Dealer Groups

Retail used-car trends to watch this year

LA QUINTA, Calif. and DETROIT  - 

Dealers know that competition for retail used-vehicle sales and profits is fierce, and keeping expenses manageable and transaction prices competitive is a never-ending battle.

But despite that, many dealers are betting on a strong economy and strong used-car sales this year, and some are even adding stores or refurbishing or replacing existing ones.

“Overall, I think the economy is pretty strong, and I don’t see any severe swings up or down in 2018 — that’s what I’m hoping for and gambling on,” said Mark Weida, owner of Street Smart Auto Brokers in Colorado Springs, Colo., explaining why he’s bullish about 2018.

“I think consumer confidence is stronger than it has been in a while,” he added.

Weida retails about 50 used units a month at the store he opened in 2011 and believes his second store, which opened in November, will yield 30 to 40 unit sales per month when it fully ramps up to speed.

Todd Caputo, owner of Sun Chevrolet in Chittenango, N.Y. — who also just invested over $8 million to replace one of his two stand-alone used-car stores, said, “I think it’s going to be a really good year for retail used-car sales. Interest rates might go up a little bit but not that much.”

Caputo retails about 500 used vehicles a month at his three locations.

Here are other trends worth tracking in 2018 and why, according to Weida, Caputo and industry watchers who monitor the retail used-vehicle market. Some of the comments were made on the sidelines of Used Car Week in La Quinta, Ca., in November.

The inventory story

It’s been said before, but we’ll say it again: A lot of off-lease cars and trucks are slated to return to the market in 2018. How many?

About 300,000 more than returned in 2017, bringing the total to 3.9 million units, Cox Automotive predicts.

That’s good news for dealers, especially independent dealers who may not have had many opportunities to buy late-model used vehicles, said Tom Kontos, chief economist at KAR Auction Services Inc.

He predicts that the additional used-vehicle volume in the marketplace will lower prices by 2 percent to 3 percent in 2018.

“Since there is so much inventory that the grounding and non-grounding (like-brand franchise) dealers will take a pass on buying, it gives independents room at the table,” Kontos said.

But independent dealers who are looking for 5- to 8-year-old vehicles, the bread and butter of many used-car lots, might be disappointed, said Patrick Brennan, senior vice president, Industry Solutions Marketplace at Cox Automotive.

Those vehicles are scarcer because fewer were sold as new during the recession and in the years immediately afterwards.

“So that’s challenging when they look for cars,” Brennan added.

Caputo decided his used-vehicle inventory this year would include more small SUVs and crossovers, such as the Chevy Trax, Equinox and Terrain and fewer sedans, such as the Cruze, Malibu and Impala.

He said he’s been pretty successful finding those trucks in the past, but with so many more coming off-lease and incentives from the manufacturer to buy them, the prices have already dropped about 10 percent compared to early 2017. And he believes prices will fall even more.

“There are literally thousands of them coming off lease, and the prices are going to go down,” said Caputo. “They (the manufacturers) know there is a tidal wave coming, and they are trying to dispose of them as quickly as possible.”

Weaker profits?

Dale Pollak, founder of vAuto, said a troubling trend for dealers is that used-vehicle sales are strong, but profits are “uncharacteristically” weak because of margin compression.

Dealers can buffer margin compression by selling more used vehicles, more quickly and redirecting more of their promotional and advertising dollars to the Internet where 90 percent of used-vehicle buyers shop for vehicles, Pollak said.

Dealers also need to do a better job recruiting, hiring, training, supervising and retaining employees, he added.

“Any inefficiency in a margin compressed market is going to be magnified,” Pollak said.

Third-party Internet sites

When a dealer buddy told Weida that his cost to list used-vehicles for sale on a major third-party classified site doubled from about $1,200 month to $2,500 when the buddy renewed his subscription, it was a bit disconcerting, Weida said.

He has vowed to closely monitor prices he pays to list vehicles on various third-party sites.

“Dealers are trying to scramble and figure out where we should put our dollars,” said Weida, a former new-car dealership general manager.

“That’s a challenge for all of us. Most of us as independents know what we’re up against versus the new car dealer; we have to be less expensive. If (our vehicle prices are the same as prices found at new-car dealerships) most people will buy from the franchise dealer.”

CPO

There will be a generous number of certifiable off-lease vehicles in the market to support CPO programs in 2018, but it will be up to dealers to certify them. And many dealers make their decision based on how much marketing support manufacturers pour into their programs. That may present a problem because manufacturers are more focused on new-vehicle sales, which are sliding, than CPO, said Larry Dixon, senior director, valuation services at J.D. Power.

Dixon also pointed out that a few years ago the number of certified vehicles retailed was virtually equal to the number of vehicles coming off lease.

But CPO sales for 2017 — up an estimated 0.1 percent to 2,645,718, units according to Autodata Corp. — is considerably lower than the 5 percent increase in overall late model used-vehicle volume, he said.

“Will CPO sales decline in 2018? It’s certainly possible given the slowing rate of growth we’ve observed over the last couple of years,” Dixon said.

