Entrepreneur Wayne Huizenga made a big move in the used-car business last week, and experts saw the making of another Blockbuster.
Republic Industries, the diversified company Huizenga has made his base of operations since selling Blockbuster Entertainment in 1994, agreed to buy ADT Inc. for $4.5 billion. ADT is a major security alarm company with a significant business in reconditioning and auctioning used cars.
That business will fit right in with Huizenga's AutoNation and CarChoice operations, two budding chains of used-car superstores that Huizenga owns or is in process of buying for a total of $350 million.
Such moves indicate a coming consolidation in automobile retailing, says Donald Keithley, a partner in J.D. Power & Associates, the Agoura Hills auto research firm.
"The used-car business is going national," Keithley says, "and many of the dynamics resemble those of Blockbuster."
He's referring to the video-rental chain that Huizenga built from 32 stores in 1987 to 4,500 stores in 1994, when he sold Blockbuster to Viacom for $8 billion. Earlier, Huizenga had transformed garbage collection by co-founding and building Waste Management, now WMX Technologies.
Today he's a major player stepping into the trend of consolidation in automobile retailing, a business in which $600 billion worth of new and used cars change hands each year.
The changes in car selling hold lessons for people in any business today, and watching Huizenga in action is the entrepreneurial equivalent of getting basketball instruction from Michael Jordan or violin lessons from Itzhak Perlman.
First, the business. The idea of selling used cars in massive superstores has been gaining. Circuit City, the electronic appliance retailer, last year opened five Car Max superstores with 500 to 1,000 cars each in Virginia, North Carolina and Georgia. It plans to have 90 stores by 2001.
Huizenga's used-car operations plan to have 100 stores. Meanwhile, major auto dealers in 31 states have joined forces to start Driver's Mart Worldwide as a used-car retailer.
The possibilities are huge. There are 35 million or more used cars sold each year in the United States, 18.5 million of them through new-car dealers and the rest through classified ads and curbside exchanges.
Change is occurring now because new-car prices, at $20,450 average per car, are discouraging customers. Used cars are cheaper, at $11,000 per car, and better these days. Cars don't rust through as quickly as they once did, and a lot of good used cars are coming off two- to three-year leases.
And business for the 23,500 car dealers nationwide is strained. Profits on new cars have shrunk to $65 per unit, according to the National Automotive Dealers Assn., and many dealers scoff that profit is as low as $7 a car. They make money these days on parts and service, financing deals and used cars, on which average profit is $300 a car.
The superstores spell the beginning of consolidation for a fragmented business that goes back to wagon and buggy dealers. Chrysler has already granted a new-car franchise to a CarMax superstore in Atlanta.
Huizenga characteristically is moving fast. In just three months, he has brought his used-car assets together and promises "more acquisitions." He made 110 acquisitions in seven years at Blockbuster, reports Gail DeGeorge in her new Huizenga biography, "The Making of a Blockbuster."
He didn't only pile up stores. Huizenga put great emphasis on Blockbuster's logistic support--its distribution center, which received and sent out films that were cataloged for regional and local preferences.
Similarly, ADT's auto reconditioning center represents logistic support for used cars. Its wholesale auto auction operation can be added to one owned by Huizenga's partner in AutoNation, Jim Moran, who is also the nation's largest Toyota distributor.
But the key to understanding Huizenga's approach is to think rental. Now 58, Huizenga realized early that renting dumpsters to restaurants, municipalities and construction sites was a prime source of profit in garbage hauling--a family business since grandfather Harm Huizenga immigrated to Chicago from Holland in 1893.
Rental businesses need capital, which is why Wayne Huizenga took garbage hauling public with an initial offering of Waste Management in 1971, so Wall Street investors and stock options for managers could finance expansion. Later he did the same for the fragmented video-rental business.
And now chances are that some form of leasing will characterize his efforts in the fragmented used-car business. Significantly, executives of ADT Automotive have talked of all the potential customers among the used-car buyers and sellers who do 18 million private transactions a year.
To be sure Huizenga doesn't always win. Discovery Zone, a chain of children's indoor playgrounds that he backed, is in Chapter 11. It ran into problems of too much debt after expanding rapidly from 1992 to 1995.
And he won't have an easy time of it in automobile retailing, an industry led frequently by family companies with some of the shrewdest business people in the world.
Bert Boeckmann, of Galpin Motors in the San Fernando Valley, a car dealer for 43 years and a leader of the Driver's Mart effort, says of his industry: "I own a beach house. And in front of it, the shoreline changes daily, even hourly. But there is always the ocean. The same is true for the car business."
Yet transformation in car buying and selling is certain over the next 10 years. And last week Wayne Huizenga, who has lived by his grandfather's dictum of "work for yourself; working for somebody else never amounted to anything," served notice that he will have a hand in it. He's bound to make it interesting.