UK: COWIE WITHOUT COWIE.

UK: COWIE WITHOUT COWIE. - A company that has made an art out of squeezing profit from every aspect of owning a vehicle enters a new era.

by Hashi Syedain.
Last Updated: 31 Aug 2010

A company that has made an art out of squeezing profit from every aspect of owning a vehicle enters a new era.

At some point in the not-too-distant future the Cowie Group will have to abandon its present headquarters. When it does - and managing director Gordon Hodgson is under some pressure to make the move sooner rather than later - people will justifiably talk of the end of an era.

Millfield House is a bizarre affair. It's not just the fact that it is a knocked-through row of terraced houses on the outskirts of Sunderland, it is the very spartan nature of the conversion that gives it the atmosphere of a minor local authority not a major plc and stock-market darling, capitalised at around £450 million.

There is history, of course, to Millfield House. In what is now the reception area, Sir Tom Cowie, company founder and life president, learned how to repair motorbikes at his father's side before the second world war and in 1946 re-opened the shop that was the starting point of the modern Cowie empire. The kind view of the building is that it became a symbol of the north-eastern, cost-saving ethic that, combined with Tom Cowie's flair and charisma, accounted for much of the group's success.

But company and founder have now gone their separate ways and the present management is concerned more with practical considerations than with rose-tinted nostalgia. Millfield House's days are numbered, and with it, the last tangible link between Sir Tom and the company he started nearly 50 years ago.

The two did not part amicably. The management, in a hasty act of disassociation, changed the company name from T Cowie plc to the Cowie Group. Sir Tom may formally be life president, but he hasn't met with the Cowie team since he was ousted last summer. Instead, at the age of 71, he is imparting his wisdom to European Motor Holdings - a motor group that is a fraction of the size of Cowie - which he joined as non-executive chairman in March this year.

It is not hard to see how problems arose. On the one hand you had the ageing entrepreneur who couldn't let go of the company he had built up; and on the other, a management that felt it was doing all the work but constantly being upstaged by a high-profile boss. A year down the line feelings are still running high. 'How would you feel?' asks Sir Tom. 'They made my life a misery. I left because I wasn't happy. There's no point carrying on if you're not enjoying yourself.' Never one to mince words, he describes as 'ridiculous', the board's decision to spurn his knowledge of the business and appoint Sir James McKinnon as non-executive director. 'They're financial pygmies,' he declares rumbustiously. 'You can quote me on that.' Hodgson, for his part, needs little prodding to vent his feelings about the man known as 'chairman' even to his colleagues of 20 years. He resented the fact that Sir Tom was on the grouse moors half the year, owned under 5% of the shares, but still liked to throw his weight around as the ultimate boss. Respected in the City as an excellent manager, but lacking Sir Tom's personal charisma, Hodgson joined Cowie in 1973 as group accountant. His path to the top was fitfully supported and thwarted by Sir Tom, but he eventually became deputy chairman in 1988 and chief executive in 1991.

Despite their differences, the one thing on which both sides agree is that the problems between them were based on personality and style rather than corporate strategy. The City will confirm that Hodgson and his men had effectively been running the company for a number of years.'It has been an orderly handover,' comments Peter Caldwell, distribution analyst at BZW (the group's brokers). Others go further, claiming that Sir Tom's departure was a positive boon - because the outside world focused on him rather than the company. 'The stock became seen as slightly undervalued. The profile of Sir Tom was diverting the market's attention away from the figures,' says another City analyst.

Those figures suggest that the company was, and is, a highly successful car finance and distribution group that has made an art out of squeezing profits from every aspect of owning a vehicle. It is also very much a Sunderland company - apart from Neil Pykett, who heads fleet finance in Birmingham, the executive board directors are all Sunderland men. The company has a plane and full-time pilot (Sir Tom had always wanted one to go off on his shooting trips) which whisks the directors around the empire. It is still cheaper than relocating outside Sunderland they reckon, where property and staff costs are wonderfully low. 'There's a bit of a Sunderland culture here,' says Steve Lonsdale, the boyish-looking finance director, who joined Cowie from Coopers and Lybrand in 1987. 'There's a north-east work ethic and a loyalty to the company.' Some basic facts: the Cowie Group turned over just under £800 million in 1993 (up from £606 million in 1992). Profits before tax rose from £24.3 million to £38 million, a rise of 43%. The group comprises four divisions: finance - which hires or leases vehicles to fleets and individuals and accounted for some 62% of profits in 1993; motor - the sale and service of new and second-hand cars though a series of dealerships - accounted for 22%; bus and coach operations and distribution - Cowie runs several London bus routes under the name Grey-Green and has exclusive rights to import DAF bus chassis into the UK - between them contributed a further 10%.

The sale of new cars is in fact the least profitable of all Cowie's activities. Competition has become so keen - 'There's no such thing as a bad car any more,' observes Iain Jane, managing director of the motor division - that the average margin was just 1.7% last year.

So why bother at all? The sale of new cars, explains Hodgson is what starts off the whole cycle, giving Cowie what it likes to call 'five bites of the cherry' for every car that passes through the system. The first is the sale of the car from the motor division to the finance division. The next is leasing the car to a fleet, followed by selling it second-hand (ideally to the original fleet driver) and then, financing the second-hand sale to the individual. All the way through there is a fifth profit to be made from repairs and servicing, and a host of other ancillary services that Cowie is forever adding to its car-care portfolio. 'We wrote the book on synergy,' claims Neil Pykett, MD of Cowie Interleasing in Birmingham, 'or we think we did.' The Interleasing operation, the main fleet finance company, is impressive indeed. The buildings - adjoining a Ford main dealership - are unostentatious but comfortable and modern, having little in common with the Sunderland headquarters. This, after all, is where the blue chip customers come - the ones who buy fleet services from Cowie and account for the biggest bite of the proverbial cherry. Cowie has about 65,000 fleet cars on the road, making it the largest contract hire company in the UK. It has grown partly organically and partly by acquisition - the most recent addition being FMM, the 5,000-strong car leasing arm of Commercial Union, bought for £18.8 million cash in March this year. Pykett, meanwhile, was also an acquisition. He joined Cowie as sales and marketing director when the company bought Hangar in 1984 (and with it the highly desirable Interleasing name). Within seven months he was joint MD, assuming sole responsibility shortly after when his co-director retired.

