Samuel Richard Downey, founder and chief executive officer of Downey Automotive Inc., in Chattanooga, begins each working day with a simple and immutable ritual "among the racks." At 8 a.m., he darts through the front door to his own office and out into the warehouse. He is lean, low-key, and intense, dressed in slacks and a short-sleeved shirt. Against a backdrop of pallet racks and steel shelving, hand trucks and forklifts, Downey greets each employee by name and spot-checks stock in a random walk up and down the aisles. Most of the workers are young, and half of them are women. None is standing still.
At the far end of the 140,000-squarefoot warehouse, Downey pokes his head into the sales and order-processing departments before invariably backtracking past the loading docks. He speaks to a driver or two, raps an outgoing shipment with his knuckles, and proceeds to his office. The entire trip takes about 30 minutes and covers a quarter of a mile. It is at once the pulse of the business and the measure of the man.
The sole objective at Downey Automotive is to sell auto parts -- more parts and accessories, in fact, than anyone else in Tennessee, Alabama, and Georgia. And, as most competitors have discovered the hard way, the company is well on its way to achieving that ambition.
A start-up just six years ago, Downey Automotive is churning out $19 million in sales at its warehouse, with 110 stores in three states. In the dog-eat-dog jungle of the automotive aftermarket, Downey succeeds by constantly wheeling and dealing; by cutting prices, sometimes below cost; by ruthless, hard-nosed tactics that add up to one man's brand of guerrilla marketing. Competitors agree that this is how he operates.
In most businesses, such an assessment borders on slander. In this case, however, it is a fact that Dick Downey neither flaunts nor denies. But there is far more to the man and his formula for success than any competitor's appraisal will expose.
At 48, Dick Downey is driven by a Vince Lombardi-like spirit of winning, his own sense of the Golden Rule, and an incessant desire to maintain absolute control. They are the qualities one would expect of a former wrestling champion at Auburn University turned ardent tennis player at middle age. Downey grew up in Alabama, one of two sons in an automotive sales-oriented family. His father, Herman J. Downey, started out in the 1920s as the first Chevrolet dealer in the state, becoming an inventor and maker of tire patches, and, finally, a manufacturer's agent in the auto parts business.
As a rep, the elder Downey sold to automotive jobbers and wholesalers, who in turn sold to repair shops, retailers, and consumers. It was a fairly simple business until the 1950s, when options and styles became the rage in Detroit and entire model lines began changing every year. It was the era of built-in obsolescence, and it left auto jobbers and wholesalers overwhelmed by burgeoning lists of parts numbers and the insatiable demands of car-crazed consumers. Traditional distribution channels were demolished. Wholesalers started selling to other wholesalers and retailers, evolving into what became known as warehouse distributors (WDs). Herman Downey saw it coming.
In 1955, about the time Dick Downey came home from college with degrees in business and science, Herman established one of the first WDs in Birmingham. It would become an automotive wholesale business built by two sons, under the thumb of their father.
"Looking back on it," Dick Downey reflects, "my father set that thing up for my brother Ray and me. And he spent every working hour teaching us how to run it, mostly by chewing us out. He was a stickler for the details of buying, stocking, and selling auto parts. But he hammered away at buying. If we were going to sell right, we had to buy right. And 'buying right' meant one thing: by the truckload."
During the next 15 years, the Downey boys translated the truckload mentality into their own very simple logic: Quality, quantity, and price equals success. And working that logic to its limits, Dick and Ray Downey built a $4 million business. It ran smoothly, grew a little each year, and kept the two brothers preoccupied with parts numbers rather than operating figures. "The only time we looked at a financial statement," insists Downey, "was at the end of the year. It always read 'profitable." What they didn't know was that in late 1970, a simple phone call would totally alter their lives.
The call came from a major New York conglomerate that saw chaos in the auto parts industry and an opportunity for acquisition, consolidation, and a big power play. The company offered to buy out the Downey boys. "I was a little naive at the time," Downey chuckles. "I wondered if they had enough money to buy us." He soon stopped wondering. After three weeks of negotiation, Dick and Ray Downey sold their company for 11 times earnings, to International Telephone & Telegraph Corp.
"I was excited, of course," recalls Downey. "Suddenly, I was a millionaire. But I was also standing on a whole new horizon with a five-year contract and a billion dollars' worth of clout behind me. I wanted to help ITT build what it was after."
