Michael Maroone, former AutoNation president and current CEO of Maroone USA, shares insights on transitioning from public to private dealership ownership, emphasizing culture, partnerships, and operational freedom within a structured 'freedom frame.' He discusses the challenges of shrinking new car margins, the importance of pre-owned vehicle profit, and adapting to market shifts including EV competition. Maroone also reflects on his personal journey, balancing work with family life, and his approach to building a sustainable, partner-driven dealership group across Colorado and Florida.
Today I'm joined by Michael Maroone, Chairman and CEO of Maroone USA.
Michael breaks down why new cars are becoming commodities, where profit has actually migrated, and why culture, curiosity, and operational freedom matter more than pay plans.
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Topics:
06:10 Instead of GMs, use equity-owning "President Partners."
06:45 Use a "Freedom Frame" for flexible governance.
08:00 High goodwill stores make partner buy-ins impossible.
19:55 Never use compensation to run your business.
21:10 Ask 20 questions in every elevator ride.
24:15 New car product has been totally commoditized.
26:15 We are facing a lost generation of CapEx.
32:15 Measure "Super PVR" to see total deal economics.
39:45 Reject framework agreements; they only hinder growth.
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"The former president and COO of Auto Nation drops by to unpack why new vehicle margins are disappearing, how dealers should rethink profit"
When car dealers sell new cars, they usually make some profit called a margin. Recently, this profit has been getting smaller because of how car prices and sales work.
New vehicle margins refer to the profit dealers make on the sale of brand-new cars. These margins have been shrinking due to increased competition, manufacturer pricing strategies, and market conditions.
"how dealers should rethink profit through pre-owned and total deal economics, and what really separates public scale operators"
When a dealer sells a car, they make money not just from the car price but also from things like loans, extra products, and services. Total deal economics means looking at all these parts together to see how much money they make.
Total deal economics refers to the overall profitability of a vehicle sale, including new and used car sales, financing, add-ons, and service contracts. Dealers analyze this to maximize their profits beyond just the sticker price.
"and what really separates public scale operators from nimble private groups."
Some car dealers are big companies that sell shares to the public. These big groups run many dealerships and work differently than smaller, private dealers.
Public scale operators are large dealership groups that are publicly traded companies. They often have different strategies and resources compared to smaller, privately owned dealer groups.
"Out of automotive, I set out a non-compete of a year. I happened to have been the enforcer of non-competes in my prior employer."
A non-compete is a rule that stops someone from working in the same kind of job or with rival companies for some time after they quit.
A non-compete is a legal agreement that restricts an individual from working in the same industry or with competitors for a specified period after leaving a job.
""Will they be a joint venture with an existing OEM? Will they build factories here? Yeah, I think they will.""
OEM means the company that originally makes the car or parts. Sometimes, car companies work together or share parts.
OEM stands for Original Equipment Manufacturer, referring to companies that produce parts or vehicles that are sold under another brand or in partnership with other manufacturers.
"You own eight dealerships. You are very well invested in dealerships. So to me, that says that, you know, follow the money. If you have dealerships, you clearly believe in the future of the dealership model, or else you would have divested out of these dealerships. What do you think is just the future of the dealership model? I don't think it's gotta be one way or another."
The dealership model means that car companies sell their cars through special stores called dealerships instead of selling directly to buyers. These dealerships help people buy, finance, and fix their cars.
The dealership model refers to the traditional system where car manufacturers sell vehicles through independently owned or franchised dealerships rather than directly to consumers. This model involves dealerships handling sales, financing, and service for customers.
"but I do think the private cap model of new vehicle dealership franchises is still a very viable model."
These are car dealerships that sell brand new cars from a particular car company. They have a special deal with the car maker to sell and fix their cars.
New vehicle dealership franchises are authorized businesses that sell new cars from specific manufacturers. They operate under agreements with automakers to represent their brand and handle sales, service, and warranty work.
"Any of these things, whether it be direct to consumer, online auto retailers,"
This means car makers sell cars straight to people without using car dealerships as middlemen.
Direct to consumer refers to selling products, like cars, directly from the manufacturer to the buyer without intermediaries such as dealerships. This model can disrupt traditional dealership sales.
"Any of these things, whether it be direct to consumer, online auto retailers,"
These are companies that let you buy cars on the internet instead of going to a car dealership in person.
Online auto retailers are businesses that sell cars through internet platforms rather than physical dealerships. They often offer a more streamlined buying process and home delivery options.
