Mike Sullivan of the Sullivan Automotive Group has stuck with a winning formula of running import franchises along the gold coast of Southern California.
Beginning with one Volkswagen store opened by his father in 1974, Mike Sullivan now owns 10 dealerships as well as parts and financing operations and a state-of-art body shop.
His slogan is “10 dealerships, one website,” marketed under lacarguy.com.
The group represents the brands of Toyota, Scion, Audi, VW, Lexus and Porsche.
Dealerships are located in the group’s base city of Santa Monica (VW and Lexus); Toyota-Scion of Hollywood; VW in the South Bay area; Audi and Porsche in Torrance; and Toyota-Scion in Santa Monica, where a Fisker electric-vehicle store opens in March.
Mike Sullivan started working for his father, Wilfred H. Sullivan, in 1976. After the University of California-Irvine, he took a year to knock around and ski in Vail, CO, before plunging into the business.
His father ran the VW dealership in Santa Monica, content to remain a single-point dealer. The older Sullivan was known as “Sully” to all, including his son, who calls him his mentor, partner and best friend.
Sullivan recalls his father’s decision to sell the business to him in the mid-1990s. It was a big step for both.
“It was such a concession for him; it was so final,” Sullivan says. “Sully never wanted to expand. He was totally happy just being the VW dealer in Santa Monica.”
The once small town has grown to a population of about 91,000, with trendy shops, restaurants and a community college. The Hollywood crowd has migrated there.
Working for his father, Mike Sullivan had bigger dreams. But they started modestly. In 1985, he added Isuzu, dualing it with the VW store.
He dropped the Isuzu franchise three years later when he learned that combining rival dealerships in one location often doesn’t work.
“I think they compromise both operations, although there are situations where (paired-up competitors) are absolutely economically necessary,” Sullivan says.
In 1986, he had acquired a Hyundai franchise, which was getting a toehold in the U.S. market, attracting entry buyers.
“We rode that first wave up and down, but by 1989 Hyundai had gotten pretty tough to sell,” Sullivan says. He found his upscale market was not the right demographic segment for the cheaper Hyundai brand at that time.
Around that point, he knew Toyota Motor Sales U.S.A. Inc.’s Lexus luxury brand was entering the U.S. market.
“I was fortunate to become a first-wave Lexus dealer,” Sullivan says. He considers the move to Lexus “the launching point of my career.”
His expansion took off as he bought Toyota of Hollywood in 1997, adding Scion after the brand debuted in 2002. Then in 1999 came a smaller VW-Porsche and Audi store in the South Bay area near Santa Monica, his base.
That necessitated building three new stores to grow the business, Sullivan says. In 2002, he acquired Toyota of Santa Monica. Toyota is the market-leading brand in California.
But it wasn’t always easy times in the Golden State.
In 2005, Sullivan tried and struggled with Mitsubishi again and added Hyundai for the second time. He liked the idea of offering diverse vehicle choices with stickers starting at $15,000.
But he closed both franchises and used the Mitsubishi property to later build a new Lexus facility from the ground up. He also dabbled with the Lincoln-Mercury brand in Hollywood, but sold that store as the Ford Motor Co. division struggled in California.
At the time, he had Toyota dualed with Lincoln-Mercury. It wasn’t a good mix. The former seemed to overshadow the latter, he says.
“Clearly, I see myself as an import-car guy,” Sullivan says.
Ranked No.40 on the Ward’s MegaDealer 100, the private company posted $582 million in gross revenues in 2008 as the industry tanked. It had revenues of $583 million in 2007, dipping slightly to $565 million in 2009 and rising to $634 million in 2010.
The 685-employee company has increased net profits every year since 2004, doubling its profits by 2010, says Chief Operating Officer Joe Simpkins.
Incentives and rewards are built in for employees who contribute to the bottom line. Each store has a general manager with a financial buy-in who runs that store, usually as a partner.
“I think that is by far the healthier model,” Sullivan says. Besides a vested interest, “they have a great deal of autonomy.”
General managers earn autonomy if they get to 30% net to gross targets. Each year, general managers are given goals for reducing expenses and increasing revenues.
Sullivan describes detail-minded Simpkins as the best COO in the business and “my polar opposite – very focused, very deliberate and very process-driven.”
Simpkins’ duties include training unseasoned employees. “He is a great teacher, with exceptionally high standards,” Sullivan says.
