Motoring through the cycles.

Motoring Through The Cycles

Thirty years ago, late-night passers-by who stopped to check the used cars at Wholesale Motors would have found the 24-year-old proprietor asleep in the back seat of his merchandise, his dog, Wholesale, and a rabbit named Repo sharing the front. The weird scene

on Ala Moana Boulevard was part of a grander scheme dreamed up by Joseph P. Nicolai. By foregoing luxuries like a home, working 18-hour days and hitting the airwaves with Honolulu's first used-car TV commercials, the budding entrepreneur reasoned he could make a dent in what was then a low-key car-buying town. "It was kind of a Sleepy Hollow," Nicolai says. "I was prepared to work harder and to sacrifice a lot more than what I felt the dealers at the time were doing."

The sacrifices paid off. Nicolai - the son of an Italian auto craftsman-technician, a car and motorcycle racer who'd also won distinction as the top West Coast salesman at Ford Motor Co. - poured his skills and energy into a fledgling enterprise that generated $300,000 in sales in its first year. Over the next three decades, Nicolai would steer Wholesale Motors through a war, an oil crisis and an all-out recession, fine-tuning and overhauling whenever the engine stalled. Nicolai grasped the key to survival early on, when the Vietnam War plunged his business into red ink: A multiwheel vehicle could keep running even when one of its tires blew out.

Wholesale Motors today encompasses sales of Chevrolets, Geos, Mazdas and Maseratis, Kawasaki and Harley-Davidson motorcycles, jet skis, an extended warranty company, a leasing division, real estate development and management projects, and advertising arm and a small construction firm. With $46 million in 1989 revenues - and an anticipated $55 million this year - the company has finished its diversification drive. So what is the grander scheme for the future? Says Nicolai, the 54-year-old former racer adept at shifting business gears: "Constantly improving what we have and maximizing its potential." Into high gear. Potential was what stopped the discharged Army private in Hawaii en route to a life in Italy in 1960. In those days, when Thunderbirds and Impalas ruled the streets, Honolulu was still an under-dealered town whose players included Aloha Motors, Lippy Espinda's used car operation, Schuman Carriage and Honolulu Ford.

In 1961, Nicolai put up all $800 of his savings, rented a $75-a-month, 20,000-square-foot lot that now houses Ward Warehouse, hired a mechanic, fashioned an office out of scrap lumber, put up a hand-lettered sign and opened Wholesale Motors. The one glitch that prevented him from selling cars was the fact he didn't have any. But Nicolai was a college thespian who had won prepubescent bit parts in movies like Frank Sinatra's "The House I Live In" and Cary Grant's "Christmas Eve." He produced, directed and starred in Honolulu's first used-car commercials, sitting behind a desk in clean-shaven earnestness and pointing out to viewers the simplicity of selling their unwanted vehicles to him. Within 10 days, Wholesale Motors had more than 100 used autos for sale.

Cars, though, were more than a business for Nicolai - they approached an obsession. Weeks later he began making frequent trips to California to buy ostentatious custom cars for resale. By 1963, when Nicolai moved the business to 250,000 square feet of leased land on Nimitz Highway near Lagoon Drive, Wholesale Motors was known for selling '55, '56 and '57 Chevys with 20-coat paint jobs, cars with pearly hues and bodies that shone gold and silver in the sunlight, and whose interiors boasted the tuck-and-roll upholstery styles popular in California. Nicolai's father, Peppino, arrived from Los Angeles that year to take over the service department - a rarity for a used-car business at the time - and began customizing the popular autos himself. "There was nothing you could compare it to," Nicolai recalls. "In some cases the price was maybe 10 to 15 times greater than an unaltered stock car. But you were getting something very special, that nobody else had."

Wholesale Motors sold 309 used cars for about $450,000 in its first month on Nimitz. Its 27-year-old owner was ecstatic. The dealership had grown from one employee and no cars to more than 60 workers selling $2 million in vehicles by its third year. As Honolulu's biggest-volume used-car dealer, Nicolai was sitting on top of the industry in the mid-1960s when the Vietnam conflict escalated into war and thousands of U.S. troops pulled out of Hawaii, leaving behind a vast army of partially paid-for cars whose remaining payments were suddenly left to Wholesale Motors.