"But the new vehicle product's been totally commoditized. It's too easy to shop."
Commoditized means that new cars are so similar and easy to compare that people mostly choose based on price, not special features.
Commoditized means that products have become very similar and interchangeable, often leading to price-based competition rather than differentiation by features or quality.
""So the money's being made in things like dealer fees, which are not necessarily value add.""
Dealer fees are extra costs that car dealers add when you buy a car. They cover things like paperwork and other services but can make the car cost more than the sticker price.
Dealer fees are additional charges added by car dealerships on top of the vehicle's price, often covering administrative costs, documentation, and other services. These fees can significantly increase the out-the-door price but may not always correspond to added value for the buyer.
""It's made in F and I. It's made in parts and service and it's made in trades.""
F and I means Finance and Insurance. It's the part of the car dealership that helps you get a loan to buy the car and sells extra protections like warranties. This is where dealers often make a lot of their money.
F and I stands for Finance and Insurance, a department in car dealerships responsible for arranging financing, selling insurance products, and extended warranties. It is a major profit center for dealerships beyond the vehicle sale itself.
""It's made in F and I. It's made in parts and service and it's made in trades.""
Trades are the cars you give to the dealer when you want to buy a new one. The dealer sells your old car to make money.
Trades refer to trade-in vehicles that customers offer as partial payment towards a new vehicle purchase. Dealers often profit by reselling these used cars.
""It's made in F and I. It's made in parts and service and it's made in trades.""
Parts and service means the stuff you buy to fix or take care of your car, like new tires or oil changes. Dealers make a lot of money from this, sometimes more than from selling new cars.
Parts and service refer to the maintenance, repairs, and replacement components sold by dealerships and repair shops. This area often generates significant profit for dealerships compared to new car sales.
""We'll go back to break even deals on new car. That's the lost leader for the dealership to get you to become a service client.""
A lost leader is when a store sells something cheap or even at no profit to get you in the door, hoping you'll buy other things that make them money.
A lost leader is a product sold at a low price, often at break-even or a loss, to attract customers with the goal of making profits on other services or products.
""You've got to turn that new vehicle inventory and make sure you're not on the wrong foot.""
New vehicle inventory means the cars that a dealership has ready to sell to customers.
New vehicle inventory refers to the stock of new cars that dealerships have available for sale. Managing this inventory efficiently is crucial for dealerships to maintain profitability and meet customer demand.
"I believe there's been a lost generation of catbacks and autos."
A catback is a type of car exhaust that starts after the catalytic converter and goes to the back of the car. People change it to make their car sound better or go faster.
Catback refers to an aftermarket exhaust system that replaces the piping from the catalytic converter back to the muffler and exhaust tip, often improving performance and sound.
"So that the issue we have, and what's pushing the commoditization,"
Commoditization means cars are starting to feel very similar, so people choose mostly based on price, not special features.
Commoditization in the automotive industry refers to the process where products become indistinguishable from each other, leading to competition mainly on price rather than features or innovation.
"Now we're putting hybrid technology back in cars. That's old school technology."
Hybrid technology means a car uses both gas and electricity to help it go farther and save fuel.
Hybrid technology combines an internal combustion engine with an electric motor to improve fuel efficiency and reduce emissions compared to traditional gasoline-only vehicles.
"This episode is brought to you by Carfax. Here's a reality check. Carfax data shows that 43% of new car buyers won't return to the same dealership for service... But Carfax lifetime dealers don't just stop after the sale. They partner with Carfax to deliver co-branded, VIN-specific service reminders..."
Carfax is a company that gives you reports about a car's history, like if it was in accidents or had repairs, so you can buy smarter.
Carfax is a company that provides vehicle history reports and data to help buyers and dealers understand a car's past, including accidents, ownership, and service records.
""That's hard because that one new you sell, you might take 50% trades, 40% trades, 60% trades.""
When you want to buy a car, you can give your old car to the dealer to help pay for the new one. This is called a trade-in.
A trade-in is when a customer offers their current vehicle as partial payment toward the purchase of another vehicle, usually at a dealership. The value of the trade-in is deducted from the price of the new or used car being bought.
"So the used vehicle margins are softer. And if you look at all the publics, the used vehicle margins."
Used vehicle margins are the money a dealer earns when selling a used car. It’s usually less than selling a new car, but dealers can make extra money in other ways.
Used vehicle margins refer to the profit dealerships make on selling used cars, which tend to be lower per unit compared to new cars but can be supplemented by other fees and services.
