Private Equity is the Latest Threat to Auto Media
When "optimization" hurts culture. And jobs.
HAPPY RACE DAY! especially to the mad geniuses behind the inaugural F.A.T. Ice Race in Aspen, Colorado that took place over the weekend. Our friends at Oilstain Lab and BBi Autosport were on hand, along with other like-minded maniacs.
Check out this article and photo gallery in the watch blog Hodinkee to see the madness on full display.
In today’s email:
VinFast stifles critics: An explosive report hits the growing brand
Origin of the 25-year law: Our latest book excerpt
Hungry for Hoonigan: The cherished brand becomes a cautionary tale
Skyline Obsession: Yet another GT-R genius in Japan
In the News
BIG SCOOP in the auto journalism world this week as Kevin Williams of InsideEVs.com reports that the automaker VinFast, in the middle of a fledgling effort to gain market share in the U.S., engaged in the intimidation and detention of media members critical of the company in its native Vietnam.
Williams’ report is engaging, enterprising and critically important. It’s the kind of automotive journalism that acknowledges the car world does not exist in a vacuum, but is part of a complicated tapestry that includes corporate ethics, social responsibility, public investment and international relations. And he cultivated sources, corroborated claims independently and pored over corporate documents in order to paint the whole picture. Kudos to Williams and the IEV team for an important and inspiring project.
IN MY OWN end of the world, if you missed it earlier this week, check out the latest excerpt from my book Cult of GT-R which published on Monday:
Book Excerpt: Cult of GT-R, Chapter 6
This chapter hones in on the largely-forgotten tragedy and trial that ultimately gave us the Imported Vehicle Safety Compliance Act of 1988, commonly known as “the 25-year law.”
I’m excited to post this now because, very soon, I’ll be appearing as a guest in multiple podcasts that discuss this issue in detail. Stay tuned and come back next week for links to those episodes!
👇 And now: here’s my main article for the week:
P.E. Firms and the Future of Journalism
The hemorrhaging of talent started in October. That’s when Hertrech “Hert” Eugene, Jr. announced he was leaving Hoonigan after 10 years as an on-camera personality. Hert played an integral role in building the brand into a juggernaut of automotive media, particularly on YouTube, where the channel counted millions of fans. But after the death of Hoonigan founder Ken Block in early 2023, he explained in a heartfelt goodbye video, it was time to move on.
Then there were more. Ron Zaras announced his departure in December, weeks after a similar video from Vin Anatra garnered 1.1 million views in his own goodbye. Those came in the wake of the departure of Brian Scotto, an original co-founder alongside Block in 2010. The mass exodus of leading personalities left legions of fans scratching their heads.
What happened to their favorite brand?
In their respective goodbye videos, and interviews that came in the weeks following, those hosts explained that the time had come to move on, and a variety of factors contributed to their decisions. But their explanations revolved generally around one watershed moment: the sale of Hoonigan in late 2021 to a conglomerate called Wheel Pros. The corporation is home to dozens of automotive brands, with its arms in media, auto parts manufacturing and lifestyle branding. Many pointed to the involvement of Wheel Pros as the beginning of the end for Hoonigan.
But there was another, less visible player in the whole equation. At the top of the pyramid, overseeing both Hoonigan and WheelPros, as well as nearly 90 other brands, was a private equity firm called Clearlake Capital.
What is Private Equity?
In short, private equity is a form of investing through the practice of acquiring private companies. Once bringing a brand into the fold, a PE company seeks to increase its value. That could mean boosting revenue, or investing to update its practices.
Sometimes, that means “streamlining” or “optimizing” its operations. This is usually code for cost-cutting, and often leads to layoffs. One of the main fears among employees when their employer is acquired by PE firms is that they’ll soon find themselves in the unemployment line.
The growth of private equity has been swift. In recent years PE firms have become heavily involved in tech companies, as well as some industries — such as healthcare, agriculture and education — where cost-cutting poses significant public risk. The firm Cerberus Capital drew criticism for assuming control of a Boston-area nonprofit healthcare system in 2010, only to extract value and close it after three years.
Private equity has turned to media and journalism with particular verve lately. In January, layoffs hit the entire staff of the iconic publication Sports Illustrated after the company licensed to produce it missed a payment to the PE firm that owns it.
A study by the National Bureau for Economic Research found that while PE involvement may keep newspapers from folding, there were many consequences associated:
Private equity brings exceptionally high-powered and short-term incentives to increase firm value… We find that following buyouts of daily newspapers, there is a shift in the composition of news away from local government issues and toward national politics topics. The absolute amount of local news declines as well. We document real effects of these changes, in the form of lower voter turnout and lower awareness of local politicians. This civic engagement result is unambiguously negative, as voter knowledge of local policy issues and participation in the political process are crucial for local government accountability and, ultimately, a functioning democracy.
Where does automotive stand?
Automotive media has changed as much as any other segment in the industry, migrating largely from a wide array of prestige print publications in the 1990s and early 2000s to a much smaller batch of daily digital platforms today.
PE firms have entered the fray to a large extent. Some of the largest and most well-read outlets in automotive media are owned by private equity — among them:
The Drive and Donut Media (Recurrent Ventures)
Jalopnik (Green Hill Partners)
Motor1.com and DuPont Registry (GMF Capital)
Even the current king of automotive YouTube is involved. When writer and host Doug DeMuro sold a portion of his automotive auction site Cars & Bids to The Chernin Group for $37 million in 2023, he also folded his YouTube channel into the deal, giving PE a stake in his video empire.
What does it all mean?
Private equity is not an automatic bad guy. Nor is it the only problem automotive media has faced, or is currently facing. All content companies are struggling to compete for attention, monetize readers and viewers, and keep up with the growing demands of investment in technology and infrastructure. Car And Driver, part of a more traditional structure within the Hearst Corporation, recently announced it would cut publication to six issues per year.
But private equity introduces a new, unfamiliar element. It has a track record of not just increasing value but extracting value. The involvement of PE firms often leads to job cuts, budget streamlining and a general culture of “do more with less” that has been ingrained in journalists increasingly since 2008.
Take Clearlake Capital. With almost 100 brands in its stable, Clearlake holds a fiduciary responsibility to its investors to act in their best interests as a whole. And theoretically, if economic downturns or other mitigating factors affect some of its brands, it may consider cutting expenses from others to offset the loss. Individuals slices may suffer so that the whole pie can grow.
This is a tricky game to play with media and content creation, which not only requires investment in staff, production and infrastructure, but also relies on the loyalty of its fanbase. Cutting resources puts those needed jobs at risk, and the loyalty of those fans on the line. This was on full display last October, when groans from fans of Hoonigan reached new heights as WheelPros announced it would change its name for the first time in its 27-year history.
Hoonigan (the original) still has star power. It counts more than 5.5 million YouTube subscribers, and its recent videos still pull views in the hundreds of thousands. Fans still connect with its cast of hosts and recurring guests as they travel around the world chasing exhaust fumes.
But the brand’s recent volatility and public departures should serve as a warning sign to the industry. Public equity is here to stay. In an ever-changing environment, it’s likely wise to prepare now for whatever sea changes may come.
And Finally…
THE STAR OF THE SEMA SHOW this year was the Japanese shop Garage Active and its founder Kazushige Sakamoto, who unveiled a stunning full-body dry carbon fiber R32 Skyline GT-R on the Vegas floor. Now, Sakamoto-san gets proper treatment from Video Option, a name that will be very familiar to Cult of GT-R readers.
If you wanted to experience the GT-R phenomenon in one short video, clear your schedule and enjoy the footage below:
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