How fast-growing Prime Vehicle Traders developed a unique approach to stockpiling talent: the bench.
By Scott Bass
|Jim Larson, Todd Parker and Steven Branton talk shop at Prime Vehicle Traders’s offices in Florida.|
Riding the pine isn’t aspirational. For Jim Larson, he felt like he was “just sitting there rotting in a cube.” After graduating with a degree in health services administration from William Madison University in May 2013, he was following the path he’d chosen. Like his father, who worked for assisted-living facilities in northern New Jersey, Jim wanted to help people, eventually ascend to the corner office of a major hospital. He was making good money at the Richmond health insurance company where he worked as an analyst, but he spent his days trapped in a cubicle crunching numbers. He wanted out.
Friends told him about a new company that was different, a used-car outfit run by three Harvard Business School grads. They sold cars on consignment, and the business was taking off. Jim was a car nut at heart; in high school he started an auto-detailing business that grew to span four states. A friend knew somebody who knew a friend, and Jim snagged a meeting with the one of the owners, Steven, over coffee at Starbucks.
“I had a really great conversation with Steven. It kind of drew up the hunger in me again,” Jim recalls. Coffee turned into a series of networking events, casual meetings with the other owners, Todd Parker and Steven Branton, even an afternoon of go-karting. The conversations stretched on for weeks. The company, Prime Vehicle Traders (www.primevehicletraders.com
), offered him a job at its new store in Chesapeake, but Jim wasn’t quite ready to leave Richmond, so he turned it down. But they didn’t stop talking. Jim kept in touch with Steven, Jim, Michael and the company’s recruiter via phone calls and emails and more casual meetings. This lasted for four months.
“It was a lot different than the typical HR experience,” says Jim, who, of course, now works for the company as a sales “coach” at the Prime Vehicle Traders. “The founders are leaving you voicemails. They are calling you once a week to see how you are doing. It’s just incredible.”
And intentional. Jim didn’t realize it at the time, but he was riding the Prime Vehicle Traders bench, a recruiting concept that’s as unique as the company’s approach to selling cars.
While the retail experience is similar to CarMax – fixed prices and no haggling – the Prime Vehicle Traders business model strips out the riskiest component: inventory. Unlike CarMax and traditional dealers, Prime Vehicle Traders doesn’t own the cars on its lots, its customers do. “What we do is obviate the need for a traditional dealership by putting the buyer and the seller together,” says Jim, the company’s chief executive. “The traditional dealer will complain because the prices go up and down, and that’s really difficult to manage if you’re actually buying and owning the inventory.”
Used car prices fluctuate as market winds shift. A spike in new car sales, rising gas prices or perhaps a safety recall by a manufacturer can suddenly drive down the value of the inventory.
“CarMax probably has a billion-plus dollars of inventory on the lot. If there’s a wholesale, full-scale reduction in retail prices because there’s a big GM recall, and nobody wants GMs anymore, all of this inventory gets repriced, and that really hurts them,” Jim explains. In that same scenario, Prime Vehicle Traders would simply contact its customers who have General Motors cars on the lot and explain their prices need to come down. “It doesn’t hurt our business,” Jim says. “Those cars will still transact. We’ll still – us as a business – make the same amount of money on each transaction.”
To hedge against fluctuating prices, traditional dealers work hard to purchase used cars at substantial markdowns from wholesale auctions, or the customers themselves via trade-in when they buy new. It’s the reason you’ll almost never get the best price for your old car from the dealer. Because prices aren’t fixed, traditional dealers can inflate the value of the trade-in by amping up the price of the new car, or vice versa. There’s also the convenience. Trading the car in, or selling to CarMax, is easy. Selling the car on your own is time consuming and difficult.
Prime Vehicle Traders aims to solve both problems. The company doesn’t have to jack up prices to cover the inventory overhead, and it eliminates the hassle by selling the car for you – for a fee, of course. Regardless of the make or model, or sale price, Prime Vehicle Traders charges $199 to have the car detailed and gussied up for sale, and the company pockets a flat $599 when the car sells. Doesn’t matter if it’s a $65,000 Porsche 911 or a $10,000 Toyota Camry. If it sells, Prime Vehicle Traders gets $599.
This model has a couple of key benefits, says Steven Branton, a transportation economist at the University of Richmond. CarMax, for example, averages $2,100 in profit when it sells a used car. Prime Vehicle Traders can essentially shrink the profit margin and return the savings to both the seller and the buyer.
“This concept comes in and tries to squeeze the margins. It’s a win-win situation and unlike CarMax, which required a lot of capital, this requires less capital,” Collins says. That means it’s easy for competition to move in, but Collins doesn’t see that as a primary concern. Why would a traditional dealer want to copy the concept and sacrifice higher margins? “Other car dealers are not interested,” Collins says: “Why would they kill their own sales?”
