In just six years Vertu Motors has become the UK’s seventh biggest in its business, with a 3% share of the new car market. It operates from 76 UK locations with 93 sales outlets and 16 franchises. With three more purchases in rapid succession, the Gateshead group most recently strengthened its position in Yorkshire and broke into Cumbria. Brian Nicholls asks chief executive Robert Forrester: where to from here?
BN: Vertu Motors has already entered the pantheon of outstanding home grown businesses in the North East, alongside the like of Greggs, Sage and Bellway...
RF: I wouldn’t call us outstanding yet. We’ve got the makings.
Can the formula for your fast success apply to other businesses?
It’s the same as for slow success. Have a team of very good people, a clear vision of where you want to go, a strong set of values about how you want to conduct your business, and work hard. There’s no rocket science. Motor manufacturing and retailing was greatly helped during very difficult times by the Government’s scrappage scheme.
Do companies like yours still feel the benefit, or is the going tougher again?
We undoubtedly benefited from scrappage. The new car market rose substantially. People also sometimes bought a new car instead of a used one. It helped both manufacturing and retail. After scrappage came off, the industry went through a lull. It was quite tough – 2011, I don’t think, was the industry’s best year. However 2012 was better and I think 2013 will be much better. The UK economy is showing robustness most people didn’t think it would show. We forget we’re the world’s sixth largest economy. The over-all European economy is in a desperate position. Manufacturers with car plants in the European Union have to make cars – they can’t close plants easily – so they must find somewhere to sell them, and the best place to sell them in Europe is the UK. The UK consumer feels nowhere near the uncertainty, distress and despair being felt on mainland Europe.
How do you view the imminent entry to market of electric cars?
Ask me again in ’20-21. It’ll be a very slow process, I think. I think they’ll be niche products. I could be wrong. We do sell them now. But I think they’re expensive to date. In fairness, a new Renault coming out is about £14,000 rather than £24,000. The Zoe might make a difference. I think there’ll be a number of early adopters liking the idea of having an electric car. They’re good to drive. I used a Vauxhall Ampera as my main car over the summer. It was great. With the Ampera you have the 100 mile or so restriction on distance per recharge but you also have 400 miles of fuel in the back. So you never run out. I think that car has something about it. There are some great electric cars but they’re not a mass proposition. I think what will slow their adoption is the technological development of the internal combustion engine, which is now going at an absolute pace – largely, in fairness, driven by requirements on manufacturers to reduce CO2 emissions in their products. The one litre eco-boost engine Ford developed is undoubtedly the best engine ever. They’re putting that one litre engine into Ford Focus and Ford Mondeo. It drives like a 1.6 and but has the fuel consumption of a one litre. Faced with that, the economics of making the electric vehicle work with or without subsidies becomes more precarious. My wife likes the idea but never really used the electric car. There’s as much research going into the internal combustion engine, which will be the majority propulsion mechanism for at least 10 or 15 years. There are far more electric charging points in Newcastle by a factor of 10 than there are electric vehicles. Somebody got carried away there, in my opinion. That was an uneconomic decision by somebody who wasn’t paying for it.
Vertu’s empire stretches from Dunfermline to Exeter. Where are you not yet represented, and what might your priority expansion targets be?
I don’t think there are any areas we’re not in but would like to be. We’re in the major areas of population. I’d have said that’s best. Sheep haven’t learnt to drive yet.
What activity in business gives you greatest pleasure – going over accounts?
I keep out of finance as much as I can. The people side gives me most pleasure. This business doesn’t function without great people. Seeing people develop and get better, and who, given a fresh challenge, beat it.
You’ve a great business then, haven’t you?
We’re not near where we want to be yet on that. But we’re making great strides. Bringing people from outside can be great. But they bring a different culture. It takes a while to get them into your culture.
Could standards of British management be higher?
They’re a heck of a lot higher than before. Gone are the days of four different restaurants for different levels of employee, with chauffeur-driven Jaguars sat outside, and a view that in management everyone else has to serve you. It’s recognised far more that it’s the people in the business who make the difference, not just management.
You consider each customer complaint personally. Does this contribute to maximum efficiency?
