chevrolet, a Los Gatos Boulevard fixture for many years.
"Twenty years ago, I knew where this business was going," John Moore of Moore Pontiac, Buick and GMC Trucks in Los Gatos, recalls. He leans back in his chair, in the large office his late father used to occupy. "Sure the economy would have its ups and downs, but I felt secure. Today, I don't know what's ahead."
Los Gatans treasure one-of-a-kind family businesses, in no small part because independent retailers contribute to that sense of community local residents keep telling town officials they cherish more than anything about Los Gatos.
Three family-owned auto dealerships have managed over many years and some tough times to remain a strong part of Los Gatos' small-town fabric. Moore opened almost 50 years ago on Main Street where the Forbes Mill office building is now. McHugh Lincoln Mercury has been selling cars on Los Gatos Boulevard since 1968, and Swanson Ford has been a part of the Los Gatos landscape since before WW II when it first opened for business in 1938 at 140 Santa Cruz Ave (where the Los Gatos Brewing Company is today).
These families have attended Los Gatos schools, served on the PTA and Chamber of Commerce, supported and played in Little League and contributed plenty of time and money to local community concerns. They remember when all a person could see for miles around were orchards and vineyards. Ed Moore's wife, Grace, used to drive straight up Bascom Avenue when she took their oldest son, Tom, to the orthodontist in San Jose. "I went that way so I could smell the blossoms," she recalls. "We used to eat the mustard greens that came up along Bascom in the spring," she remembers.
A sense of community and history is not all the Los Gatos auto dealers contribute to the town; as a whole, they generate a hefty piece of the town's income.
"Car dealers are critical to Los Gatos," says Los Gatos Town Manager David Knapp. And that's because of the sales tax revenue they generate. After local property taxes began going to the state after Proposition 13, sales tax became crucial to small towns like Los Gatos. Until about 10 years ago, Los Gatos boasted 11 new-car dealerships that generated a whopping 50 percent of the town's sales tax. Today, with bankruptcy claiming some and manufacturers forcing others out to Capitol Expressway, Los Gatos auto dealers now number just seven, including Honda, Acura and Ferrari and the used-car auto mall on Blossom Hill Road. Even with their numbers diminished, auto dealers still generate 31 percent of the town's sales-tax revenue.
Dealerships that have survived for many years have also weathered some tough times--autoworker strikes, steep drops in the market, growing global competition, the earthquake, even the WW II moratorium on building cars.
Harlan McHugh recalls gas rationing in the '70s. "I had to siphon gas between cars so customers could test-drive them." John Moore remembers the early '80s when GM cars were plagued with mechanical problems. "Sometimes I couldn't even get the cars started to get them off the carriers," he recalls. "I had to apologize to customers," he says wincing. He hastens to add that the cars today are excellent.
"The last seven or eight years have been good for the auto business," Moore says.
The hard times of the past may be history, but those problems may seem small compared to the global storms on the auto business horizon.
First, of course, is the Internet.
According to the National Automobile Dealer's Association (NADA), 1 million cars were sold via the Internet last year. Business 2.0 magazine reports Internet inquiries reached 4 million and accounted for 6.2 percent of all auto purchases in 1998. These sales generated $1 billion in December 1998 alone.
Photograph by George Sakkestad
John Moore (right) now runs the Los Gatos car dealership that his father bought in 1951. John's son, Bret, is the company's expert on Internet sales.
Originally, Internet car-buying services only referred customers to dealers. More recently, according to the Wall Street Journal, they offer financing and insurance, traditionally the bailiwick of car dealers. These services see themselves moving toward something akin to Amazon.com for cars by getting more personally involved with the customers. They've already added such niceties as email reminders to their customers to get their cars serviced--oil changed, tires rotated--and they recommend dealers on their list.
Local dealers are responding to the Internet by setting up their own websites. They've signed up with one or more online car-buying services such as Autobytel.com or Microsoft Corp.'s CarPoint (yes, Bill Gates is into cars too).
Bret Moore, the heir apparent to the Moore throne and a computer geek according to his dad, has set up the Moore website. He's in charge of their burgeoning Internet sales.
"We were surprised to find out how many of our current customers are online," John Moore explains. Moore's dealership now notifies customers by email when it's time to get cars serviced. They've even set up an "Ask the Shop Foreman" section on their website, for customers to ask mechanical-type questions.
"I've gotten customers I would never have gotten because of the Internet," John Moore says. One buyer logged in from Fresno.
Internet sales account for some 10 percent of McHugh's business.
GM and Ford industries are also responding to the Internet phenomenon by building their own online car referral service and offering perks such as consumer incentives, just-out-of-a-lease used cars, links to an enormous number of dealers and even--believe it or not--home mortgages.
Although the growing use of the Internet for retail is a concern to municipalities, because transactions take place in cyberspace, Internet sales of automobiles in Los Gatos are finalized at the dealership where the buyer signs the papers and pays the taxes.
As if cyberspace weren't enough to contend with, Los Gatos auto dealers are also watching Wayne Huizenga use his conglomerate Republic Industries to buy auto dealerships all over the country--including Anderson Chevrolet on Los Gatos Boulevard.
Huizenga owns the Florida Marlins, Dolphins and Panthers and formerly owned Blockbuster Video.
Since Huizenga bought Republic Industries, the conglomerate has virtually taken the lead in the solid-waste disposal industry and the electronic securities services industry, and has become the nation's biggest car renter since buying out National, Alamo and CompUSA car rental dealers.
