Warning: Spoilers ahead.

Watch it online first.

Well, this was an episode with surprising results, to put it mildly, and one which provides the second season with a strong start.

In a nutshell, successful residential real estate investor and car buff Pete Athans has sunk his entire life’s savings into a new used car concept. The problems with this move are two-fold. One, Pete doesn’t really understand the car business. Two, he has this very odd idea that a dealership should also be a neighborhood hangout where people will come to watch television and play video games instead of just buying cars.

The result is that he has sunk $4 million of personal funds into a money-losing concept that wastes about 95% of its retail footage. The interior of the building is a huge empty cavern with just three cars in a space that should hold twenty. There’s also a wing that serves as a lounge outfitted with leather furniture and wall-mounted flat screens TVs. This space could easily hold another ten vehicles.

Outside the situation is even more grim. The huge lot which looks as if it could hold over a hundred cars sits empty. There are just a few cars parked around the building. A salesman informs Marcus that they only have twenty in total and those are grossly over-priced for the area where the average used car sells for just $15K. The overall effect is that the place looks permanently closed if you happen to be driving by.

Marcus: Pete, why? How does any of this help you sell cars?

Pete: I made this the sort of place where you want to hang out.

Marcus: Customers don’t want to hang out. Pete look, customers want to buy a car at a fair price and then go home.

When Marcus arrives on the scene the business is losing about $150k per month. Pete is in debt to the tune of $6.9 million and is rapidly depleting his personal resources to keep the doors open. In an emotional exchange, he admits to Marcus that he’s in danger of losing his home as well.

athans lounge

The Athans Lounge pre-Marcus Lemonis

Within the first ten minutes I found myself thinking that this was a lost cause for a number of reasons. One, there were the depressing numbers. How do you pay off such a debt and turn things around when there’s nothing to sell? Two, the owner is a victim of “If you build it, they will come” thinking instead of being a marketer who looks at what the market actually wants. Three, the owner’s unwillingness to liquidate a car that had sat on his lot for 6 months for a quick $28.5K  in cash because it would mean an imaginary loss of $500 was another big flashing warning sign that he’s not a realist. Four, the company would have required a capital injection well beyond the 6-figure investments Marcus was making in the first season. Finally, Athans Motors lacked any proprietary value that would have made it something special and, dare I say it, worth saving. It was really just another run-of-the-mill lot selling used cars, albeit a very unprofitable one.

From all of the above, I concluded that Marcus would end up passing on the deal. To my shock he didn’t. Instead he wrote a personal check for $3.5 million to Pete. But then Marcus is a self-described car business guy.

The Growth Strategy

Then the patented Marcus Lemonis turnaround and growth plan kicked into high gear.  He ordered the sales staff to immediately hold a fire sale on the twenty over-priced vehicles that had been collecting dust for months and get the cash. Cash is king, as they say. He then invested in a lower-priced inventory that would sell in that neighborhood.

Marcus then unilaterally rebranded the business from Athans Motors to AutoMatch USA “where we match the right person with the right car.” Great stuff! He also took out the lounge and filled the building with cars and related merchandise to maximize the ROI from the floor space. Now he has the seed for another national brand.

As usual, Marcus wisely protected his position by setting up the deal so that his loans would not only be paid off first, but that they would also be secured by the vehicles.

Marcus also attempted to get Pete to stop micromanaging his cousin Tony who was general manager. Unfortunately, Tony resigned before Pete finally saw some results from Marcus’s leadership and started chilling out a bit. I was hoping that the guys would work it out because Tony came across as good people. Marcus ended up replacing him with a 30 year veteran of the auto industry.

There are two big lessons from this story. One is that if you build it they won’t necessarily come. Amateur car buff Pete believed that he could make money by offering something radically different in the used car business: a place where car buffs could not only trade expensive vehicles but hang-out as well. He was wrong. The second lesson is that you have to respond quickly to market feedback. In The Apprentice UK, Lord Sugar often tests the teams by giving each a small account worth several hundred dollars at a warehouse carrying thousands of consumer products and two retail locations each. The challenge then is to “smell and sell.” This means that each team has to quickly sniff out which items are selling and plow the sales proceeds into more of the same. In contrast, Pete had been losing money for years with the dealership and only called for help at the 11th hour. He should have admitted to himself two years ago that it wasn’t working.

As I said at the opening, I was expecting Marcus to pass on this one but he didn’t. Looks like he is going to be making bigger bets this season. Best of luck to Marcus and Pete and AutoMatch USA.

4 Responses to The Profit: Marcus Lemonis and Athans Motors

  • I got the point of changing the name and configuration to re-brand, but why go to the expense of repainting the ceiling and the other high-level “murals”?

    • Yes, it’s all about having every detail conform to the brand design. This is especially true if you’re looking at taking the brand and making it a national one, as Marcus is most likely planning to do.

  • It had to be done for the complete look to fit the new brand.

  • Here’s Pete in 2012 describing Athan’s Motors.

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