[He shows a list of current complaints from all operations on his laptop screen]. I’ve got 53 outstanding complaints reported in this group with £1.3bn turnover. Many of these are for me to check at the weekend. Hopefully they’re already all resolved. I know 13 are, and await my review. It’s something we take very seriously. We don’t get a lot of complaints. There’s probably a month’s worth there. We’re getting better at resolving them, and tracing why they arise in the first place. [He shows an e-mail just received from a customer profusely thankful for how his complaint was handled and assuring he’ll remain loyal]. You may get some complaints around product but the majority centres on management. That means refocusing the particular management on customer service. If they can’t refocus themselves they tend to become exmanagement. We also tend to put our own people into the management when we take over a company. I’m a great fan of the book How to Win Friends and Influence People.
What’s the most notable change in buying trends?
Customers are going for smaller, fuel efficient cars. The sub-£6,000 used car market has become very strong. That’s recession driven. They’re very interested in how much fuel they’ll have to use. The greater fuel efficiency in new cars makes them more affordable because less will be spent on fuel. They use the internet, mobile devices, iPads. Shopping online at John Lewis they get excellent service within 24 hours. They expect that from car dealers. Also, someone told me once a great Chinese proverb – “man who cannot smile should never open shop.” One of the first things I do entering a dealership is ask myself: “Are they smiling, or do they look like they’re waiting to go home?”
Some growing companies hesitate to enlist on the AIM. Does Vertu find it a satisfactory door to private investment?
How else could a team like ours with no money create a business in late 2006 and now have 3,700 employees, £1.3bn turnover and hardly any debt? That’s the benefit of living in a capitalist society, and living in the UK. We’re massively fortunate to live less than three hours away from the world’s financial capital.
If you hadn’t launched into this business what might you have been doing instead? [The one question he has to ponder over]. I’d have found a job. Whether in the North East or not, I’m not sure. I think probably not in the North East, and my family don’t want to move from the North East.
Might Vertu eventually rise to top or second largest car retailer in the UK?
We’re not really bothered about size. Scale is important in motor retail because you can invest in systems and specialists, and have important relationships with manufacturers. Being best rather than biggest is what’s important. We have scale. If we bought no more businesses for two years we’d still have lots to do getting our performance up to maximum profit and share price growth. We look to that.
Do you envisage an ideal size eventually in sales or outlets?
Our present turnover, I think, shows our scale of growth. People find landmarks interesting but it’s, really, have you a good business with the right people, are you making a good return for shareholders? We could make plenty of turnover yet not a lot of money. People don’t realise that in our business for every £100 of sales we make profit of about 80p. We’ve a 0.8% return ourselves. That’s about industry average. There’s lots of scope to improve because we’ve bought a lot of businesses yet to perform at a level we want. We think we can improve them substantially. That’s our proposition for shareholders.
You’ve been quoted as saying you’d never sell the business. Why?
As chief executive of a plc I don’t think I’ll ever be accurately quoted as saying that. I’ve a responsibility, with the board, to shareholders. So selling is technically possible. I think shareholders’ best interests lie now in generating profit streams and share price growth. Personally, I enjoy the business and my job immensely. To stop, there’d have to be something special for the shareholders.
What are the essential considerations that precede an acquisition?
The potential. What’s its location? What are the property arrangements (ours is a property based business)? Size of market? What franchise does it have? And what scope for improving management if necessary. We do a financial model on how we see the next three years for that business.
You pay immense tribute to Sir Peter Vardy, for whom you were managing director at Vardy Group. What did he do for you?
I knew nothing about the car industry before I worked very closely with Peter for six years. Peter was clearly an exceptional motor retailer, if not the best then certainly one of the best the UK has developed. Working closely with him to understand how his mind works, and how the business works, is something you’d pay for. I was lucky someone paid me as I did it.
How does Vertu spot sound takeover prospects?
People ring and say: “I’ve got this – what do you think?” Or their accountants ring. Or they speak to the manufacturer who rings. Have you had to close or curtail some operations after an acquisition? It can happen. In North Tyneside and Newcastle, for example, Honda’s market wasn’t big enough to sustain two dealerships. Everyone including Honda recognised that. It made sense to consolidate into one. [The North Tyneside one recently closed]. Sometimes locations change. You must constantly look at your portfolio. But we tend to open more than we close!
What do you attribute your personal success to?
I’ve been lucky in coming across people who’ve taught me a lot. And I still have people around me who guide me.
Perhaps the only question about your ability to spot a winner lies in your unfailing support for Burnley football club. Would you ever consider a reassessment there?
Not at all. We’ve won the League since Newcastle United won it. I’ve had immense pleasure supporting Burnley. There’s no fun watching a team that wins every week. We’ve played in the Premier League and my dad didn’t enjoy it. We got stuffed every week.