Last year I wrote a column about Icahn Enterprises purchasing Uni-Select USA and questioned what the real reasons were for a major manufacturer (Federal-Mogul) wanting to get into wholesale and retail parts distribution.
Since then Icahn Enterprises has outbid Bridgestone to acquire Pep Boys. If this were a game of Monopoly, Icahn seems to be focusing on Boardwalk and Park Place, accompanied by lots of hotels, and owns all four of the railroads as well. In the meantime, the rest of us seem to be stuck with Baltic Avenue and rely on Chance as our primary business strategy, mortgaging every property we have to stay afloat in case we “roll the dice” incorrectly.
While being in the automotive aftermarket business is by no means a game, everybody wants to be a major player and Icahn is positioning himself to do just that. He’s got the manufacturing, a distribution system to the jobber level, company owned jobber stores, and now a sizable retail chain complete with tires and repair. An automotive monopoly? Not according to regulating authorities, but old timers like me are envisioning something else – an end game. Let me explain my convoluted and comforting theory.
In the game of monopoly the first move is to roll the dice. Becoming a jobber store or service center is not very different in that respect. Each continuing roll either leads to property acquisitions, rewards or penalties.
After several trips around the board (years in business), patterns begin to emerge as participants start to carve out their corner of the board. Deals are made, properties bought and sold, losers drop out and some unfortunate souls occasionally go to jail.
But what about the malingerers? The ones that have enough to make it around the board in spite of all the taxes, mortgage fees and penalties? We can’t really get any bigger without taking the risk of “rolling the dice” again and getting hit with the rent of four hotels on Park Place. This competition has gone on so long that our kids have lost interest in watching.
My Uncle Bob, a serious Monopoly player, is drooling with anticipation when anyone rounds the corner of Atlantic Avenue, approaching the hotels on his properties.
I’ve gotten so jaded and tense, I’m happy to just visit someone in jail or get free parking, and I’m not just talking about the game of Monopoly! I don’t want to get beaten, but I would like to get some rest. All my Uncle Bob has to do at this point is make me an offer to allow me some small pittance of dignity for having played well and made it this far. Do you think my Uncle Bob knows this?
The Icahn Enterprises empire is being built as we speak. There is much work to be done and a chance to revolutionize how product is sourced, built, dispersed, marketed and sold. This influence also will have a similar affect on tire distribution. Simply put, Icahn Enterprises outbid Bridgestone to win the hand of Pep Boys. While Bridgestone could have benefitted from having this huge retail tire outlet, the automotive parts portion of the business was probably seen by them as an odd Monopoly game piece token resembling a lead weight.
Besides, Bridgestone can still sell its tires and those of other manufacturers in their own retail outlets. Bridgestone didn’t lose anything; in fact, they made more than $30 million in contract assurances that Icahn Enterprises paid when Pep Boys reined back on its sale agreement with Bridgestone. Heck, I’d love to lose out on a deal and still make $30 million. I’d cry all the way to the bank, wiping my tears with bills of grotesque denominations.
Now, once this huge empire is erected, nothing in the aftermarket will escape its shadow. And the most astonishing growth potential might be in the little hamlets similar to Baltic Avenue or Mediterranean Avenue, within bohemian valleys that shelter successful automotive jobbers and service centers. Many of these outlets have no exit strategy other than to simply lock the doors and go home, regardless of how successful they have been throughout the decades.
In no way am I looking to Carl Icahn to act like Uncle Bob nor to deploy tactics akin to Uncle Bob, but the set up is enticingly similar. Buy the good stuff and then pick off the remainder of the players that are left. And those of us left with no exit strategy might be willing to take 50 cents on the dollar just to be able to leave the game. Maybe it could be retirement by proxy?
I do not assert that this is all part of Icahn Enterprises’ plan, but I don’t discount the possibility that it probably should be. Big guys are gobbling each other up to the point that there will be no big guys left. Just one very big guy. I wonder what I would look like with a monocle and a top hat?
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