Group 1 announces $500 bonus for US employees

HOUSTON - 

Group 1 Automotive announced Friday that it will give its U.S. non-management dealership employees and operational support staff a $500 cash bonus this year, following the recent tax bill that recently became law in December.

“As we were in the process of reviewing the opportunities the new tax reform law creates for us to better our business, we decided the best investment we could make was in the people serving as the face of our company every day,” Group 1 president and chief executive officer Earl Hesterberg said in a news release.

The company said the $500 cash bonus will be paid on March 1 and that it is currently evaluating the full impact of the tax reform law on its operations.

More details will be shared on Feb. 8, when the company releases its 2017 fourth quarter and full year earnings, according to the company.

“For almost 13 years, I have watched our loyal dealership operating and support teams move cars in the 100-degree heat of the Texas summer, clean snow off of new car inventory in 10-degree Boston winter, and spend long days in front of a computer screen processing documents and communicating with our customers,” added Hesterberg.

"These people are the heart of the company. They generate our profits and my management team, and I feel that the financial benefit of the new tax law creates an opportunity for us to say thank you to these key teammates,” he continued.

Group 1 owns and operates 115 U.S dealerships.

Morgan Auto Group appoints north Florida regional director

TAMPA, Fla. - 

Morgan Auto Group announced Monday that it has named Dan Like the regional director of its north Florida operations in Jacksonville and Gainesville.

Like most recently served as general manager for six years at Morgan Auto Group’s Honda of Gainesville store.

“I am so pleased that Dan Like will have this opportunity to grow his influence within our group. Dan is a fantastic business person but also an ethical leader who never forgets about the human element of our business,” Morgan Auto Group chief executive officer Brett Morgan said in a news release. “He is disciplined and detail oriented and will be a tremendous asset to our entire leadership team.”

During his tenure at the Honda of Gainesville store, in addition to reaching Honda sales goals, the capacity of the store’s service and repair business grew significantly, according to Morgan Auto Group.

The store received the American Honda President’s Award in 2016.

“I am looking forward to working with the rest of our team to make a greater impact in the Gainesville market where I currently live and in my hometown of Jacksonville as well,” added Like.

Morgan Auto Group’s portfolio includes 29 dealerships representing 15 brands. In the two regions Like is leading, there are seven dealerships representing the Kia, Buick, GMC, Mitsubishi, Honda, Volkswagen and Mercedes-Benz brands.

Correction: Edited to include correct dealer count number for Morgan Auto Group. 

LHM Nissan store purchase expands Colorado footprint to 14 locations

DENVER - 

Larry H. Miller Dealerships recently acquired a Nissan store in Centennial, Colo., growing its footprint in the Denver Metro area to 12 stores.

The store has been renamed Larry H. Miller Nissan Arapahoe and is located at 10030 East Arapahoe Road.

“Nissan has been a standout brand for us, and this location on Arapahoe Road is very conducive to selling cars,” LHM president Dean Fitzpatrick said in a news release. “We look forward to continuing to operate with integrity and provide an outstanding level of service to our customers as we grow in the Denver market.”

LHM now operates a total of 14 dealerships in Colorado and employs over 1,200 people across the state, according to the group.

Larry H. Miller Nissan 104th opened just last year. Larry H. Miller Dodge Ram Havana, Larry H. Miller Colorado Chrysler Jeep, Larry H. Miller Fiat Denver and Larry H. Miller Nissan Southwest opened in 2016.

Additionally, LHM’s first Nissan store, Larry H. Miller Nissan Highlands Ranch, opened in 2006.

The group’s portfolio includes 64 dealership locations in seven western states.

Penske purchase 'almost doubles' standalone used-car business in UK

BLOOMFIELD HILLS, Mich.  - 

Penske Automotive Group is buying another used-car retailer in the U.K., a move the group’s chairman says “almost doubles” its standalone pre-owned store business in the country.  

The dealer group said Tuesday it has signed a deal to purchase The Car People, a used-car retailer with four large-scale locations that sell a combined total of approximately 18,000 units per year.

The Car People launched in 2000 and has stores in Wakefield, Sheffield, Manchester and Warrington, Penske said.

“I am excited to be joining forces with the team at The Car People, a great business that operates under a similar model to our own,” Penske Automotive Group chairman Roger Penske said in a news release.

“The acquisition of The Car People strengthens the company’s market position in our second largest market, almost doubles the size of our U.K.-based Used Car Supermarket business, and continues to further our diversification strategy within the transportation services industry,” he said.

The purchase, which is subject to certain conditions, will likely close in the first quarter. The dealer group estimates The Car People will bring in about $300 million in annualized revenue, and estimates annualized accretion from the deal at $0.05 to $0.07 per share. 

This follows a similar move Penske made in early January, when it announced an agreement to buy CarShop, a U.K. chain of five standalone used-car retail stores. That acquisition was completed in February.