The giant conglomerate was determined to create, through acquisition, a national network of warehouses and retail stores to market auto parts and accessories under its own private label, Autowize. It had already acquired a Boston operation similar to Downey's, and Birmingham became its beachhead in the Southeast.
With the buyout, Dick Downey not only found himself still in charge (and his brother still active), but also soon found himself managing five other ITT warehouses in the South -- in effect, a $30 million corporation.
Dick Downey performed as his new "owners" expected him to, proving that he could hit, run, and score in the big-time auto parts business. But his sudden introduction to corporate bureaucracy also raised questions about whether the street fighter from Birmingham could succeed in the boardroom on Park Avenue.
Every month, Downey would fly up to New York to face a general management meeting with his team from what became known as the ITT Automotive Distributors Division. Twenty-five managers met in a boardroom: line and staff people from manufacturing, industrial goods, financial services; the treasurer, controller, and public relations director; and, occasionally, the executive vice-president who reported directly to CEO Harold Geneen.
Mike Sandler, whose Boston company had become the charter link in the ITT chain, recalls: "The purpose was to keep people like Dick and me plugged in. We had to make our forecasts, revising where we'd gone wrong and offering profit-assurance plans. There were hard and soft spots in all the groups. But somebody had to get squeezed -- the overall goal was 15% net aftertax and a doubling of net worth every five years."
Downey admits that Sandler was "more polished" and adapted faster to the boardroom atmosphere. "As for me," he says, "I was a babe in the woods -- and it was full of numbers. I'd never worked against a budget, for example. I always knew how much money we were making, but that was it. The first operations review at ITT headquarters was probably one of the most embarrassing experiences in my life. I remember coming back home determined never to be embarrassed again." The transformation of Dick Downey had started. It lasted exactly five years.
"It took me two years to learn everything ITT was teaching me about the numbers -- how to analyze a balance sheet, how to speak P&L," says Downey. "After that, I'd lost my naivete and was really working hard, trying to please ITT. I wanted the new division to fly, but I'm not so sure they ever recognized that. The key -- the one that separates winners from losers -- is that I did a good job anyway. I didn't have to be hungry. But I was. And it paid off."
Thorough lessons in financial management were part of the payoff, as was the broad education in big-scale auto parts merchandising. But the biggest benefit of all was the discovery that a boardroom full of senior managers is no place for a Birmingham street fighter.
"Everybody had to live by their rules and their numbers," Downey stresses. "Every time ITT bought a warehouse or a retailer, they forgot that they were dealing with a person. And although they knew little about distribution, they bought warehouse companies with the idea that the original owners would leave and could be replaced by one of their trained managers."
Downey found himself constantly at odds with the "team" on policies related to ownership, pricing, product line, and paperwork. He ticks off examples in rapid succession:
"I urged them to let the retailers retain ownership. How could we expect the retailer to help us, if his money wasn't involved? It works with hotels, why not warehouses?" Headquarters said no.
"I tried to explain that certain name brands were bigger in some markets than others, and that made ITT's relative pricing unprofitable. Everyone else was cutting one name brand in Miami, for example, and I finally told the group that if we didn't do the same thing, we might as well close down in that area." Headquarters closed down in that area.
"Out of thousands of products, they were only going private-label on 6. I wanted at least 20 more, just to be remotely competitive. I also wanted to pay our salesmen on commission in certain markets." Headquarters reported that neither move was in its plan.
"Finally, I just plain needed more control than they were giving me. By instinct, I can pick up a piece of paper and tell you, in a second, exactly who I want it to go to and why -- I didn't want to justify why to someone else." Headquarters said that was in its plan.
In October 1975, five years to the day that his contract was signed, Dick Downey resigned from ITT. "Dick's frustration wasn't exactly novel -- nothing thousands of other ITT alumni haven't gone through, including myself," insists Mike Sandler. "But his level of response was much more intense. Even in the worst of it, Dick remained the consummate entrepreneur. And he got other entrepreneurs to work within the Autowize concept when it really was hard to do. Dick could convince people he was a total winner, regardless of the situation. And it has to be said: He was no fun to compete with."
The departure from ITT was friendly enough. Downey is quick to say, "I just wasn't cut out to work for a giant corporation. If I'm critical of ITT, it's of the way they buy companies -- by the numbers, not the people. But they treated me fairly and I treated them fairly."
On the day he regained his independence, it was clear that Downey would jump back into the auto parts business as a warehouse distributor. It took slightly more than 90 days for him to surface in Chattanooga, resuming the battle on his own terms. He chose Chattanooga, rather than Birmingham, for both personal and professional reasons.
