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Scottish knight sets sight on England

In Scotland everybody knows Sir Arnold Clark. Visit almost any town and you’ll pass one of his dealerships – they’re dotted everywhere.

Speak to the public, to his staff and to rival dealers and they all have their own opinion about the man. Most seem to hold Clark in high regard: even rivals such as John Martin Group managing director Gordon Nisbet refer to him as a “competition you can respect”.

There’s always some unwanted publicity, such as the disgruntled ex-customer who set up a website dedicated to lambasting Clark for everything from bad service to overcharging and botched repairs. The high level of repeat sales and service/repair business – and anecdotal evidence – suggests that consumers generally trust him, however.

Despite the level of public awareness, Clark maintains a low media profile, agreeing to the occasional photographic opportunity, but rarely speaking in any depth to the press.

And why should he? After all, this enigmatic, self-made businessman is now responsible for more than one-quarter of the Scottish new car market (around 57,000 of the 65,000 new cars Arnold Clark Automobiles sold in the UK last year). He has built the group from scratch into a £1.6bn turnover empire with almost 7,000 staff and 122 dealerships.

At the age of 77, Clark shows no signs of slowing down. He visits every dealership once a month and enjoys chatting to staff on the showroom floor. “It’s the best way to find out what’s going on in the business,” he says.

Publicity machine

But while the group dominates the Scottish new car scene, Arnold Clark Automobiles is not perceived as a new car business. Many acquaintances of Clark describe him as a used car salesman first and foremost; someone who only has new car franchises because it ensures a steady stream of used stock. That viewpoint is not surprising when you consider the company strives to maintain a ratio of one new to two used car sales.

“This is imbedded on our managers’ thoughts,” says Eddie Hawthorne, group managing director and Arnold Clark’s right-hand man. “When the new car market is tougher, like now, that ratio can rise to three or four used cars to every new one. We have the stock to do this because of part exchanges and our contract hire business.”

The contract hire business and fleet management operation soaks up much of the good quality used car stock in Scotland, leaving some rivals with slim pickings. But Hawthorne prefers to make less distinction between new and used. “We are here to sell cars,” as he puts it.

Arnold Clark’s sales policy isn’t quite ‘pile ’em high, sell ’em cheap’, but it’s fair to characterize the group philosophy as one focused on volume – volume and profit, that is. While many rivals with a mixture of franchises or mostly premium brands struggle to hit 1.5% margins, Arnold Clark averages an impressive 3%. “This margin is expected of all the franchise managers,” says Hawthorne. It’s clear from his tone that he means it.

Traffic is driven into showrooms by the Arnold Clark publicity machine. This in-house operation – 10 designers plus a printing machine – produces some 350 adverts a week, promoting stock and prices, while a media buyer for TV, radio and newspapers guarantees the best rates. “Dealer principals are not allowed to use the word ‘quiet’,” adds Hawthorne.

Each year, Arnold Clark holds a Motor Show – its midseason sale. The weekend event, which this year took place on May 18-19, sees cars paraded down a catwalk similar to a fashion show, complete with compère. Every dealership takes part, each displaying between 50-100 cars. It’s an opportunity for customers to get a bargain, and for Arnold Clark to clear the showroom of some of its slower moving stock and the build up of part-exchanges from the April plate-change.

Planning ahead

All this activity, complemented by prospecting and database management (it has 1.2 million customers), is how Arnold Clark is able to sustain and grow its incredible sales volume, and one that has swept the company into the English market.

Currently with 15 sites south of Hadrian’s Wall, most concentrated around the M62 and M6 corridors, Hawthorne is planning further growth at a rate of between four-to-six sites a year, financed from the group’s £41m bank funds.

Aside from the contract hire division, the company has no borrowings. It’s one of Clark’s mantras: ‘if you can’t afford it, don’t do it.’ And he has never taken a shareholder’s dividend; his ethos of reinvestment means that every penny goes back into the business. “We have a simple philosophy to growth. We invest in a branch, put in our processes and start to sell cars. It’s a simple business,” says Hawthorne.

