John Staluppi Sr. says he has no immediate plans to retire. But the megadealer went on the hunt this year for an equity partner for his dealership group, one of the nation’s largest.
Staluppi, 73, found that partner in LMP Automotive Holdings Inc., of Fort Lauderdale, Fla., a vehicle subscription provider and used-vehicle seller that is trying to become a major public new-vehicle retailer. LMP announced this month it would buy a majority stake in Staluppi’s Atlantic Auto Group of New York.
The tie-up could provide Staluppi access to capital to expand Atlantic, which he said he will still oversee.
“My main focus was that I would continue to be the dealer operator, dealer principal and continue running the company,” Staluppi told Automotive News. “Otherwise, it wouldn’t make sense to me.”
Atlantic represents a large chunk of Staluppi’s namesake Staluppi Auto Group. LMP agreed to pay $425.6 million for a 70 percent stake in Atlantic and its 17 dealerships, plus a related logistics company. The deal, which values Atlantic at $608 million, is expected by LMP officials to close by sometime in January, but it must first clear automaker, financing and other approvals.
Staluppi Auto Group also includes stores owned by John Staluppi Jr. that are not part of the transaction. Staluppi Auto Group ranks No. 9 on Automotive News’ list of the top 150 dealership groups based in the U.S., with retail sales of 62,570 new vehicles in 2019.
The deal, if completed, would give Atlantic access to a new e-commerce platform and a vehicle subscription business operated by LMP. Staluppi said he’d been eyeing a subscription service for his group and found LMP’s offering an added benefit.
Immediate growth also is on the horizon for Atlantic, which has several stores under construction that are expected to open by year end. At that point, Staluppi said, Atlantic will operate 21 dealerships. Those new points are included in the deal with LMP, Atlantic CFO Robert Dito told Automotive News. Staluppi said he expects Atlantic’s net income for 2020 will jump by $15 million.
Future dealership acquisitions under the Atlantic banner are possible. LMP CEO Samer Tawfik said this month that LMP, which went public in December 2019, intends to roll up more dealerships through Atlantic.
The acquisition agreement furthers LMP’s aggressive growth goals. The small company, which had $17.7 million in cash on hand at the end of June, has said it aims to acquire as many as 50 new-vehicle stores by next fall. It currently owns none.
Since July, LMP has announced deals to buy all or part of nine franchised dealerships and three used-vehicle stores in four states for a total of about $120 million. Those acquisitions are expected to close starting at the end of November, LMP executives said this month.
If those previously announced purchases and the deal with Staluppi are finalized, LMP would have a total of 26 franchised dealerships, not including the Atlantic stores under construction. Tawfik said this month that LMP plans to add 30 to 40 stores in 2021.
The Atlantic dealerships and logistics business are expected to contribute to LMP an estimated $1.6 billion in revenue and $38 million in net income on an annualized basis in 2021, LMP said. Atlantic Auto is expected to generate about $52 million in net income overall in 2021, according to Dito.
The deal calls for Staluppi to retain ownership of Atlantic’s real estate, which LMP will lease for five years, Staluppi said.
Tawfik told Automotive News that Staluppi plans to provide financing of $50 million for the transaction. Another about $140 million would come from a combination of corporate debt and the issuance of stock. The rest, he said, would likely be funded through working capital and/or loans taken out against the blue-sky value of individual dealerships. Blue sky is the intangible value of a dealership, including goodwill.
Tawfik said LMP could issue up to 2 million shares of stock to help pay for acquisitions. The company has about 9.9 million shares outstanding now.
LMP’s stock has risen substantially since Aug. 14, when it closed at $7.40 a share. It closed at $39.01 at the end of two days of trading after the announcement of the deal with Stalupppi. It has since fallen about 32 percent, closing out last week at $26.59.
The volatility in the share price has drawn questions from posters on stock-tracking websites such as Yahoo Finance about LMP’s business model and how it would secure the funding necessary to close on its announced acquisitions.
Sheldon Sandler, CEO of Bel Air Partners, a buy-sell advisory firm in Hopewell, N.J., wrote a piece about LMP last week that he shared with some 800 contacts. In it, Sandler said LMP faces “a lot of hurdles ahead” and would likely issue stock to help fund acquisitions and then use profits from the acquired dealerships to repay the debt taken on to buy Atlantic. He likened the approach to Wayne Huizenga’s vision in the 1990s when he built up AutoNation Inc., now the largest new-vehicle retailer in the U.S.
