| Fast Company Chapter 17 - "Surviving the Crunch"
It was
Anaheim, Calif., on a sunny late-autumn afternoon. My mood was bleak that
November day in 1973, because the world seemed to be going to hell in a hand
basket.
The stock market had dropped a bunch throughout 1973, and the
U.S. was in the midst of a serious recession. Inflation was on the rise, and if
all this wasn’t enough, the Arabs decided they wouldn’t sell us any more oil.
Anybody who was an adult in late 1973 has never forgotten
that period. Sure, we’ve been through recessions and wars and natural disasters,
but for the first time in about 30 years, it looked like we were going to run
short on gasoline.
Gasoline, if you haven’t figured out by now, fueled every
element of my life. My hobbies, my passions, my business. Like all car guys, the
very thought of being cut off from gasoline left me cold.
That’s why the newspaper reports of the day shook me to the
bottom of my shoes. The report was that the government was looking at rationing,
allowing each family something like three gallons per week until we could figure
out what was going to happen with our oil supply.
I lived through rationing once, as a kid growing up in
Lincoln during World War II. I knew what rationing meant: black markets, and a
lifestyle where most people simply stayed home.
I was in Anaheim for the SEMA show, a national trade group
focused on the automotive performance industry. Everybody at the show was in a
complete funk, with the combination of the difficult economic situation and the
possibility of gas rationing.
The Anaheim Holiday Inn was just a short hop from the show,
and I vividly remember going back to my room that afternoon. I had seen with my
own eyes vivid proof that dramatic things were happening; long lines stretched
around the block at many California gas stations, something we hadn’t yet
experienced in Lincoln.
I walked into my room, and stepped into the bathroom without
turning on the light. In the dim afternoon light I leaned over the sink and
stared at myself in the mirror. The room was quiet, and there was nothing but me
staring into that mirror, wondering if my world was falling apart.
"This is the end of the world," I said out loud. "I’ve been
in business for 20 years, and now I’m going to be broke because nobody is going
to buy anything."
I stood there and stared into my own eyes. Then I began to
think: I’m a racer myself, with a couple of very active race cars and ambitious
plans for 1974. Was I ready to quit racing, just because of the way things were?
No, I won’t quit. I’ll save my three gallons of gasoline each
week, and I’ll walk to work so I can save my gasoline allocation to go racing
that weekend. Or do hot rod stuff. I’m gonna race, I’m gonna continue to build
parts for my car, and I’m gonna continue to mess with hot rods. This is my
hobby, my passion, my life; nothing is going to stop me from fulfilling my
passion.
That’s human nature; our hobby and our passions are what
really intrigue us, and give us a zest to keep living. Whether it’s hunting,
fishing, racing, basketball, hot rods, whatever, our passions are the only thing
we can truly feel are ours alone. We can share it with others, but it’s our
thing. We’ll stick by our hobbies and passions almost to eternity.
As I stood there, I began to feel better. Sure, things were
tough. But in my heart I knew our country could get through it, Speedway Motors
could get through it, and I could get through it.
The next couple of years weren’t easy, not for me nor anybody
else. But you know what? Not only did we get through it, but I discovered there
is truth to that old adage about "opportunity in the midst of difficulty," or
however it goes. Even though our economy was struggling, that didn’t mean there
weren’t opportunities in business.
Did I see the crunch of 1973 coming? No. The ’60s were great
years, with lots of things going on and lots of growth, not only in our business
but throughout the racing and performance industries.
But the industry was not "big" in the 1960s, not yet. Not
when compared to today. And, frankly, it wasn’t big when compared to other
industries. I was always amazed, for example, by the people I got to know who
were in the motorcycle industry, and how much larger they were than anybody in
the hot rod or race car industry during that time. What they were able to spend
on fluff, and show vehicles, was way more than we did in automotive performance.
And the shows themselves; the motorcycle show in Indianapolis, for example, used
to blow away any show I had ever seen, even the SEMA show.
