Calif - Wilson, thoughts

Wilson pays workers well to boost profits

Automotive News / March 19, 2007 - 1:00 am




David Wilson, president of David Wilson Automotive Group in Orange, Calif., says the key to his company's success is grooming strong dealership general managers.

Wilson's 15 dealerships in California and Arizona recorded revenues of $1.67 billion in 2006. The company ranks No. 13 on this year's Automotive News list of the 125 largest dealership groups, based on new retail vehicles sold in 2006.

Wilson discussed his operating philosophy with Staff Reporter Donna Harris.

You've said your company thrives on strong general managers.

I have a 25 percent partner in every dealership. They have earned that partnership out of sweat equity, and they are treated like they own 75 percent.

How did you arrive at that philosophy?

The ultimate oxymoron is "minority stockholder rights." There is no such thing. I realized that from my experience as a 25 percent partner. When I became an owner, I was going to treat my junior partners in a much different way.

Do they have a lot of autonomy?

I am running the company; I'm not running dealerships anymore. In 1989, before we opened Tustin Lexus, I helped the general manager interview salesmen. I recognized I didn't have time to help interview salesmen. I was running Toyota of Orange. I said, "Hire whomever you want."

I didn't go back to that dealership for three years. It is the same way with the other stores.

You say you overpay your employees. Why?

If you don't pay people enough, you get more turnover. Our managers would be training people and interviewing people all the time. Let's sell something instead of looking for people.

How do you find good general managers?

We grow our own. We don't hire general managers - we hire salesmen. We've had many general managers from other dealerships apply for general manager positions. We say, "We do have sales openings." We have three examples of people who were general managers somewhere else, started as salesmen at one of our dealerships and are now partners.

The policy keeps people from quitting. I had a fellow who had been a general sales manager for me, and he quit to become a general manager for somebody else because we didn't have an opening. He came back because it did not work out. He started as a salesman, even though he had been with me 10 years. Now he is a general manager.

You have a reputation for paying your employees more than they would get for comparable jobs at other dealerships.

We overpay our people by 20 percent, but we net 5 percent on sales before taxes. Our people are hyperproductive. If a comparable dealer has six sales managers, we might have four. They generate the income of six managers, but I am only paying four.

Our vacation policy is two weeks after one year. Most everyone else gives one week after one year. We give three weeks of vacation after five years and four weeks after 10 years. We have a pension plan and a profit-sharing program. We don't pay anybody minimum wage - 150 percent of minimum wage is the starting salary at any dealership. And we let our people work overtime.

What impact does that have on employee turnover?

In the last 20 years, I have never advertised for employees. All of our people are promoted from within. We have second and third generations working for us. They know what a great place to work it is, and they recruit good people. We hardly have to fire people because we are hiring only productive people.

You run very large dealerships.

We average over $100 million in revenues per dealership. The opportunity for economies of scale is in the big stores. If you want to be a big dealer, you need to be in a big market with a volume brand. You have to have a plan. You have to have some belief in yourself and your ideas.

We have a benchmark of $1 million per employee. I send the general managers a report reminding them of that every month. If a store has 100 employees and is on track to do $90 million, they have to get rid of 10 employees or jack up sales.

All the stores are within one or two employees of that benchmark. Some are more efficient. Toyota of Orange has 150 employees and is doing $240 million in sales.

Some would argue you are successful because you have the right brands.

I am lucky to have Toyota, Lexus and Honda. But I have spent over $100 million on blue sky. I didn't win that money in the lottery.

The only open point I got was Right Toyota in Scottsdale, Arizona. I held the land for six years at a cost of $50,000 a month. I was in it for the long run, and it's now the number-one Toyota store in its region.

It was the same way when I got the first Lexus franchise. A lot of people turned that car down. I started building in 1987 and opened in 1989. I spent $8 million before I saw the car. There were a lot of sleepless nights thinking: "Am I going to lose Toyota of Orange over a Japanese luxury car that some people say isn't going to work?"

I lost money the first four years at Desert Lexus. Sure, it looks good now. But it wasn't always that way.

How is your Ford dealership in Orange County doing?

It is the second or third most profitable Ford store in California. We were selling 300 new units a month there five or six years ago. Now we are selling less than 100.

That was the reason I bought a Mazda franchise to put in with it. Ford did not want that. But what can you pay employees? It gave me the opportunity to keep people and shore up the expense base. Nobody wants duals, but manufacturers have to be realistic.

You are opening Toyota dealerships in Mexico. What's that like?

Mexico is the land of opportunity. Toyota has been there only a couple of years, and they already have 10 percent of the market.

For customers with good credit, the interest rate is 15 percent. Mexican dealers make 6 to 7 percent. We can make more on the interest than we do on the car.

Do you plan to expand in the United States?

I have potential general managers pushing, wanting to know when we are going to get another store so they can be a partner. Our goal this year is to exceed $2 billion in revenue. I have a list of people I call four to six times a year, to let them know to give me a call when they think about cashing in.

Didn't you consider going public?

In 1995, Merrill Lynch approached me to go public. My controller explained to me that we will make the money we would have raised in a public stock offering in five years anyway. So why sell for five times earnings? I did not want to retire.

We had what they call an all-hands-on meeting. You have lawyers, underwriters and CPAs in one room. I looked at those 20 experts, who were making $300 per hour, and realized who was paying for it all. It was our last meeting.

Is there room for more public dealership groups?

Ultimately, there will be more publicly held groups, because the manufacturers limit acquisitions. There may be spinoffs. There is a tremendous amount of venture capital available, and some dealerships have terrific and proven returns.

Lots of private groups do as well as or better than the public companies. They don't need public money. But at some point, what is the exit strategy for those people? This is an evolving as well as a consolidating industry.