Automotive News - December 1, 2008 - (Page 50) 50 • DECEMBER 1, 2008 How big turned bad for Heard empire Chrissie Thompson cethompson@crain.com Big problems Heard Enterprises was paying off a $12 million store, at right, that it opened two years ago in Scottsdale, Ariz. — one that was losing millions each month. The Heard empire totaled 14 stores when it filed for Chapter 11 bankruptcy. MICHAEL HASKEY/LEDGER-ENQUIRER “Do you have good credit? Where’s your light bill? Where’s your gas bill?” Sales staff at Bill Heard Enterprises Inc. stores greeted shoppers with those questions, a former Heard manager recalls. Poor credit? No problem. More than half of the stores’ sales were to subprime customers. No one walked away; they drove — even if the financing wasn’t finished. But they often had to drive back. In the final days of the Heard empire, an astonishing 20 to 30 percent of financing deals at one Las Vegas store fell through, a former manager at the store says. The store would call the buyer with instructions to return the car and sign for new financing at less favorable terms. Heard needed those subprime buyers to support a business strategy built on big. Big trucks and SUVs. Big buildings. Big inventory. Big sales volumes. When the total market slowed, and sales of Chevy light trucks tanked, the empire collapsed. In August, GMAC Financial Services froze Heard Enterprises’ floorplanning. On Sept. 28, the company filed for bankruptcy protection. Now a few dealers will pick up some crumbs and try to run the stores smaller. “Our industry has changed so much, and some dealers haven’t been able to adapt,” said Emanuel Jones, a Georgia dealer who has bid for Heard’s flagship store in Columbus, Ga. “Those that can’t adapt really aren’t going to be around any more. They’re going to go the way of the dinosaur.” William T. Heard Jr., 74, was born into a family-owned auto retail business founded in 1919. He began running his father’s business when he was in his mid-20s, using the name Bill Heard Chevrolet. He had built a 15-store Chevrolet empire, calling himself “Mr. Big Volume.” The moniker fit: At its peak, Bill Heard Enterprises made $2.5 billion Bill Heard Enterprises failed when the credit crunch and economic slowdown exposed the following flaws in its business plan. ■ High property mortgage and lease payments ■ Big inventories ■ Plummeting light-truck and Chevrolet sales ■ Reliance on subprime buyers for more than half of sales ■ Spot deliveries to customers with poor credit ■ Record consumer complaints for misleading advertising ■ Frozen floorplans by GMAC and Alphera REPRINTED WITH PERMISSION BY THE EAST VALLEY TRIBUNE, COPYRIGHT 2008 ALL RIGHTS RESERVED Las Vegas, Nev. (2 dealerships) Collierville, Tenn. Scottsdale, Ariz. Kennesaw, Ga. Buford, Ga. Atlanta, Ga. Huntsville, Ala. Union City, Ga. Columbus, Ga. Houston, Texas Sugar Land, Texas Orlando, Fla. Plant City, Fla. Bill Heard each year in revenue. It was the topselling Chevrolet dealership group in new-vehicle volume when his 14 remaining stores filed for bankruptcy protection. Deep problems The immediate cause of Heard Enterprises’ demise was the freeze on floorplanning, first by GMAC and soon afterward by BMW’s Alphera Financial Services. But the problems went deeper — down to the foundations of the company’s famously large buildings and acres of blacktop packed with Chevrolets. Heard properties routinely filled more than 20 acres, creating high operating costs that depended on big sales volumes. For example, the lease payment on one of Heard’s two stores in Las Vegas was a hefty $109,000 a month. And Heard Enter- prises was paying off a $12 million store it opened two years ago in Scottsdale, Ariz., that was losing millions each month. In addition, Heard’s near-sole reliance on the Chevrolet brand created a serious cash-flow problem. One store sold Cadillacs and Saabs in addition to Chevys. The other outlets were Chevy exclusives. Over the past two years, Chevrolet sales, especially of its trucks, have withered faster than the overall market. In the first nine months of 2008, Chevrolet sales fell 16.4 percent compared with the same period in 2007 and 22.1 percent from the same period of 2006, to 1,452,210. In truck sales alone, Chevrolet sales in the first nine months of this year tumbled 25.8 percent from a year earlier and 31.1 percent from the same period of 2006. “When you run these big stores and you’re relying on an average number of sales per month, and it drops off 30 and 40 percent, there’s no way you can cut costs fast enough,” said Jones, who is also a Georgia state senator. In a rare interview last July, Heard told the Ledger-Enquirer of Columbus, Ga., that his company “didn’t react fast enough” to the changing market. “The domestic car business has all gotten pretty tough,” he said. “We should have been more diversified.” More than half subprime Heard Enterprises also suffered from heavy reliance on subprime buyers. More than half of the company’s customers were subprime borrowers, said a former Heard