Once Huizenga focused Republic on car dealerships, he began acquiring dealerships so fast it's hard to keep count. Wherever Huizenga touches down, he picks up several dealerships at once. Just since 1996, Republic has managed to buy more than 400 U.S. dealerships and is still expanding. In June 1998, the Miami Herald News proclaimed, that Huizenga "has more new vehicle franchises, more dealerships and more new vehicle revenue than any other auto retailer on the planet." He is now rounding up 40 more new dealerships in Southern California.
It's not too surprising that he's quickly becoming the largest Bay Area dealer. Recently, Republic, in addition to buying Anderson, also bought up several San Jose dealerships from the Smythe and Lucas families.
Huizenga's goal--he said in 1997--in addition to buying up new car dealerships, is to have 50 mega used-car dealerships with up to 1,000 cars on each lot. The used cars have fixed prices to go along with his "no hassle, no haggle" policy. They also offer 30-day warranties and 30-day money-back guarantees. His plan is to use the rental cars as feeders for his mega stores. To date, 42 AutoNation U.S.A. used-car lots are now operating nationwide. The first one in the Bay Area just opened in Dublin, adjacent to the 580 freeway.
McHugh is skeptical about Republic's no hassle/no haggle prices. He tried menu pricing--fixed prices--at his store for about 11Ž2 years. It didn't work because the rest of the dealers weren't doing the same thing. "I lost deals on $40,000 cars for as little as $25 or $50," he recalls.
And fixed prices may not be working for Republic either.
Last year AutoNation U.S.A. lost money. So much so that Huizenga has decided to convert some of the mega stores into new-car franchises (for which he must get permission by the manufacturers) by the end of 1999.
Dealers are watching him pay top price for dealerships. Jim McHugh (Harlan's father, founder of McHugh Lincoln Mercury) has been watching Republic's activity very closely. "At first," he says, "Republic paid in stocks, then it was stocks plus cash, now it's just cash." That's because Republic stock has foundered. In the last 52 weeks Republic's stock had a high of $30 and a low of $10. It's now running about $12. But Huizenga still pays premium prices.
The only resistance to Republic's bid for market dominance has come from the manufacturers. Toyota and Honda filed petitions in several states to stop Huizenga from acquiring more Honda franchises than their policy normally allows. The petitions were denied on the basis that a dealer has the right to sell his business to whomever he wants.
Ford, GM and Chrysler have taken another approach. They are buying up their own franchises and consolidating them. "We are over-dealerized," Moore admits. "We are all competing for a pie that hasn't changed size since 1986." Moore explains that '86 was the high-water mark for car sales in this country. With people hanging on to their cars longer, with so many people leasing, and a growing used-car market, the number of new cars sold has not changed since 1986.
Republic is, however, making profits on its new-car dealerships and its car-rental subsidiaries.
One of the reasons Republic's new-car dealerships have been doing so well is that it buys something special--a name and a reputation. Jim McHugh has an edge to his voice when he talks about Republic using a good name. When Harlan took over his business in 1995, Jim McHugh told him not to change the name because it had taken years to build a good reputation around that name.
Republic says it tries to retain the management team in order to maintain the success of a dealership it accumulates.
The question is whether the family-owned stores can compete with a publicly owned national firm like Republic and/or the effects of the Internet. Will they go the way of small bookstores and other mom-and-pop businesses? One reassuring difference in the auto market is that the dealers all pay the same price for their cars no matter what the volume. A dealer out in Small Town, Iowa, pays the same price for several cars as a major dealer in New York City or San Francisco might pay for 1,000 cars. "If that were to change because of Republic, I would be the first to sue," Jim McHugh says.
The homespun atmosphere and ties to the community of the locally owned business are not easily duplicated by a conglomerate.
Swanson, for instance, has employed some workers for 16 to 18 years and longer. Moore's business manager, Mary Madison, has been at Moore for 20 years, and her husband an auto technician at McHugh for seven years. These long-term employees develop a clientele that keeps returning. "We've had employees retire from Moore after many years," Madison says.
Typically, McHugh points out, large national and international corporations must consider their stockholders first.
"When you own the store, you can make decisions right there. If the service isn't satisfactory, you can decide not to charge the customer," noting that there's no need to check with a corporate office about such decisions.
The profits from a corporation-owned business are less likely to stay in the community, goes the argument favoring local ownership. "We buy our tires across the street," McHugh says. Large corporations, on the other hand, usually set up national contracts to take advantage of economies of scale.
Typically, small, privately owned businesses are involved in the local community--from support of Little League to participation in the Chamber of Commerce. Corporate owners sometimes encourage such community support, but many do not. With the auto industry moving toward Internet sales and big chains, community involvement is another given that may change.
In the old days, personal service mattered. In the future, who knows? "I've bought four or five cars from John Moore," says Los Gatan Gary Ehlert, executive director of the Silicon Valley Auto Dealers Association. "I trust John. He knows me. There's no high-pressure sales. It's all very personal and comfortable."
That's what the Los Gatos dealers say keeps them going.
Jim McHugh insists "The conglomerates can't compete with that."
"I don't know what the future holds," Harlan McHugh echoes his friend, John Moore, down the street. "The jury's still out." Asked what he'd do if Republic called and made an offer, Harlan sits back in the chair in his father's office and laughs. "Would I sell? Well, I guess I'd have to hear the offer."
Los Gatos, California Since 1881