"I said, it feels like the modern dealer is a process engineer within their dealership, more than ever. I mean, you're always a process engineer to your business,"
A process engineer is a person who figures out better ways to do things in a business so everything runs smoother and faster.
A process engineer is someone who designs, analyzes, and improves business processes to increase efficiency and effectiveness, often applying systematic methods and technology.
"on dealership framework agreements? So I have a lot of experience in them. I signed a bunch of them in my last one. Did, an auto nation. An auto nation. The reason we had them then was so that you could look at a buyer with certainty, or a seller, excuse me, and say, if we reach a deal, I can get this deal closed"
A dealership framework agreement is like a rulebook that car dealers and manufacturers agree on to make sure buying and selling cars goes smoothly. It helps everyone know what to expect when they make a deal.
Dealership framework agreements are contracts between dealerships and manufacturers or other parties that outline terms and conditions for vehicle sales and operations. They help provide certainty and structure for buyers and sellers during transactions.
Instead of GMs, use equity-owning "President Partners."
Use a "Freedom Frame" for flexible governance.
High goodwill stores make partner buy-ins impossible.
Never use compensation to run your business.
Ask 20 questions in every elevator ride.
New car product has been totally commoditized.
We are facing a lost generation of CapEx.
Measure "Super PVR" to see total deal economics.
Reject framework agreements; they only hinder growth.
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Let's agree on a DMS.
Let's agree on a sales system.
Let's agree on the basic components of pay plan,
how people should be compensated.
Okay.
Let's agree on gross retention metric
that is acceptable to me and acceptable to them.
In the freedom frame,
it's going to have things like,
we need to be sales efficient.
We need to be above benchmark and CSI.
We need to have reputation scores of four, seven or better.
All these series of things, it's in the frame.
But what I'm really trying to do
is keep the personality in the store.
And certainly running a public company
at a very, you know, with 26,000 employees,
you had to tighten things down a lot.
Today I'm joined by Michael Maruni,
Chairman and CEO at Maruni USA,
an eight rooftop dealer group
operating out of Colorado and Florida.
The former president and COO of Auto Nation
drops by to unpack why new vehicle margins are disappearing,
how dealers should rethink profit
through pre-owned and total deal economics,
and what really separates public scale operators
from nimble private groups.
Michael shares hard earned lessons on partnerships,
culture over compensation,
and why curiosity still wins
in a market facing EV overreach
and new global competitors.
A big thank you to our sponsors
for making this episode possible.
Podium, Car Facts, and Nomad Content Studio.
And now let's get into the show.
Mike Maruni on the Car Deals Should Guide podcast.
Mike, welcome.
Thank you, what a great honor.
Great to have you on, finally we made it.
Mike, in 2018, a young lad sent you a LinkedIn message
with nothing to offer,
but asked for a couple of minutes of your time.
It was a cold message.
That young person was me, of course.
I just shared this as a post on social media
earlier this morning,
and I told everyone say,
hey, what questions do you have for Mike?
Why did you respond to my LinkedIn message?
I know this is gonna sound crazy.
I respond to everything.
Every email, every text, every message,
that's just who I am.
And I try and do it same day.
Yeah, well, you did it.
And again, you probably don't remember this,
but we ended up hopping on a call.
I was at the time, just in the car business
and small dealership and had this big idea,
which I went on to build,
and you gave me some advice,
which was very helpful early on
when you are young and don't know
and where you're going and what direction
or how to navigate this industry,
which is changing so rapidly.
So that meant a lot.
And I actually showed that,
I showed that post to my wife before heading out here,
and she was like, wow, it's incredible.
Kind of, you know, bring it full circle.
So glad to have you on.
Well, this is gonna be a great conversation.
I have many things in mind,
some things about your past or background,
where you're heading in the future,
of course, we'll talk about the industry as well.
But let's just, I wanna start with just retirement,
which was one of the things in 2015,
you technically retired from auto nation.
When I asked you before this podcast,
is that really when you retired?
Cause you're clearly still super active.
You sort of looked at me and balked and said,
I'll never retire.
Where does that come from?
Yeah, I think I failed retirement.
I was, I left auto nation.
I'd been there 18 years.
I know this sounds insane.
I literally worked seven days a week for 18 years
for a very good reason.
I had a ton of the stock,
like a lot of our government was in stock.
Capitalism.
Yeah, and so after 18 years, it was time to go.
