All in the family at 100-year-old Ford dealer

When Kelleher Motor Co. first opened for business in 1911, the average price of a home in the U.S. was $4,800, a stamp cost 2 cents and William Howard Taft was president.

Much has changed, but the Ellensburg, Washington Ford dealership still stands on the same site Jack Kelleher staked out more than 100 years ago. It has endured the Great Depression, two World Wars and the latest global recession, which has ravaged the automotive industry, crippling dealerships and forcing competitors - General Motors and Chrysler - to declare bankruptcy and take massive government bailouts.

Those cash infusions did not sit well with Phil Kelleher, a former investment banker who two years ago took the reins of the business his Irish immigrant grandfather founded, shortly before the throes of the recession.

Bad management shouldn't be rewarded by bailouts, said Kelleher, 45, referring to the combined $80-billion in government relief received by Chrysler and GM. Ford not taking the money - we're very supportive of that. From a personal perspective, our philosophy is very much a market-oriented philosophy.

The youngest of nine children, Kelleher runs the dealership with his mother, Colleen, 83. His oldest brother, Jack, works on the sales floor; two other brothers hold minority interests in the business.

Kelleher, who left a longstanding job at Barclays Capital in London arranging leveraged buyout financing for the bank's private equity clients, used his financial acumen to help the family business through a difficult 2009 year when, like many dealerships, it lost money. He implemented tighter controls on everything from energy consumption to employee productivity, and especially, inventory.

We kept doing what we've always done but with a closer attention to detail, said Kelleher, who sells between 350 and 400 cars, trucks and SUVs in a good year. It's amazing how much money you can save.

The new entrepreneur applied lessons learned from his late father, Joe, who kept the dealership humming along in the late 70s and early 80s, when interest rates skyrocketed, by not relying on expensive bank financing to bring in more cars.

He didn't have that huge interest expense, said Kelleher, who repeated the practice of using equity to finance much of the dealership's new merchandise.

The business also gained access to a wider selection of Ford cars and trucks - with no capital outlay - through an informal industry practice known as dealer trading. Sellers in a specific region keep each other in the loop and swap merchandise when they can, so as not to overstock their own lots with aging vehicles.

That's another way to minimize your needs as an individual dealer, Kelleher said.

FORD REVIVAL

Ford's refusal of a bailout has actually helped dealers such as Kelleher Motor pick up new business, as some consumers were turned off by the idea of buying from government-rescued automakers. Their ranks included farmers in and around Ellensburg, an agricultural community that is host to Central Washington University and a stop on the professional rodeo circuit.

When it came time to get a new car, they were giving Ford a shot, said Kelleher. I can give you numerous examples. I was surprised.

Ford dealers around the U.S. have been experiencing sales and volume trends ahead of U.S. rivals this year. Year to date, Ford sales are up 27.2 percent, according to data from Ward's Auto. That compares to gains of 14.3 percent by GM and 12 percent by Chrysler.

In June, J.D. Power and Associates, which publishes customer satisfaction rankings in the automotive industry, said Ford ranked fifth in its initial quality survey, reaching the top five for the first time in the study's 24 years. The company's redesigned Mustang and Taurus models were highest in initial quality in their segments.

However Ford's path is not without obstacles. To avoid taking a bailout, the company drew down a revolving credit line it had earlier arranged to prepare for restructuring. Ford ended the first quarter with automotive debt of $34.3 billion, but paid down $3 billion in April.

Ford was able to look like a fair-haired child, yet they're going to have cost issues, some loan renewal issues in the year to come, said Chuck Eddy, a Chrysler dealer based in Youngstown, Ohio, who also serves as state director for the National Automotive Dealers Association.

They've got an incentive budget that's pretty heavy, he said. Their dealer network is still very bloated.

Ford was not forced to trim its dealer network to comply with the bailout arrangement, as were GM and Chrysler, which quickly shuttered hundreds. It has instead been trying to shrink its ranks in less draconian ways, such as helping to arrange consolidation in dense urban areas.

Meantime, Ford dealers around the country are hewing to the cost-cutting measures they began implementing during the downturn, said Dennis Snyder, president of Rich Ford Sales in Albuquerque, New Mexico and chairman of the Ford National Dealer Council.

For the year 2010, dealer profitability is much higher, said Snyder, noting floor plan expense throughout the Ford system is down 20-25 percent, compared to year-ago levels. Now that the market is coming back, they're profiting from: one, more customers and two, better expense structures within their dealerships.

Besides thrift, Kelleher Motor is also relying on simple, old-fashioned service strategies to keep longstanding customers coming back, while winning over some new ones. That recipe includes having a new car delivered as far as 100 miles away.

It can also entail Kelleher working on a Sunday to accommodate a customer who has experienced a breakdown on the highway. It's no different than what his father and grandfather would have done.

I've sold cars to people who bought cars from my dad in 1955, he said, adding: Service is key to our business.