Few sectors of the economy took a worse beating during the recent recession than the automotive industry. Yet Dallas-based Chacon Autos Ltd. didn’t merely manage to survive—it thrived. The family-owned and -operated company actually generated year-over-year profit growth during an economic downturn that drove two of America’s big three automakers into bankruptcy and shuttered nearly 2,500 of the nation’s new auto dealerships. The firm relied on a disciplined marketing approach, some prudent cost controls and the flexibility of family management to beat the odds.
“Knowing each other’s strengths and weaknesses probably helped us through the downturn,” adds Darrell Chaney, 53, the younger of two second-generation brothers who operate the business along with a healthy contingent of third-generation family members. None of the family employees carries an official title, but 55-year-old Gary, Darrell’s brother, is the chief executive.
Chacon operates two Suzuki dealerships and six used-car stores in Dallas-Fort Worth and San Antonio. Used cars represent 90% of sales, which total about $80 million annually. The Dallas Business Journal ranked the company the 89th largest privately held concern in the market in 2009. Chacon has about 160 employees.
The company primarily markets low-mileage used cars to customers with damaged credit. It also finances nearly all of them itself, a risky but highly profitable service that contributed to its performance during the downturn. “In a way, we have two separate businesses, a car sales business and a finance company,” explains Gary Chaney. “To some degree, we have a built-in buffer.”
The “buy-here-pay-here” approach was key to the company’s success when William Chaney and two partners (one of whom was a cousin) turned a gas station into a car lot in 1958. The company name came from combining two of the partners’ names, Chaney and Conway.
Gary says his father recognized that customers who needed a car, but also needed credit to buy one, were a market niche. There were plenty of new- and used-car dealers, but not very many places where customers with less-than-stellar incomes could get a car loan.
Over time, the three men acquired two other lots, then split amicably in 1986 so they could more easily pass the businesses on to their respective offspring. Today, the other two companies, Public Auto Sales and Auto USA, are friendly competitors, although Chacon is by far the largest. William transferred control to his two sons, Gary and Darrell, in 1992 and passed away in 2009. The two sons steadily added used car locations in the Dallas-Fort Worth market as opportunities arose, then opened in San Antonio in 2003.
Today, Gary handles accounting and the back office, while Darrell oversees customer finance. “We kind of divide up sales,” says Gary. “Since our kids started working here, we turned some of it over to them, too.” Their 84-year-old mother, Christine, not only is the ex officio chairwoman of the board but also sells cars and processes loan applications six days a week, just as she has since the firm was founded. All told, eight family members work full-time in the company.
Focus on customers
Most Chacon customers have a job but might have a poor credit score that precludes them from getting a car loan from a bank. Their biggest need is for dependable transportation. Consequently, the company stocks primarily one- or two-year-old used cars with less than 40,000 miles on the odometer. The cars are bought at auction and normally sell for about $15,000 with a 20% gross margin.
The company’s standard formula calls for a 15% down payment with the balance carried over three years at 18% APR, giving most customers a monthly payment around $450.
Chacon processes its own loan applications and funds its financing with lines of bank credit. The company has had a 23-year relationship with one local bank but uses others as well, Gary says, mainly because the business has grown so large that it’s both prudent and necessary to have multiple credit lines. “It’s been a little tough,” Gary acknowledges. “Because of all the challenged credit with homeowners, we’ve had a little bit of resistance from the banks.” On the other hand, he points out, “Low interest rates help our spread somewhat, but they also increase our competition.”
The economy stressed some customers, of course, driving repossession rates toward the high side of the normal 25% to 35% range. Financial woes also lowered the frequency of trade-ins by customers who typically had bought a new used car during the third year of their loan. Again, though, there was some silver in the economic cloudbank, since people who might have been new-car buyers in the past chose late-model used cars instead.
Chacon got into the new-car business with a Suzuki franchise in New Braunfels (near San Antonio) in 2004 and added a Dallas location in 2006. This enabled the company to serve both ends of the market. Gary’s son Greg Chaney, 35, who runs both the new- and used-car stores in San Antonio, says, “New cars tend to attract a different customer. Plus, in new cars, we have third-party financing available.” The new-car stores are a source of used-car inventory for all the locations and have used-car sales lots, too.
Retired public school principal Dretha Burris bought a year-old Suzuki from Chacon in 2007. “I believed that their prices were reasonable,” Burris says. “They were honest with me about the value of my trade-in. Their customer service and follow-up were excellent.” Burris says she intends to buy her next car from Chacon as well. “In the Dallas area, their reputation is that they work with people other folks won’t. They’re known as an honest, dependable dealership.” While she financed her purchase through the teachers’ credit union, she says she wouldn’t hesitate to get a loan from Chacon if she needed it.