Our industry began to really grow, it seems, when we began to
see more automotive-related things on television. As auto racing began to be
seen on weekend afternoons in the 1960s, it seemed to inspire more people to
care about cars. Plus, we began to see far more magazines related to cars and
hot rods, and racing. The media was beginning to expose everybody to what was
going on in our world.
As that happened, what was an isolated pocket began to
expand. A young man would read about custom cars, or whatever, and might be
drawn to find out more. He might hook up with somebody locally who was into hot
rods, and that was enough to get him involved in building a car of his own.
As the racing and hot rod industries slowly began to grow, I
realized that it was very important to know my customer. Not just individually,
but collectively. I had to understand him, and know how he thinks. Because
pleasing that customer was the reason for the existence of my business…I had to
devote myself to figuring out how to make the customer happy and give him what
he wants, even when he isn’t sure himself what he wants.
One way to do this was simply getting to know more people,
and listening to them. In the speed shop business, that’s pretty easy to do. A
good businessman doesn’t stand aloof from his customers, but rather gets to know
them, and participates in the arena where they’re playing.
I’ve always prided myself that I know my customer, sometimes
better than he knows himself. In both arenas: race cars and hot rods. The reason
I know them, of course, is simple: I can relate, because that’s me. I’ve been
there myself.
I know what it feels like to build and race a successful race
car. I know what it’s like to pour my heart and soul into making a street car
everything it can be, with my own loving hands. I’ve busted my knuckles, scalded
myself, cut myself, smashed my fingers, cussed, and struggled just like every
racer or hot rodder in the world.
When my customer uses something he bought from me for his
race car or hot rod and it makes him faster or better or nicer or whatever, I
know exactly how he feels. Been there, done that, as they say.
The crunch of ’73-’74 was real, but it took some time to
really understand what was happening. Nobody really knew what was around the
corner, and everybody scrambled to figure out how to proceed.
I actually put an ad in the Lincoln newspaper that if
rationing came, I would buy gas stamps. I looked back at my experience working
for Blackie at his gas station during WWII, so I had some idea about how the
game was going to be played. Luckily rationing never came, so at least we didn’t
have that draconian issue to deal with.
But the crunch slowed down the business community, a lot.
Particularly with large items, such as automobiles. The car manufacturers had a
tough time during this period.
This had big implications for my Renault dealership at 33 rd
and O Street. We were among the fortunate dealers who actually had a viable
offering during the fuel crisis; those little Renaults got pretty good gas
mileage, compared to most of the cars on the market.
But I could see the handwriting on the wall, as far as the
automotive business. I was already on the fence on whether it would be a viable
business, when a couple of developments kind of made up my mind for me.
First, I had a chance to sell the building at 33rd and O. I
wasn’t thinking of selling, but it was one of those situations where somebody
came out of nowhere with an offer, and they clearly wanted it more than I did. I
sold it and purchased a building right across the street, and moved the Renault
agency over there.
However, Renault was talking about merging with AMC, and
since there was already a big AMC dealer in Lincoln, I knew my days were
numbered. I had an opportunity to sell the Renault agency to the AMC dealer, and
that was that. I was officially out of the new car business.
The conversion van business was much more difficult. Boy, did
it get hammered by the gas crisis! Those vans were going great guns before the
oil embargo, but with the jump in gasoline prices the market evaporated
overnight.
The manufacturing process for those vans was simple; you buy
very basic panel vans (known as the "tin can" in that business), then you
install all the accessories and interior. I had just finished a batch of these
vans when the fuel crisis hit, and they sat on my lot for quite some time.
It’s amazing how quickly the market for something can go
away. Everybody in the van business was caught in a tough spot, and they hurried
to unload their inventory.
I took all my vans to the auction to get rid of them. I had
about $10,000 in each vehicle, and I was just looking to break even. But they
wouldn’t bring even half what I had in them, because the market was just dead
for these things. So I withdrew them from the auction and brought ’em home. I
had some storage space at Speedway Motors, so I parked ’em nose-to-tail inside a
big building, and let them sit. About a year later, the van market suddenly came
back, and I just washed ’em off, rolled ’em outside, and sold them at a profit.
