Inside Automotive with Jim Fitzpatrick, powered by CBT News

Navigating Auto Industry Headwinds While Expanding Dealerships

• Jim Fitzpatrick • Season 1 • Episode 15

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Jim Keffer, CEO of Keffer Auto Group, shares how his organization continues expanding through acquisitions while navigating industry challenges by focusing on equity partnerships with talented operators.

• New acquisition of a Chevrolet dealership in Minnesota demonstrates their growth strategy despite retail headwinds
• Keffer's unique business model offers equity partnerships to strong operators rather than focusing primarily on location or brand
• Philosophy originated with Jim's father who received a similar opportunity in 1974 from Charles Johnson
• Decentralized management approach gives owner-operators autonomy to make decisions for their specific markets
• Acquisition targets focus on stores with upside potential rather than already-optimized dealerships commanding premium multiples
• Strong used car operators make ideal partners as they can quickly improve profitability while building other departments
• EV tax credit rollback presents challenges but represents a small portion of total business currently
• Upcoming tariffs likely to further impact vehicle affordability with manufacturers unable to fully absorb the 15% increases
• Industry may need to develop more used vehicle leasing programs to address affordability concerns
• Competitive mindset summarized by Keffer's bear metaphor: "You don't have to run faster than the bear, just faster than your friend"


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Announcer:

You're watching Inside Automotive with Jim Fitzpatrick.

Jim Fitzpatrick:

On the heels of their latest acquisition, Keffer Auto Group is proving that growth is possible even in challenging retail climates that we see ourselves in today. Today, we are joined by the CEO of Keffer Auto Group, mr Jim Keffer, to share how his group is navigating industry headwinds, from shifting consumer demands to new tariff concerns, all while expanding their footprint. So, Mr. Keffer, Mr. Jim Keffer, thank you so much for joining us on the show.

Jim Keffer:

Happy to be here. Thanks for having me.

Jim Fitzpatrick:

Sure. So let's start with the state of the market today. How are you? How are the new and used vehicle sales holding up at your stores?

Jim Keffer:

I would say, on the whole, things are holding up okay. You know, I think brand by brand it's always going to be different, but we have a lot of brands who are hitting best sales ever-

Jim Fitzpatrick:

Wow, that's great.

Jim Keffer:

-korean brands. So that doesn't necessarily always equate to a lot more money, because sometimes you have to stretch to get that additional volume. But I like to always think that the business is as good as whoever we have operating it.

Jim Fitzpatrick:

Yeah, that's right, that's right. You just had another acquisition for your group, which is a Chevy store in Minnesota. So why Chevy and why Minnesota?

Jim Keffer:

Well Chevy, because it's a great brand and we think it will continue to do well. I think it's up the last number I saw. Maybe it was in this region but that was around 26 percent, which is really great growth in the face of the headwinds that you mentioned. But you know Minnesota because that's where I had a partner opportunity with a gentleman who's a very good used car guy and his wife didn't want to move from Minnesota. They think that's a great place to raise a family and I probably won't go help shovel snow in the wintertime and he's OK doing it, I'm OK investing there, because our whole model really is built more around the person than the location.

Jim Fitzpatrick:

Yeah, talk to me about that. You guys do have a very unique opportunity for owner operators, or I should say operators that want to become equity partners with Keffer Auto Group. Talk to us about your philosophy there.

Jim Keffer:

Yeah, my dad got started in 1974. A guy named Charles Johnson put him in business on a 10-year buyout and it worked well enough that he decided to dedicate the rest of his life to helping other people get the same opportunity that he got. So its really just a pay it forward sort of philosophy that maybe doesn't put you in a position to build the same kind of empire that others might be putting together, but you know it is a really good return because you know if you buy things that in some cases are underperforming and other cases just doing okay, but you put a really good operator in there, then the upside can be really good.

Jim Keffer:

So even though you're sharing, there's still plenty to go around if you're able to attract really good operators.

Jim Fitzpatrick:

Sure, and I know a number of individuals that were general managers of stores or sales managers at stores or fixed ops managers at dealerships that your father and you, your organization, gave an incredible opportunity to, and today they don't just own one dealership, they own many dealerships. So your company and that philosophy is really responsible for putting so many in the industry behind the dealer's desk right.

Jim Keffer:

Yeah, I can't take credit for that. I sort of rode the coattails and a funny story for another day. This is the one thing I was never, ever going to do is get into the car business. But here I am, many, many decades later and still enjoying it. I think the thing that really drew me to it was I admired the model of helping other people be able to achieve what you've had the opportunity to achieve and in some cases, go beyond that.

Jim Fitzpatrick:

That's right. That's right and it works. I mean, the program works. It's always better to have an equity partner that's running the store rather than just a hired gun that you bring in. That maybe you can trust fully, maybe you can't. There's some horror stories out there about you know managers that maybe have taken advantage of offsite dealers, but you don't have that in an environment like yours, right?