Close customer relationships are essential to Chacon’s success, family members say. “When you’re family-owned, it means a lot to the customers,” says Christine. She says many customers have bought three, four or even five cars from Chacon over the years and it’s not unusual for third-generation customers to do business with the dealership. “You have to have a listening ear because each customer has different problems and different situations,” she says.
Joey Chaney, Darrell’s youngest son, explains that many customers make payments in person, a practice the company encourages. “When they come in to make their payment,” he says, “we can see what kind of shape their car is in. We can also check their balance and, if it’s low enough, we encourage them to trade in on another car. That’s something I learned from my grandma.” Running a credit operation facilitates the system. “We try to structure deals so [customers] can trade in without having any cash for a down payment and they’ll still have some equity and their payments will stay about the same,” Joey says. That way they get an upgrade.” Gary estimates that repeat business amounts to about 30% of total sales.
Long-term perspective
Joey, 23, has been working at the Grand Prairie location as assistant office manager since 2009. His brother Josh, 30, approves car sales and loans and handles account collections, repossessions and bankruptcies at another of the Dallas locations. Their middle brother, Jacob, 27, joined the company in August. Joey tried college for a year, then worked for a courier service. Like his dad, his uncle and most of the third generation, he grew up in and around the stores. “My first job was at the Haltom City store when I was 16. I painted a fence,” he says. “I gradually worked my way up. There aren’t any gimmees for anybody at Chacon. You work your hardest and do the best you can.”
Victor Junco is a non-family member of the management team who has worked for the Chaneys for seven years, most recently in the San Antonio store. “Gary and Darrell are very adamant about making sure every family member earns their wings,” he says. “They have several non-family members in important positions, too.”
Family members must work somewhere else for at least two years before joining the family firm. Joey’s father, Darrell, spent some time working in a grocery store. Later he worked in the collections department of a credit union for four years. Gary was in management for several years at a local retailer. He came to work for Chacon in 1987, when he was 32. His daughter Stefani Musick, 32, worked as a finance officer with the CIA in Langley, Va. She has her CPA and oversees all accounting for the company. She met her husband, Rock (yes, Rock Musick), at the CIA.
Stefani believes family ownership has contributed significantly to the company’s ability to weather the downturn: “One thing that helped us is that everybody kind of grew up in the business. We’ve seen good times and bad, especially my dad and uncle. They really have 50 years of experience to draw on.” She adds, “We have a good business model, but we can tweak it if we need to. I don’t know if we could be that flexible if we weren’t a family business.”
Unit sales, which normally run around 4,500 cars per year, were off about 20% last year, but profits were up, according to Gary. He explains that the company modified operations as the downturn deepened. “Some of it was a refocus on certain types of cars that had higher gross margins. That helped our turnover and we were able to reduce some of our debt,” he says. “We didn’t lay anybody off, but we let a few positions remain unfilled for awhile.”
Stefani says such decisions aren’t reached through a formal process. The board of directors consists entirely of family members: Gary, Darrell, Greg, Stefani, Josh and Christine. “If it happens that we’re all in town at the same time, we may sit down as a group and talk about direction and things like that, but more of that type of communication takes place informally,” Stefani explains.
The credit approval process is rigorous but informal, a philosophy that might not be viable under non-family corporate ownership. “We understand our customers’ problems,” Gary says. “If they lose their job or just have trouble making their payments, we try to work with them.”
Credit approvals are made at each location, not through a central credit office. “With these kinds of customers, you can’t just plug some numbers into a computer,” Junco says. “You have to know the local economy and the people.” There are company guidelines to be followed, but decisions are made on the spot.
“Mom and Dad taught us the importance of integrity—although keeping your word and maintaining your integrity in the automobile business is very tough,” Darrell says.
The family is confident the company’s future is bright. As Stefani says, “There will always be people with damaged credit, and they will always need cars to get to work.”
Continued family ownership and management are apparently assured, too. According to Stefani, the company is actually owned by a generation-skipping trust established by her grandfather, so the third generation has a vested interest in its success today.
Stefani says there is no hurry to choose a next-generation leader. “We’ve had a lot of success bringing the third generation into the business. We’re really fortunate that we all get along.”
The transition won’t occur in the immediate future, although it’s not going to be delayed interminably, according to Gary. “Dad relished the idea of turning the business over to us,” he says. “He was in his late sixties and he hung around for about ten years afterward, but he was happy to turn it over. I’ll be happy to do it when it’s my time, too.”
Dave Donelson is a business journalist based in West Harrison, N.Y.