As Hodgson points out, it is much easier to integrate a finance company than a dealership business with its mix of personalities and individual company culture. Customers may be lost but provisions will normally be made to account for that. 'A business will normally be sold because the people running it got their rates wrong and couldn't make money,' explains Pykett. 'As a result, customers who made their choices purely on price, probably won't stay. But we are not too worried because we don't incur overheads when we take someone over.' The essence of contract hire, continues Pykett, isn't cars ('We never see a car here') but software systems. These are designed for Cowie by an in-house department that has created systems ranging from car quotations on disk to a proprietory fleet management system called Autoflex - the jewel in the crown. Designed for fleets of 300 cars or more, Autoflex reputedly manages every aspect of fleet, including, for example, keeping tabs on the individual tax implications of the car to its driver.

'We decided to go for big fleets,' says Pykett. 'Apart from economies of scale, it brings the sort of person that can pay you. Other companies are similar to us in size, but no one else has our mix of customers,' he brags. 'We have 148 who have over 100 vehicles with us.' Cowie perceives little threat to the company car from changes in tax. The most recent rulings, which link tax charges to the price of the car instead of the size of the engine, has actually been welcomed by fleet operators. According to Cowie's own research, nine out of the top 10 best-selling fleet cars are either unaffected or attract less tax under the new system.

Car sales this year continue to look healthy. Analysts are forecasting around two million new sales in 1994, up from 1.78 million in 1993. As the fourth largest car retailer by turnover in the UK, Cowie and its 42 dealerships are well poised to benefit from the upturn in sales.

But selling a new car is not as easy as it used to be. Giant Ford dealerships are finding their premises too big for the new competitive marketplace, designed for an era when Ford dominated sales. Dealerships that got rid of services like tyre repairs are now bringing them back in a bid to keep customers happy with a one-stop repairs and maintenance shop. 'If I buy a car,' says Jane, 'I want one person I know to do everything for me - 90% of what a car customer wants is the knowledge that they will be looked after for the lifetime of the motor car.' Such ideas of service are much needed - despite all the efforts of recent years, car dealers still have an image as semi-spivs, looking for punters to take for a ride. It is a slow business changing the culture of dealers. One Cowie initiative is the introduction of a new sales technique that separates product information from negotiations on price. The basic proposition is this: people don't go to car showrooms just to browse - the vast majority go in because they want to buy a car and, as such, the sales rate should be very high. At the same time buying a new car is a daunting prospect and people are put off by the heavy pressure sales tactics that are the stock-in-trade of most car dealers. So at Cowie's Vauxhall dealership in Leicester a couple of 'sales consultants' (their job title isn't fixed yet) have been designated just to talk about the cars and their features, tell customers the price without negotiation and take them on test drives. Once the customer has picked a car, he or she goes to the sales department to discuss the deal and perhaps talk about part-exchange. So far, says Jane, the rate of sales per customer through the door is 40%, compared to 20% at other Cowie dealerships.

Meanwhile the bus and coach divisions are also looking forward to healthy expansion. Cowie landed them by accident as part of another acquisition and intended to sell them on - but the deal fell through. Hodgson, it seems, has become rather fond of them. 'I was at an analysts meeting recently and they asked me, "What are all these buses for - why do you bother with them?" and I replied, "Excuse me, that division made £4 million of profits",' says Hodgson with proprietorial indignation. There are two strands to this side of the Cowie operation - running bus routes and supplying buses and coaches. Both are set for a healthy bonanza with the privatisation this year of 10 London bus companies. The operations arm has tendered for a number of new routes, while the distribution arm is hoping to supply or finance buses for other operators.

What makes the Cowie Group unique is its vast range of activities and the ability of the businesses to feed off each other. It is tightly managed, and because of its wide presence in the market, in an excellent position to stay on top of trends and opportunities.

Sir Tom's departure appears to have had no tangible effect - and for all their differences, there are similarities too between Hodgson and Sir Tom. 'We both like to do things on the "back of a fag packet" as he used to say. Sometimes I think we're generating too much paperwork in seeking control. All you really need is five bullet points to make a decision,' Hodgson muses. He sees Cowie continuing to expand through acquisition and organic growth. The retailing and leasing markets are very fragmented - Cowie is the biggest vehicle leaser in the country but still has only about 6% of the market. It would also like to add franchises such as VW Audi, Citroen, Mercedes and Renault to its portfolio.

On top of this the group is constantly adding activities such as accident management of fleet cars, local car rental (20 new locations a year are planned for the next three years) or new second-hand outlets for high-mileage cars that would normally just be sold at auction. 'We talk about five bites of the cherry,' quips Hodgson, 'but actually it's a lot more than that.'

Group activities

Turnover/profit by business 1993 (£m):

Turnover Profit

Finance 230.2 23.7

Motor 518.5 8.5

Bus + coach operations 14.4 1.6

Bus + coach distrib. 16.1 2.3

Agric. Indust. + Hortic. 20.5 0.3

Head office and misc. - 1.6

Total 799.8 38.0

Shareholders funds (£m): 135.6

Number of employees: 3,600.

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