Bill Heard dealerships took risky road

Nobody sold more cars in Georgia than Bill Heard. He was the nation’s 11th-biggest automobile dealer, the world’s largest Chevrolet retailer. He was, as his ubiquitous advertisements put it, “Mr. Big Volume.”

No credit? No problem.

All loan applications accepted.

It’s all about the payments.

These advertising slogans became tenets that helped guide Columbus-based Bill Heard Enterprises as it grew to 15 dealerships in seven states, including four in metro Atlanta, with sales topping $2 billion a year. And, ultimately, they became millstones that hastened the firm’s demise.

Heard Enterprises abruptly shut down all its dealerships Wednesday and laid off its 2,700 employees.

By Thursday morning, a finance company was hauling away Heard’s unsold vehicles, an ironic outcome for a dealer who took pride in always being able to move cars off the lots.

Bill Heard Jr., 74, the company’s chief executive and son of its namesake, dominated his competitors and wrangled with government regulators, who sued him for deceptive advertising and collected complaints about his firm’s marketing practices.

But, industry analysts say, Heard couldn’t overcome what had become a flaw in his business model: high-volume but low-profit sales targeting people with blemished credit histories. Like the Wall Street investment bankers who grabbed up securities backed by risky subprime home mortgages, Heard apparently staked too much on people who couldn’t pay what they owed.

“His business model was really out of step for the times,” said Mark Rikess, a Burbank, Calif.-based consultant to major car dealers. Rikess thinks big retailers such as Heard, who operate high-overhead outlets that rely on advertising to draw a crowd of potential buyers for domestic cars, are destined to give way to smaller dealerships that thrive by creating customer goodwill.

Heard “certainly targeted subprime buyers,” Rikess said. “Even without subprime buyers, he would have had a problem.”

The collapse of subprime lending, Rikess said, drove “the final nail in his coffin.”

As many as half of Heard’s customers required subprime loans, company executives have said. These buyers – who may have low credit ratings or past bankruptcies – rarely can get financing from prime automobile lenders, such as GMAC, or from major banks.

Instead, their loans come from finance companies or banks that operate in the secondary, or subprime, market. Few of those loans come without double-digit interest rates.

Neither Heard nor other executives would comment late last week, a spokesman said.

The company is liquidating its assets and arranging to clear out its dealerships, said the spokesman, Alan Ulman. By Saturday, the firm had not filed a petition in U.S. Bankruptcy Court.

Ulman said high fuel prices, which drove down sales of the trucks and sport utility vehicles that Chevrolet concentrated on, and a shortage of operating cash contributed to the company’s failure.

“Clearly they see the subprime meltdown as a related factor,” Ulman said of the company’s top executives. “Their situation was described to me as a perfect storm.”

In a 2004 interview with The Atlanta Journal-Constitution, Heard said his company simply tried to cater to its customers’ needs.

“When you buy an upscale car, there’s a little different mind-set than when you buy, like, a Chevrolet,” Heard said.

His dealerships, Heard said, “sell to the masses.”

The Heards of Columbus

The Heard family has sold cars almost as long as cars have been for sale. Bill Heard Sr. used an inheritance from an uncle to establish William T. Heard Motor Co. in 1919. His downtown Columbus showroom featured popular makes of the day — LaSalle, Essex, Hudson.

In 1932, Heard Sr. bought out a competitor: the only Chevrolet dealer in Columbus, Muscogee Motor Co. Under that name, he sold Chevrolets and Oldsmobiles for three decades.

Bill Heard Jr. — “Billy,” in those days — joined the business in 1958 after graduating from Auburn University and serving in the U.S. Navy, according to material in the Columbus public library. After Heard Sr. died in 1961, his son took over and renamed the company after his father.

The younger Heard launched an aggressive expansion in the 1980s. By the turn of the century, Bill Heard Chevrolet flourished in diverse cities far from Bill Heard’s hometown: Houston, Orlando, Las Vegas. The company bought two jets so Heard Jr. and other executives could easily oversee their sprawling enterprise. In 2005, General Motors Corp. awarded Heard the automaker’s highest honor: Dealer of the Year.

As his company grew, so did Heard’s stature in Columbus.

Heard and his wife moved into an $18 million, 28,000-square-foot house. The main theater in the city’s performing arts center bore his name. State highway officials even renamed the street that runs past his Columbus dealership; it’s Bill Heard Parkway.

