Ken Garff Automotive Group

Ken Garff - National Press - Cover Story~
Robert Heiner Garff, Ken Garff Automotive by : Dealer Magazine



When dealer Robert Heiner Garff took over Salt Lake City-based Ken Garff Automotive as chairman and CEO a decade ago, the dealer group had 10 stores generating $100 million in sales. Today, the group has 40 stores with nearly $1 billion in sales. The dealer group is a top player in Utah, known for its deep involvement in its communities, ownership of arena football's Utah Blaze and Vehix.com, and customer-focused programs that engender loyalty and build repeat sales. We spoke recently with Garff about the factors that have led to the dealer group's success and how his family is positioning the business to continue its track record of growth and success into the future.

Let's start with a history of Ken Garff Automotive.
My father, Ken Garff, started the business in 1932. He was a used car dealer. He'd buy cars in Chicago and drive them out west. He became an Oldsmobile dealer in 1946 and grew the business from there. He passed away 10 years ago. We had 10 dealerships. My father was my hero in many ways.

What made him your hero?
My mother was ill for many years and my father became both a mother and father to me. He would make my breakfast and take me to school. Every time I went to his office, he had phones ringing everywhere and people who wanted to see him. He was an important person in the community.

He was also successful in everything he touched, whether it was ranching or selling cars. Every thing he did he did as a leader, and he inspired me to be a leader. I got a BS in accounting and an MBA. I didn't think I wanted to be in the car business when I finished school. But there's a certain romance and sizzle to the car business—every day is different, and it's a high profile community-based business. So, two years out of school, I became a general manager at our Mercedes store and haven't looked back since.

What work had you done in the business prior to college?
I started at age 13 sweeping floors in our body shop. By the time I was 16, I was a salesman in one of our used car operations. I learned the business from the ground up.

What was it like working with your father?
A lot of fathers in the car business hold their cards close to the vest and make all the decisions. When they do that, they sometimes tend to rob their sons or daughters from decision-making opportunities. My father was just the opposite. He was willing to give me as much responsibility as I was willing to receive. I felt empowered and I also feel the same responsibility for my sons today. I now have two sons and a son-in-law who are full-time in the business. My sons both have MBAs; one is our COO, the other is our vice president of technology, and my son-in-law is the vice president who handles our broad and grassroots marketing. The greatest thrill I have is watching them come on. They've paid the price and now they're running a $1 billion enterprise.

Where did your father learn his empowering management style?
I'm not sure. His father was a pretty average businessman and didn't have a high profile job. My father was very charismatic and empowering of others. I guess he learned those skills on his own. The other thing about it, though, is that he couldn't do it all. He'd built a business where he had to rely on other people. And who better than family, whom he could trust, to take some of the pressure off of him? He had to have somebody come in because he was spread pretty thin.

When you started as GM, how did your father's influence affect your work?
My father set the tone for the way we do business and our management style. He believed in absolute honesty and integrity and built his business around his word being his bond. He understood that repeat customers are the best for the business. Conquest sales are expensive and unreliable. He believed, as I do, that if you treat customers well and deal with them with absolute honesty and integrity, they will trade with you again and again.

He also believed in providing personalized service, treating customers with the utmost respect and finding ways to wow them. For example, sometimes customers expect more than they should. But I had watched my father fix cars when there was no responsibility to do so, and do it on his own dime. He'd tell the accountant to charge his own personal account. I watched him do that time after time after time. It became ingrained in me. It's really who we are. We go out of our way to please our customers.

His third core value was that if you're going to do well, your community has to do well. There's an old adage that if you're going to have a good cornfield, your neighbor has to have one, too. He felt that it was a must as a business and a family to give back to the community and contribute to make our community better. Those three core values are the lessons I learned early on and they are still part of our persona today.

I can see how the Garff Mile After Mile warranty would fit into those values.
It does. When my father was here, he did not have our back-you-up promise in writing; it was just how he did things. We started adding the "we back up every car we sell" promise in ads about 15 years ago. That led us to further define the promise as our Mile After Mile Warranty about five years ago.

What does the warranty entail?
It's a 250,000-mile limited warranty on the engine for new cars and a five-year, up to 100,000-mile warranty for pre-owned vehicles we sell. The warranty doesn't cover maintenance items.