“Although starting modestly, LMP has big plans and sounds awfully like Huizenga’s blueprint,” Sandler wrote. “It’s paying substantial premiums for good, profitable dealerships largely because cheap debt and a flourishing stock market can make it all happen.”
Tawfik started LMP in late 2017 with a model centered around a “flexible lease” subscription offering.
If all of LMP’s planned acquisitions close, the company could have an estimated $2.2 billion in revenue on an annualized basis in 2021. The deals also would expand its employee count to more than 1,600 from 30 people today. LMP said it expects to earn about $70 million in annual pretax income from the various acquisitions.
“Atlantic is a trophy asset,” Tawfik said this month in a call with investors. “We believe this asset is practically impossible to duplicate.”
Volvo Car USA’s newest crossover signals the next chapter of the Swedish automaker’s evolution.
The 2021 Volvo XC40 Recharge P8, arriving in U.S. stores early next year, is the awkwardly named vanguard of a portfolio of emissions-free models.
“Electrification by far is the highest priority in the company,” Volvo Car USA CEO Anders Gustafsson told Automotive News last week.
Volvo’s bet on electrification is bold: Make battery-powered vehicles account for half of its global sales by 2025, with the rest being hybrids. To get there, Volvo is adopting a two-step strategy: Push plug-in hybrids in the near term as the EV lineup — and customer adoption — evolves.
“We have decided to go in very strong with our PHEVs,” Gustafsson said, noting Volvo commands a 23 percent share of plug-in hybrid sales in the U.S. luxury segment.
Volvo discontinued California sales of its T6 twin-turbocharged four-cylinder engine for the XC90 large crossover. Volvo now offers only the T5 turbocharged four-cylinder and T8 plug-in hybrid variants for the model. A spokesman would not say whether Volvo plans to drop the T6 variant across its range of sedans, wagons and crossovers.
Stringent limits on greenhouse gas emissions from vehicles in Europe and China are driving the auto industry to deploy more electrified powertrains to be able to continue selling vehicles.
“Any automaker that doesn’t move aggressively to launch vehicles with at least some zero-emissions capability will simply not be competitive, at least in Europe and China,” Guidehouse Insights analyst Sam Abuelsamid noted.
But the world’s second-largest auto market remains skeptical of the new technology. In the first nine months, EVs accounted for just 1.6 percent of U.S. vehicle sales, according to Kelley Blue Book.
As Volvo rolls out its EVs, the focus will be on profitability over market share.
“I don’t want to have price pressure,” Gustafsson said. “I don’t want to have the cars parked outside of any dealers.”
The XC40 Recharge has received the strongest pre-launch interest from customers in a new-vehicle introduction since the second-generation XC90 launched in 2015, Volvo told U.S. retailers last week. The company declined to disclose the number of preorders.
“The XC40 [Recharge] is the perfect electrified car for the U.S. market,” Gustafsson said. “We will compete directly with Tesla in a price range that’s going to be competitive.”
The 2021 XC40 Recharge P8 starts at $54,985, including shipping. Tax incentives for EV buyers would lower the price by at least $7,500. While the Tesla Model Y starts at $51,190, including destination, it does not qualify for the credit.
Beating the Model Y on price before other European luxury competitors would be key to Volvo’s potential success in that segment, said Sam Fiorani, vice president of AutoForecast Solutions.
“The XC40 is an outstanding small crossover in its own right, and adding the power and driveability of an electric drivetrain at a modest price should find a market,” Fiorani said.
But in another crucial metric, Volvo gets lapped. The XC40 EV’s range of 208 miles trails the competition. The Model Y leads the pack with 326 miles, followed by the Jaguar I-Pace at 234 miles and the Audi E-tron Sportback at 222 miles.
If Volvo executives have range anxiety, Gustafsson isn’t showing it. “Based on how our customers can charge the car, I think [range] is not going to be a concern,” he said.
Volvo is betting the new model will help sustain a robust recovery from the coronavirus shutdowns this year.