manager who asked to remain anonymous. That business strategy helped lead to the kind of losses the 14 stores started seeing in mid-2007 — losses that combined to total $2 million to $5 million each month in 2008, according to U.S. Bankruptcy Court documents. Heard’s operations faced two other big issues: customer complaints and legal problems. Heard’s former store outside Nashville, which the company sold in June 2007, had so many consumer complaints that the local Better Business Bureau assigned a staff member to follow Heard complaints full time. The Heard store in the Houston suburb of Sugar Land, Texas, generated more complaints in its final year of operation than any other in the nation’s sixth-largest metropolitan area. A year ago, Florida fined Heard Enterprises’ two stores in that state $400,000 for misleading advertising, continued on next page Trying — again — to rehabilitate Heard’s Nashville store April Wortham awortham@crain.com 1 year, 3 owners, 4 names Bill Heard Enterprises’ former Nashville dealership has changed hands 3 times and changed names 4 times in just over a year. ■ June 2007: Heard Enterprises sells the store to New Hampshire dealer Mark Schols, who changes the name to AutoFair Chevrolet. ■ Within months: Schols changes the name to Mark Schols Chevrolet to make it clear Heard is no longer the owner. ■ Early 2008: Schols leaves AutoFair; partner Andy Crewes takes over the Nashville store and brings back AutoFair name. ■ Oct. 29: 3rd-generation Florida dealer Ben Freeland buys the dealership, renaming it Freeland Chevrolet Superstore. as the buyers of Heard’s other stores may find, the dealership group’s lingering negative reputation stands in the way of rejuvenating those outlets. should he steer clear? “The only dealership that had 100 percent name recognition was Bill Heard, and they all said, ‘Stay away from that place,’ ” said Freeland. He added that about one-third of those he spoke with thought the store’s owner was still Heard, hiding behind the AutoFair name. “I said, ‘I’ve got to figure out a way to leverage that, because everybody knows where it is, and I don’t want to confuse people.” NASHVILLE — In show business, there’s no such thing as bad publicity. Ben Freeland is betting that’s true in the car business, too. Freeland is the latest person to buy Bill Heard Enterprises Inc.’s former Chevrolet dealership here. Once Tennessee’s perennial sales volume leader, the store has had three owners and four names since June 2007. That’s when Heard Enterprises abandoned the Nashville area after a scathing investigation by a local TV station into the dealership’s questionable sales and advertising practices. The investigation attracted the attention of the Tennessee Motor Vehicle Commission, which fined the dealership $15,000 for inflating the income of two customers on credit applications without the customers’ knowledge. Heard Enterprises has since closed all 14 of its remaining Chevy stores across the country and filed for bankruptcy. As Freeland discovered, and Asking questions Before buying the store on Oct. 29 from AutoFair, of Manchester, N.H., Freeland canvassed local malls, gasoline stations and restaurants. He asked more than 150 people the same two questions: Where should he buy a car, and from which dealerships So his local TV commercial for the renamed Freeland Chevrolet Superstore advertises neither cars nor deals. Instead, Freeland is “interviewed” by a woman who asks, “What were you thinking, buying a former Heard dealership?” The theory of the campaign, Freeland told Automotive News, is to “take ownership” of the Heard name. “Take the question head-on and answer it and move on,” Freeland said. “We can kind of leverage the value that he’s built with his name and separate ourselves at the same time.” Risky? Yes. But Freeland has never been one for the beaten path. In the 1990s, the third-generation Florida dealer bought four import franchises out of bankruptcy, turned them around and sold them to Sonic Automotive Inc. In 2006, he started auto2auto.com, an Internet-only retail business that ships used cars and light trucks all over the country out of a single location. Until now, that was a converted wheel factory just south of here in Columbia, Tenn. Freeland is moving the distribution hub to the former Heard lot. ‘Heard hangover’ There’s plenty of room. The dealership that once sold upward of 1,000 vehicles a month and is bordered by two interstate exits is quiet these days, a victim of the market and its past. Freeland is confident that he can return the store to its former glory. He said the two previous owners — New Hampshire dealer Mark Schols and AutoFair — tried to do too much, too soon. They underestimated what Schols calls the “Heard hangover” at a time when the industry was descending into turmoil. Said Freeland: “I think right now patience is going to be the virtue — to wait (for General Motors to) get itself in order and let the market http://www.auto2auto.com
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