I left, took off and did a couple of things
at about two weeks in and I said to my wife,
this isn't for me.
I need to do stuff and begin doing stuff right away.
Out of automotive, I set out a non-compete of a year.
I happened to have been the enforcer of non-competes
in my prior employer.
So I did it to the letter of the law.
I was at NADA a year later at midnight.
I was at an automotive news dinner
and the person on stage announced
that my non-compete was expiring at midnight.
And I literally, not with broker,
started looking for stores.
And what year was that?
Well, it was 2016.
It was one year after I left.
So I would call it hopelessly addicted to auto retail.
I just love the business.
I love the people in the business
and I wasn't ready to walk away from it.
What's it like going from public to private?
A public group to a private group, that is.
I love both of it, to be honest.
So I was private before I went public.
Public is hard.
You're in the marketplace every single day.
You get evaluated.
You have a lot more scrutiny on you.
There's a lot more bureaucracy that goes with it.
But it's also, there's a lot of capital
and the ability to raise capitals there.
So you can do bigger, bolder things
than when you have to reach into your own pockets.
Now, what do I like about it or about private?
It's probably more my style.
I've built a team, had people have equity with me.
I have partners everywhere and it's less dependent on me.
I'm still as interested, but it's very different.
So you think private or in your case,
private is less dependent on you versus public,
even though public was more scaled?
Yeah, I think so.
And I know that sounds a little bit unusual.
And again, I think it's our determination
when I was at AutoNation to build a great company.
Mike Jackson and myself, Wayne Heising,
I think we ultimately did it.
But it was a bumpy road and lots of ups and downs.
The private life, I like a great deal
because the people I work with,
but obviously you're not playing to the same level of scale.
How do you structure,
you mentioned having partners and ownership.
How do you structure your private groups today?
You have eight stores, right?
Yeah, we have eight stores, 10 franchises.
And the way it works is when someone comes in
to be my operating partner,
so I don't have general managers,
they're called president and operating partners.
When they come in a year after they start from me,
we evaluate whether it's a good fit for both of us.
And if it is, I sell them equity in the company,
no personal guarantees, no big hooks to it,
no wife signing, no spouse signing.
And they take their share of the profits
to buy out what they had purchased from me to repay me.
And I like it.
I mean, to me, there's somebody that gets up in the morning
and has responsibility for that specific asset
and they're designed to build a culture.
And we build something around it
that we call a freedom frame,
which says, here's the things you can do,
here's the things you can't do.
And the frame itself is kind of the rules of the road.
Inside the frame, it's your store,
put your personality in it,
make it a great place to work, a great place to shop.
If you need to go outside the frame, you have to call dad.
Okay, so that's your governance, essentially.
Yes, it is, and it flexes based on my confidence
in that person and based on their performance.
It's not rigid, but there's a clear understanding
of what you can do and what you can't do.
How feasible do you think this type of partner path
or track is with today's valuations, right?
Because it used to be that I could buy into the store
because the store was only worth a couple of million dollars.
Today, you have these stores worth tens,
if not hundreds, in certain cases.
So how do you think this is really repeatable
in other stores or only certain brands?
What's your take on that?
I think it is repeatable, but it's hard
and you've got to have the right deals.
So a deal you're paying eight, nine, 10 times for
is not going to work if you're paying.
It just won't pencil for me.
I'll have to work 50 years to get 10%.
Which is not what we want.
Correct.
We want you to be an owner and when you get to 10%,
we have some threshold that you can buy more
than the 10%, but really hard on very high goodwill
and it doesn't force you, but it encourages you
to go for different kinds of assets.
What auto groups do you respect other than your own?
Oh my goodness, there's so many.
I have tons of friends in the business
and each one of them's got its unique characteristics.
Whether it's a John Berkstrom, a Carl Sewell,
a Don Flow, a Joe Sarah, all those people I respect
tremendously, the Holman family, the Bianca family,
the Ken Nucci family, there's so many people
and what's interesting is you learn from every one of them
and then you take your own style
and make sure that works for you.
I can't be them, they can't be me,
but that doesn't mean I can't learn from them.
So you're on a similar note,
but you are a Florida guy
and you purchase stores in Colorado.
Yes.
How did that come to me?
I own a home in Colorado.
I have a deep love for Colorado.
It's great, right?
Yeah, and I made up my mind when I left a nationwide job.
I was on the road three to four days a week for 18 years.
I spent a lot of nights in hotels,
unbelievable number of meetings
and I decided that I only wanted to be places
and I didn't want to spend my life in a hotel.
