Motor City: A Disruptive Business Model (a)

This case is appropriate for teaching in entrepreneurship, strategy, marketing, and finance courses. Motor City, the business brainchild of an absentee owner, is a new business model for selling used cars requiring a senior management familiar with the car industry. Some issues are: How should the management be compensated to align interests with the owner? Stock ownership, phantom stock ownership, profit sharing? The B case (ENT-0131) that follows raises such issues as matching the pace of growth with available cash flow. Excerpt UVA-ENT-0130 September 24, 2009 Motor City: A Disruptive Business Model (A) In 1986, Steve Jones (Jones) was the leading cardiologist in Kansas City, Missouri. He had built a cardiology practice with ten doctors, four physical fitness trainers, two nutritionists, and two social workers plus twelve cardiac nurses that served the Midwest region of the United States. His state-of-the-art facility included a fully equipped physical-fitness facility and an all-suites hotel for visiting patients and families. His practice was affiliated with several major hospitals to which it sent patients in need of surgery. Jones grew his practice by attracting patients from other parts of the United States, Mexico, and South America. He invested his wealth in several entrepreneurial ventures in the Kansas City area alongside members of the elite families of the region. He was a passive investor in land-development deals, a regional shopping mall, and several major apartment projects; however, his cardiology practice left him little time for active management of his business investments. Besides work and his family, Jones's other passion was cars, especially foreign high-performance cars. He was a regular at Kansas City luxury car dealerships, where he bought two new cars every six months, drove them until he wanted to try something different, and then traded them in on new cars. Over the years, he became friends with both the owner and the general manager of the biggest BMW dealership in Missouri and learned the financial side of the car business. In doing so, Jones became interested in how car dealers financed their car inventory through manufacturer floor plans and their used cars through bank lines of credit. Dealers generally held used cars for short periods of time and then sold the cars at one of the two big national used-car auction houses. Dealers did not want to carry a large inventory of used cars because their focus was on the sales and service of new cars. . . .