Car-Mart Succeeds Despite Recession

On yet another rainy day in late October, Hank Henderson welcomed a visitor into his office.

Dressed as usual in Levi’s and a plaid Polo button-down, Henderson didn’t fit the mold of a lot of the executives who inhabit Northwest Arkansas. Henderson was, however, clearly comfortable in his own skin.

“You enjoying this weather?” Henderson joked with the visitor, showing the same grin he wears in those “Drive Easy” TV ads.

Henderson has reason to be happy – and dress any way he dang well pleases – these days. America’s Car-Mart, of which Henderson is president and CEO, announced its best-ever quarter in September and is expected to report more good news Nov. 20, when its second-quarter results will be revealed via conference call.

“I think they’ve done a lot of things right,” said David Burtzlaff, a research analyst who covers Car-Mart for Stephens Inc.

To understand – or at least appreciate – Car-Mart’s current position, it helps to look back at 2007. That’s the year, following a four-year run in which Car-Mart’s net income jumped by 18.7 percent, to $16.7 million, it plummeted almost 75 percent, to $4.2 million.

Henderson, originally hired by company founder Bill Fleeman in 1987, categorizes 2007 as “certainly a bad year for us,” despite the fact it kept alive what is now a 28-year streak of profit-making.

“I think we went through some growing pains like all companies do,” Henderson said. “You get to a certain size, and the structure and the resources that used to work well for you just can’t handle it anymore.”

Thus Henderson and the rest of the Car-Mart brass went about re-evaluating the buy-here, pay-here auto dealer’s strengths and weaknesses. Henderson described that period as “a very touchy time in the growth of a company because if you make some bad choices, it can really, really hurt you.”

The result was a series of decisions that included slowing the expansion of Car-Mart lots, enhancing its information technology systems, and beefing up its management training program. Henderson said those discussions, not the recession, are responsible for Car-Mart’s comeback.

“There was a lot of cussin’ and discussin’ about how to do all that,” he added with another grin, “but I think we made it through very well.”

Burtzlaff agreed, and also credited a strengthened collections department and better overall inventory for part of Car-Mart’s rebound. Whereas customers might have had 15 vehicles to choose from at some of Car-Mart’s smaller lots, Butzlaff said, they now see a selection of maybe 25 cars and trucks.

“The trick is to figure out how to make those changes with what got you here in the first place,” Henderson said. “I think we’ve successfully done that.”

 

Customers are Key

From the get-go, when Fleeman founded Car-Mart in 1981 with a lot of about 20 vehicles, customer relations have been at the crux of what makes the company tick. Henderson said that hasn’t changed despite the fact Car-Mart now boasts more than 90 stores spread across eight states.

It has to be that way, he added, in a business that handles its own financing.

“Our whole underwriting business is really very relationship-driven,” Henderson said. “It’s face-to-face.”

At least part of Car-Mart’s up-close relationship with its customer base is driven out of necessity. That’s because most of the people who purchase vehicles at Car-Mart can only window-shop at a traditional dealership.

Henderson acknowledges as much, but is quick to add some people hold a false assumption concerning Car-Mart’s clientele.

“There is a little bit of a misconception about our business in that all of our customers have bad credit,” Henderson said. “Now it is true that some of the people have had something happen in their life and they have damaged credit.

“But at the same time, we have a lot of customers who, it’s not that they have bad credit, but that conventional credit is not necessarily the way they’ve done business.”

That could be the case for a number of reasons, Henderson added. Maybe one customer doesn’t have bank accounts, maybe another doesn’t own a home, or maybe yet another never has established credit via a traditional bank loan.

“There’s a lot of people in this world who live paycheck-to-paycheck,” Henderson said. “They get paid and go make that car payment or pay their rent or whatever. It’s just sort of a different way of doing business.”

Car-Mart’s way of doing business, though, isn’t new. Henderson concedes that much, too, but said his company has put a different spin on an old approach.

“The buy-here, pay-here business wasn’t anything new when we started, but I will say this: When we started, and all along the way, we weren’t really car businesspeople, per se,” Henderson said. “We were just businesspeople, and tried to approach it from a very professional fashion as far as having very clean facilities and some pretty tight standards and treating people the right way.

“It wasn’t that the business was a novel idea, but I do think we approached it with a higher degree of professionalism than had been done before.”

 

Down the Road

Car-Mart’s initial philosophy, coupled with the revamping of two years ago, has put the company on a prosperous path. Its first-quarter report was studded with highlights, including:

• Net income of $7 million, an increase of more than 32 percent for the same period in 2008.
• A 10.7 percent increase in revenue ($83.8 million) compared to 2008 ($75.7 million).
• An 11.3 percent increase in retail unit sales (8,182 vehicles) compared to 2008 (7,353).

Car-Mart also has seen its stock price soar. From a price of $9.86 per share on Feb. 2, it increased more than 150 percent to a high of $25.47 on Oct. 22. At press time, Car-Mart’s stock was $21.48.

“It’s very satisfying,” Henderson said.

Again, Burtzlaff agreed, and said Car-Mart is “in great position” as it prepares to release its second-quarter report. A crucial part of maintaining its momentum, Burtzlaff added, is for Car-Mart to continue something it started in 2007.

“They key is they need to maintain a quality management pool,” Burtzlaff said.

Burtzlaff said that’s important because Car-Mart is a de-centralized operation. Individual lot managers, in other words, are given a great deal of authority and decision-making power.

Henderson said Car-Mart is comfortable enough with its management pool that expansion has come back to the forefront of the company’s plans.

“We’re not going crazy,” he said. “We’re not going to go out and open a zillion stores, but we want to get back to about 10 percent unit growth on the stores.”

That means about eight to 10 new Car-Mart lots could open in the next year or so, most likely in Alabama, Tennessee and Kentucky.

“I think they have a lot ahead of them,” Burtzlaff said.

For now, Henderson and company are making that drive look, well, easy.