Jeff Rachor Defects: Sonic's Loss is Pep Boys' Gain

I do not have a financial forecast on which to base my recommendation of Pep Boys (yet). I do not even know what the strategy of Pep Boys (PBY) new CEO Jeff Rachor (previous President of Sonic Automotive) (SAH) will be. I do not even think Mr. Rachor can have a strategy until he gets in and assesses his assets (basically the people at Pep Boys).

What is worse? I can not think of a worse "box" where Mr. Rachor's talents could be utilized. I have even gone as far (in the past) as saying that it didn't matter who you put in charge of Pep Boys, the "box" (store model) just doesn't work. You can not merge an over sized service bay business model with an over sized do-it-yourself retail model and expect it to ever work (or so I have said). I am going to go back on that statement.

I do not know what Pep Boys looks like 5 - 10 years from now. But I know Jeff Rachor. I have watched him help lead and develop a tremendous culture at Sonic Automotive. I have observed tremendous humility/humbleness out of this leader as he sat in front of his General Managers for over an hour answering "the tough" questions/comments anonymously submitted to him on index cards. I have watched him seek out people (like me even at times) when there have been points of disagreement (I haven't always been this positive on Sonic's stock).

From what I have observed, Jeff Rachor does not run from problems, he tries to find solutions and even opportunities out of most situations. He was the first person in the franchised auto retail industry I heard articulate this idea of "fewer people making more" at their stores (productivity). And I have observed candid and considerable respect for Mr. Rachor from numerous Sonic employees over the years.

Urban Meyer going to become the head coach at the University of Florida. Steve Odland going to AutoZone and then Office Depot. Rick Kiester going to Keystone. Earl Hesterberg/John Rickel going to Group 1 Automotive. Ken Gilman/Gordon Smith going to Asbury Automotive. Roger Penske taking control of UnitedAuto Group. Even (gulp) Mike Jackson and Craig Monaghan going to AutoNation (not that I am saying I am too pleased with AutoNation's current leadership).

As different as the above mentioned leaders styles may be, they all have a common ingredient or recipe: they were well respected individuals in their given field, and they were put in charge of companies where the assets (often times this means the people) were not being utilized appropriately. In every one of the (above) cases (except Asbury,) within a couple years you saw dramatic improvements in the results. Asbury took only a bit longer.

So what does it mean for Sonic if they are losing such a great leader? Candidly, I do not know, and I think we need to accept that the risks have gone up. Does this mean they get bumped out of the elite 5 when my new rankings come out in a few weeks? Probably not. But I will suggest there is more risk of Sonic moving down the rankings than up (pretty tough to move up anyway when you hold the number 2 slot).

I think a General Manager of a Sonic dealership put it to me best when he said, was Jeff Rachor a great leader who will be missed? You bet. Is Sonic Automotive bigger than one person? Yes.

And Sonic is left with some great leaders, particularly David Cosper formerly Vice Chairman of Ford Credit, now elevated up to Vice Chairman of Sonic Automotive. Scott Smith becomes the new President and Chief Operating Officer, and while someone I would consider an unproven commodity (at least to external observers like myself), I have found him and his brother (David Smith recently promoted to Senior Vice President of Corporate Development) as very thoughtful and forward thinking in their approach to the business every time I have met with them.

But I think the risks have increased. In the case of Asbury, I noticed considerable momentum as Charles Oglesby's responsibilities were being increased. So while Ken Gilman's retirement created added risks, I felt the risks were just as likely to the upside for Asbury as Mr. Oglesby offered investors considerable leadership potential.

With Sonic, I do not think we see as smooth of a transition occurring. It may turn out to be a similar situation. It is not like the folks at Sonic do not know who Scott Smith is. I just don't think we (outside observers/investors) have as clear of a picture and that the departure of Jeff Rachor leaves somewhat of a vacuum. Notice they now have two divisional Chief Operating Officers that will share the operational oversight responsibilities with Mr. Smith. This leaves questions in my mind, whom will ultimately emerge with the operational responsibilities a couple years from now.

Every company goes through management transitions. And I agree that Sonic is certainly bigger than one person. CarMax did not miss a beat when Thomas Folliard replaced the company's founder (Austin Ligon) at the helm. And maybe the company will emerge stronger than ever. But for right now, I can only leave it by saying I think the risks with this investment have increased.

Comments

[Carman-Auto...:]

First of all, I am a nuts and bolts kinda guy. It just so happens that Sonic owns an outstanding faclity in Houston, Momentum BMW,Jag
Porsche, Volvo and Land Rover. On a Sunday afternoon,while driving by, I spotted a car on display and decided to have a look.
What I discovered, new BMW cars scattered eveywhere,extremely
dirty, Monroney labels were missing in 50% of the inventory. A service drive with trash everywhere. Mold all over the side of the showroom, cigarett butts everywhere. From the freeway these stores look like the TajMahal. It is a heart breaking discovery, I would give anything to operate a facility like that. In closing, I am not sure who is running the show at Sonic, but whoever, needs to get his ass out of the office and walk his store!

2008 Apr 02 03:00 PM