Forty-eight years ago, Ray Ciccolo, a young coin-laundry entrepreneur, stopped by a car dealership to buy a new car. He left with the car – and owning the dealership too. Since then he’s amassed 11 dealerships as Village Automotive Group, in the Boston area, with three more to go online by year’s end, retailing about 14,000 new and used vehicles a year. We spoke to Ray recently to learn more about how he turned risk into reward.
Let’s start at the beginning Ray. How did you get into the business?
Forty-eight years ago, right out of college, I was looking around for what I wanted to do. I knew I was entrepreneurial; I had already opened a coin-operated launderette while in college and by graduation owned three of them. I built those stores mostly with debt, but had paid it off and was doing okay with them. I decided I needed a car, and knowing a friend, who was a general manager of Gene Brown Motors, I went to see him. They sold Rambler and Volvo.
While I was talking with him, he mentioned that the dealership owner was in financial trouble – the bank was trying to close him down –and had I ever considered getting into the automobile business. So, he set up a meeting with the bank and the bank thought that with my entrepreneurial background that I was a good risk to take over the note. I sold my three coin-operated launderettes and along with the note took over this car dealership. I often say I went in to buy a used car and came out with the dealership.
A rather big jumping off point…
This was 1963 or so, and I was about 25. I didn’t know anything about the automobile business, but I had gotten a degree in business, was entrepreneurial, and so I had an idea of what to do and used my instincts. One of the first things I knew to do was to look at our expense structure. Back then, all the expenses were Rambler and all the income was Volvo. The used cars, most all Nash-Ramblers, were under water because we had to put too much money in them as trades if we wanted to sell another new Rambler. We eventually gave up Rambler, and the history of that car company proved my decision correct. As a result, we solidified the balance sheet and became a stronger company, and we grew from there.
Volvo was a little-known brand then. Wasn’t that risky?
No, it wasn’t well known, but it was an up-and-coming car back then. Volvo had one model, the 544, and not too long after that they came out with the 122-S. There was some demand on the east coast for imported cars; Volkswagen was extremely strong in the early ‘60s. We were retailing about 15 or 20 Volvos a month and that amounted to a solid service business as well. We focused on one product for which we could do a much better job at selling and servicing. It has become my mantra, to serve one make as opposed to throwing everything into the showroom, which many dealers did back then.
How long did you stay this single point?
I soon realized that my customer base was coming from the college community across the river: MIT, Harvard, and several other colleges in the Cambridge area. To protect my market, I opened a second Volvo dealership in Cambridge. I eventually merged the first store with this one into one big dealership, which made us, in sales, the largest Volvo dealership in North America. This merged operation, still going, is Boston Volvo Village.
What did you learn those first years that you still apply today?
I treat customers as I want to be treated and I treat my employees exactly how I want to be treated. I’m not condescending; I’m just business-like, but I’m like a friend. I treat them very, very, very well and they, in turn, respond and reciprocate my loyalty.
I learned that cash flow is king. This business is a fragile model that needs watching constantly; otherwise, you get in trouble fast. When I took over the dealership, I was handed a long list of receivables, most of which were inside company charges – customers running a tab with the dealership, which was common then. I immediately notified our customers we were no longer going to accept those charges, but invited their credit card charges. Collecting those receivables helped the cash flow immensely.
What are your dealerships?
All of our dealerships are in the Boston area, and include Boston Volvo Village, Cadillac Village of Norwood, Honda Village, Charles River Saab, Saab of Norwood, Hyundai Village of Danvers, Nissan Village, Volvo Village of Norwell, Audi Norwell, Porsche of Norwell and Volvo Village of Danvers.
In which of your stores is your office and what is your style of management?
My office is at Boston Volvo Village. My style has always been very hands on, but I have always had GMs. Interestingly, the fellow who got me into the business was the GM of the store. It didn’t take me very long to realize that he would be best in another position. Moving him was a tough, tough decision, but it had to be made. So, I promoted the GSM, a younger, more aggressive guy, to be the new GM and made the old GM, a sweetheart of a guy, my sales manager. He stayed with me until last year, when he died at 90.
Decisions like this can often take too long to make – if at all.
In one of my 20 Groups, everybody started to talk about what’s the worst mistake they’d ever made. Almost to a man, they said, “Sticking with an employee too long that isn’t doing the job.”
How do you know when it’s time to let them go?
You know immediately. Nevertheless, it can take a year to get rid of a top manager who isn’t doing the job. Moreover, those are difficult decisions. You tend to rationalize, if you’re like me; I just hate to be confrontational. Nevertheless, you work with them and if you don’t see improvement after considerable effort, you can start to get angry…and I suspect it isn’t really a surprise to the person you’re letting go by then, either.
What is their management structure?
General managers operate all stores; I still insist on personally interviewing my GMs. None is an equity partner. I decided a long time ago not to go that route. Because I don’t do well at confrontation, I wouldn’t want to have to face a partner who wasn’t pulling his load.
I have an HR Department that handles all the HR in all the stores. I have a comptroller who oversees everything financially. Each store is required to have a weekly meeting for which the GM prepares an agenda of specifics about running that particular store. Every month all GMs meet with me to discuss their stores and their best practices. I find that my GMs prefer not to disclose their best practices and I sometimes find I have to pry their success methods from them.