By 1965, loans and liability for the repossessed vehicles were a $1-million noose around Nicolai's neck. It was the absolute low point of his career, although at the time he didn't know it. "There was never any doubt in my mind that I wouldn't be able to make it through - none," he says. "I was a very young man, very confident of my abilities and perfectly willing to work 18 hours a day, seven days a week."

Stalled engine. Nicolai wound up sleeping at his dealership again. War and recession plunged sales by 50 percent in some months. More than half the staff resigned or was laid off; the remaining 25 took pay cuts of 10 percent. Nicolai and his father pared their own salaries, Joe to about $300 a month after giving up his Waikiki apartment. He shelved long-term plans to expand into his gargantuan property and contracted instead, moving his service department to smaller quarters behind the showroom and relinquishing 75,000 square feet. Parcels were subleased to businesses including Mike Salta Pontiac and Servco's Commercial Motors - both of which still tenant the Nimitz strip.

During this crunch, the motorcycles Nicolai had begun selling in 1962 found increasing popularity among cash-tight buyers. In 1965, motorcycles made up perhaps 1 percent of total sales; by 1970, the combination of Kawasakis and Harley-Davidsons brought in 5 percent of company revenues. The lesson wasn't lost on Nicolai. "What I learned in those years, and what my business nose told me," he says, "was that I had to make sure that I didn't have all my eggs in one basket. I had to start developing my motorcycle income and some real estate income too. Those two factors were major elements in pulling us out of the hole."

As things turned out, diversification had the effect of shoring up Wholesale Motors in time for the next crisis. What was left to Nicolai during the oil shocks of the 1970s was largely fine-tuning. Like other dealers plying Detroit's cars, which were large and fuel-inefficient, he took to ordering bigger quantities of smaller - and typically Japanese - automobiles like Mazda's four-cylinder line. By then Nicolai was nurturing several franchises, Mazda included. He had dealt also in Studebakers and Prince cars from Japan but given up both, the former when it went out of business in 1966 (and was succeeded by the Avanti line, which Nicolai sold for some years) and the latter in 1968 when Datsun bought the company and withdrew his franchise rights because other Datsun dealers already were in Hawaii.

Nicolai, however, still had his distributorship agreements for Kawasaki and Harley-Davidson motorcycles. While rising gas prices and long queues at the pumps depressed car sales throughout the industry, he had the satisfaction of watching his cycle sales triple, helping to offset his auto losses. "The motorcycle business during those years exploded. We were sold out all the time," he remembers. "We had people come into our showroom that normally you would never see around motorcycles - middle-aged, conservative Japanese couples that would never have thought of driving a motorcycle before."

Wholesale Motors thus weathered the two major crises that marked its two decades in business. That helped matters at the beginning of the third, when the national economy slid into a recession in 1981 and interest rates doubled to more than 20 percent. Interest payments are an inevitability for all dealerships, which take out loans to stock their inventories of cars. Nicolai's solution was simple: He cut his stock in half, effectively holding his interest payments at prerecession levels. It meant fewer vehicles to sell - and sales at Wholesale Motors fell 30 percent at times in the early '80s - but then again, in a recession fewer people buy cars.

The picture was similarly grim at Nicolai's real estate ventures. These had expanded from the initial subleasing of adjacent properties during the Vietnam War to an eclectic array of other commercial properties, vacant lots, resort condominiums and beachfront properties locally and on the mainland - altogether worth more than $40 million today. Most were financed with revenues from Wholesale Motors' combined divisions and rented to commercial tenants - 55,000 square feet in Waipahu, for instance, was leased to Burger King and Nissan of Waipahu - and some developed and exchanged for other property. Rarely was anything sold. In the first half of the 1980s, recession and a soft real estate market meant flat rental revenues for Wholesale Motors, and in 1982, a drop of 5 to 6 percent as some tenants went out of business - among them an auto body shop on Koapaka Street - and others such as Dollar Rent A Car consolidated.