Some dealers might see that as an expensive promise.
The first thing that we do so that we're not dogged to death by bills coming in on the warranty program is that we don't sell just any car on our used car lots. We have a certification process that we use to sift through the cars that we'll sell and make sure we only sell those that live up to our brand and our "Back-You-Up" promise. We don't sell the mediocre to poor cars.

We also have a policy account in our company that we charge if there are bills that come in under the "Back-You-Up" promise. We then expense it off of the monthly net profit. People might say that expense could be substantial, but it isn't if you treat customers right and you give them the cars that they think they're getting. We don't have a lot of those bills.

Does the program require customers to come back to you to be eligible for its benefits?
Customers have to maintain their car based on factory standards to take advantage of the warranty. That then encourages customers to come back to us for service. We have some locations that have 100 percent absorption of customers, with our average at about 75 to 80 percent across about 40 different vehicle lines.

Is that an ironclad policy that customers must come to you?
If someone can show that they got an oil and filter change outside of our company we'll say that's fine. We don't want to make it so sticky that people complain about it. But we do emphasize that we're here to service their vehicles and we get a lift in our service departments, which helps offset some of the bills we'll get for our warranty.

We give another benefit to customers if they maintain their vehicles with us--an additional $500 trade-in value based on Kelley Blue Book or the NADA book. We pay them that, over and above the book price, for maintaining their vehicles the way they should. Internally, we charge the guarantee against the gross of the car. Ultimately, if the car's been maintained the way it should, you'd pay $500 more for it.

It seems like that might create some tension between new and used vehicle sales managers who might get paid off of gross profit?
There's always an internal struggle over trade-in values. Let's say we had an extra-fine vehicle that had an excellent service record. In that case, we'd add it to the value of the used car. In the same way, if a customer's car has a lot of dings and dents and the used car manager has a right to say it's not worth the extra $500, we'd charge it to the gross of the new vehicle.

So it sounds like it comes out in the wash.
It does. But our managers believe, and we train on this, that our "Back-You-Up" promise is good for everybody. It doesn't cost them money; it creates more customers for them. Our brand reputation and what it stands for is everything to us. It means that we don't have to advertise to the extent that our competitors do.

What percentage of your customers come back to you as a result of these programs?
I'd estimate that 70 percent of our customers represent repeat business.

We do other things for our customers like offering roadside assistance in our trade area, free CarFax reports and convenient locations with factory certified technicians and parts to take care of them. We're not a company that hits home runs. We're a company that survives on bunts and singles. Our forecast next year calls for an increase in business of 12 percent.

You mentioned these programs enable you to spend less on advertising. The national average runs about $500 per unit, where do your stores fall?
We're closer to $300. But the impact of what we do for customers is greater than that. Market surveys show that Ken Garff Automotive's reputation ranks highest in Utah. We're ranked highest as the preferred dealer, highest for honesty and highest in overall reputation. Yet, we're number two in top-of-mind awareness because one of our competitors is better known. But they spend more on advertising and we're even in sales without as much advertising.

Let's talk about how the core values you outlined translate to how you and other managers work with employees.
Our mission statement says that we will maintain absolute integrity in providing each employee a rewarding career, each customer a superior experience and our community a meaningful contribution. So when it comes to employees, we don't have the turnover that many dealerships do. We have higher turnover in sales departments, of course, but I submit that we're about 50 percent of the national average. We provide our employees with 401k plans, Christmas bonuses, health insurance and other benefits. As a result, we have the kind of employee base that is dependable and that produces more revenue on a per-employee basis than the national averages.

We also don't fire our people over little things. We'd rather train them and, if they make mistakes, as we all do, we'll put them into more serious training processes on the Garff way. Generally, people respond if we're teaching them and training them on our value system. They buy into the fact that they're working for a place that treats employees with absolute honesty and integrity. In order for customers to feel that way, I have to treat my employees the same way. They represent me to my customers. So we back up our employees the same way we back up our customers.

How have you made training an integral part of your organization?
We have a vice president of our company who's in charge of training. We use films in our HR department to teach people about what we stand for. We also have a mission orientation meeting with everyone we hire--from a porter to a vice president--must attend. It instills and ingrains our values.