So I picked two places that I actually had homes
and had roots there and it's worked out really well
and we've had opportunities to buy stores
and many other markets and I won't even look at them.
Yeah, you're optimizing for the quality of life,
where you want to be.
Yeah, exactly.
I respect that.
What's home life like?
You mentioned be home, what's your home life like?
I'm sure, has anyone ever asked you that on a podcast?
Never, it depends on who you ask at my home.
So now it's just my wife and I
and she recognizes that my hobby is my education
and I work a lot.
I'd say she wishes I'd work less
but she also respects that I've been that way my whole life.
So when the day's done, we go out to dinner.
I eat at home, very seldom
because it's hard to have an intelligent conversation
because as soon as I'd finish eating,
I'd want to go back and answer emails, answer communications,
think about the next day plan.
And so we kind of put a pause.
We might go for a long walk,
might go for a bike ride or go to dinner and go stop.
And she literally asked me nothing about the business.
We don't talk out of retail.
She just not interested or?
I think we just like to move the subject to our family,
our kids, our grandkids.
You want to break that?
Yeah, and I think she certainly is interested
in our overall success, but we don't measure it.
We don't talk about it.
We don't talk about money.
We don't talk about net worth.
We talk about our family and things we can do together.
And how's your family?
What are they out there?
I have two children.
My daughter works for Cascade,
which is Bill Gates' investment office
and has been there for many years.
And my son owns 10 skincare places called Silver Mirror
in New York, Washington, D.C. and here.
So neither one of them had an interest
in being in the business,
but I do have three family members in the business
that play very important roles.
One of them is married to my daughter.
One of them is my nephew who's our CFO
and another nephew is one of my operating partners.
So it is a family business.
We meet annually and go through kind of where our family is
from a business point of view.
But my son has started to come to our operating reviews
and some of our bigger meetings.
And I think he's got interest in how the business runs,
not necessarily interest in working in the business.
That's interesting.
So you basically keeping them informed,
keeping them updated on what's happening
and just they're staying really close to you that way
and then just to the operations.
Yes, and I literally talk to both my children
every single day, 365 days a year.
Not long conversation, but we talk.
Just touch and base.
I want to know how they are.
I want to know what they're interested in.
I don't need to rehash what I do.
If they're interested, I'll share it.
But we're a family, we love each other.
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So more on the car business.
We were having lunch and we started talking about this
and Chinese and just the state
of the automotive car market where it's headed.
Where is automotive car market headed
in your perspective, new car market?
Let's just start there.
Well, I think it's ever-changing.
And as I mentioned to you before,
I was part of a generation that watched
when the Japanese manufacturers came to town.
I was part of the generation that watched CarMax
and our particular group had Driver Smart,
which was the car dealer answer.
I was employee number two at AutoNation
when they began to consolidate very rapidly.
So I've been through a lot of those changes
and I'm not afraid.
I'm not afraid of new competitors.
I'm not afraid of Tesla.
I'm not afraid of Ruby and I'm not afraid of Carvana.
I'm not afraid of the Chinese.
I think that the entrepreneurs that fill
these automotive seats are quite nimble.
Most of them are now, many of them are very well capitalized.
They're technologically pretty adept.
And I think we just take it as it comes
and you just have to compete.
It doesn't mean that the world's gonna stay the same,
but I'm confident that we're all nimble enough
that we could be fine.
Are Chinese cars gonna make into the US?
My opinion is yes.
Now, on what form?
I don't know.
Will they be a joint venture with an existing OEM?
Will they build factories here?
Yeah, I think they will.
But I mean, look what the Japanese have done.
Look what the Koreans have done.
Why would we say this group can't come in?
I understand the national security.
I understand the changes in the vehicles.
But I say bring the best vehicle you can and let's compete.
If someone says, okay, well, Mike,
geopolitically the world is in a different state today
than it was 30, 40 years ago.
And you mentioned this is a national security threat.
You know, we're taking vehicles in and from an adversary.
How do you respond to that?
Not to put you too much in the hot seat over geopolitics.
I'm okay.
But I think it's like a real thing
that people are asking in the community.
Listen, there's certain guardrails you have to put in place,
whether you're an investor or you're a politician.
And I'm sure when the time comes
for the Chinese to come to the U.S.,
and I'm assuming they will come at the right time,
I'm sure the appropriate guardrails put in place.
I mean, maybe a good example would be like TikTok, okay?
