Sonic Automotive Inc. and Group 1 Automotive Inc. are expanding their used-vehicle plans, even as AutoNation Inc. put its used-only store plans on pause to evaluate results so far. The publicly traded dealership groups are focusing on used cars at a time of slowing new-vehicle sales.
Sonic, which launched EchoPark used-only stores in 2014, now is separating older vehicles into a different sales channel.
On April 1, Sonic, of Charlotte, N.C., opened a CarCash retail outlet in Denver and another in San Antonio selling 4- to 10-year-old used cars. EchoPark stores sell 1- to 3-year-old vehicles.
"We feel there's a market there for us to be more aggressive and we can compete against the new-car side of the business and provide the consumer with our great guest experience out of EchoPark," said Jeff Dyke, Sonic's executive vice president of operations. "We also feel there is a customer for that car that is older than 3 years and outside of warranty. That's how we started CarCash, powered by EchoPark."
Each EchoPark store has CarCash associates who do nothing but trade for vehicles that will go into CarCash's inventory, he said.
Dyke said the EchoPark stores are on track to sell "possibly 30,000" cars this year, more than doubling its 2017 volume. He predicted the stores will sell 40,000 vehicles in 2019 and said they are on their way to being wholly profitable by year-end.
In Colorado, Sonic has four EchoPark stores and two related service centers. There are two EchoPark stores in San Antonio. By year-end, Sonic will open an EchoPark store in Houston, two in Charlotte, N.C., and another in San Antonio.
In the third quarter last year, Sonic bought Driversselect, a used-only dealership in Dallas that sells about 5,000 vehicles a year, Dyke said. That will become an EchoPark store. It will be moved this year to a bigger facility where it is expected to add at least $225 million in annual revenue.
In the first quarter, Group 1 launch-ed Val-U-Line, a proprietary brand for older, higher-mileage used vehicles sold at Group 1 dealerships. Val-U-Line enables the company to retail lower-cost vehicles that would have otherwise been sent to an auction, the Houston company said.
"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." Meanwhile, the number of used vehicles wholesaled at auction fell 6 percent to 9,383 units.
"Our Val-U-Line products were 9 percent of total [used] retail units, already more than double our previous mix [of older vehicles], only three months after launch," he said.
Group 1 CEO Earl Hesterberg said Val-U-Line sales are heading toward "at least" 10 percent by the end of the year. "We believe this market segment presents a major opportunity for Group 1," he said.
Wall Street agreed. "The results are encouraging, and if the trend continues, [Group 1's] used-vehicle initiative may drive notable upside later in the year," Wells Fargo Securities analyst David Lim wrote in a research note.
Meanwhile, after opening its fifth used-only AutoNation USA store last quarter, the largest dealership group in the U.S. will pause the expansion plan to monitor the used- only stores' performance.
"We always said that once we had five up and running, we would have a pause period where we define the ramp to profitability to decide which additional stores to open when," AutoNation CEO Mike Jackson said during a conference call. "We do have additional sites located, purchased, permitted, but that will be a decision later this year, when we greenlight those stores."
If and when AutoNation approves as many as 25 stores, he said, that would indicate that "we have it totally figured out, and we have a high degree of confidence to deploy the capital."
An AutoNation USA store which opened in January in Phoenix sold about 140 units and turned a profit by April, Jackson said.
AutoNation has applied the lessons learned at the first two stores in Houston and Corpus Christi, Texas, which opened in the second quarter of 2017, to its new locations, he said, "although it was very disruptive with all the hurricanes to really come to conclusions."
Laurence Iliff contributed to this report.