The brand’s U.S. sales have picked up faster than those of its European competitors and the overall industry. In the first nine months, Volvo sales are down 5 percent year over year compared with BMW’s 24 percent slump, Audi’s 22 percent slide and Mercedes-Benz’s 12 percent decline. In the latest quarter, Volvo outsold Ford Motor Co.’s luxury Lincoln brand by nearly 2,800 vehicles. Ford owned Volvo from 1999 to 2010.
Volvo’s sales rebounded from the COVID-19 slump in June and has seen year-over-year gains in every month since.
“We decided early to be very aggressive in the southern part of the country,” Gustafsson said. “So the first two or three months, the region was really the locomotive of the company.”
Volvo quickly implemented new operating procedures to help its dealers sell vehicles safely, including digital retailing, no-contact vehicle pickup and delivery, wearing masks and facility cleaning.
In March, the automaker introduced Volvo Valet, a mobile app that allows consumers to schedule pickup and delivery of vehicles for service or maintenance. The services are offered by 208 of Volvo’s 282 U.S. dealers.
Volvo also acted early to secure supply — nearly 90 percent of Volvos sold in the U.S. are built in Europe. The automaker prioritized production for the American market before the annual European summer shutdown.
“We were convinced that the U.S. was going to see a V-shaped recovery in terms of vehicle demand,” Gustafsson said.
Gustafsson is optimistic the retail momentum will continue.
“We are seeing good interest on our website, we see positive developments on floor traffic,” he said. “The vessels are full of cars — and exactly the cars that the dealers are asking for.”
SHANGHAI — With the coronavirus outbreak largely contained since March in China, the local market for new passenger vehicles and light trucks has sustained growth for five straight months.
But there has been little to celebrate for American brands here. Except for Tesla, demand for U.S.-brand vehicles remains subdued, leaving many of their dealers struggling in the red.
The worst performer among them is Jeep. While China’s overall market has returned to growth mode, Jeep sales are stuck in a downward spiral that began in 2018.
FCA Group now produces vehicles for only the Jeep brand in China. It assembles the gasoline and plug-in hybrid variants of the Grand Commander as well as the gasoline models of the Renegade, Compass and Cherokee at its joint venture with GAC Motor Co.
In September, Jeep sales fell 36 percent from a year earlier to 3,862, with year-to-date volume plummeting 47 percent to 27,675, according to GAC.
That’s in stark contrast to the performance of the overall market. New light-vehicle sales across China rose 8 percent last month, with the decline for the pandemic-fraught first nine months of this year narrowed to 12 percent.
Jeep’s troubles date back to 2015, when FCA launched local production but failed to keep product quality under control, according to John Zeng, Asia director of LMC Automotive in Shanghai.
Local production allowed FCA to sell Jeep models at much lower prices than imports, which were subject to a hefty 25 percent tariff in China. As a result, Jeep demand started to take off.
In 2017, Jeep sales exceeded 200,000, more than doubling the volume in 2014.
“As Jeep’s sales surged, customer complaints multiplied about its product quality problems,” Zeng said.
In September 2018, a group of Jeep owners complained on state-run China Central Television about the problems of excessive engine oil burning and sudden loss of power with models such as the new Cherokee and Compass.
Additional reports surfaced in Chinese press and social media about problems ranging from abnormal noises with transmissions to poor quality of exterior components, such as windshields and sunroofs.
“All these problems have hurt Jeep’s brand image as well as its sales,” Zeng said.
For 2018, Jeep sales shrank to below 130,000. In August of that year, 35 Jeep store owners from all over China gathered at FCA’s China sales company in Shanghai, demanding compensation for their losses.
At the Beijing auto show last month, executives from FCA-GAC provided an update for Chinese media on Jeep’s electrification and vehicle connectivity plans, without mentioning measures to address lingering customer grievances about product quality.
Meanwhile, sales of General Motors’ and Ford Motor Co.’s proprietary brands in China have recovered but in an unimpressive way.
In September, sales at SAIC-GM, GM’s joint venture with SAIC Motor Corp. producing and marketing Cadillac, Buick and Chevrolet vehicles, rose 9.6 percent to top 153,000, according to SAIC.
