Wheeler and dealer
Some succeed in sports. Others succeed in business. And then there are the lucky few who can do both.
(FORTUNE Magazine) - The month of May means only one thing for auto-racing fans: the Indianapolis 500. For Bobby Rahal, the 500 has become a personal tradition - he has competed in 21 races and won as a driver, in 1986, and as an owner, in 2004, when his team, which he co-owns with talk-show host David Letterman, took the checkered flag.
In 2005, Rahal Letterman entered rookie driver Danica Patrick, who became the first woman to lead the race and finished fourth. (This year Patrick says she "drove harder than I did last year," to come in eighth--still a respectable result in the grueling 500-mile race.)
Many fans may not realize that Rahal, 53, is an entrepreneur as well. He owns six car dealerships in Harrisburg, Pa., and the Pittsburgh area, representing 11 import brands. A lot of drivers have their names on dealerships, but Rahal, who opened his first outlet in 1989 while he was still racing, gets his hands dirty in every aspect of the business.
Here he explains how his success on the track informed his success in the business world.
My father was an entrepreneur. He had a business trading commodities - fruit-juice concentrates and things like that - in Chicago, so I grew up in an entrepreneurial environment. He loved cars, mainly sports cars, and raced them as a hobby. We had friends who were car dealers. I'd go and hang out at the dealerships. I just loved cars.
I went to Denison University, a small liberal-arts college in Ohio. Graduated with a BA in history, which prepares you probably for not much other than the next step. I never expected to race as a pro. The way my father did it was you had a "real job," and if you were successful at it and made enough money, then you could go off and race as a weekend warrior like hundreds of thousands of people do in this country every weekend.
Still, while I was in college, my father had an old racecar, a Lotus, and he said, "Well, if you want to go drive it and get your racing license, go ahead." So off I went, and I started winning a lot of races. I won a national championship when I was in college, an amateur championship, and I met a number of people, one of whom was Jim Trueman, who started the Red Roof Inn hotel chain.
I managed to convince Jim, my father, and a college friend who was part of the Schlitz brewing family to back me. The thought was, "Let's go racing for a year professionally" - that just meant you were running for money; it didn't mean you made any - "and see where we can go."
Again, somewhat nominal expectations - I just hoped I would be competitive. First race, I was on the front row of the starting grid. Second race, I was on pole position. I'm thinking, "Wow, this is pretty cool." No grand plan was ever in place, but with each passing year I had greater and greater success.
In my early 30s, particularly as I started to make some money, I knew that it wasn't going to be forever, that at some point everybody retires. Most athletes are delusional in the sense that nobody wants to admit that they're washed up. The roar of the crowd - it's a powerful narcotic.
Many times I'd seen drivers who retired through injury or they were forcibly retired - nobody would hire 'em - and they became embittered by it all. And I thought, "God, what a horrible thing - to spend 20 years of your life doing something you love and then hate it when you're done."
I wanted to make sure that I had as much control as possible over the remainder of my career. One way I could do that was by owning the racing team and being the boss. There were a lot of extra demands that came with it, but the upside was that I'd have some level of determination over my career. I started Rahal Hogan Racing as an owner-driver in 1992.
Another way to maintain control was by starting the dealerships. Those two things happened concurrently but in different ways. So even though I was still racing, the other half of my day was spent working toward this dream of running a dealership.
Certainly I was fortunate, because my success in motor sports created a lot of opportunities to meet people. I was introduced to the top Honda people right after I won Indianapolis in 1986. [Honda now builds engines for the Indy Racing League.] We'd meet on occasion, and I expressed to them that I was hoping to be a Honda dealer at some point. Of course, in the middle to late '80s, Honda dealerships were like gold.
Ron Ferris is our CEO and my partner. He was a Mercedes-Benz/BMW salesman back then, at a big store in the Chicago area where I was from. He had day-to-day experience at the stores and was a great guy and a super salesman, very ethical. I went to him with a proposal, and I guess it was the best offer he had that day. We opened the Honda store in Harrisburg, Pa., in January 1989. I was 36 and would race for another eight years before retiring.
In those days most of the Hondas were being built in Japan, so they came over full of Cosmoline, which is awful stuff, a very strong chemical; they don't use it anymore. Back then it was sprayed on the cars to keep them from rusting on the boat coming over.
The day before we opened the store, we're in the service area of the dealership. Everybody's doing everything, and I'm de-Cosmolining a car. This mechanic's looking at me like he must have seen a ghost. But as I told him, "Hey, the job has to get done." I don't care what your title is, you do whatever it takes.
We had very humble beginnings and expectations. I don't think we ever thought we would go beyond just the Honda store initially. But we had 25 employees, and we're at 800 now. The management of those people has been our biggest challenge, and it's why we've stayed in one area.
Yeah, it'd be great to say you have a store in Florida, and then you have an excuse to go to Florida, but the management of that is tough. And that, to me and Ron and all of us, is the most critical factor. One poorly run dealership can drag everything down with it. I think we've gone outside our company for a management employee - in all this expansion, only one time.
One of the great success stories between Ron and me is that we feel the same way about business. The retail side of autos has a reputation that is less than stellar. My right-hand man on our racing teams was a salesman in Indianapolis for a while, and the stories he tells about some people in the business - I mean, the first people they sell to are their relatives, right? Then they move on to another dealership and start all over again.
We always approached things a little differently. I don't think we wanted to take every dollar on the table. Word of mouth is absolutely the most powerful form of advertising in the automobile industry, especially because everybody can throw numbers out there in the newspaper. There's no genius to that. But you treat people right and they'll be back in droves, because they'll tell their friends, who'll tell their friends.
Here's an example. A woman and her daughter from Minneapolis were traveling on the Pennsylvania Turnpike when they got a flat tire. It was a Sunday and getting toward dusk, they didn't know the area, and they started to panic. So they called our Honda store in Mechanicsburg and got a mechanic on the phone.
The store was closed - he was there working on his own car. But he went out to change her tire, brought her back to the dealership to fix her flat, and then sent her on the way. They were never going to become a customer because they didn't live in the area, but our mechanic did the right thing.
In 2004 and 2005 we won every major customer-satisfaction award at every one of the franchises we own. We're usually No. 1 in our region for each brand and among the top 20 or 30 dealerships in the country.
My time on the racing program has shrunk quite a bit over the past three years or so, in part because of the dealership interests. Even when I'm not here, I'm on the phone or on the computer, or I'm in conferences, or I'm doing work with manufacturers or going to an NADA show. So it's probably fifty-fifty at this point. I see that actually increasing over time, the percentage that I spend on the dealerships.
Everybody says, "Well, I'm the luckiest guy in the world." But I think I really am. I went through 25 years of motor racing basically without a scratch. That's during some of the most dangerous times in Indy car racing. But I learned how fragile everything is. Not the car per se, but your position, your career. One day you can be at the top of the heap, and the next day you're at the bottom.
So that's how I live my life. As a group, we run scared because we don't assume anything's forever. We don't assume that just because it was good today, it's going to be good tomorrow. I think that's why our customer-service numbers are so high - we feel every day we have to prove that we belong here.
I never wanted to be an absentee owner. I can't sit on the beach and just collect the checks. I very much enjoy the inner workings of this business, and the reputation I've built up in motor sport is tied to it.