Jim Keffer:

Yeah, well, maybe I can get you involved in selling this. You seem like you've got it down pretty good.

Jim Fitzpatrick:

No, I just happen to know. You know I've been in the business so long, I know so many individuals that your dad has put in business and it's worked out well. It is true.

Jim Keffer:

People are the most engaged when they are involved, not just as a leader, but as an owner, and so that works certainly to our advantage. And, at the end of the day, it doesn't matter whether you're running a Fortune 500 company or a grocery store on the corner. It really is all about the man or the woman that is leading the show, and that person doesn't make a 10% difference if they're really good. It's exponentially different.

Jim Fitzpatrick:

Sure.

Jim Keffer:

It's a model that has that advantage. There's a disadvantage in that scale helps big companies, if they operate like big companies, get some advantage in the I think they call it SG&A sort of expenses, and so we don't always get the same advantage there, because we're giving each store the ability to manage its own. We do have, we do leverage some of those things you know where it makes sense, but we're really trying to give the operator the ability to run their own show.

Jim Fitzpatrick:

That's great. That's great. So you have more of a decentralized approach rather than a heavy on top corporate structure that can sometimes weigh down and slow down the retail operation, right.

Jim Keffer:

Yeah, yeah, and, as I said, there are advantages on both sides. One of the things I've learned from going to 20 groups since I was about 13.

Jim Fitzpatrick:

Your dad's dragging you along to go you better get to know this right.

Jim Keffer:

There are a lot of right ways to get an end result. You know this one works very well for us and you know it's centered around creating the best opportunity for someone else. And then you know having a shared goal and making sure that the store gets turned around and is providing a good return on equity.

Jim Fitzpatrick:

Sure, is it safe to say that your phone has rung a few times from some of the publics that said wow, this is a pretty quick way to expand with a number of stores? A have you gotten those calls? I imagine you have. And then B, is that of any interest to you to one day be acquired by a bigger entity?

Jim Keffer:

I don't really have any plans at this point to be acquired by a bigger entity. You know I don't really have any plans at this point to be acquired by a bigger entity. I like the model. The challenge with that is that you know they don't generally want to follow the same practice right, and again, I don't blame anybody for that. But our goal is to create the scenario where, you know, the dealers and operators who hitched up with us get the win over the long haul, and so the structure for that I'm actually working on currently, but I think that's really important and we have- I have had a lot of people reach out. It's 2025, so nobody calls you anymore.

Jim Keffer:

They email you or LinkedIn message or text.

Jim Keffer:

But, yes, there have been quite a number of people and I've really enjoyed having some great conversations with some of them and I don't have the bandwidth to put everybody I've talked to into a deal immediately. But you know that's the thing is you never know where a deal is going to be available and that's why you know we've sort of branched out a little bit. I think everybody learned during COVID that you can manage things a little differently if you need to, right, and it's more important to go where you have the best resources, both in people and the opportunity is the best.

Jim Fitzpatrick:

Sure, walk me through if you would for just a second, for the people that are listening, especially the GMs that are right now maybe taking notes. But in the event that there's a general manager that is at a dealership and they know that the dealer principal wants to sell out this year, next year, whatever the case might be, they like their job. They're not going to cover off the ball. Their CSI is strong, although they don't have the necessary capital to acquire that store, is that a call that you would or a text message that you would field from that general manager to say hey, I've got an opportunity here. Do you want to partner with me on this particular store, assuming that you liked the numbers?

Jim Keffer:

Well, I may surprise you here, but I would say probably not. And the reason is that, assuming that this operator is a really good operator, then the store is operating at a really high level and the dealer who's selling it will understandably want to transact at a big multiple right.

Jim Keffer:

And those big multiples make it more challenging for that would-be operator to go in and make that deal. And so there are resources out there in some of the private equity side that actually do some of those deals and would probably be a better fit in those cases. But you know, if the same GM says, hey, I've done this and you know we have people that are then selling out and you know they've helped that dealer achieve their goal, then maybe they transition and say, ok, well, help me find something that has more upside than this store I've done a great job in and those would be better opportunities.

Jim Fitzpatrick:

Okay, gotcha. So it's not even necessary for the individual to be within the Keffer organization for years prior to you guys acquiring a store together and putting that operator in there. Could be somebody from the outside that you feel very good about to say well, if I've got Mr. Johnson heavy hitter here and I marry him to this new acquisition, this could be gold, right.

Jim Keffer:

Yeah, and I think those are very in-depth conversations. When we go down that road to make sure, from a culture standpoint, that there's a fit. We have this set of winning ways that starts with play to win and ends with keeping it fun, and there's a lot of stuff in the middle that helps us keep the wheels on. And I think it's conversations like that that help both sides make sure that there's a good fit up front, and we always want that.

