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Analysis: Why Sytner is exeeding all expectations

Manufacturer standards: good or bad for your business? They mean better facilities for customers, but at a hefty cost.

Many retailers are content – or forced – to simply meet minimum standards; Sytner wants to blow those standards out of the water. It's looking to create showrooms that are a bit special. And thanks to the 2002 acquisition by American retailer United Auto Group, it has the financial muscle to meet these lofty ambitions.

Laurence Vaughan, Sytner chairman and non-executive board member at UAG, believes the timing of the takeover could not have been better. The industry was gearing up for the new block exemption rules, which were expected to speed up the rate of consolidation; Sytner wanted to exploit the opportunity to acquire businesses, but was itself vulnerable to UK predators. UAG provided both the security and the investment.

“Prior to the acquisition we had a market capitalisation of £50m,” says Vaughan. “Last year we invested £63m on facilities and more will be spent this year. We are investing in our infrastructure on an epic scale and that would not be possible without UAG.”

The group's turnover last year was 43 times greater than in 1993, when Vaughan joined. But that's not the most poignant example of how the business has changed.

Three years ago Sytner's most expensive site was a £3m Mercedes-Benz outlet. It is currently working on a project for BMW, which will end up costing around £18m. Can this level of expenditure be justified? “United Auto Group's view is that a dealership needs to be fit for the next 25 years – they take a longer-term view than most companies in the UK and they aren't scared of making the capital investment,” says Vaughan.

“It's not about simply meeting the manufacturer's minimum standards, it's about creating an environment that will meet the needs of employees and customers for the next 20 years or so. And that means we are massively exceeding manufacturer expectations in every area.”

Over the past 12 months Sytner has gone about acquiring 19 dealerships, taking its network to 70, with little media fanfare. Refurbishment or relocation projects either just completed, ongoing or about to start, number 40. Evidently Sytner has supportive bankers – that comes from a history of delivering on its promises – but it's also clear that without UAG's support the business would be doing substantially less investment.

UAG chairman Roger Penske has a very hands-on role. “He has very high standards and his cultural influence has strengthened our expectations in the business,” says Vaughan. “His help with developing capital projects is invaluable.”

A clear parallel can be drawn between both groups' background. Each was launched by men with a motor racing pedigree – Roger Penske and Frank Sytner – and each has grown profitably with similar premium partners. That didn't stop sceptical UAG shareholders questioning the wisdom of the purchase, however. In the aftermath of the acquisition, Sytner invited American analysts to the UK to inspect the business. Satisfied about the prospects for raising revenues, they reported back that the deal was beneficial to UAG: its share price shot up.

Shareholders, like customers and employees, are crucial to Sytner's success. “We want to be famous with customers, employees, manufacturers and shareholders for what we do which means doing the best job,” says Vaughan. “We measure ourselves against a list of commitments that we state on cards and give out to staff and customers.”

This is part of the twin initiatives to be the 'best company to work for' and the 'best company to do business with'. Every employee and customer gets a card with a list of Sytner's aims and objectives by which they can judge the performance of the company. At the bottom of the card is Laurence Vaughan's office and mobile phone numbers. Does he get many irate calls? “Not really,” he says. “There is a high correlation between satisfied employees, high customer service standards and good returns. We have the facilities that create a more attractive environment for customers, and it improves life for staff who have somewhere they enjoy working. And it's important to remember that while we are here to make money, we are also here to have fun – that's the culture of the business.”

Consequently staff turnover is below industry averages at around 20% – and even that figure is distorted by the valeters; for sales staff and technicians it's much lower and for management it's “virtually zero”.

“Our relationship with UAG also has another benefit when attracting new staff: career options now include working in the USA,” Vaughan adds. “We employ a lot of guys who 10 years ago would go out and open their own dealership. Now the barriers to entry are so high, there is no incentive to do this. These are the type of guys we want to attract and keep.”

Each March and September the company holds a competition to encourage its staff to find new ways to improve the hand-over process for customers. Nice touches include tuning the car radio to the purchaser's favourite stations, delivering the car at a favoured football ground or, on one occasion, on the set of Coronation Street. That kind of satisfaction cannot be bought and is guaranteed to create a customer for life, not to mention referrals through word of mouth.

Much was made in the media of UAG's desire to use Sytner as the base for expansion into mainland Europe, where it already had a handful of Toyota/Lexus and BMW dealerships in Germany. While it has since acquired a couple more, the UK continues to offer the best opportunities for growth.

Turnover was just under £1bn last year – that's likely to be significantly up this year, possibly to around £1.3bn – while profits are £20m, accounting for 20% of UAG's total.

“Our biggest relationship is with Lexus; we have 10% of its market share, but this is still small,” says Vaughan. “We are the largest group for Mercedes and BMW, but again the shares are quite small. We believe growth prospects with our existing partners are phenomenal.”

But this growth will not happen without the blessing of the manufacturers: Sytner will not 'buy now, negotiate later'. “Every purchase last year was an introduced opportunity from the manufacturer and this strategy will continue – it makes for a more constructive relationship,” says Vaughan.

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