I also have monthly service managers meetings, much like a service 20 group, which helps evaluate their performance and departmental results, but it also applies peer pressure to their efforts too. They come prepared with their numbers on spreadsheets, which we combine and project for all to see. They discuss what is working well for them to drive service results. Likewise, I have monthly meetings for parts managers. Then as often as needed, certainly quarterly, I have an office manager’s meeting and they meet with the comptroller and discuss issues specific to the office.
Overall, I evaluate each store’s performance based on return on sales and return on gross. I’ve had stores that haven’t done well. Some, over the years, no matter what I did, I couldn’t make money, so I sold them. I’ve had a half a dozen significant franchises that for any number of reasons I couldn’t make money on them, so good-bye!
What is your per-store gross threshold?
I look for a minimum of 2 percent return on sales. I’ve had stores that have done 5 to 6 percent, which is completely outrageous. Success depends on so many factors – the facility, the management, the location…you name them. With my new stores coming on line, I’ll expect a 20 percent on gross and at least 3 percent return on sales. We should see that because of their newness factors, better locations, different personnel, etc. I’ll move a store until I get that level of return.
For instance, I’m on my fourth location in four years with Hyundai. I moved it originally because the first location was too small, then the second location was on a too-busy highway and then we moved into a temporary facility while I built a new facility, Hyundai Village of Danvers. This one is a winner.
A dealership re-lo isn’t like moving a suitcase to other side of the street, Ray.
Absolutely it isn’t! It’s very, very expensive and it’s not without its problems. I know many peers wouldn’t relocate like I do. However, I don’t believe in throwing more marketing money to fix an ailing dealership. It is rarely a marketing issue.
What does the current economic climate tell you about your future?
In 2008, when Lehman Brothers went down and the whole economic world was turned upside down, if you didn’t change your business model you died. If you didn’t sit down with your management staff and get everyone to cut expenses so they would be in line with revenue, trouble would come fast.
Surprisingly, we made these changes with very little staff reduction. The shock of 2008 was a wake-up call and the good dealers responded to it the right way. I have had many dealers tell me that 2009 was their most profitable year. It certainly was mine!
I’m not worried about the future. I am very bullish on the economy. I have new facilities under construction and I bought three over the last 12 months. I’ve spent almost $32 million this year in expansions, buying real estate and building facilities.
I just finished the Hyundai facility and we relocated one Volvo dealership, now Volvo Village of Danvers. I just began construction on a new Cadillac facility, Cadillac Village of Norwood, relocation. Finally, I just finished a brand new, ground-up Nissan facility, the 35,000 sq. ft. Nissan Village.
So, further answering the question about my outlook, let’s consider that with the 20% reduction in the dealer-body, plus the fact that high scrappage rates vastly exceed new-car sales, the industry is going to sell more cars for the next four to five years.
It’s also my opinion that the automobile industry is going to take the country out of recession instead of the housing business. The factories are starting to roll again; Volkswagen is coming online with a new factory and many of the factories in the states are going to be expanding because of the earthquake and tsunami in Japan. Many of those cars’ parts will be sourced in the United States. We certainly are going to see expansion in the automobile business in the United States.
Are you concerned about your Saab stores?
Well, I’d be foolish not to be a little concerned, but Saab is a good icon. My guess is the new Chinese partners will eventually own the brand. Already Saab has two new products, the first in a long time. Saab now has a joint venture with BMW on engine technology, and a new JV with Boston Power to produce electric vehicles. Saab will be all right, though it has been nerve wracking the last four years.
How are you engaged in dealer affairs, Ray?
I’m the line chair for Volvo and Saab, and the NADA Director from Massachusetts. I’m on a half a dozen NADA committees including the Charitable Foundation, Dealer Operations, and Government Relations, which has always been a favorite of mine, dealing with the bureaucrats and the elected officials in Washington.
How do you market the stores?
We do very little traditional advertising; we test it and it if it doesn’t get much response we stop it. Most marketing we do is electronic, meaning digital marketing to drive leads into the dealerships, and at the moment we are doing a lot more with Facebook and Twitter.
Who are some of the vendors who’ve contributed to your success, Ray?
There are a number of them, probably starting with Reynolds and Reynolds, who I have been with for almost 50 years. We also use CallSource in a number of our stores. For processing leads and customer relationship marketing we use iMagicLab’s CRM, and for online leads we use AutoTrader.com and Cars.com. We rely on auction services Manheim and ADESA, and for many F&I products, Zurich Financial Services. CARFAX provides our vehicle history reports, and our key banks are Sovereign Bank and Wells Fargo.
Any final observations, Ray?
I’m very, very grateful. I have three daughters and a great wife, and all three families are involved in the business, so it makes me very proud.
One last question: When you went to buy that used car in ’63, and walked away owning the dealership, what car did you end up buying?
I went in to buy a used Volkswagen. I told the salesman I wanted something that gets good gas mileage and is small, because I live in Boston where it’s hard to drive and park. I came out owning a Lincoln Continental that got about four gas stations to the mile. I learned my lesson about sales: They don’t necessarily go out with what they came in for.