Asbury Automotive poised to overtake rivals

Asbury Automotive Group Inc., once the smallest and perhaps quietest of the U.S. public dealership groups, is now a bona fide giant after a stunning 20 months of deal-making. And even as it digests big acquisitions like Larry H. Miller Dealerships, Asbury is still gunning for the kind of growth that could vault it past rivals and make it one of the two biggest new-vehicle retailers in the country.

Asbury last week raised its 2025 revenue goal by 60 percent to $32 billion, a number more than three times Asbury's 2021 revenue of $9.84 billion. CEO David Hult said $6.2 billion of the additional revenue would come from buying more dealerships.

And buying dealerships is something Hult has gotten a lot of experience with since closing on the purchase of prized Texas group Park Place Dealerships in August 2020. Acquisitions made in 2021, led by the whopping Larry H. Miller deal, almost doubled Asbury's pro forma annual revenue, which now stands at $15 billion, Hult said last week.

"Our goal isn't to grow quickly," Hult said. "Our goal is to grow thoughtfully and be great capital allocators for our shareholders."

Asbury's plan would have it adding 75 or so more dealerships with annual new-vehicle sales rising significantly.

Asbury ranked No. 5 on Automotive News' most recent list of the top 150 dealership groups based in the U.S., with retail sales of 109,910 new vehicles in 2021. But that number understates just how big Asbury has become. For instance, sales gained with the Larry H. Miller purchase, which closed in mid-December, are barely reflected in that count.

Sales in the first quarter of 2022 provide a clearer picture.

Asbury last week said it sold 39,174 new vehicles during that three-month period, up 44 percent from a year earlier. That was higher than the 29,498 new vehicles reported sold in the U.S. by Group 1 Automotive Inc., No. 4 on the Automotive News list.

It also likely was higher than U.S. new-vehicle sales by No. 3 Penske Automotive Group Inc. Penske doesn't break out U.S.-only figures but said generally 65 percent of its new-vehicle sales come from the U.S. Given that, Automotive News estimated that Penske sold about 30,000 new vehicles in the U.S. during the first quarter.

AutoNation Inc., No. 1 based on 2021 sales, reported selling 56,442 new vehicles in the U.S. during the first quarter, while fast-growing Lithia, No. 2 based on 2021 results, reported new-vehicle sales of 64,942 for the period, including a small but undisclosed number sold in Canada.

It's not clear whether those patterns will persist. Asbury also sold seven stores between mid-February and April 1, and those divestitures, in the absence of new acquisitions, will reduce its new-vehicle sales pace.

But it's evident that Hult's plans for Asbury are big and bold.

"It was a very strong message," analyst Daniel Imbro of Stephens told Automotive News. After hearing Hult and other company leaders talk about the plan, "I felt more confident that they could get there."

Seaport Research senior analyst Glenn Chin last week called the increase from the dealership group's previous target of $20 billion surprising.

But while "definitely ambitious," the $32 billion plan is feasible, Chin said.

J.P. Morgan analyst Rajat Gupta said the aggressive targets set by Asbury and Lithia, which seeks $50 billion in revenue by 2025, shouldn't pressure the other four major public groups into similar declarations. While they'll think about their capital allocation and business plans, they likely won't jettison their individual growth strategies in response, he said.

The others have comparable abilities and opportunities and are probably taking similar actions, just not announcing it, Gupta said.

Asbury in December 2020 announced a five-year plan to grow revenue from an estimated $8 billion that year to $20 billion in 2025. It planned to accomplish this by adding $2 billion from same-store sales, $5 billion from its then-new Clicklane digital retailing platform and $5 billion from new acquisitions.

Then Asbury's performance exceeded the original goals.

"They had to update it," Gupta said. "Those old targets had become stale."

Asbury's 2021 acquisitions alone added $5.8 billion worth of annualized revenue after accounting for the divestitures. Same-store sales have risen about $900 million from 2020, and Clicklane, which was rolled out throughout Asbury in the first quarter of 2021, has yielded revenue of $600 million.

To reach the new $32 billion target, Asbury is counting on increases over the plan's five-year period of $5 billion from same-store sales, $8 billion from Clicklane and $12 billion from acquisitions.

For same-store sales, Asbury needs $3.1 billion, much of which it projects it can achieve as new-vehicle supplies improve and provided industry sales recover to a seasonally adjusted annual rate of about 17 million vehicles in 2025.

Hult said last week that while new-vehicle supplies remain a challenge, he expected them to rebound next year.

Other anticipated same-store revenue contributors include improvements in service, collision, parts and used-vehicle sales, according to Asbury. Gupta and Chin said they particularly see potential in Asbury's used-vehicle sales.

The remaining $7.4 billion in Clicklane revenue would come by building that business to the point of 200,000 vehicles selling through the platform in 2025, Asbury leaders said.

"Clicklane has proven to be more beneficial than they had originally expected," Chin said.

After completing transactions worth $5.8 billion in annual revenue in 2021, that leaves deals worth $6.2 billion in annual revenue yet to come.

Hult has said Asbury needs time to integrate last year's purchases and likely won't be aggressive about new acquisitions for six to 12 months.

Still, the company will monitor the market "as we believe there are potential opportunities that would enhance our already strong dealership portfolio," he said last week.

Asbury now forecasts having about 225 dealerships by the end of 2025, up from 148 today. The retailer had 91 dealerships in 2020.

Analysts expressed confidence Asbury would be able to find enough quality companies to meet its acquisition goal.

"There are a lot of targets out there," Imbro said. And Asbury has a track record of buying "really strong assets" and integrating them well, he said.

Gupta said this element of the plan could be accomplished through a variety of small deals. At $6.2 billion over four years, "there's no rush to do those acquisitions," he said.

Hult underscored that.

"We have the ability through relationships today to go out and purchase another $5 billion if we wanted to," he said last week.

But that’s not the plan as Hult helms an effort to thoughtfully pace Asbury's growth amid a wave of consolidation that is reshaping the retail industry.