Interview – Bill Berman, chief executive of Pendragon

“We were able to accomplish in three months what it would have taken 18 months to do normally”

Bill Berman was appointed chief executive of Pendragon in late February 2020, having joined as a non-executive director in April 2019 and acted as interim executive chairman from October 2019 onwards, when Mark Herbert left after just three months in the role.

Prior to joining Pendragon, Berman served as president and chief operating officer of AutoNation, the largest automotive retailer in America. The firm had 26,000 staff and more than 300 vehicle franchises.

Here, he discusses the challenges of taking the helm just prior to the pandemic, his views on the company’s health, plus the market’s future, and how Pendragon’s Evans Halshaw, Stratstone, Car Store, Quickco and Pinewood brands fit into his fightback plans.

You’re not just trying to run a successful business, but actually transform the running of one. How has that been in a pandemic?

“Of course we entered the year looking to be more competitive than we went into it, and we had plans for that. But then the pandemic struck. While it’s been tragic on a human and economic level, what we’ve had to do is take the time that it has afforded to look at ways to come out the other side much stronger.”

You’ve hinted there at the problems the company had in 2019?

“Sure. I joined the company back in March of 2019 as a non-executive director, coming in as a long-term CEO was leaving and a new one came in who had a very short-lived tenure. The first guy was there for 30 years, and that’s way too long. The next one was there for 90 days, which is obviously way too short. And it created lots of turmoil and confusion.

“So in September of last year I took over on an interim basis. That’s when we really started to look where the opportunities and challenges were in the business. We had to first stabilise ourselves, focus on our balance sheet, make sure we were fiscally in the right position, correct some of the prior decisions and kind of get things back onto a normal plane of existence. And then the board asked if I’d stay on permanently.”

What tempted you to do that?

“Well, it was Florida in the sun or London in the rain – and still I came! The draw here is the opportunity that’s evident within Pendragon. It’s undervalued and has great bones to it; we can grow it in all sorts of directions, be it new or used car sales or through technology, such as our Pinewood software company.”

And then the pandemic struck?

“If I recall correctly, I took the job on 23 February and on 23 March we shut down. So my timing was suspect to say the least, right? But we had already started our strategic review, and within that, we started to find different opportunities.

“My assessment was broadly positive. We have a UK motor business, which at one point in time was the biggest in the UK. We have a good dealer mix, but perhaps not a great one, because we don’t have Volkswagen, we don’t have Audi, we don’t have some of the Japanese brands such as Honda, Toyota and Lexus. But all in all it’s a good brand mix. We’ve got some good assets, just undervalued, underutilised. And so, okay, that’s a no-brainer; we can do something with that.

“Then you look at Pinewood. It’s the predominant DMS software company in Europe, yet we’ve never shouted about it. It’s in the background yet it’s state-of-the-art technology, better than anything the big players have. There’s so much potential.

“And then you look at Car Store, and the initial rundown of that was terrible. The execution was non-existent, but the thought and the plan behind it was the right one. Again, there’s huge potential to do more there.

“Lockdown hit, but in truth I think in terms of planning we were able to accomplish in three months what it would have taken 18 months to do normally.”

What processes did you go through to assess the health of your business?

“They really were simple things, like benchmarking our staff levels to the marketplace, looking at what we had from the top down. It’s in the data: how many opportunities are we going to get to sell? Opportunities turn into visits, visits turn into sales, what do you need to to do that?

“Then we started overlaying our staffing models. And as we came out of lockdown, it was clear we were out of line. So we looked at it and said, ‘Okay, now we can right-size our business’. We looked at some of the brands and some of the mix of stores, and it was maybe not the best. I mean, we had stores that hadn’t been profitable for five years and we were still running them. It doesn’t make sense just to let them drag on your resources, so we took action.”

How do you develop a positive internal culture around that backdrop?

“People sometimes reference culture, almost like a destination, but I would classify it more as a journey. I don’t know what culture we’ve had over the past 18 months or so, because it was just rife with turmoil and change. The pandemic has helped us reset things, put some different systems and processes into place and re-engage with everybody. I feel that we’re maybe starting from scratch and starting to try to build a culture.

“We’re going to be constantly working on it and constantly improving upon it. When we can be the employer of choice, when people are looking in this industry, I want them to want to sit here and work with us versus the competition. We should be the pinnacle. Right now, we have a way to go to prove that.”

Do you have the head space to deal with diversity issues within those challenges?