Jim Keffer:

As I said, there's lots of different ways to get to a great outcome, but the ones that we are the most comfortable with are usually where there's a dealer, operator or a GM who has been very heavily involved in the used car acquisition side, because if you're going to buy something that you're looking for more upside on the new car side, normally maybe it's underperforming in that market. Well, it's expensive to advertise and to get that store going. So the ability to walk in day one and personally know that I can go in here and sell 75 to 100 used cars, buying and selling them, which is maybe one of the hardest things arguably to do in this business right now is try to go to the sale, buy cars and make money.

Jim Keffer:

That's right, but there are some folks out there that that's how they're making their living and those guys typically are the best candidates for us.

Jim Fitzpatrick:

That's great. That's great. Boots on the ground, somebody that rolls their shirt sleeves up and makes it happen. A true owner operator.

Jim Keffer:

Yeah, and it doesn't mean that there's no other place If it's a guy who also, or a girl who also, has that person as their sidekick maybe or lieutenant, whatever you want to call it. I often recommend to people. It sounds a little cheeky, but I said even the Lone Ranger had Tonto and Batman had Robin.

Jim Fitzpatrick:

That's right.

Jim Keffer:

So you know, having that other person that you can show up with day one, you know to do sort of the turnaround.

Jim Fitzpatrick:

Oh yeah.

Jim Keffer:

It's always a big, big benefit.

Jim Fitzpatrick:

Sure, so do you often look for, I mean, is the model to look for stores that you deem underperforming in that marketplace for that brand and say, hey, this is an opportunity versus the ones that are already knocking the cover off the ball with regard to volume and such?

Jim Keffer:

Yeah and I don't know the fair categorization to the people I bought from to say that those stores were underperforming, but I would certainly say that we saw upside in it, whether that was in fixed, in used, in new or wherever it was.

Jim Keffer:

And I know a lot of other bigger dealer groups that go after larger stores that are performing, but they're always looking for that delta to be in. How can we go in and improve it? In our case we're not looking at the $100 million transactions or even the $50 million transactions, because imagine you're a dealer and you want to get paid, or a GM candidate and you want to get paid and be able to become a dealer, but you still live and support your family. Well, how are you ever going to pay that back? You know, because those good stores are out of 10 multiple. You know, take 10 times, whatever the and it's already doing a good job that that doesn't really pencil. So something that has big upside is really important and if you are a really exceptional used car operator, that's often where that big delta or big growth can come from.

Jim Fitzpatrick:

That's true, so true, because you're going to in so many cases just get you know you've got to change the turn on new cars that could take a very long period of time and to earn those new cars even if you can sell them at a greater pace. But you're right, I think the difference does lie in using also fixed ops. I mean, there's a lot of things that you know a good fixed ops director can do once they get in. Or a GM to say we're going to make some fundamental changes and man up goes their fixed ops gross right.

Jim Keffer:

Right, and I think in today's environment you can exercise more control over that side of the business in many cases than you can over the new car side, and the new car side has great opportunities. But there are more hoops to jump through now than there were in the past. I think is a fair assessment. And so you know, it's again really critical to be good at that so that you're able to continue to represent the manufacturers that you're doing business with in a very good way. But you also have to be able to be great at the other aspects if you're really going to ring the bell.

Jim Fitzpatrick:

Sure, absolutely. In terms of the EV rollback of the $7,500 tax credit, obviously your stores sell EVs. Is that a concern of yours moving forward?

Jim Keffer:

You know we try not to get too excited about any one individual thing like that.

Jim Keffer:

I think when you look at the percentage of our total business right now, that is EVs.

Jim Keffer:

It's meaningful but it isn't life-changing.

Jim Keffer:

And you know, I always kind of look at it this way and you know, pardon the metaphor, but it's the bear in the woods, right, and each manufacturer has a really big job to do, and I admire and respect those people that have to do that side of it, because it's tough and they have to make sure that the dealer body, on average, is able to remain in business and be profitable, which equates to getting their market share and doing the other things. And so they have to make the adjustments. And you've heard of the big losses that a lot of them are looking and projecting to take because they have to be able to go to market with something that people sell. So it's really not so much about me winning that battle or figuring out how to overcome the EV challenge. It's I've got to be able to outrun the other people in the woods, Because when you're out there in the woods with your friend and the bear comes up, you don't have to run faster than the bear, you just have to run faster than your friend.

Jim Fitzpatrick:

So true, so true. That's right. That's right. Tariffs we hear so much about. Is that a concern? Do you think that we've seen the worst on the tariffs behind us?