TikTok was perceived to be a national security threat.
There became a way around it with U.S. equity.
Possibly the same thing happens with joint ventures.
Okay, I take it.
You also mentioned, you mentioned Carvano.
You're a lead director at Carvano.
I think that's pretty well known.
I wanna know your, but you also separately from that,
you have your money in dealerships.
You own eight dealerships.
You are very well invested in dealerships.
So to me, that says that, you know, follow the money.
If you have dealerships, you clearly believe
in the future of the dealership model,
or else you would have divested out of these dealerships.
What do you think is just the future of the dealership model?
I don't think it's gotta be one way or another.
I think the future of the dealership model is still good.
I think you gotta adapt.
You have to invest.
You can't sit on your earnings
and take all the money out of the company,
but I don't think you have to be just one direction.
I mean, when I was a private cap dealer,
I was investing in automotive.
When the public companies came post-autonation,
I've invested in some of the public companies.
I think it's, I don't think it's one or the other,
but I do think the private cap model
of new vehicle dealership franchises
is still a very viable model.
And the returns on investment are still very good
if they're well run.
Do you think any of the exogenous threats are,
will dealers really feel the impact?
Any of these things, whether it be direct to consumer,
online auto retailers,
what's actually gonna reflect in the P&L
over the foreseeable five, 10 years?
I think all the models could be success,
not every model, but many of the models could be successful.
I think you can get returns,
it's just about how well you run the business.
Am I concerned about direct sellers?
Yes, am I concerned about OEM owning dealerships?
Yes, am I afraid?
No.
You're saying find a way.
Find a way, that's what we get paid to do.
You're not gonna be competing in a static environment.
It's gonna change and you've gotta change with it.
And if you listen to the consumer, we call them guests,
we don't have customers, we have guests.
If you listen to the guests,
your job is to fulfill for the guests
in the way they wanna be fulfilled.
And if it's, hey, we're gonna deliver remotely,
then deliver remotely.
We're gonna do money back guarantees,
then do money back guarantees.
We're gonna have a digital platform
that build a digital platform.
It may not be as good as somebody else's,
but we can compete.
So when you think about your freedom frame,
do you run that similar to how you ran a public group
or have you changed the way you operate to,
not putting like the partnership details aside,
the actual operations of the dealership today,
how do you run, like what is in that freedom frame?
You know, the freedom frame is an initial discussion
we have with our partners to say, let's agree on a DMS,
let's agree on a sales system,
let's agree on the basic components of pay plan
and how people should be compensated.
Let's agree on a gross retention metric
that is acceptable to me and acceptable to them.
In the freedom frame, it's going to have things like,
we need to be sales efficient.
We need to be above benchmark and CSI.
We need to have reputation scores of four, seven or better.
All these series of things, it's in the frame.
But what I'm really trying to do
is keep the personality in the store.
And certainly running a public company
at a very, you know, with 26,000 employees,
you had to tighten things down a lot.
And I think at times it's easy to overdo it
and take the fun out of the business.
So my overriding thing that I said before is,
I want it to be a great place to work
and a great place to shop.
And to do that, you have to have people with passion.
In our particular business, we call it a culture of caring.
And I say it's contagious behavior.
I want to see employees, excuse me, associates
helping each other in moments of need,
whether it's a personal need or a business need.
I want to see people taking the extra step
to do something for a guest that maybe the guest
doesn't deserve, but they're our guests.
So now they do deserve it.
I like that extra effort.
And I find that that culture really can spread
through an organization and I can walk in a store
and tell you what the culture is like in the store.
How clean is it?
How well organized it?
How well are people dressed?
The people look like they're having fun
or doesn't look like it's a grind.
I think coming out of a public company
that sometimes can be a grind, not all the time,
I want to put a little more fun back in the business.
And that's what the freedom frame is about.
So how do you instill that culture?
Like, is this something you incentivize
with compensation plans?
Or do you incentivize this type of behavior
or instill it in the store in other ways?
How do you do that?
I learned a while ago not to use compensation
to run your business.
Compensation is really important.
People come to make money,
but if every time you want to get something done,
you build it in the pay plan, all of a sudden...
Everyone's coin operated.
What's really important is getting a return on investment,
taking care of your guests, getting your retention metrics up,
being successful long term.
I don't want to do that with compensation.
We let people know that from day one.
We have detailed conversations
with people coming in our business.
We let them know what our freedom frame is.
We let them know what our principles are.
