When it comes to stand-alone used-car stores, Asbury Automotive Group Inc. is dipping its toe in the water while Sonic Automotive Inc. is jumping in.
Asbury, the nation's seventh-largest dealership group, will open two such stores for now, branded "Q auto," beginning in June in Florida. Sonic, the nation's fourth-largest dealership group, will open its first used-car store in the fourth quarter in Denver, and an executive says 100 stores is "the tip of the iceberg."
"There is simply so much upside to this part of the industry," says Jeff Dyke, Sonic's executive vice president of operations.
Both Sonic and Asbury executives say they are building on the expertise they have developed at their franchised dealerships. Sonic has increased used-car sales steadily to 90 a month per store and aims to boost that tally to 100 this year and 150 later. From 2010 to 2013, Asbury's used-car unit sales rose 51 percent, vs. 29 percent for new-car sales. Used-car gross profits rose 31 percent during that period, vs. a 28 percent gain for new-car gross profits.
"We feel quite confident that this thing has got a real shot, and it's worth giving a try," Asbury CEO Craig Monaghan says.
Asbury will invest $25 million in the venture this year. Sonic isn't detailing its long-term investment plans, but the company spent $7.6 million in 2013 and forecasts $14 million this year.
Both companies clearly are bench-marking used-car leader CarMax Inc.
If CarMax is like a Wal-Mart, then Sonic's stores will be "somewhere between the Target and the Starbucks," says Sonic President Scott Smith, who frequently professes admiration for CarMax and its 1 percent share of the used-car market. Sonic executives say their venture has the potential to grab "far beyond" a 1 percent share.
Other publicly traded retailers say stand-alone used-car stores are not on their to-do lists. AutoNation Inc. closed its used-car superstores in 1999; executives say they won't revisit the idea. Lithia Motors Inc. tried used-car stores briefly in 2007 and 2008 and dropped the idea. Penske Automotive Group Inc. CEO Roger Penske won't rule out stand-alone used stores in the future. But for now, he says he likes the halo effect of having a franchise attached to a used-car business.
Monaghan predicts Asbury's stores will take 18 months to achieve profitability. Sonic has said its stores will be cash-flow positive in three years and profitable in four. Sonic could open in as many as five new markets a year. It already has identified several locations beyond Denver, Dyke says, including sites outside Sonic's existing footprint.
"If it's a big market doing a lot of used-car volume," Dyke says, "eventually we're going to be there."
Jamie LaReau and Arlena Sawyers contributed to this report.