We also have regular training in each of our departments on a daily and weekly basis. In sales, we have daily training on what we expect. Our goal is to bring everyone to a higher standard than they were before.

How do you monitor the performance of individual stores, Robert?
We have an elaborate reporting and accounting system. Once a month, we sit down with their budgets, projections, and actual performances. We look at a series of hundreds of different benchmarks. We manage by exception so if some things aren't going well, it immediately sticks out in the 50-page analysis of their departments. We also have training on a monthly basis with our management team in their stores, and we have monthly breakfasts and retreats for managers where we'll talk about what we're doing in different stores and as an organization.

Let's talk about the growth of your business. What drove it?
It was very obvious to me 10 years ago that to survive you had to grow. There's no such thing as standing still in this business, in spite of our name and reputation. With all the consolidation in our industry, I knew that it would just be a matter of time and someone would be eating our lunch. So I started out with a philosophy of trying to find a way to grow our footprint and we have been successful at doing that.

We've done it partly through organic growth of our revenue and profit models, which we've doubled again and again in the past six to eight years. That has given us cash to purchase other businesses. In other cases, we've grown through strategic partners. 

When you say strategic partners do you mean GMs in stores or outside investors?

Both. We felt that to attract the best general managers we had to provide a model where they could participate in the American Dream. So they, for the most part, have options to buy stock. Their money is as good as someone else's money. They become partners and have a more vested interest that way. They're more willing to spend 12-hour days at the office if they own a piece of the rock. 

We also have strategic partners. I have a son-in-law who works in venture capital and has attracted some partners. We've used this approach because I didn't want to have too much debt as we grew. I'm not vulnerable to down trends in the car business because I don't have the size of the debt that some dealers do.

What's next on the acquisition front?
We've got two stores under contract that are out of state, and we have plans to grow by another 25 percent to 30 percent. 

What led to going out of state for your next acquisitions?
When you control a large part of the market -- two of us control a majority of it in Utah -- there comes a time when more growth here is a disincentive because of the potential to cannibalize part of your business. In that case, it's time to begin looking elsewhere for growth. Besides that, if we want to grow as we've outlined in our model, we have to go out of state.

Is it still "growth equals survival that's driving" your expansion?
To an extent, it is. The growth is also necessary to keep our managers and partners captivated. To keep your people's attention, you have to give them opportunities. My family is also interested in putting a notch on their gun handles for what they can accomplish in a leadership position. For them, it'll be a sense of accomplishment to take the 40 dealerships and turn it into 80 in their lifetimes.

Let's talk about Vehix.com and how that got started.
We started Vehix.com about eight years ago. My son John came back from graduate school and started the company, which is really a cyberspace used car lot. We found that as the year 2000 approached, many of the Internet companies were going broke. They were racing after clouds in the sky and many didn't catch those dreams. We decided we couldn't compete with people that had gone public with cheap money.

We knew we had to build a business plan that was suitable to our size and cash availability and would be sustainable. So we wound up making a deal that now has us partnered with Comcast, which owns 49 percent of Vehix. The automobile segment is its biggest for advertising. We provide a solution for them to account for their advertising and to provide a dealer leads when they advertise on cable. Our number one customer is the cable company and because of our product, they've been able to garner something like $300 million in additional sales.

We're in 50 states and get about 2 million unique visitors every month.
 

How big a business is it for you?
I'm not at liberty to discuss that. We own 51 percent of Vehix.com, and we earn a commission for providing services to our cable companies. They then provide us (free) advertising. What broke most dot-com businesses was spending more on advertising than they could afford.

How has this experience helped your Internet efforts in your stores?
We take this same concept we're doing with Comcast and put it in our stores. We have Internet departments and call centers to help us track how well we're doing. It's a big part of the way we sell cars. About 80 percent of all customers are using the Internet in some way to shop for vehicles.

What percentage of your customers come from Internet leads/referrals?
About 25 to 30 percent of customers come to us from the Internet. I don't know if you've noticed, but in the years I've been in the business we used to see customers on the lots on Saturdays. They came in for test drives and things were really thriving. I don't see that anymore. The customers have done their tire kicking online. They come in now knowing what car and color they want, the general price range and what equipment's available. It's a whole different way of selling today than it was just even five years ago.