Simpkins largely attributes the success of the Sullivan group, even during the tough times, to Mike Sullivan’s “warm and engaging personality” and his treatment of customers and employees as extended family.
Simpkins, a close friend of Sullivan for years and a part of the dealership group since 2004, helped set up a management structure that is process-driven for growth and results. Sales consultants follow a formula based on customer and lead retention.
“We have to create every opportunity,” Sullivan says. “If someone stumbles through the front door, that’s great. But we will control our destiny with appointments.”
The formula managers use for sales people is 44/22/11. That means each sales person is monitored and trained to get 44 appointments a month; of that number, at least 22 should show up and 11 buy a vehicle.
Managers are assessed on their ability to fulfill those targets. Employees are coached, not canned, if they fail to meet performance levels. The dealer group has scores of long-term employees, some there for more than 30 years.
Sales people train as product specialists who help match the appropriate vehicle to a customer. “They can’t negotiate until we have the right car,” Sullivan says. “It’s pretty basic, and we’re teaching constantly.”
Adds Simpkins, “We don’t ask them to do anything without showing them the yellow brick road for getting there. We try to make it easy, not hard.”
Sullivan says he only reduced his employee count by 15 during the industry and economic downturn of 2008 and 2009.
Selling cars in California is rewarding but has its specific challenges, Simpkins says. “It is a leading-edge green state. You have to be in step with it. And the cost to do business is extremely high here.”
Sullivan would like to add a marketing-advertising arm if daughter Meghan decides to enter the business. She currently works as a media planner for ad agency Saatchi & Saatchi.
Sullivan’s fixed operations are outstanding, he says. “Clearly, the work that Toyota and Lexus allowed us helped offset the tougher new-car sales climate.”
His group got through a tough period after the massive Toyota product recalls in early 2010. “The bad news just kept coming in,” he says. “I have never seen anything like it. It clearly would have broken a smaller player.”
He proudly credits his employees for digging in during that debacle. “They pulled together and did whatever it took – longer shifts, Saturday and Sunday service,” he says.
Sullivan now looks forward to selling in a more natural market. “Not so much of a push, but hopefully a little pull,” he says. Still, “we’ve flourished nicely with minimizing the new-car sales losses at all stores and keeping all the back-end work.”
The Sullivan group turns its vehicles every 30 days, focusing on efficiency and customer choice. A huge $11 million investment in a body shop now serves most stores, boosting their collision business. There’s also a smaller body shop in Santa Monica that does under $500 repairs and all reconditioning work.
The pre-owned operations also improved dramatically over the last few years.
Sullivan doesn’t anticipate the business growing much more. “I love the pace at which we are operating. It’s very healthy. I see us remaining about this size. I had the luxury of adding dealerships one at a time.”
To speed his growth initially, he mastered the art of Internet selling. “We were in early,” Sullivan says. “I liked the creativity Internet marketing allowed. I liked the accountability it provided.”
The Internet has its place, but it won’t replace the role of traditional dealerships, he predicts. “People still like to see, smell and touch that big purchase. What some customers wanted was less involvement with the dealers of the world.”
His Internet strategy is ideally suited to the California market, he says. “Over the years, we have expanded the scope quite a bit. We now use it for hiring.”
It also connects customers to all pre-owned operations, online parts, public relations and dealership charitable work; plus the company’s many green activities.
Sullivan came of age before the Internet took hold. He was a single guy in his 40s and some friends of women he dated called him “that car guy.” But younger friends called him a dinosaur, claiming brick-and-mortar dealerships were passe.
“Just in case they were right, I started lacarguy.com,” he says.
He looks forward one day to handing the reins over to his children and is involved in succession planning. Older son Sean Sullivan runs the Lexus store in Santa Monica as a general manager. It’s the second-largest Lexus dealer in the West.
Sullivan is highly involved in the sustainable world. His house is solar-paneled. He is planning to build two Toyota facilities that will be certified by Leadership in Energy and Environmental Design (LEED). He employs an environmental manager.
He already is envisioning a future of electrified vehicles.
The Sullivan group has installed nine “phase-2” portable charging stations for all plug-in electric cars. Anyone with any electric vehicle can come and get a free charge.
Son Kelly will manage the upcoming Fisker EV dealership. Kelly has been prominent in running the group’s Internet marketing for several years. This will be his first stint as an upper-level manager.
Like brother Sean and their father before them, Kelly has worked his way up.