“We still have a few gaps to fill in Scotland, but the main focus is England where there are many more people to sell to. We offer genuine value for money for customers. On everything we sell, from new and used cars, to finance and service plans, warranties, CPI and VRI, we take a small margin with a view to selling a lot.”

Everything has its price

Clark is often described as a consummate salesman. Anecdotal examples from staff include tales of Arnold Clark driving around town in his own car, which he sold on the spot to a casual enquirer, not wanting to miss any opportunity to make money. Then there’s the time when Duran Duran frontman Simon Le Bon was looking to sell his yacht Drum.

He approached Clark, who wasn’t that interested, but the salesman in his blood meant he couldn’t help but offer a knockdown price. After some negotiations, and with Clark sticking to his original offer, Le Bon agreed to sell. (Incidentally, the singer has since borrowed back the boat, now called Arnold Clark Drum, to race in the Rolex Fastnet event in August).

With this zeal for selling, combined with his determination, stubbornness and self-belief, it’s no surprise the former RAF mechanic from Dennistoun, Glasgow, is Scotland’s biggest car retailer. Now his sights are set on England.

The analyst’s viewpoint

Piers Trenear-Thomas, consultant for Grant Thornton, immediately points to Arnold Clark’s market-busting 3% profit margins, which have been sustained over a number of years.

“ For a volume player it shows what you can do when you command a territory,” he says. “Their options are to either stick to what they know, or to expand – and for Arnold Clark that means into England.

“The balance sheet is slightly complicated by the hire purchase business, but that aside, they are not highly geared. That suggests they are a conservative group and will expand in a controlled fashion.

“England is a higher cost area and it will be tougher to replicate the same volume model, but there’s nowhere else to go.

“Can they do any better than they currently are in Scotland achieving near 3% returns? Possibly not, so the question is how much worse are they prepared to do. If they are happy to go for 2.5% margins on even higher volumes, then that’s still a good performance – better than many rivals.”

Ten-year sales tracker

Acquisitions and new builds over the past 10 years have seen group turnover grow from £300m to £1.6bn. This has not been at the expense of profits. Arnold Clark enjoys 3% margins thanks to a strategy of taking a small cut and selling lots of cars and add-ons.

Arnold Clark

The business

The company founded more than 50 years ago by Arnold Clark is split into three divisions. The retail division is by far the biggest, and is supported by Arnold Clark Finance, the contract/hire drive and fleet management operation (main objective “to provide used cars for the sales department”), and Ancillary services, which include finance, motor, travel and home insurance, garage equipment and a smaller parts importing business.

Group turnover last year was £1.6billion, placing the company at number two in the AM100. “Everything revolves around selling cars,” says Eddie Hawthorne.

He has split the retail division into two parts: franchise managers are responsible for all aspects of their brand, and they work in tandem with the group bodyshop, parts and service managers. This results in a flat management structure and good business controls.

Arnold Clark also has its own training centre. Half the intake is from its own dealerships, including 465 apprentices, half are staff from rival groups.

Company details

Established: 1954
Turnover: £1.6bn
Pre-tax profits: £57m
Number of sites: 122
Number of staff: 6,914
New car sales (2004): 64,860
Used car sales (2004): 96,175
Traded or to auction (2004): 30,000
Franchises: Alfa Romeo, Citroën, Fiat, Ford, Honda, Hyundai, Lexus, Mazda, Nissan, Peugeot, Renault, Seat, Toyota, Vauxhall, Volvo, VW

Arnold Clark

The man

Upon joining the Royal Air Force in 1945, Clark was asked which division he wanted to be in. He chose motor and became a mechanics instructor. It was a decision that was to change his life.

Clark left in 1954 and started his own business by purchasing a Morris Ten Four for £70. After careful restoration, he sold it for £150, which he used to buy and sell more cars privately before saving enough money to open the first Arnold Clark Automobiles showroom in Glasgow.

Now aged 77, he shows no signs of retiring, or even slowing down. Clark continues to work 12-hour shifts and takes just 10 days holiday a year.

His five sons and one of his four daughters work in the business, providing an obvious succession plan. However, each of them is working their way through the business and will only get promoted if its deserved. No-one gets fast-tracked at Arnold Clark.

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