In the early days of this chapter,
I used to speak at all the new vehicle orientations
and tell them, here's my background.
Here's what we're trying to accomplish.
Here's what you can expect out of me.
For example, here's what you can expect out of me.
I will never have an office in a dealership.
And I take my shoes and flip them up in the air.
My office is my feet.
So when I come into a store, I'm not saying
I'll never sit in a meeting room.
I don't want to go sit behind a desk.
I want to talk to people.
I want to be a good listener.
One of the things I've felt is that
when people become very successful,
sometimes they don't listen.
They think they know too much.
I think there's a lot I can learn.
And so I ask a never-ending group of questions.
When I was at AutoNation, people would say,
God, if you got in the elevator with Mike Maruni,
he was going to ask you 20 questions
before you got to your floor.
And that generally happened.
Turns out that that's a pretty good trade
for being successful.
You're curious.
I think it works.
Yeah.
I like how you blend this modern traits of just being...
You're on the forefront of tech and the car business,
but you also have these very just tried and true philosophies,
such as when we were walking over here
and we were chatting and we just had a discussion
about overhead in a business or overhead.
And you're very like, yeah,
if you don't need that overhead, keep that low.
And we're talking about rent and stuff like that.
But I think it's cool how you're...
There's certain things that are just fundamental to you.
If you don't need the overhead, eliminate it.
And cap X or whatever, what investments you make.
And I think that's like a cool balance
where it's not like, oh, we're successful.
I just go kind of dump all this money and investments
and things, but let's really be thoughtful.
Because there's ups and there's downs.
And we talked about that as well.
And so what has that been like for you?
Like what have been the downs in your life
that you've learned from?
Well, let me go back to where you started and I'll come.
So one of the founding principles of business
is you create gross margin,
but it's the gross margin you retain that matters.
And if your bucket of gross margin is,
I've got a million dollars in gross this month,
what's at the bottom line is what you didn't spend.
So it doesn't mean you don't invest,
but you're very careful of how you invest
and very careful that there's value add there.
Could you rent versus own?
Could you buy versus build?
You know, those kind of things you've got.
I try and look at what's the return on investment
with each expense we have.
It's maybe not that granular,
but that's the overriding thing.
What have I learned is if you spend frivolously,
you're not going to make money.
If you don't hire, develop and retain people,
you will not be here.
So I'm still old school of,
I think talent makes a big difference.
I think culture makes a big difference.
And personally, I want to be a place that people go,
this owner really genuinely cares about me,
not just what I produced that minute.
And that there's alignment on culture
and alignment on how we treat our guests,
how we treat our communities,
how we treat our OEM partners,
how we treat our lenders.
Where do you think the new car just business is headed?
GDP numbers, by the time of this era,
you know, I would say recently got revised down
or came in lower than expected.
That's one data point.
Where and you, we'd also discussed prior to this
about OEMs slightly reducing their production
for the remainder of the year.
So how do you feel about where the new car market's headed?
I'm really concerned about it.
And I mentioned here early, I'm not a big worrier.
I'm not afraid.
But the new vehicle product's been totally commoditized.
It's too easy to shop.
I can't think of another consumer product
that you can find out to the dollar,
what the seller paid for that vehicle.
And the new vehicle margins are way, way off.
Now there's exceptions, there's certain products,
but overall the new vehicle business has been commoditized.
So the money's being made in things like dealer fees,
which are not necessarily value add.
It's made in F and I.
It's made in parts and service and it's made in trades.
But there is very little money left in the new car business,
but a lot of expense.
So what happens?
How does this all play out?
I mean, do you think that is just where,
how the business will be?
We'll go back to break even deals on new car.
That's the lost leader for the dealership
to get you to become a service client.
I know that's already, service is already
the breadwinner of the dealership.
We all know that, but have we gotten accustomed
to this false perception that we should make money on new cars?
I mean, should new cars be sold at a break even
and all the profit be made elsewhere?
I think you can wish your way into whatever you want.
I could say this is where I'm going to run it.
But if you don't compete in the marketplace today
with the transparency on pricing, it doesn't work.
But you do have other levers
and you have to work harder than ever to get the trade.
You've got to turn that new vehicle inventory
and make sure you're not on the wrong foot.
By the wrong foot, I mean having the wrong mix
at the wrong time.
You've got to be on the right foot.
You've got to be good buyers, not just good sellers.
There are ways to get through it.
And I do believe there'll be another day.
But I'm going to segue into something.