Birmingham had left a deep personal scar. In 1970 -- about the time the Downey brothers were selling out to ITT -- Dick's wife died, after a long battle with lupus, leaving him with two daughters and a son, ages 5 to 15. The ordeal became a severe test of Dick Downey's ability to keep personal strain private. By 1976, the family had rebounded, Dick had remarried, and the Downeys were ready for a change of scene. Chattanooga was Dick's second hometown.
Professionally, Birmingham was not an immediate option. For one thing, the ITT contract had stipulated that Downey would not compete with them for three years after leaving the company. More important, however, he saw golden opportunity in Chattanooga.
"Back in the '50s and '60s, it was home to a lot of mom-and-pop operations," he explains. "But in 1976, most of them were dying. It was a perfect time to jump in with something new and fight it out with Sears and K mart, for example."
At first it was tough. "I was lucky, getting a good deal on warehouse space, about 25,000 square feet of my current location, with an option to take more as I needed it, and a lease that was locked in for 10 years," says Downey. But he couldn't call on any of his old customers for three years, and the competition in Chattanooga didn't exactly roll out the red carpet. "During the first few months, someone kept cutting my phone lines," he reports. "And, because I couldn't get insurance until I got phone service, I used to sleep at the warehouse with a shotgun."
Nonetheless, in the fledgling company's first month, selling to only one jobber-retailer, Downey Automotive registered a modest profit. "I had no leverage to buy low," Downey explains, "because no one was buying from me. But I kept calling on people, urging corner gas stations, for example, to get into auto parts in a big way. I would go into momand-pop supermarkets to convince the owner that his future was over if he fought the chains. He would listen, and he was just the kind of guy I wanted running a store -- someone who knew consumers and cared about customers."
In short, Downey began assembling his own network of independent retailers, without the constraints he had met at ITT. He stressed auto parts as the retailers' slice of the American dream; they would maintain ownership of a store, yet never have to worry about warehousing. They would buy all of their inventory from Downey Automotive, with its 100 suppliers, and Downey would provide total backup: initial financial assistance, remodeling help, signs, advertising, training in counter selling and profit management, and daily deliveries that would replenish stock as fast as it was sold.
Clearly, Downey set out to pop the clutch for any small retailer who was willing to ride with him. The fare: Do everything his way. By the end of the first year, Downey had found a dozen takers. By the third year, he had invaded neighboring Alabama and Georgia, and there were more than 50 Downey auto stores. Today, there are 110, and Dick Downey has 30 more in his sights.
Few businesses enjoy the luxury of choosing their customers, particularly in the auto parts industry.Downey does, and he relies on fairly simple guidelines. "We need people who can sell auto parts, of course, but that's not the chief criterion," he says. "Compatibility, with us and the consumer, is more important. We look for people who are willing to make a total commitment. Will they cooperate with us and work as a team?"
Location is also a consideration. Downey sticks to several basic siting strategies. "Every store should be on the going-home side of the traffic flow," he insists. "People buy auto parts in the afternoon, on the way home from work. And in residential areas. Free-standing buildings are best -- they're conspicuous. We also try to be near our competition. People have to see the difference in us. I'm always looking for locations. And everybody in the company looks, too."
In six years, only four store owners have parted company with Downey. "One of the toughest things I ever had to do was in those early days in '76," recalls Downey. "When we had only three signs out, I had to pull one -- the guy just couldn't do things my way."
The move was an initial test of Downey's own convictions -- and autocratic instincts. The warehouse and retailer would work as a team, but there would be one coach.
"Dick makes things so good you can't hardly stand it," says 40-year-old Melvin Sneed, a Downey retailer in Dayton, Tenn. "If you just follow his rules, you'll be successful -- especially if you're a go-getter like he is. He always does exactly what he says he'll do, and you're not bound to anything. When my store burnt down, Dick personally got me back on my feet, found me another building, filled it with goods at a price I could manage, and then never asked me for anything. If I wanted out tomorrow, he'd buy everything back -- full credit at current price."
The only written agreement between Downey Automotive and the store owners, in fact, is the agreement "to take back inventory, shelving, lease -- everything," says Downey. "And we do that so if a guy wants out, he can get out. But, more important, if he dies, it'll leave his family with some options."