It was very fortunate I didn’t owe money on those vans. If I
had, I would have been forced to sell them for half what they were worth, just
to pay off the note. I would have taken a terrible bath. But because I had no
debt, I could hunker down and didn’t get hurt at all.
That’s a great illustration on why debt is so hazardous to
your financial health. A perfect formula for going broke is when debt forces you
to make terrible business decisions. Debt might not let you wait for a more
favorable market, forcing you to make a disastrous move too early.
As the crunch wore on into 1974, the racing season got
underway. Everybody was holding their breath, wondering if the sport would
survive this economic downturn.
But guess what? Just like I figured, racers still wanted to
race. Some cut their travel, some held off buying new stuff, but they still
raced.
Where I saw the biggest change was with my suppliers. Because
of all the uncertainty, a lot of people ran scared.
With our product line of hard-core racing parts, you’re
talking about many items that only a very narrow niche is looking for. Rear
ends, ring-and-pinion gears, steering gears, etc., these are parts only sold
through probably 12 to 15 warehouses across the entire country.
Many of the manufacturers of these parts were not really into
mass production, because the quantity they produced was relatively small. Many
hadn’t invested in newer technology, and still used antiquated lathes and drill
presses, punch presses, etc. They typically invested money in the late summer in
raw materials, and spent the fall and winter building up their inventory for the
late-winter and spring rush. In the fall you basically do no business, because
all the racers typically wait until winter to build a new car or update their
existing stuff.
So if you’re a manufacturer—or retailer, for that
matter—operating on a shoestring, trying to feed your family, it’s pretty tough
to come up with the money to spend on raw materials or products. Even in a
strong economy, cash flow in this business is very difficult. Very
difficult.
You can’t just press a button in February and suddenly have
50 rear axles on your receiving dock. You would call the supplier and order 50
axles, and then he’d go out and get the raw materials, build the product, and
then ship it to you. It took time—sometimes quite a while—to build 50 rear
axles.
I had long ago figured out that in order to prepare for the
spring rush, I had to stockpile the stuff from September to March. I couldn’t
just pick up the phone and order the parts and get them the next week.
(By the way, it’s still like that today with most of our
products. You operate on a very close margin, and there isn’t much room for
mistakes. You can’t be wrong on your production run very often, or you’ll go
broke. You can’t produce a thousand pieces and only sell a hundred. Almost every
other business operates on a stronger margin, but in our world it’s much more
challenging.)
But as we entered the winter of 1973-74, I continued buying
product just like I always had. Although there was very much a question about
what the future held, my instincts told me that in the spring people were still
going to be racing, still going to be building hot rods. So I went about
building my pool of inventory just as I always had.
Then a funny thing happened: When springtime came, our sales
volume doubled. Doubled! That old adage is true, "You can’t do business
out of an empty wagon." I was one of the few companies selling hardcore parts
that had inventory, because so many suppliers, wholesalers, and retailers had
cut back that winter.
Guys called me from New York with a tough, gruff voice (you
have to be tough to even exist in New York), "Well, they told me you’re
the only guy that’s got the ring-and-pinion set I need…I called 20 places, and
somebody says you’re the only guy. How much are they?"
I gave ’em my price—and I didn’t raise any of my prices,
because I wouldn’t have liked that if I’d been sitting on the other side of the
table—and the guy said, "Where you at?"
Of course, if you live east of the Mississippi and west of
the Rocky Mountains, you’re not going to know where Lincoln is. I’ll guarantee
90 percent of my new customers couldn’t put their finger on the state unless
it’s got the name on it. And the guy said, "Go ahead and ship it."
As it turns out, it was a crucial period for Speedway Motors.
I had inventory, and I increased my business. Simple as that. It was the first
really big burst of growth my company experienced, and it proves once again that
even in adversity, there is opportunity.
In the end, I was right: My customers didn’t stop racing.
They didn’t stop building and running hot rods. Even though times were tough,
they didn’t abandon their passion.
And, I might add, I don’t think they ever will.
<Back to top>
|