Asbury Automotive Group Inc.

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Asbury Automotive Group Inc.

Three Landmark Square, Suite 500
Stamford, Connecticut 06901
U.S.A.
Telephone: (203) 356-4400
Fax: (203) 356-4450
Web site: http://www.asburyauto.com

Public Company
Incorporated: 2002
Employees: 7,900
Sales: $4.48 billion (2002)
Stock Exchanges: New York
Ticker Symbol: ABG
NAIC: 44111 New Car Dealers; 44112 Used Car Dealers; 441229 All Other Motor Vehicle Dealers

Asbury Automotive Group Inc. is the fifth largest automobile retailer in the United States. Its ten regional "platforms," or groups of dealerships, work to achieve economies of scale on such items as newspaper advertising. The company markets 36 different brands of new cars; luxury cars and mid-line imports accounted for a little less than two-thirds of sales. The company operates approximately 100 dealerships in ten states (Arkansas, California, Florida, Georgia, Mississippi, Missouri, North Carolina, Oregon, Virginia, and Texas) and is looking to continue its growth by acquiring more multi-location dealers in booming metro areas.

Origins

Tom Gibson, a former president of Subaru of America Inc., formed Asbury Automotive Group in January 1995. The venture, which was backed by the Toronto investment group Onex Corporation, was a means to build a chain of "megadealers," or automobile retailers with annual sales of $150 million or more. Onex's holdings were diversified and included Sky Chefs, Purolator Courier, and three leading auto suppliers (Automotive Industries, Dura Mechanical, and R.J. Tower Corporation). Asbury was originally based in Conshohocken, Pennsylvania.

Asbury allowed the owners of the dealerships it bought to keep an equity share (between 30 and 49 percent) of the businesses while they continued to manage them. It also sought to identify their "best practices" and share them with its other dealers. "By Merging Visions," according to the company's online vision statement, "we're all better off." Asbury's offers had appeal for retiring owners whose dealerships were too large to sell to local competitors. Asbury sometimes bought single stores to add to its existing chains, buying all the shares of these units.

In February 1995, Asbury formed a joint venture with Jim Nalley Auto Group, which owned 11 dealerships in the Atlanta area. The purchase of Plaza Motors, a luxury auto mall in St. Louis, followed the next month. In August, Asbury acquired a 70 percent interest in the David McDavid Auto Group, a $500 million business in Dallas with 14 dealerships and 17 branches. This brought Asbury's annual sales to $1.3 billion. McDavid Auto, which was officially renamed Asbury Automotive of Texas Ltd. after the acquisition, had been formed in Houston in 1936 and had been family-owned for three generations.

Later in 1995, Timothy Collins, the investment manager in charge of Asbury at Onex Corporation, formed his own company, Ripplewood Holdings L.L.C. (later named Ripplewood Investments L.L.C.), bringing Asbury with him. Asbury's CEO Tom Gibson owned a minority interest in the company; leveraged buyout firm Freeman Spogli & Company Inc. also invested in the business in 1997. Asbury sold 12,000 new cars that year.

By February 1998, Asbury had added deals to buy two leading Florida car dealers, Coggin Automotive Group of Jacksonville and Courtesy Automotive Group of Tampa. Arkansas's McLarty Automotive Group (later renamed North Point), North Carolina's Crown Automotive, and Oregon's Thomason Auto Group were also acquired during the year.

Gibson told Automotive News that Asbury was building infrastructures called platform groups as a basis for achieving economies of scale on things such as newspaper advertising in local markets. The shared costs allowed the company to consider acquiring dealers with margins as small as 1 percent, versus the typical 4 percent.

Kendrick Becomes President and CEO in 1999

Brian E. Kendrick was named president and CEO of Asbury Automotive Group in November 1999. He had previously led DFS Group Limited, a luxury goods distributor controlled by LVMH Moët Hennessy Louis Vuitton. He had also been chief operating officer of Sak's Holdings during that company's initial public offering (IPO). Gibson remained on as Asbury's chairman.

Automotive News ranked Asbury the country's second largest dealer chain in 1999. It was the 39th largest private company in the United States. Asbury added four stores in 2000 for a total of 84, reported Automotive News. It sold 154,422 new and used cars in that year for revenues of $4.03 billion, up from $1.08 billion the previous year. Profits of $28 million were more than nine times the $3 million the company netted in 1999.

Corporate Structure Streamlined in 2000

In April 2000, Asbury streamlined its corporate structure from eight individual companies to just one, as the Oregon platform changed its name to Asbury Automotive Group, L.L.C. and became the parent company. A depressed stock market led Asbury to keep its plans for an IPO, always considered an eventual possibility, on hold.

Two dealerships in the Jackson, Mississippi, market, Gray-Daniels Ford and Metro Mazda-Hyundai-Suzuki-Isuzu, were added in the first half of 2001. Asbury created its ninth regional platform to include these with its nearby Mark Escude dealerships, which had previously been part of the Arkansas platform. The Jackson dealers were re-branded under the Gray-Daniels Auto Family name. Tom Wimberley Auto World was added later in the year. Asbury also acquired Kelly Pontiac-GMC of Jacksonville, Florida, in late 2001; it became part of the Coggin Automotive Group.

