Take Sonic. In the first quarter, the fifth-largest U.S. dealership group's sales at its fledgling EchoPark used-only stores surged 78 percent from the year-earlier quarter to 1,673 vehicles. The showing was strong enough that Sonic led its first-quarter earnings news release with the figure.
But EchoPark's news wasn't all good. Sonic reported an after-tax loss from EchoPark operations of $3.3 million in the quarter, up 50 percent from the $2.2 million loss a year earlier. That contributed to Sonic's net loss of $541,000 for the quarter.
On a conference call with investors in April, Jeff Dyke, Sonic's executive vice president of operations, said the company is encouraged by the strength of its original stand-alone used stores.
He said those stores are "making money" and said that is driving Sonic's push into the used-vehicle arena, despite the startup costs of adding more EchoPark stores.
"The more stores we open up, you're going to see our used-car business continue to take a commanding lead in the overall volume and mix of this company," he said. "Long-term profitabilitywise, it's going to take the lion's share of that, too."
Other publicly traded dealership groups also had rough first quarters in their used-vehicle operations. On a same-store basis, gross profits on retail used-vehicle sales fell 10 percent at Group 1 Automotive Inc.'s U.S. operations, 1.8 percent at Asbury Automotive Group Inc. and 19 percent at AutoNation.
At Lithia Motors Inc., used-vehicle retail gross profits rose 1.3 percent, bucking the trend.
But Lithia, Group 1 Automotive Inc., Asbury, Sonic and AutoNation all had their gross margins on same-store retail used-vehicle sales soften.
Those results come as AutoNation, the second-largest U.S. used-vehicle retailer after CarMax Inc., prepares to roll out AutoNation USA stand-alone used-only stores. The first five are to open this year.
AutoNation CEO Mike Jackson said on a conference call that the company will be able to handle costs associated with ramping up the used-only stores over time. "We'll be very keen to see what the ramp is on sales volume and gross profit, because we know we can manage the costs over time as technology comes on. We really want to see the customer reaction to the stores. So that's what we'll be benchmarking in the first three to six months to see how that goes," Jackson said.