Because the sales recovery didn’t materialize until July, SAIC-GM’s deliveries through September show a slump of 22 percent, falling just short of 952,000.
The rebound came at a price.
To boost sales in the wake of the coronavirus outbreak, many global brands lowered vehicle prices by an average of 20,000 yuan ($2,990), the China Automobile Dealers Association said in a report this month.
The steepest price cuts, averaging 30,000 yuan, came from the GM brands. Buick’s Envision S, the upgraded version of the Envision crossover, went on sale in China in July at a starting price of 219,900 yuan. But at a Buick dealership in southwest Shanghai last week, the vehicle was selling for 40,000 yuan less, a discount equal to almost $6,000 on the new model.
U.S.-make dealerships here were already suffering from red ink. Just 11 percent of Jeep dealerships were profitable in 2019, according to a research report released by Detroit-based consultancy Urban Science along with Lechebang, a Shanghai company providing management advisory and IT services for dealerships in China. It found that only 30 percent of Chevrolet dealers made a profit in 2019, as did 36 percent of Buick dealers.
Ford is not out of the woods, either.
Ford’s China deliveries plunged for the three years following its 2016 results of 1.08 million sales, due partly to a lack of fresh products. This year, Ford sales have staged a strong rebound. But the volume is still reduced — reaching around 232,000, according to numbers disclosed by Ford’s two joint venture partners, Changan Automobile Co. and Jiangling Motors Corp.
Changan Ford is the U.S. company’s main partner in China, building and distributing sedans and crossovers for the market. According to the report from Urban Science and Lechebang, only 23 percent of Changan Ford’s 600-plus dealerships made money last year.
Automakers and tech companies have sought to cultivate the trust of consumers as they’ve developed and launched driver-assist systems that many consider a prelude to self-driving vehicles. Those efforts may be misguided.
Consumers often are confused by the performance capabilities and limitations of driver-assist systems, which can control some steering, acceleration and braking tasks. Motorists who place too much trust in these features may find themselves in potentially dangerous or deadly situations.
Instead of seeking trust, automakers should emphasize the collaborative nature of driver-assist features, says Matthew Young, director of research at Thatcham Research, an automotive safety agency based in the United Kingdom that develops repair methods and conducts crash tests.
“Automakers will ask me, ‘Are you asking us to make these systems so the driver doesn’t trust it?’ and to some degree the answer is yes,” he tells Automotive News. “You don’t want to sell a car that randomly decides to get one thing wrong. That spooks the driver. You want to try and make sure the driver is always engaged in the driving process.”
In efforts to help drivers clarify the life-and-death distinctions between driver-assist and self-driving technologies and assess the competence of these fledgling systems, Thatcham Research recently helped Euro NCAP, the European New Car Assessment Program, develop a grading structure that’s believed to be the first of its kind.
Results from the inaugural testing round of driver-assist systems in highway applications were released this month. The Mercedes-Benz GLE earned a “very good” rating and scored 174 points, the highest of the 10 vehicles tested. Systems on the BMW 3-Series and the Audi Q8 also earned “very good” marks.
Beyond the particulars of the initial results, what’s most interesting may be how Thatcham and Euro NCAP devised the testing regimen.
Researchers measured performance across three categories, analyzing how well subsystems worked together to control speed and steering, how effective vehicles were in monitoring human drivers to ensure they remain engaged and how backup systems respond in emergencies or during malfunctions.
Establishing a healthy friction and collaboration between human and machine, rather than an implicit trust, is an underlying tenet of the ratings. Young describes this as a careful balancing act. If there’s not enough automation, drivers won’t appreciate the systems or find them helpful.
“If your keyboard only has half the letters in the alphabet, that doesn’t help you write an email,” he said. “However, with too much automation, users will come to rely on it even if it’s not competent. So there is a critical sweet spot with the person and car working together that provides the safest and most efficient operation.”
Without reaching that sweet spot, advanced driver-assist systems can lull drivers into a sense of automation complacency, a phenomenon that federal crash investigators have listed as a contributor to a range of transportation crashes, including fatal incidents involving Tesla’s Autopilot system, in the U.S.
