Lithia Motors Inc., of Medford, Ore., tried used-only stores in 2007 with its L2 Auto chain. It had four stores, one of which was profitable, said CEO Bryan DeBoer. The other three were trending that way when the recession hit.
"It was a better strategy to stop those operations and focus on diversification," DeBoer said. "We couldn't really afford the losses because we had several GM and Chrysler stores" to worry about in the recession.
The temptation to try again has not returned, he said. It's more cost-effective to utilize Lithia's existing dealerships to sell used vehicles. "They're in good locations," he said. "We don't have to spend capital to do it. We can spend our time on great people who can go find the right cars," which he said was critical because success in used-car sales lies in procuring the right vehicles.
Asbury Automotive Group Inc. is closing its two remaining used-only Q auto stores in Florida.
Asbury, of Duluth, Ga., launched Q auto in mid-2014. The store count peaked at four, but the stores failed to generate profits. CEO Craig Monaghan said getting inventory was part of the problem. Q auto also struggled to arrange financing for many used-car buyers with subprime credit scores. Without a captive lender, Q auto was at a disadvantage, he said.
In fact, financing is one reason Group 1 Automotive Inc., of Houston, is staying out of used-only vehicle sales.
"We've looked at it many times over the years, and our impression has always been that the critical factor to success is to be the bank, also," CEO Earl Hesterberg told analysts during a second-quarter earnings call.
CarMax Inc.'s success is tied to its being a lender through its captive finance arm, Hesterberg said. "We haven't been interested in becoming a bank yet."
CarMax, the nation's largest used-vehicle retailer, reported CarMax Auto Finance accounted for 47 percent of retail-vehicle financing at CarMax dealerships in the second quarter, down from a "historically high" 49 percent a year earlier.
Still, Hesterberg will not rule out used-only dealerships in the future.
"There are lots of other ventures into the dedicated used-car retail business that we'll watch closely, and if somebody else can crack that nut, then maybe we'll take a go at it as well," Hesterberg said.
Penske Automotive Chairman Roger Penske feels no pressure to start a captive finance company for his five CarSense stores in the U.S. and five CarShop stores in the U.K. Both use third-party financing, which Penske said will do for now.
"I don't know that at the moment we have the capital available to start a finance company. It's something we can look at once we have a history, and maybe we get a partner to do something like that," Penske said.
Penske credits his used-car acquisition team and the tools to buy used vehicles for his success. Penske sold 66,208 used vehicles in the second quarter, 17 percent of which were retailed through the used-only stores. The vast majority of CarSense's inventory is purchased at auctions.