Publics accelerate used-only sales push

Amid lower new-vehicle sales during the coronavirus pandemic, the public dealership groups are shifting into overdrive, expanding their used-vehicle businesses and aiming to significantly grow used-vehicle sales and profits.

Auto retail giant AutoNation Inc. plans to add 20 or more used-vehicle-only AutoNation USA stores over three years. Sonic Automotive Inc. is adding to its standalone used EchoPark stores, with a goal of 140-plus outlets in five years.

Penske Automotive Group also wants to add more used-vehicle supercenters in the U.S. and United Kingdom. And other public groups such as Lithia Motors Inc. want to expand their used-vehicle sales through franchised dealerships and growing online sales platforms.

Each company — no matter the strategy — intends to capture a bigger share of the huge used-vehicle market, which sells around 40 million vehicles annually, said Rick Nelson, an analyst with Stephens Inc. In 2019, Experian Automotive counted 41.4 million registrations of used vehicles to retail consumers in the U.S.

"It's big. And it's very fragmented," Nelson told Automotive News. "CarMax, the biggest in the business, has less than 3 percent share of the used-car market."

Half of the six publicly traded franchised auto retailers want to expand used-vehicle sales in large part through standalone used-vehicle stores. Nelson said some of the public groups are attracted to used-vehicle-only outlets because there are no automaker approvals needed, nor restrictions, and it can cost a lot less than automaker-prescribed facilities.

AutoNation, the nation's largest new-vehicle retailer — which saw its used-vehicles sales in the second quarter beat new-vehicle sales for the first time — plans to detail in its upcoming third-quarter earnings call the rollout of more AutoNation USA stores. In July, the retailer said it planned to expand its network of five such locations in three states at a cost of up to $220 million in a bid to grab more used-vehicle market share.

That's a change from two years ago when the retailer halted AutoNation USA expansion plans that in 2016 called for 25 sites.

"We've been building to this," AutoNation CEO Mike Jackson told analysts in July. "But we wanted to have a high degree of confidence and certainty that we knew exactly what we're doing and that we would hit the return targets. And so we're there and off we go."

Penske is targeting sales of 100,000 used vehicles through its supercenters by the end of 2022, up from about 70,000 last year, spokesman Anthony Pordon said.

Pordon said the nation's second-largest new-vehicle retailer expects to open a used-vehicle superstore in Nottingham, England, in the fourth quarter. It has 16 standalone used stores — six operating under the CarSense brand in the U.S. and 10 carrying the CarShop name in the U.K.

Penske developed its used-only businesses through three acquisitions totaling about $200 million in 2017 and 2018.

I"The used supercenter business represents a significant growth opportunity for our company and we continue to move forward with our expansion plans," Pordon said in an email to Automotive News.

Two new U.S. supercenters are expected to open next year — a Brunswick, N.J., store in the first quarter and a Scottsdale, Ariz., location in the second half, Pordon said. Another U.K. supercenter is slated for 2022, he added.

"We think three or four a year is probably a good pace," Penske CEO Roger Penske said in July. "And then what we can do is develop this online omnichannel, as we call it, above it."

Penske has said it wants enhanced omnichannel capabilities for used vehicles and that the effort could include a separate brand.

Omnichannel refers to digital shopping technology that aims to provide a seamless buying experience for consumers regardless of device or whether they shop online, in store or both.

Sonic, meanwhile, intends to expand its EchoPark unit, which opened its first store in 2014, to $14 billion in revenue and 575,000 vehicle sales annually by 2025. That's up from $1.2 billion in revenue and nearly 50,000 sales in 2019 and 61,000-plus sales expected this year.

To reach the goal of more than 140 locations, about 100 will be smaller delivery and buy centers, Sonic President Jeff Dyke said in July. Another 25 or so will be EchoPark "hub" stores.

"We will conservatively open five hub locations, five medium or large stores next year," Dyke said.

Sites in Atlanta, Orlando, near Washington, D.C., and a location or two in California are planned.

Last month, Sonic said it bought land adjacent to its Charlotte, N.C., EchoPark store to house another 400 vehicles. The Charlotte Business Journal reported that Sonic spent more than $3.2 million for the four-acre parcel.

In April, Sonic opened an EchoPark store in Tampa, Fla., and last month opened a second used-only outlet in Houston, bringing its EchoPark store count to 11. The company has 12 total locations after opening its first delivery and buying center in Greenville, S.C., in July.

An EchoPark store in Nashville is slated to open this month, and the company plans to add EchoPark locations still this year in Plano and Austin, Texas; Phoenix; and Columbia, S.C. The Austin and Columbia, S.C., locations are set to be delivery and buying centers.

All of the public groups are looking to expand used-vehicle sales as new-vehicle sales had plateaued before the coronavirus pandemic hit, Nelson said. Some are targeting efficiency and productivity gains using current facilities and online sales platforms.

In February, Lithia said it wanted its franchised stores to sell 100 or more used vehicles a month, up from a previous target of 85.

The retailer is rapidly progressing to that goal, Tom Dobry, Lithia's chief marketing officer, said in July. The average store in June, for example, sold 86 used vehicles.

"We're moving up. Though new-car sales are down, used-car sales are up considerably," Dobry said. "In this environment, people are looking for more affordable cars."

Lithia also intends to source inventory from consumers. Through the recently launched digital retailing tool Driveway, the company plans to offer customers cash for their used vehicles, which Lithia employees can pick up directly from residences.

Lithia is targeting all segments of the used business, including lower-priced value autos, Dobry said.

"By going deeper in that inventory, we're selling more," he said.

Since 2018, Group 1 Automotive Inc. has offered its Val-U-Line brand of higher-mileage used vehicles, which represented 11 percent of its retail used sales last year. The company is focused on selling trade-in vehicles and expanding used-vehicle sales through its AcceleRide online digital retailing platform.

"We've been able to post incredible results without having to go build standalone buildings and utilize shareholder capital to do standalones," Pete DeLongchamps, Group 1 senior vice president of manufacturer relations, financial services and public affairs, said last month at a Morgan Stanley investors conference. "And we're leveraging the physical footprints we have today. And then also our AcceleRide platform, digital platform, has been very, very helpful in improving our used-car business as well, along with the Val-U-Line initiative we launched a few years ago."

At Asbury Automotive Group, a record 20 percent of used-vehicle sales were transacted online in the second quarter — a figure the retailer plans to boost. In 2017, Asbury exited its Q auto standalone used-vehicle business after it couldn't make a return on the investment.

The retailer is focused on selling trade-in vehicles, Morningstar analyst David Whiston wrote in a July note to investors.

"Even though three other public dealers are going ahead with standalone used stores, we think Asbury can still generate decent profits from its used business," Whiston wrote. "We don't think a dealer must have standalone used stores to succeed."

Nelson said that given the size of the used-vehicle market, there is room for many players, including the online upstarts such as Carvana Co. and Vroom Inc.

"The independent used-car lots that make up the bulk of the industry, those are probably on the losing end of this market share battle if they haven't made those same digital investments," Nelson said.

Jackie Charniga and David Muller contributed to this report.