Thatcham tested Autopilot in a Model 3 vehicle, and its findings illustrate the complexity involved in devising a robust system. Autopilot earned the highest marks of any of the evaluated technologies in two of the three categories. But it earned the lowest score in driver engagement.
While many other automakers use inward-facing cameras to ensure drivers are watching the road ahead, Tesla uses steering-wheel torque to monitor that. Findings from National Transportation Safety Board investigations have said that’s an inadequate measure of engagement.
Young finds it problematic for more mundane reasons.
“The driver engagement is really small,” he said. “During the driving task, the system provides very strong resistance on the steering wheel. If you want to make a minor course correction, the car actually fights you. With other systems, you can interact more and drive around a pothole if you want. Tesla fights this and disconnects, which is psychologically telling the driver, ‘If you fight me, I’m going to turn off.’ It’s the completely wrong ethos with assisted driving.”
Overall, Tesla earned a “moderate” grade on the tests.
The Thatcham and Euro NCAP tests come at a time when transportation officials in Britain and Germany are proposing regulations that would permit automakers to deploy more highly automated systems, those with SAE Level 3 automation capabilities, in which responsibility can be passed between human and machine. Systems currently on the road, including those tested by Thatcham and Euro NCAP, are Level 2, in which humans retain responsibility for vehicle operations at all times.
Safety organizations in the U.S. have embarked on similar efforts that scrutinize driver-assist systems and some of their features.
AAA, the nation’s largest motorist organization, has conducted road tests that examine how often driver-assist systems require human intervention and spotlighted the shortcomings of the technology in preventing pedestrian crashes. The Insurance Institute for Highway Safety has developed assessments of front-crash avoidance and vehicle-to-pedestrian front-crash prevention.
IIHS has done research into driver complacency while using driver-assist systems, and a spokesperson says a ratings program for Level 2 automated systems likely will be introduced in the first half of 2021.
As these systems evolve, Young says, so will the testing. For now, he wants motorists to distinguish between driver-assist systems and self-driving technology.
“The key thing is, if you are saying it’s assistance, then it involves a driver driving,” he said. “You don’t want to allow the driver to come out of the loop, and that’s where manufacturers want to go. If the systems are so robust, then you don’t need the human. We want to very, very clearly draw that line.”
The streets of Miami and South Beach are filled with luxury and exotic vehicles. But few are Alfa Romeos.
Breaking into the chic market has been an uphill slog for dealers since the Italian brand’s U.S. return in 2014, and a group of Alfa Romeo dealers in the area have been working for more than a year on a Tier 2 advertising strategy to build awareness.
Their efforts contributed to a double-digit gain in Alfa’s U.S. third-quarter sales and have created a blueprint that soon could be adopted by other stores in critical markets around the country.
The dealers’ collaboration on a campaign that has received matching dollars from Fiat Chrysler Automobiles has “gotten a lot of attention from the other markets,” Scott Ritter, part owner of Planet Alfa Romeo in Miami, told Automotive News. “There’s been other dealers that have looked and seen the growth down in our area in Miami and have asked people they know at the brand what’s going on. I think that our market has become sort of a model for them to roll out to other parts of the country.”
Stores in the Miami market have reported an uptick in sales since the effort started in June 2019, and market share in the area has tripled to 6 percent. Overall, Alfa Romeo U.S. sales jumped 17 percent in the third quarter to 5,056 vehicles – in contrast to a 9.5 percent decline for the industry overall – with the Stelvio crossover leading the way and the spry Giulia sedan not far behind.
Until last summer, Alfa had no regional ad strategy in Miami, leaving dealers in the area to vie for consumers’ attention with their own costly campaigns and national Tier 1 spots that weren’t tailored to the market.
The campaign that six dealers banded together to create, along with Pinnacle Advertising, began peppering TV airwaves that summer with spots that have a South Florida feel to them, Ritter said, and the blitz continues today. The alliance has grown to include Palm Beach County farther up the coast, in addition to Broward and Miami-Dade counties.
Dealers argue they have a compelling sales proposition with Alfa’s combination of performance and design.
Alfa stores have found that German brand loyalists who are looking for something different, for instance, sometimes jump ship to the Italian marque.
Greg Travaline, owner of South Miami Alfa Romeo-Fiat, described Alfa as a “new brand with a lot of great history.” It just needs a “little push,” he said.