Chris Holder, owner of a Downey store in Fort Oglethorpe, Ga., shares Sneed's enthusiasm. "The way most retailers work, you buy products to sell, put up your own money to do it, and you're on your own. Dick, on the other hand, simply gives us the things that allow us to win. For example, if brake pads cost the competition $6 and they sell 'em for $9, Dick'll make sure they only cost us $4 so we can sell 'em lower. But it goes beyond that. He'll co-sign loans at the bank to get you started, give you all the marketing help you need, plus obsolescence protection to boot. In return, all we have to do is pay $50 each month, and some people contribute $175 to the monthly ad budget for all the stores, which he matches."
Holder started out buying $100,000 worth of inventory and in three years has paid off two-thirds of that. And he has reduced his principal by $10,000. "What I like most," he says, "is that I can be a Downey retailer and still be my own boss -- a provider for my family, my employees... and I'm only 26 years old. I tell people that owning a Downey store is the equivalent of 100,000 shares in Coca-Cola, long-run."
Not all the store owner-managers are as exuberant, but each has come to his own terms with Downey. Mack Beaver, owner of a Downey store in East Ridge, near Chattanooga, for example, refuses to discuss his relationship with Downey Automotive. He is one of the few, in fact, who carries the Downey sign but has kept his own name, Major Auto Parts, prominently displayed over the door. Yet, Beaver has been a Downey retailer for more than four years.
"There's only one thing I get across to the store owners," says Downey. "I'll do everything for them I'd want if I owned a store. Yet, we don't treat any two store owners alike. It's the Golden Rule, pure and simple."
There is also a sense of democracy in the confederacy, created as the chain burgeoned in size and embodied in councils of store managers. There are four councils, one each in Birmingham, Atlanta, and Chattanooga, and one representing all other stores. Each year, the area store owners elect two or three representatives. They become a combination grievance committee and sounding board. The concept was born out of the need for a practical, two-way communications system between Downey management and store managers.
"We can't go to 110 stores, for example, and say, how would you like to do so and so," explains Downey. "We have to do what's best for all stores. If a store manager doesn't happen to agree with it, I say, 'Call your council."
The councils usually convene quarterly with Downey and Jim Gamble, vice-president for sales and a charter member of the company's management. "We go over strategies, plan special quarterly promotions, check the current ad campaigns -- set up a year in advance -- and talk about any problems that may have cropped up," says Downey, emphasizing that "we write down everything the council wants us to do."
Invariably, council discussions focus on Downey's primary weapon: pricing. The entire operation is geared to it. "Consumers only want two things -- high quality and low price," stresses Downey. "And, in this business, if you're not sensitive to that, it'll kill you. Some items you have to sell at cost -- we don't make any dough on motor oil, for instance -- and others, below cost. We'll sell a lot of spark plugs at 10? below cost. But, we'll make 40% on ignitions. On price-sensitive items, the retailers can also fall back on our cash discounts -- 10% on orders of 10 cases or more. At times, in fact, cash discount provides the only profit."
When a store manager doesn't want to drop a dime on every spark plug he sells -- spark plugs are, after all, fast movers -- the councils enter the picture. Retail prices aren't advertised until a market consensus is reached. That can differ widely among Atlanta, Chattanooga, and Birmingham. Consequently, prices may vary in different markets, but the stores essentially stick together.
"Where it gets interesting is when a competitor goes under price in the market. You gotta go under him," Downey says. "If the guy starts selling shocks at $8.99, you sell 'em at $7.99 -- and promote it. You can't let him beat you, and you've got to check him every day, until he stops playing games."
Downey, in fact, has cut prices steadily for six years. Yet he has consistently operated at a pretax profit of more than 6% -- more than twice the industry average. It all goes back to Herman J. Downey's rule: To sell right, buy right. "I'll buy 52 trailers of antifreeze at one time," Downey boasts, "or 19 truck-loads of batteries. I'll even buy do-it-yourself manuals by the carload. If I can buy enough to lower my costs -- and prices -- even more, I'll do it. And that includes negotiating freight rates. We can backhaul motor oil from South Carolina or brake items from Atlanta and make a profit on the freight."
Volume is leverage. And in a market and economy that demand price, it is also at the heart of the widely advertised slogan of the Downey stores and mascot: "Save a Buck with the Downey Duck." With Downey's latest strategy, the leverage will become even greater and the prices even lower.
About a year ago, Downey launched his own private label, called Auto Value. Starting with universal joints, brake shoes, and batteries, and expanding to fuel pumps, filters, and shocks, the line is anchored in volume purchasing. In fact, 54 other WDs, some as far away as Texas, have joined Downey to consolidate buying clout. Any warehouse can get in on the line; however, beyond the buying, they all compete, selling the Auto Value parts at different prices.