Jim Keffer:

No, I think the worst is in front of us because you know, really we've bumped around here and so far, because there's been so much uncertainty. Again, to their credit, the OEMs have leaned in and sort of taken the hit because nobody wants to lose market share or be the first one to blink.

Jim Keffer:

Nobody wants to lose market share or be the first one to blink and it's not a great look from a public relations standpoint. So they've continued to really support the dealer organization with prices that have stayed in line with where the market is. But when you think about that, prices are already up to what is the average car payment now, like $700, and something?

Jim Fitzpatrick:

Almost $750.

Jim Keffer:

And so it increased that by 15% and you hear some of the government folks say well, we want the companies to absorb that. Well, I don't know. Last time I checked the average dealer profitability on sales over a 40 or 50 year time horizon was two and a half percent.

Jim Fitzpatrick:

Right.

Jim Keffer:

So you can't absorb 15 percent there. And now maybe the manufacturers, when they're doing great, might be a 10 percent, yeah, yeah. So you know there's definitely going to be an increase in prices and payments are already high. You know, probably we'll see more emphasis on leases, I would guess in the short term and other pivoting strategies.

Jim Keffer:

But I think dealers and manufacturers have been very resilient over the years and we'll find that way to keep moving forward. But there is a certain limit on budgets everywhere and you have to at least acknowledge that and say well, again, back to where we started. Used cars becomes more important than it's ever been. That's right, because more people will look at that. But there's a shortage of used car inventory because of the COVID time.

Jim Keffer:

So, those prices are going to remain pretty high. I've continued to encourage any manufacturer that would listen to get into the leasing used in CPO vehicles business, because I think that's where entry level is going to be in the future. If any of them are listening, it'd be great if you'd start now.

Jim Fitzpatrick:

Oh, they're listening, no question about it, and it's a great idea because, let's face it, the quality of all of these new cars has been incredible over the last 20 years, the technology and such. So a two-year-old vehicle that's got maybe 30,000 miles on it, man, that still has a lot of runway ahead of it in today, the way they're building these cars today right,

Jim Keffer:

Yeah, and whether it's the OEMs or other outside companies I expect somebody will fill that space, because there's just a big need. There's only so much budget again. That's right. And we have to find a way to make cars affordable in spite of whatever headwinds, tariffs or something else we end up facing.

Jim Fitzpatrick:

That's right. That's right. And with the affordability situation, average price of new cars, you know, is almost $49,000. And where are we going here? You know it was substantially less than that before COVID, so it just continues to rise. So, before I let you go, what's your take on the second half of the year? I know we're already into August here, but how are you feeling about things? Is there anything that keeps you up at night about the industry?

Jim Keffer:

Yeah, I'm probably not smart enough to stay up too much at night, worrying Every now and then I will wake up at 3 in the morning and the flywheel starts and it's hard to get back to sleep because your brain wants to problem solve when your body wants to sleep.

Jim Keffer:

The second half we expect to be better, because we need it to be, and I think that's the right mindset to have. Yes, you acknowledge all the challenges, but the winners find a way to win. So you don't do that by ignoring the challenges. You have to acknowledge them, size them up, and then you've got to run faster than the other people in the woods. It's really that simple.

Jim Fitzpatrick:

That's so true, any other generations of Keffers coming into the auto industry.

Jim Keffer:

No, again, a story for another day. I told my kids when they were about three years old that they're not getting in the car business. They've all stuck with that so far. But I think in many cases that really confuses things. And when you're trying to create opportunity and again, I'm not saying it's a bad idea for the thousands of other people that that want to do that, but you know the notion that you know your kid at five years old already knows that they want to be a car dealer. So I don't really get that, yeah, and. But it also, you know, put, put sort of a glass ceiling there where that that ability to become you isn't really available If there's a bunch of people with your last name running around who are going to somehow inherit this.

Jim Keffer:

So I think that-

Jim Fitzpatrick:

Do I sense some regrets by you for getting into the auto industry?

Jim Keffer:

Not in the least. No regrets, I don't do regrets. I think you make the decisions. You make right decisions. And it has been an incredible blessing to me and my family and the relationships I've built. The people in this business are incredible, and so I don't regret a bit of it. That's great. I just never had any inclinations to have my kids get involved. There's plenty of other qualified people in the world. We'll let my kids do something else.

Jim Fitzpatrick:

That's funny Jim Keffer, CEO of an amazing company, Keffer Automotive Group. So thank you so much for joining us on the show. I know that our especially our GMs out there might get a lot more out of this than the dealers. But there's probably some dealers that say I got to call Jim because I like to sell my store to him. So it works all the way around.

Jim Keffer:

And again, please understand I have no disrespect to any of the other folks who have different models. I think they're equally right. This is just the one that has made great sense for us and still something I feel really good about. Thank you very much for having me.

Jim Fitzpatrick:

Absolutely. Thanks so much.

Announcer:

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