“Yes. We must. Our industry is woefully underrepresented from almost every angle when it comes to diversity. It’s always at the front of my mind, but it’s not easy. I want to hire women, but if I don’t have any women applying, then what do I do? It needs wholesale change and you need to build from within, which takes time. We need to invest to drive our female workers up. We will look at every opportunity to build a more diverse organisation for the benefit of the business; for starters, our customer-facing demographics should basically mirror our retail demographics.”

And you’ve invested as well as right-sized?

“Absolutely, yes. Even during lockdown Pinewood was chugging away, delivering great recurring revenues. Then we looked at Car Store, which was delivering a significant amount of pure digital transactions – so we tweaked a few things and turned that up. By the middle of May we were delivering 100 used cars a week, all bought digitally. We were like, ‘This seems to work’ and of course want to accelerate that. We worried it might just be doing well because of lockdown, but we keep fine-tuning it and the volumes keep rising; we’re running at between 16-19% of our Car Store sales being with home delivery, with no physical interaction with the store in any way, shape or form.”

What do you think is the future of the physical dealership, then?

“You can’t escape the fact that cars are tactile. You touch them, you taste them, you smell them, you experience them. I mean, I like German cars a lot, but how do you sit here and justify a £50,000 price tag? You can’t, unless you experience them. And virtual reality isn’t good enough to replace that experience. Another example is Tesla. Everyone thinks they sell their cars online, but they open up showroom after showroom. Why? Because people want to experience it.

“Now, on the lower end of that market, for a mainstream used car that’s three years old – so you can be pretty confident in what you are getting – the possibilities of fully digital sales start to open up. I want to be able to have an omni-channel approach: the capability to serve a customer any way they choose. Right now, about 20% of our used car customers are willing to buy online; as the pandemic wanes, that might drop. I have to be able to serve the customer however they choose.”

What percentage are at least researching online, though?

“Industry stats say 80% of car buying or transactions are initiated online – but I joke it’s more like 120%. Nobody just walks into a dealership to buy a car. It just doesn’t happen. They go on their phone, they go on their computer, they reference in some form or another online, and they start their buying experience there. We want to be able to engage with them as far up on that funnel as they want to be at.”

How would you describe your relationships with the manufacturers post-pandemic?

“I think there has been a lot of friction in the past and I did start by trying to mend some fences. But since the pandemic they’ve had enough on their plates to worry about without building relationships. So it’s something I’ll work on in time. It tends to be cyclical: in good times you develop bad habits and in bad times you develop good ones. Right now, it’s all pretty good.”

What happens if they want to sell cars online without you?

“OEMs have tried to sell cars to consumers before and proved they’re not good at it. It’s cost them millions every time they’ve tried. I don’t tell them how to build them, so I’m not sure they should tell me how to retail them. If they want an agency model where they take the risk and I don’t have to stock the inventory, that’s fine. I’ll run smaller facilities and focus on ramping up used vehicle sales and aftersales. Today, new car sales are a symbiotic relationship.”

Pre-reg and short-term activity has been notably down following the pandemic. Can those good behaviours continue?

“Look at the last recession: certainly in the United States, the big players got leaner for a bit and then went back to their bloated ways. They got right back into it, and they did that because they had to respond to each other; once one threw in some incentives, the other had to respond. That hasn’t changed in the 30-plus years I’ve been doing this.”

So how do you ensure Pendragon is in the best possible shape coming out of the pandemic?

“We’re going into this running very lean on our staffing models. If we miscalculate and the market’s a little bit smarter than we’ve predicted, we can sit here and build up our staffing model. If it starts to dwindle, we might have to revisit things and go from there. We’ve tried to model everything we possibly could, including the worst-case scenarios of being in lockdown again and a hard crash from Brexit, with 10% tariffs. But nobody has a crystal ball.”

You’re running lean, but you’ve already hinted that you are open to acquisitions…

“The way I see it is that we’re going to be selling less cars for at least a few years. The dealership estate is too big right now. We all know that; it’s why Ford announced in February it was going to cut its network dramatically.

“Then you throw in the consolidation that’s happening on the manufacturer side. Take the PSA Group and Fiat: how many cars of the same size does one brand need to sell, and how many outlets does it need to maintain?

“The pie will get smaller. Very few, if any, manufacturers will have the same network size in a few years, and the retail groups operating them will go one of two ways: bigger or smaller. We want a bigger slice of the pie, so when opportunities come up to acquire, we will.

“Where? I come back to Volkswagen and Audi again. I don’t have Toyota, Honda or Lexus. If you said that in the US, they’d laugh: ‘Don’t talk to me with your big boy pants on until you’ve got all of them to talk about’.

“So, yes, I foresee change but, within that, also hugely exciting times ahead, full of opportunities. That’s why I’m here, and I’m certain that Pendragon can be at the heart of those opportunities.”