Public groups look beyond new cars
In a flat new-vehicle sales market, the publicly traded dealership groups are turning their energy elsewhere, homing in especially on used-vehicle operations.
Five of the six public new-vehicle dealership groups reported first- quarter earnings this week, with most highlighting an increased emphasis on areas of the dealership other than new-vehicle sales.
"Our plan for the remainder of 2018 is to focus on the aspects of the business that we can control, specifically, parts and service, used cars, [finance and insurance] and overall expense management," David Hult, CEO of Asbury Automotive Group Inc., said in a conference call with analysts and reporters.
At Asbury, same-store used-vehicle retail sales rose 1.2 percent in the first quarter from a year earlier to 20,000 units. Same-store new-vehicle sales fell 1.8 percent to 22,965, vs. a 2 percent gain for industrywide first-quarter U.S. light-vehicle sales.
"We aren't large enough to control or move a market, but there are more than 40 million pre-owned vehicles sold in the U.S. every year," Hult said. "Pre-owned is an opportunity for us to grow."
Asbury's same-store gross profit on new and used vehicles declined in the quarter, but rose 2.8 percent in parts and service and 2.4 percent in F&I.
Hult sees an opportunity to grow Asbury's parts and service business by using dealership websites to schedule appointments, communicate with customers and accept customer payments.
Penske Automotive Group Inc.'s used-vehicle retail sales rose 2.5 percent to 53,315 on a same-store basis, while new-vehicle sales dipped 1.6 percent to 57,925. "We will sell more used during the year than we will new," CEO Roger Penske told investors Tuesday.
Penske's used business tends to be healthy because of luxury brands' initiatives to supply loaner vehicles for service. "We try to pull those out after 4,000 or 5,000 miles, and they become very strong used cars with all of the finance and leasing opportunity," he said.
Same-store gross profit increased in all areas except fleet and wholesale at Penske. Gross profit rose the most, 10 percent, in the company's F&I operations, followed by a 6.7 percent gain in service and parts and a 6.3 percent increase in used-vehicle sales.
Sonic Automotive Inc.'s same-store used-vehicle retail sales rose 1.8 percent to 29,690. Same-store new-vehicle sales fell 1.5 percent to 29,416.
Overall, Sonic retailed 33,739 used vehicles, including more than 5,500 sold through EchoPark, the company's used-only stores.
CEO Scott Smith said "90 percent" of the company's focus is on EchoPark. "We feel that we have cracked the code to make it predictable, repeatable and sustainable," he said.
"The new-car model is completely broken right now" because of manufacturers' costly dealership-improvement mandates, he said. "It doesn't pencil. The model doesn't work."
Lithia Motors Inc.'s same-store used-vehicle sales increased 4.2 percent to 31,677, while new-vehicle sales slumped 4.3 percent to 33,886.
"Used vehicles continue to be our biggest focus area," said Chris Holzshu, executive vice president. "This is typically the lowest performing business line at acquired stores, as they typically sell half as many used vehicles as seasoned stores."
Group 1 Automotive Inc.'s new-vehicle sales, unlike its peers, outpaced the industrywide average in the first quarter, rising 2.4 percent on a same-store basis to 28,150. Used-vehicle retail sales jumped 7.7 percent to 26,858. The Houston retailer cited a rebound in the oil patch. Said CEO Earl Hesterberg: "Things are really much brighter in the oil patch now, probably the brightest in three years."
Even so, Group 1's top initiatives during the latest quarter focused on used vehicles and parts and service. It launched Val-U-Line, a proprietary brand for older, higher-mileage used vehicles and revamped its compensation plan for service personnel to aid in recruiting and retention in that department.
"Although it is still very early, we are encouraged by the initial results," said Daryl Kenningham, Group 1's president of U.S. operations. "Same-store used retail unit sales increased 7.7 percent in the U.S. during the quarter, the highest growth we have seen in 10 quarters."
AutoNation Inc., the largest new-vehicle retailer in the U.S., will release its first-quarter earnings May 1.
|First-quarter results for public dealership groups|
|Net income||$108.1 million||31%|
|Group 1 Automotive|
|Net income||$35.8 million||5.50%|
|Net income||$52.1 million||2.60%|
|Net income||-$2.2 million||n/a|
|Net income||$40.1 million||18%|
|Source: Companies Public profits|
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