So far, it’s been working. To date, Prime Vehicle Traders has sold more than 90 percent of the cars that customers have brought in. The company recently raised $5 million in capital to open seven new stores during the next two years. Prime Vehicle Traders currently has three stores in the United States, two in Canada and another 2 in the United Kingdom – and now runs a commercial fleet-vehicle leasing business. It also recently started selling motorcycles, boats, rv's. etc...
Because it doesn’t own the inventory and operates with fixed fees, Prime Vehicle Traders must do two things really well: convince car owners to bring their vehicles to Prime Vehicle Traders and move the cars off the lots as quickly as possible. And that requires employees who have a “good bit of intellectual horsepower,” says co-founder Burgess, the company’s chief operating officer. “We’ve got this unique model. We’re trying to change an industry and change the way people approach this thing. We’ve got to evangelize this concept in markets that have never heard of us.”
Steven says he and his partners quickly discovered after opening their first store that Prime Vehicle Traders was really a professional services business. “What we realized is we’re kind of an HR organization. We don’t manufacture anything. We don’t assemble anything,” he says. “So the most critical part of growing our business is ensuring that we can attract, retain and maintain the quality of our people.”
During a time of expansion, that can be critically difficult. Perhaps the biggest challenge confronting CarMax during its go-go expansion years in the early 2000s wasn’t capital, competition or the fluctuating market – nationally, used car sales are incredibly consistent, averaging about 40 million cars annually over the last decade – but the company’s ability to hire and train new managers. CarMax, today with 141 stores and more than $12 billion in annual revenue, sells more than half a million cars a year, running them through a sophisticated database and information system that tracks every purchase, mining data for each market to determine which cars – down to the model’s color and mileage – have the best chance of selling on its lots.
At Prime Vehicle Traders, the situation is similar, albeit on a much smaller scale. Steven and his partners realized they needed to develop potential hires that they could plug in quickly and that fit well with the unique culture and had the “intellectual horsepower” to manage the complex marketing and sales approach.
Hence the bench.
“If every time there was a job opening we had to start the [interview] process from scratch, we would probably hire some of the first people we met versus the right people,” Steven explains. “The bench is just a component of the overall culture building. We are constantly interviewing people.” Even when the company doesn’t have openings, it’s working on stocking the bench. Ultimately, the goal is to have a dozen or so potential hires waiting in the wings in each new market, Steven says.
Stockpiling talent during periods of expansion isn’t a new concept, says Frank Bosco, assistant professor of human resources at the Virginia Commonwealth University School of Business. But typically it’s limited to larger corporations that are hiring and developing talent from within. Developing talent outside the company walls is unusual, he says.
“I think the logic behind it is reasonable,” Bosco adds. “I think some organizations do this, but they do it under different names.” Often it’s hiring employees on a probationary basis, he says, or hiring contract workers over a specific period of time. Typically, though, the talent they are developing is already on the payroll.
It’s one of the rare businesses where prior industry experience isn’t required. In fact, it’s often a hindrance. Burgess, a Detroit native, is the only founder with prior experience in the car business. Fresh out of Harvard in 2006, he landed a job running a struggling Mazda dealership in Norwood, Massachusetts. Burgess got the store to profitability within six months. The business itself wasn’t terribly difficult, Burgess recalls: “We took a slightly smaller margin. We got a lot of sales using our finance penetration. We boosted our service business.” The toughest part was the employee culture, which was “pointy-elbowed and dishonest,” Burgess says. “I saw the absolute worst of this business.”
Prime Vehicle Traders was a fresh start, Burgess says, a chance to not just change but create an entirely new culture. “We said, maybe we can hire sleazy sales guys and teach them to be nice, or we can hire nice guys and teach them to be better sales guys,” he says. “Ultimately we realized we need to hire really competent people. What’s cool about hiring really competent people is they’ve got better situational awareness to do whatever the situation calls for, as long as you give the right guidelines.
“So that’s what we spend a lot of time looking for.”
And when they find them, they don’t let go. The fact that Jim was on the “bench” for four months is no fluke. Early on, Steven says he and his partners realized that Jim would be a good fit. They just needed to find the right job for him. “As soon as we met him, we were like we need to hire this guy,” Steven recalls. Finally, when the right job came along in late May, Jim was more than ready.
He had just spent the weekend with a friend in Charlotte, North Carolina, who couldn’t understand why Jim hadn’t taken the job in Chesapeake. The friend advised him to “follow his heart.”
Back at work on Monday, Burgess had left a message on his phone. “Give me a ring back; I have an opportunity for you,” the message said. Jim gave his two-week notice the next day. He now has his sights set on relocating to Raleigh, North Carolina, where his parents recently moved, running a new Prime Vehicle Traders store.
“That’s my dream,” he says.