This company’s innovative sales strategies help auto dealers across the country turn a commodity sale into a high-profit one.

If you’re a car dealer, it can be tough to distinguish yourself from your competition, since most dealers operate in similar fashion. But the team at Apco is on a mission to change that, and the company’s rapid growth is a clear indicator of its success.

The company was started in 1984 by Larry Dorfman and a partner to sell extended auto service contracts to customers through dealers. In 1987, Dorfman and his team entered a partnership with Subaru of New England to create EasyCare, a private-label service contract and warranty program. At the time, there were no extended power train warranties, and few factory warranties covered cars for more than three years. By creating a six-year/72,000-mile program, the Apco team gave New England Subaru dealers a way to differentiate themselves in the market.

“Historically, dealerships have done a poor job of distinguishing their dealer brand from the other dealers in their marketplace,” said Dorfman, chairman and CEO. “We help them build a difference so they can distinguish themselves, not only in their advertising, but in the entire selling process.”

Rapid expansion followed the Subaru partnership, with Apco growing from 400 customer contracts per month to more than 3,000 per month over a three-month period. By 1991, the company had gone public and was handling around 9,000 contracts per month. That year, it hit a bump in the road with its insurance company, which began refusing customer claims. Dorfman and his team turned a negative into a positive by bringing claims inhouse, paying them out of pocket, and revamping its contracts to incorporate its EasyCare brand on a national basis.

“We rewrote the contract the customer held in their hand as well as the dealer contract in order to protect the customer and the dealer more completely through the process,” explained Mike Curran, COO. “We felt strongly that we needed to control our own destiny and dictate the terms of how we conduct our business.”

In 1994, the Norcross, Ga. company entered into a partnership with America Honda Finance to provide consulting and administrative processes for Honda’s extended service contract program, a contract that is still in place.

“Honda is known for extraordinary customer satisfaction, so this made a statement to the market that that’s what we are about,” said Dorfman, noting that the partnership helped Apco attract a large number of highly successful independent agents, which today number more than 190.

The combination of having more control over its business and an organizational/payment structure that created employee owners led to 42% annual compound growth from 1992 to 1999, when the company was purchased by Ford Motor Company. Allowed to operate independently and retain its top management team, the company continued to flourish, selling extended service programs to Ford dealers using a non-Ford product as well as all other types of auto franchises.

Last year, recognizing the tremendous growth opportunity to help dealers in a down market (and troubled by Ford’s financial difficulties), Dorfman and his team began talks with Ford to buy back the company. Together with Stone Point Capital and the Trident IV fund, this was successfully accomplished last month, and according to Dorfman, the company is now poised for even more growth.

“We have great partners in Stone Point, who have raised more than $8 billion in capital over the past few years, and XL Capital, an A-plus rated company with more than $56 billion in assets, and we’re stronger financially than we’ve ever been,” he said.

Flatten the chart
Along with employees that act as owners, Dorfman believes the key to the company’s success through the years is its unique executive-team structure and flat organizational chart.

“There’s a very short communication process from the top to the bottom, the top being front-line workers and the bottom being the executive team,” Dorfman said. “The most important people are the ones who touch our customers—it’s the executives’ job to support the people above us.”

The team of Dorfman; John Lee, president; Mike Curran, COO; and John Marks, CFO and CIO operates in a uniquely egalitarian way. “There is no hierarchy among the four of us,” said Dorfman. “I don’t carry any more weight than they do; if there’s a decision that needs to be made, it’s made by the one that has the most experience in that area.”

In part, this is possible because of the team members’ longevity: Lee has been with the company for 16 years, Curran for 22. Marks came on board three and a half years ago from Ford and elected to stay with the team as it transitioned back into a private company.

Dorfman said all four team members operate in a completely open way and share a similar philosophy. “Working together for a long time, you get to understand the objectives. We have an open forum—rather than the objectives being dictated by one person, they are agreed upon by everyone.”

In fact, said Lee, the team works so closely and communicates so well, it wouldn’t be difficult for any team member to take over for another. “We divide the jobs, but we see ourselves as one unit. We share responsibilities and understand what each other does at a level that, if we needed to, we could replace each other,” he said.

The company’s 300 employees are also deeply invested in the company. One-third of them have been with the company for more than 10 years, and more than 15% elected to purchase shares in the buy-back. Another 60% can earn stock through longevity and/or performance, according to Marks.

Lead the market
No longer reigned in by Ford’s budget constraints, Dorfman and his team plan to invest in personnel and IT to support even more growth. “We have about a 4.5% marketshare, and we don’t think we qualify as a killer brand, which is our goal,” Dorfman said. “Everything we’re doing ties to growth and efficiency of operations.”

Dorfman said although being under the Ford umbrella brought the company a lot of opportunities, including ongoing contracts with Jaguar, Volvo, Land Rover, and Mazda, Ford’s struggles had caused Apco to begin to follow the market, rather than lead it.

“In a down market, our idea is to go after new customers full force—we can help dealerships sell more cars and make more money in this type of market, selling value and building long-term customer relationships that will come back to them later,” said Dorfman. “Stone Point agrees with our philosophy that this is a growth time for us, not a retraction time.”

Thus, the company increased its sales team by 15% in 2006 and plans to add more in ’07. It is also increasing its advertising and Web presence, including an upgrade of its password-protected online dealer site and separate agent site. “We were restricted by Ford as to what we could spend on IT; we now have considerable resources budgeted to put us on the leading edge,” said Marks.

And the Web is only the beginning of Apco’s relationship with its dealer customers. “We operate under the pretense that you can’t ask more of a relationship than you’ve contributed in time and effort to build it,” said Dorfman. Many Apco competitors approach dealers about turning over their extended service program without first establishing a relationship. “We think that’s out of line,” Dorfman said.

In contrast, Apco conducts a free two- to four-day proficiency analysis before any contract is discussed. “We show them that some dealers are outperforming the marketplace by distinguishing themselves as a better, higher value to the customer. Then we look at how their business is conducted and how unified the salesforce is in how they approach the customer. We want the dealer to understand that how you sell determines how many you sell,” explained Dorfman.

There are often gaps between what the owner expects should be happening and what is really happening during a sale, said Dorfman. “The goal is to close that proficiency gap. The result is more profit for the dealership and a more
satisfied customer.”

In essence, said Dorfman, Apco experts help dealers change a commodity, low-price concept into a high-value, high-profit one. “They can get more for their product than their competitor, even in the middle of a fiercely competitive market. They generate more profit in all areas of the sale, and the customer leaves as pleased as could be with the value they received.”