Travaline said the Tier 2 effort came about at the urging of the late Rick Case, whose expansive dealership group includes an Alfa store in Miami. Case had success with Tier 2 campaigns at other brands, so he wanted FCA to get behind the idea. The automaker, which had cut Tier 2 advertising after its bankruptcy, eventually approved the plan.
The surge in advertising, Travaline said, has coincided with improvements in Alfa’s product line for the 2020 model year, including a new 8.8-inch touch screen for the infotainment system and more advanced driver-assist functions.
Karim Kassim, general manager of Rick Case Alfa Romeo, said the store’s sales got an immediate bump from the advertising. Its monthly volume rose from an average of 40 or 50 deliveries to 80, with sales crossing 125 last November and December. The goal this December is to hit 150.
While the South Florida dealers push their messaging, FCA has been running a conquest program for the Stelvio, dangling $1,000 discounts for customers who defect from Lexus, Mercedes, Audi, BMW, Infiniti and Acura.
Kassim said Alfa is here in the U.S. to stay this time. He’s seeing many customers return after their lease expires to get another one of the brand’s vehicles.
“We have the inventory, we have the programs, and we have the advertising,” Kassim said. “That’s a great combination to have in order to succeed, so we’re ready.”
Traveline believes the Tier 2 undertaking has built camaraderie between Alfa dealers and the factory. He said communication among dealers has taken a leap forward. He’s gone from talking to some only once or twice a year to three or four times a week.
When the coronavirus pandemic upended the business, the ads went dark in April. But the campaign resumed in May and has been gaining momentum since then. The dealers involved said they’re excited about the fourth quarter.
One issue they’re discussing is how to keep the Giulia viable. The Stelvio has been on the rise in recent months, but the Giulia hasn’t kept pace, so the group is trying to determine whether it should emphasize the sedan more. The vehicles are showcased together in the TV spots.
“These are conversations we’re having to be proactive,” said Travaline, who is also president of Alfa’s dealer ad group in South Florida. “We’re talking about what we’re going to order next based on the way the mix is. We’re still competitors, but we’re having conversations with each other and trying to help each other and the brand.”
Sales and profits rebounded for Gentex Corp. in the third quarter because of cost-saving actions, new launches and some quick decision-making.
Gentex released its performance results Friday in what could be a positive bellwether for global suppliers.
The Zeeland, Mich., supplier of dimmable rearview mirrors and other electronic components posted net income of $117.1 million for the third quarter, a 5 percent increase from the same period a year earlier. Gentex posted its second-highest sales quarter in company history, with net sales of $474.6 million.
CEO Steve Downing said customer orders came back so quickly that it caught the company by surprise.
“In fact,” Downing said in a statement releasing the financial data, “during the third quarter, volumes increased so quickly that it became very difficult for our operations team to keep up, but in typical Gentex fashion, the team pulled together, with many salaried employees volunteering to help build parts to ensure we were able to meet our customers’ orders.”
Cash flow from operations for the quarter was $138.6 million.
“The cost savings actions that we took during the second quarter had a sizable and direct impact on the results reported today,” Downing said.
The gains came even though 2020 light-vehicle production is expected to be down 16 percent in the company’s primary markets compared with 2019, according to a recent IHS Markit forecast.
Gentex Chief Technology Officer Neil Boehm said in a call with journalists Friday that Gentex began shipping its Full Display Mirror on four new nameplates: the Jaguar I-Pace, Ram 1500 TRX, Ram ProMaster and Toyota Venza.
The company also launched its Integrated Toll Module on nine Audi models. Looking ahead, the company revised its estimates from July for the remainder of 2020.
Gentex now expects net sales and gross margin to increase. Tax rates, capital expenditures and depreciation and amortization are expected to decrease.
“While the COVID-19 pandemic continues to create significant uncertainty, the very rapid recovery in light vehicle production over the last several months leaves us cautiously optimistic about the trends in the economy heading into 2021,” Downing said.
Shares of Gentex gained 3 percent to $29.42 in midday trading Friday.
Gentex ranks No. 91 on the Automotive News list of the top 100 global suppliers, with worldwide parts sales to automakers of $1.81 billion in 2019.