Public retailers said last week that profits on used cars and finance and insurance operations drove increases in their third-quarter earnings. But several complained of poor new-vehicle profit margins because of intensifying price competition.
Lithia Motors Inc. said a 33 percent third-quarter gain in net profits compared with the year-earlier period resulted from increased sales and profits on used cars. More used cars on the road also contributed to gains in its service business, said Lithia CEO Bryan DeBoer. "Our used-car business's continued growth, as well as capturing those units in operation in service, are our two biggest drivers of earnings in the future," DeBoer told Automotive News.
Asbury Automotive Group Inc.'s 10 percent increase in net income was mainly the result of used-car sales.
Used-vehicle revenue rose 27 percent on a 29 percent increase in used units retailed, producing a 17 percent increase in used-vehicle gross profit.
COO Michael Kearney said the group has increased inventory and expanded reconditioning hours to meet used-vehicle demand. He said he wasn't sure whether the used-vehicle business would continue to grow at that rate, but he added: "There's a substantial opportunity out there, and we'll continue to refine our process."
Sonic Automotive Inc. reported steady third-quarter operating profit and higher profit margins as it continued to improve implementation of its True Price Strategy, which aims to limit negotiations on new-car purchases. It delayed reporting its net income.
But Sonic is placing a big bet on the used-car market, with plans to open stand-alone used-car stores starting in late 2014.