How does ownership of the Utah Blaze fit into your business?
It factors in two ways. We've talked about our core value of community involvement. For many children, their heroes are their sports personalities. I have a grandson who's seven years old and the first thing he does each day is go to the morning paper to check box scores. In Utah, we have a population of about 60,000 kids playing football. So, we thought one of the best ways to get involved in the community would be through youth sports leagues and the Blaze.

We supplement the youth leagues with uniforms. The mothers wash the jerseys three or four times a week and see the Ken Garff logo on the uniform and know that we support their kids, and they might support us by buying a car from us.

Top of mind awareness is imperative to be in a customer's consideration set when it comes to buying a car. There's nothing bigger in the newspaper or TV news than sports. Every time the media mention the Blaze, people in this town know the Garffs own it.

While we're talking about community involvement, tell me about your Keys to Success program.
I started brainstorming with my wife, who now serves on the state's Board of Regents that oversees public colleges in the state, and my family. We've always believed in the importance of a good education. We realized that schools are really about the stick, not the carrot. So we thought about ways to provide carrots for motivation and do something that will help get a "C" student to become a "B" student, or a "D" student to become a "B" student. We're interested in the masses, because a rising tide lifts all boats.

We created a program, "Ken Garff's Keys to Success" and went to the state's K-12 leaders and they got their district superintendents, principals and teachers involved. So today, there are 98,000 high school students at 52 schools in our marketplace. We decided to give each school 500 "key success" cards for students who excelled in education. We gave teachers and administrators the right to decide how to give out the cards, which provide awards and prizes to students. Of the 98,000 students, 25,000 are winners and we give them tickets to sporting events, like Blaze games, the symphony, college basketball and football games, ski lifts, plays and other things, including the Utah Olympic Sports Park.

What's an example of how teachers will use the Keys to Success program?
It's up to them. Some of them use the program just to get kids to attend school. For others, it might be lifting a grade point from a "D" to a "C+." We give the teachers and administrators the ability to form their own programs to get their buy-in. They know the program's not just to reward the high school quarterback or the best cheerleader. We're trying to get the program to reach students who don't get recognition. Out of the 25,000 winners, each school picks 50 winners and they get a chance to win a car. We give away 52 cars each year. It's surprising how many of those winners absolutely needed a car and how the program was like an answer to a prayer.

That's pretty impressive. I especially like how the program touches all parts of your business from your values to the long-term goal of selling vehicles.
The program's in the second year and it's gotten better as everyone understands more about what the program is all about. We also went to the area newspapers and asked if they would do stories on the winners and publish articles about students who improved their grade point averages and the like. We have hundreds of these stories now of students who have improved their performance or done things like reading ten of the classics. It's our way of giving back to the community and it has a halo effect of associating our brand with altruistic motives. It's been a joy. It's not a labor of work; it's a labor of love.

As you look ahead, what do you see as some of the top challenges for you and other dealers?
The car business is seasonal and cyclical so we have to have an organization that's nimble and can adapt to change. As a general rule, people resist change. In fact, one of my favorite quotes comes from John Steinbeck: "One of the laws of paleontology is that when an animal seeks to protect itself by building a hard outer crust, it's usually on its way to extinction."
 
He said it about the Berlin Wall but it applies to all of us and our inherent resistance to change. So the challenge for us is to be nimble and respond to change in the marketplace.

One last thing, Robert. Let's discuss how you've brought your family into the business to take it to the next level.
Money is an enemy to most families. Cash destroys the will to work. My father never gave me cash; he gave me opportunity. I hope to do that with my children. The challenge is transposing assets to the next generation and maintaining the incentive to work. I'm sure you've heard the saying, rags to riches and back in three generations. There are dealers' sons and daughters who weren't worth their pinch. I'm one of those sons and I have to instill in my children that they have to make it on their own and have pride in seeing something succeed as a result of their own efforts. Hopefully, I've been able to do some of this. That doesn't come by giving them money.

You can't force anyone into the car business. That would be a death-knell. So generation and estate planning is paramount to keep the family business and its brand going. I've now given away 65 percent of my assets over a 40-year period. It doesn't work if you reach 70 and decide you better do something about it.

rgarff@Dealer-magazine.com