The threat of car lots losing business to Internet auto retailers was perceived as less of a threat after the collapse of tech stocks. In August 2001, Asbury's leadership felt the time was right to bring their shares to market. It was the first IPO from a brick-and-mortar car dealership since 1998. Company executives described the auto dealer business as resistant to down cycles in the economy, since they also provided auto repairs, parts, and used cars for people concerned with saving money.

Asbury's own online marketing strategy emphasized individual web sites for its dealers, rather than a unified national brand. Features such as searches of inventories and Blue Book values were shared, however. Asbury hired one web developer to oversee all its dealers' web sites.

Going Public in 2002

Kenneth B. Gilman, former chief operating officer at The Limited Inc., became Asbury's president and CEO in January 2002. On March 14, Asbury's initial public offering finally arrived on the New York Stock Exchange. The company then had 91 dealerships in nine states (Arkansas, Florida, Georgia, Mississippi, Missouri, North Carolina, Oregon, Virginia, and Texas). Asbury was the nation's third largest dealership group.

One of Asbury's selling points was the vast, untapped market controlled by private car dealers. The 100 largest groups accounted for less than 10 percent of the $1 trillion new car market in the United States. Asbury posted net income of $43.8 million on revenues of $4.3 billion in 2001.

Twenty-one percent of the company's shares were offered, priced at $16.50. The IPO raised $127 million. Most of the proceeds went to insiders selling shares, while some were earmarked for paying down the company's $550 million credit line. The company's total debt load was $987.1 million. Share price rose only slightly in the first day of trading, reflecting a lackluster stock market in general. Ripplewood and Freeman Spogli each owned slightly more than a quarter of shares after the offering.

Operationally, Asbury was embracing customer relationship management (CRM), a series of practices designed to encourage repeat business by following data about customers' buying habits. It was much cheaper to retain a customer than to recruit a new one, reported Ward's Auto Business.

Another unique marketing effort was the opening of five used car lots at Wal-Mart Supercenters near Houston, Texas. Under the name Price 1 Auto Store, the lots were meant to capture some of the large amount of foot traffic that visited the giant department stores every day. However, Asbury found that not enough of these patrons were interested in lingering to consider an automobile purchase, and the venture was closed down after a year.

Company Perspectives:

Asbury Automotive Group is about more than selling cars—much more. It's about getting and keeping "Customers for Life" by redefining the automotive buying and service experience. We're building long-term relationships by giving car buyers a fair deal and satisfying all of their automotive needs, from financing and insurance to maintenance and repair … and then, their next car. Asbury's strategic goal can be summed up as "the best dealers in the best markets with the best brands." Ultimately, though, Asbury is about Merging Visions—the perspectives and industry know-how of hundreds of veteran car dealers, the business savvy of world-class automotive and retailing executives, and even the aspirations and philosophies of successful dealers we'd like to acquire. By Merging Visions, we're all better off—including our customers and our stockholders.

Key Dates:

1994:: Asbury Automotive Group is formed with backing from Onex Corporation.
1995:: An Onex portfolio manager forms Ripplewood Holdings L.L.C., which includes Asbury Automotive.
1997:: Freeman Spogli invests in Asbury.
1999:: Former luxury goods executive Brian Kendrick succeeds Tom Gibson as CEO.
2000:: Asbury Automotive's corporate structure is streamlined.
2002:: Former Limited Inc. COO Kenneth Gilman is named CEO; Asbury goes public.

Asbury sold 96,000 new vehicles in 2002 for revenues of $4.5 billion. This ranked it fifth in an Automotive News survey of the top dealership groups in the United States. According to Automotive News, in spite of the downturn in car sales in 2002, publicly held dealer groups like Asbury had a more difficult time finding owners willing to sell their dealerships. However, Asbury was able to enter the California market by acquiring a half-dozen dealerships from Bob Baker of San Diego for $88 million in cash and stock. This deal was amended to drop one Bob Baker store which sold Ford cars after Ford voiced objections to the sale. This deal was not closed until 2003.

In 2003, Asbury built its holdings in North Carolina, adding dealerships in High Point and Charlotte to its Crown Automotive Company platform. It entered the robust Charlotte market through the acquisition of LaPointe Honda/Mitsubishi, the oldest Honda dealer in the Carolinas. Honda was the best-selling of the 36 brands of car Asbury's dealers sold. Asbury was on track to add $300 million per year to its revenues through acquisitions.

Principal Operating Units

Bob Baker Auto Group; Coggin Automotive Company; Courtesy Dealership Group; Crown Automotive Company; David McDavid Automotive Group; Gray-Daniels; Nalley Automotive Group; North Point; Plaza Motor Company; Thomason Auto Group.