I know you're leaving the conversation.
No, please, I like this.
I believe there's been a lost generation of catbacks and autos.
So one of the things we do, and we're going to buy a store,
if it's a franchise we don't own,
I will call everybody in the world,
I know that owns that franchise, get their input.
But I also go to the Bank of America Car Wars report.
And I'm not doing a commercial for them,
but it shows you product going out five or six years.
It's a great report, yeah.
When you look back, and I say those things,
when you look back for five or six years,
the OEMs were putting $8 to $12 billion a year in a product.
And it was almost 100% EV driven by top down government demand.
So that the issue we have, and what's pushing the commoditization,
there's very little new product out there, very little.
Now there's a few, but not many.
So if you said to me in XYZ franchise,
what are you excited about that's coming?
I can't think of it.
Where in normal times you go, well next year they're going to have a new one of these,
and next year they're going to have a new one of these,
and I can't wait till this car or this truck comes out.
You look at the product flow, there's very little that's new.
So what is new?
Now we're putting hybrid technology back in cars.
That's old school technology.
I think it's effective, it gets you fuel economy,
but it's not an EV, and it's certainly not where the future is going to be.
So I think that when we get through this chapter,
assuming the next administration doesn't do a top down move like the prior administration did,
maybe we get back to let's let the customer decide what they want to drive rather than the government.
So I think it makes a lot of sense.
You basically think that, I mean it was top down, but clearly a big miscalculation.
We lost all that time period, especially now with manufacturers backpedaling on all their EVs.
And so what do you think?
Where do we go from here?
You say let customers.
Hopefully we go back to OEMs building exciting products that customers will want,
not that government wants.
This is not a political statement.
No, no.
Not blaming anybody.
If I, that's why I like being a retailer, not an OEM.
They didn't have a choice.
The cafe penalties were so big, you know, and that's where, as you well know,
Tesla made a ton of money with the credits.
I mean, that's, that was their primary source of income.
The early years and even the later years of Tesla is they were solving that problem for the OEMs.
Well, that's not the way you want the system to work.
And I think if the consumer comes back to driving future product,
I think we'll be back to having more exciting product.
Will it be commoditized?
Maybe to a degree, but not to the degree we are today.
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That's an interesting date.
So a lost generation of automotive or new car CapX,
how are you positioning your business, right?
Given and softening new car business now.
So how are you positioning your business for that?
Obsessed with acquiring and retailing pre-owned.
Obsessed.
We talk about it every day.
We measure it every day.
Every store's got a plan.
We monitor it.
Really can see everything that was bought or traded for that day.
We've got to stay on top.
You could pull up your phone now and see what we got.
I'm going to put you to that.
Every day.
Every day.
But my point is, if you're going to focus that,
and if that's my way of getting through,
we call it getting to the other side.
Go through the valley and get to the other side.
It's got to be pre-owned and obviously service.
Mm-hmm.
So what is obsessed with pre-owned mean to you?
Like, is it, hey, let's acquire the best.
Let's price the best.
Let's transport as quickly as time to line.
Like, how does it actually manifest in your stores?
Well, first of all, you've got to say, what does demand do?
What turns in your store?
What turns quickly?
What turns profitably?
And then how do you go get them?
The challenge is with all the consolidators,
whether they're pre-owned retailers or they're the big publics,
everybody's got a plan.
Everybody's marketing to we buy your car.
So it's hard.
I mean, we...
Hard to differentiate.
Yeah, it's really hard to differentiate.
We do a lot out of the service lanes.
We do a lot of it out of some of the third parties.
It's dribs and drabs, two here, three here, one here.
You don't go out and buy a thousand widgets.
Yeah.
Just got to find the deals where you can.
You got to find them.
But you got to be scrappy.
And being scrappy means all hands on board.
You've got to have people in the service lanes.
You've got to have the technology tools.
You've got to have the guest communication tools.
There's a lot to it.
And it requires really good execution.
We're getting better at it.
I wouldn't say we're great at it.
But in the old days, if you were .7 used to new,
you thought you were pretty good.
Then they say you got to be one, one to one.
Today, we have a store at three to one,
a couple stores that are going to get closer to two to one.
That's hard because that one new you sell,
you might take 50% trades, 40% trades, 60% trades.
So you've got to go out and acquire a lot of product.
And when you don't acquire the product,
your traffic drops immensely.
So inventory drives traffic, as you well know.
And specific inventory drives more traffic than other inventory.
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