"There will be 25 products in the line before long," notes Downey. "And with 54 regional warehouse operations like mine, we're all in on the purchasing so we get extremely low prices in co-op. In fact, you're talking about $600 million of buying power when the 55 of us get together." It sounds, more than coincidentally, like something the giant conglomerate in New York had planned some 10 years ago.
"In this business, you've got to private label on some items," insists Downey. "The consumer wants the name brand, but sometimes just can't afford it. We've got the alternative in Auto Value. It's the crux of a margin strategy that will enable the retailer to compete on price-sensitive items and still gross 40% on his entire package."
Getting more than 100 retailers to march to his beat has reverberated in Downey's own base of operations. With growth in the chain has come internal growth, not the least of which is a staff that has jumped in size from 21 at the end of 1976 to 82 now. Downey is proud of his company's personnel record. The five managers who started with him six years ago are still with the company, few employees have been fired, and although Downey Automotive is in the middle of another record year, no one has been hired since October.
Downey attributes the low turnover at the top to "high pay for high performance." The stability below the management level, however, derives from a productivity plan that evolved out of early problems. With the company entering its fourth year, Downey realized that staff size was keeping pace with sales growth -- but worse, the ratio of payroll to sales was soaring out of control. Turnover was also a major problem. By the end of 1979, both sales and work force had tripled. Other expenses were rapidly escalating as well. "The only solution was more sales, bigger margins, or lower overhead," says Downey, noting that payroll represents half of the company's total costs. "Clearly, we had to get our labor costs under control."
Management was already lean -- an original quintet responsible for advertising, sales, order processing, warehousing, and inventory control. The company also needed at least 26 order pickers, packers, and handlers, plus 5 drivers, 10 salespeople, and a clerical and computer staff. How could company growth be sustained without parallel growth in staff?
Downey's first step was to appoint a full-time personnel manager. His wife, Barbara, who had been handling advertising, was tapped. The next step was an incentive program that hit every employee's pocketbook.
Downey launched 1980 by telling all employees that "we want to pay you more money." He also emphasized that salaries were eating up at least 10% of total sales. The new goal was a payroll running at 8% of sales; furthermore, each quarter, employees would share every dollar shaved from the 8% mark. For example, if the company grossed $3 million in sales the first quarter, salaries and wages should hit $240,000. If, however, payroll ran only $210,000 -- by holding down staff size, reducing overtime, eliminating errors -- there would be a productivity bonus pool of $30,000.
During the plan's first quarter, little happened. Payroll far exceeded the 8% target. Still, sensing that the plan would catch on, Downey paid everyone $17. It was a small token that paid big dividends. By the plan's fourth quarter, everyone got $540.
A series of letters was sent to employees, emphasizing the companywide productivity theme: "The more we sell, the more we make." And nothing was considered sold until it was delivered. It was also clear that "if we had to hire someone to handle the increase in orders, it would come out of the employees' pockets, not mine," Downey states.
Productivity improved demonstrably, and the turnover rate tumbled. The strategy worked so well, in fact, that last year Downey refined it with a rating system. Quarterly, each employee -- including managers -- is graded from 1 to 4, superior to poor, based on attitude, dependability, promptness, follow-through, teamwork, and effort to share ideas and suggestions. Supervisors do the rating in each case, issuing mid-quarter warnings to any employee not performing at the "superior" level. At the end of each quarter, top performers, 1s, split 5/% of the productivity pay pool; the 2s, 35%; and the 3s, 15%. Those rated 4 go unrewarded.
Staff productivity and morale have improved dramatically. More than 85% of employees how share the quarterly rewards. But beyond fatter paychecks every three months, the productivity ratings help to determine slary increases every six months. And salary levels determine each employee's share in a profit-sharing trust geared to provide healthy retirement benefits. There is a catch. If an employee fails to meet minimum ratings in consecutive six-month periods, he or she is terminated.
"It gets the basic message across," notes Downey. "We can't afford people who don't give 100%. Just showing up every day isn't good enough; quantity and quality are the only measures of performance. And that goes for managers, too.It's a way of emphasizing that this is a 'bottom up' company. Everyone, from the bottom up, has to pull their weight.And when we do, it works. We all make out better."
The result is a relatively simple incentive system: Do your job and you get to keep it; do it well, and you come out a winner. In the final analysis, it is also the essence of Dick Downey's formula for success.