With the corporate engine idling, motorcycle sales again revved up. Bikers snapped up Kawasakis and Harley-Davidsons - the latter of which Nicolai sells on contract to the Honolulu Police Department - holding mainland powerhorses like Honda and Yamaha to lower shares of the local market. In an industry where dealers are likely to view bikes as a hobby first, "business first is really the key," says Steve Spiegel, who sells all four lines as executive vice president of South Seas Cycles and Cycle Sports. "It's a testament to Joe that in the early '80s when Honda was king, here in Hawaii they were a small player, and Kawasaki and Harley-Davidson were it." Demand was such that Cycle City, Nicolai's retail shop next to JN Chevrolet Geo Mazda Maserati on Nimitz, stopped running Harley-Davidson ads. Even now, the manufacturer can send only two-thirds of the bikes the store orders.

Fleet-footed sales. In the auto world, logic dictates that when people stop buying new cars, they bring their older makes into shops for more servicing. In hard times, this means efficient service departments can help keep a dealership alive. Nicolai was learning this anew as the 1980s passed their halfway mark. He had taken to chasing fleet sales to the insatiable car rental companies thriving on Hawaii's tourism market, to the extent that they made up half his car sales by 1988. In that year, Wholesale Motors was doing more than $54 million in revenues, about $20 million of which could be traced to fleet sales and a sizable chunk of the remainder to his 50 percent-plus hold on Hawaii's estimated $20- to $30-million motorcycle market.

Behind the showroom, the 35-person service department was busy digging broken keys out of U-drive ignitions and replacing mangled door handles, while retail customers waited up to two weeks for service appointments. It didn't take long for Nicolai to realize he'd made a mistake. "It was a horrible misdirection of energy to concentrate on the fleet business at the expense of our retail customers. That retail customer that wants to get his car serviced is entitled to superior service because he bought it from us," says Nicolai. "The U-drive cars were coming into my service department and blocking the door for my regular customers. It was hurting our bottom line in the sense that we were getting service complaints - which meant they may not come back and buy another car from us." Nicolai reined in fleet sales, virtually pulling out of the market this year. The results were reflected in 1989 sales of $46 million - $8 million less than Wholesale Motors charted the previous year.

The decision, though, has boosted the bottom line. Nicolai's profits are bucking nationwide and statewide trends, holding at a solid 4 to 5 percent even as mainland dealers earn less than 1 percent on each car sale, while Hawaii dealers - riding the strength of the local economy - make about 1.5 percent. Wholesale Motors was selling 25 percent more cars to retail customers by late summer than it did a year earlier; others in Hawaii, by contrast, were seeing on average no growth. All this, too, in an industry caught in a crunch between falling profits and rising dealer costs. "Joe is extremely well-respected in the business," says Hardy Hutchinson, manager of the Hawaii Automobile Dealers Association. "He keeps an eye on everything - even the little things. That means he has happy customers who come back."

After 30 years, Nicolai estimates that up to half his sales are to people who have either bought cars from Wholesale Motors before or been referred there by satisfied customers. Crucial to keeping their loyalty is an emphasis on service - a job made tougher by everyone else's realization that advertising good service helps boost sales. Nicolai was among the crop of Honolulu dealers who two years ago began VIP service for new-car buyers, picking up and returning vehicles that need servicing. A more recent aim is to give free preventive maintenance on little things that break easily and often, like fan belts and windshield wipers, if he can buy them in bulk from cooperative parts suppliers. "My position has always been that 95 percent of this business is the service department," says Nicolai. "When you sell a car, you marry a customer. You don't divorce the minute you get paid."

With car sales surging, cycles up 25 percent and rental income contributing $1 million to company coffers, Nicolai's business expects a comfortable 20-percent hike in revenues this year. Barring another oil crisis or economic disaster, that would give Wholesale Motors a record $55 million. There have been no new diversification projects since two years ago, when Nicolai created a pair of divisions - JN Advertising and JN Construction - to handle company ad campaigns and remodeling/building projects. About that time, too, a project he began in 1961 finally reached maturity: As an optimistic entrepreneur, the 24-year-old Nicolai had, besides instituting a 100-percent company-paid pension and profit-sharing plan, promised new cars to workers who stayed with him 25 years. This year and last, he gave away his first four.

And the ideas are still coming. "The goals you set for your business operations must be a cut above what everybody else has, and since that cut above is a moving target, you never can achieve what you really want," Nicolai says. "I have 10, 15 different projects on my desk now. It's a constant process, the bottom line of which is hard work. It's not any more complicated than that."