In 2000, an editorial in the Columbus Ledger-Enquirer saluted Heard’s achievements. The headline: “Columbus’ man for all seasons.”

By then, however, consumer regulators in Georgia and other states had drawn a far less charitable conclusion about how Heard did business.

The complaint leader

Fifteen times from 1991 to 2007, the Governor’s Office of Consumer Affairs cited Heard dealerships for violating Georgia’s Fair Business Practices Act. Fifteen times, the company promised to obey the law.

But regulators contend the dealerships continued deceptive advertising and sales practices in Georgia and elsewhere, even after paying close to $1 million in fines and penalties in four states. The company agreed to the payments without acknowledging wrongdoing.

Georgia sued Bill Heard Enterprises last year after the company sent 10,000 car owners an “urgent potential recall notice” that appeared to come from General Motors. The lawsuit alleges the company was trying to trick consumers into thinking their vehicles were unsafe — when, in fact, it was simply trying to sell them new cars or service plans on old autos.

Heard’s lawyers denied “willful” violations. The lawsuit’s status is unclear now that the Heard dealerships have closed.

Bill Heard has engaged the Office of Consumer Affairs in continual combat for much of the past decade.

In 2003, Heard’s son, an executive with the company, asked Gov. Sonny Perdue’s office to fire the agency’s director; the governor soon replaced the official, but aides denied a connection. For years, Heard has accused the agency of “selective enforcement” by targeting his dealerships. While he acknowledges the agency gets a disproportionate number of complaints about his company, he contends it’s because his competitors instigate them.

Last year Heard asked the consumer agency for a report on complaints against his five Georgia dealerships and five large competitors. During the previous two years, the agency said, 113 complaints were filed against Bill Heard dealerships. The five competing dealers generated a total of 10.

“There is no question that, in terms of complaints and unhappy consumers, this was indeed the leader,” Bill Cloud, a spokesman for the consumer agency, said of the Heard dealerships.

Heard told the Journal-Constitution in 2004 that consumer complaints often came from the customers who couldn’t qualify even for subprime loans.

“They’re going to be mad if they don’t get the car financed,” he said. “Maybe not real mad. But they’re not going to be warm and friendly, you know. They’ll be concerned, maybe, that they did feel that they were put down if they didn’t get financed.”

‘Go-go mentality’

Bill Heard’s approach to car sales began unraveling this summer.

The Council of Better Business Bureaus revoked Heard dealerships’ accreditation in June, saying the company had failed to correct the underlying causes of repeated consumer complaints. As a result, a once-positive review turned into a caution flag.

Meanwhile, a new dealership the company had opened in Scottsdale, Ariz., was struggling — partly, Heard suggested, because of a shortage of eligible subprime customers.

“A month after we opened it, they kicked all the Hispanics out of Arizona,” Heard told the Columbus Ledger-Enquirer in July. “Our business fell off 60 [percent] or 70 percent, and there was a recession on top of that.”

Then, in August, GMAC Financial Services, the financial arm of General Motors, cut off a line of credit that allowed several of the Heard dealerships to obtain new vehicles. With consumer credit also hard to come by, Heard’s sales continued to plummet, industry analysts say. And a decline in subprime customers creates a particularly sharp blow to earnings, said Jon Sheldon, a lawyer for the National Consumer Law Center, a Boston-based advocacy group.

Car dealers such as Heard collect significant fees for arranging high-interest subprime auto loans, Sheldon said. He and other analysts said those fees often amount to 2 percent to 3 percent of the sales price. Customers with good credit are more likely to arrange for their own loans, and even if they don’t, dealers collect much smaller fees.

The Heard dealerships got financing for some customers — at an annual interest rate as high as 28 percent, loan documents show — from National Car Credit Inc., a subprime automobile lender in Columbus. Its chief executive: Bill Heard Jr.

Car dealers, Sheldon said, succumbed to “the same go-go mentality” that fueled the crisis in mortgage lending.

“The theory is to get a lot of money up front” before turning the loan over to a finance company, Sheldon said. “Whoever originates the loan makes obscene profits and then doesn’t care what happens.”

Industry analysts say Heard’s failure defies the conventional wisdom that car dealers make the most profit by selling to people who have the least money.

Heard’s old advertisements to the contrary, no credit means big problems.