By last January Hamlin's detail-sweating was getting him nowhere fast. The business had produced a cumulative loss of $150,000, and he was starting to wonder what he had wrought. "I was thinking to myself, 'Why did I put so much money into this sucker?" But with the new year, business began to pick up as the $200,000 HPR had spent in advertising over the previous six months kicked in. Sales for the first half of 1995 jumped to $4.6 million, with 260 cars sold and $215,000 in service revenues. The business turned a pretax profit of $286,000. By the end of June, HPR Automotive Superstore was averaging more used-car sales each month than at least 10 of the 16 new-car dealers in Springfield, most of whom had been in business for 10 years or more. For all of 1995, Hamlin projects sales of $9.9 million, with 520 cars sold, $400,000 in service revenues, and a pretax profit of $600,000.
Springfield, Hamlin says, is the right kind of market for his concept, because there is just one of each franchise dealer there, and without direct competition the dealers developed a complacency he intends to take advantage of.
But he'd better move fast, because competition is coming. "New-car dealers are now paying more attention to used cars," says Brown of Automotive News, "because on new cars the margins are so thin. The new-car business is growing slower than the economy."
And then there's Circuit City.
The electronics-retailing giant has also gone into the used-car business, through its subsidiary, Carmax, which so far has five locations -- two in Atlanta and one each in Orlando; Charlotte, N.C.; and Richmond, Va. Last year Carmax's Richmond store sold 4,050 cars at an average price of $13,664 to gross $55.3 million, according to the investment research firm Sanford Bernstein & Co. That's 30 times the sales of the average used-car dealer. Carmax turned over its inventory 8.4 times, more than twice the industry average. Furthermore, industry rumor has it that retailers such as Kmart and Sears Roebuck & Co. are now thinking of getting into the business.
To compete against those kinds of players requires, among other things, good management. Dunkel says that growth in Hamlin's market niche will help the company attract skilled managers. "When people become more familiar with the concept, we will be able to attract quality people," he says. "They will be less hesitant to join us."
But growth could be constrained by supply. As demand for good used cars expands, prices will rise and margins narrow. "We have good connections," counters Dunkel. "If it gets tough, we'll still get our fair share." Besides, Dunkel doubts that most franchise dealers will ever make a strong commitment to used cars. He argues that their new-car sales will always demand their best talent.
Next March, Hamlin plans to open a second location, on the west side of town, where much of the city's population growth is and where there are no car dealers. He expects to invest $5 million in land, building, and inventory. The new location will carry more high-end cars and more imports, and the service area will be larger -- 14 bays. "We'll have a big window into the service area," he says, "so people can see what's going on." Among the amenities Hamlin expects to provide is a shuttle service customers can take to the local mall while their cars are being worked on. He also foresees $1 million in sales from the service department at this new location in 1996.
In October 1996 Hamlin hopes to open a third store, in Champaign, Ill. By then, he believes, he will have proved the concept well enough to attract serious financial backing. Maybe he can take the company public. Says Hamlin: "There are specialty chains selling just about everything, but you don't find them in the car business. If I had the capital, this could be the Wal-Mart of the car business."
EXECUTIVE SUMMARY
Company: HPR Automotive Superstore
Concept: Sell late-model used cars and provide a level of service more typical of a new-car, or franchise, dealership
Competitive advantage: HPR Automotive Superstore deals exclusively in used cars, which generate higher profit margins than new cars do while offering consumers substantial savings. Because it isn't tied to a particular new-car manufacturer, HPR Automotive Superstore can tailor its inventory to stock only the most popular models.
Projections: Current-year revenues of $9.9 million and pretax profits of $600,000. In 1996 HPR will open two additional locations and expects sales of $19.6 million and pretax profits of $1.2 million.
Hurdles: Increased competition from companies with much deeper pockets. Finding good managers. High capital requirements for growth.
THE FOUNDER
William K. Hamlin, 34, President and CEO
Family: Wife, Kelly
Personal funds invested: $250,000 invested in capital improvements, $300,000 pledged as collateral to establish $2-million credit line for purchase of inventory
Equity held: 89% of parent company, Hamlin, Power & Reaves Ltd.
Salary: $200,000 (drawn from parent company)
Entrepreneurial roots: Father owns a restaurant and motel, where Hamlin worked growing up. Arrived in Springfield with $190 in his pocket -- and no car.
Last job held: Real estate salesman
Other companies started: HPR Automotive Marketing, which offers direct-mail and sales-training services to auto dealers
On entrepreneurship: "I love competition. Most of the dealers in this town have grown complacent. I feel like the underdog in a prizefight. No one expects me to win."
HOW BILL HAMLIN EXPECTS TO MAKE MONEY
The Industry at a Glance
Bill Hamlin saw an opportunity in the big spread created by the price of a new car and the corrosive effects of depreciation.
Average cost of a new car at retail: $19,925
Average value of a new car after one year of depreciation: $14,345