“The acquisition of The Car People enables us to accelerate the expansion of our Used Car Supermarket Division and reinforces our commitment to significantly grow our used-car business,” said Darren Edwards, chief executive of Penske’s U.K. operations.

“Combined with the acquisition of CarShop earlier this year, this new acquisition will provide for potential significant operational synergies within this part of our business,” he said.

Stateside, Penske announced a deal last December to buy U.S.-based used-car retailer CarSense, closing that acquisition in January.

Both moves from earlier this year appear to be bearing fruit for the company.

In the third quarter, Penske Automotive’s CarSense and CarShop standalone used-car business lines retailed a combined 11,626 units, according to company earnings.

Year-to-date, which includes results since acquisition, the standalone platforms had retailed 30,952 used units through three quarters.  

Quarterly revenue from the standalone stores in Q3 approached $200 million, while year-to-date revenue was at $535.7 million.

Gross profit per unit retail was at $1,152 in the quarter, with the year-to-date figure at $1,222.  

F&I gross profit per unit on these sales were $1,188 in Q3 and $1,182 year-to-date through Q3, putting the total variable gross profit per unit at $2,340 and $2,404, respectively.

During the Q&A portion of Penske’s quarterly earnings call in October, Roger Penske was asked if his viewpoint on CarShop and CarSense had changed since the dealer group purchased the respective used-car standalone retailers.

 “Yeah, it’s changed. I like it more,” Penske said with a laugh.

“I think we’re very fortunate to get into this business,” he said. “The technology, the people. We’ve had no turnover with senior management. Both of these businesses, I think they applaud the fact we’ve come in with capital, with ideas, with an expansion mode offense.”

Public dealer groups paying a premium to expand footprints

FORT LAUDERDALE, Fla. - 

If publicly traded dealer groups wanted to buy another rooftop, they had to open their checkbooks or dig deeper into their credit availability based on the figures shared in the Q3 2017 edition of the Haig Report released on Wednesday by Haig Partners.

For the year-to-date numbers ending Sept. 30, Haig Partners calculated publicly traded retailers had spent $935 million on dealerships in the U.S., an increase of 62 percent from the $578 million deployed during the same period in 2016.

The report pointed out that Lithia Motors was the most active of the publicly traded companies and continues to target underperforming large platforms in different parts of the U.S.

“Despite all the noise regarding the potential negative impact on auto dealerships from ride sharing, electrification, autonomous vehicles and changes to the franchise system, the "smart money" is still buying dealerships,” Haig Partners said.

The report also shared that the number of dealerships that sold in the U.S. through the first nine months of the year declined by 18 percent compared to the same period in 2016.

Haig Partners also computed profits at privately owned dealerships for the 12 months ending Sept. 30 were 3.8 percent lower than year end 2016 due to rising costs.

Values of privately owned dealerships fell 3.2 percent during this period, according to the Haig Report. Haig Partners' franchised blue sky multiples were mostly unchanged in Q3, with increased valuations for Subaru and Volkswagen only.

Continuing the trend from 2016, the report showed demand for dealerships shifted from luxury brands to domestic brands that are heavier in trucks and SUVs. Luxury dealerships accounted for 14 percent of acquisitions through Q3, down from 17 percent through Q3 of last year, and purchases of domestic stores increased to 50 percent through Q3 from 46 percent through Q3 2016.

Other key findings from the Q3 2017 Haig Report include:

—Macroeconomic indicators such as GDP, interest rates, employment, number of miles driven and consumer sentiment remain highly favorable for dealers.

—Other trends such as used-vehicle pricing, incentive spending by the OEMs, and rising inventories are growing less favorable to dealers.

—Fleet sales have fallen by 8.3 percent through October, although retail sales are almost flat from the same period in 2016.

—Declines in new and used gross profits per vehicle are being offset by gains in F&I and fixed operations.

—Sales and gross profits continue to increase at dealerships, but expenses are rising faster leading to earnings declines at many public and private dealers.

—The average dealership pre-tax profit during the last 12 months was $1.41 million

—Average estimated blue sky value per dealership dipped 3.2 percent from the end of 2016 to $6.8 million.

—Potential threats from autonomous cars, ride sharing, electrification and changes to franchise laws are so far having minimal to no impact on dealership values.

—Public auto retailers are spending more of their capital on acquiring auto dealerships in the U.S. than last year.

—Private equity firms and family offices continue to make substantial investments in auto retail.

“As we expected, the sharp drop in the first quarter of the year has been offset by strong second and third quarters and we are expecting robust conditions for the rest of the year,” Haig Partners president Alan Haig said. “There are many buyers and sellers in the market and deal financing remains readily available. These are good conditions for buy-sells, so long as sellers understand that their leverage is more limited than in the past.

“Buyers have many options and are increasingly concerned about future profits. They are less likely to chase deals or pay big premiums. If dealers want to sell their dealerships they will likely need to accept today’s offer since tomorrow’s offer could be lower,” Haig continued.

Haig Partners is seeing these conditions in its current engagements that include domestic, import and luxury dealerships that range from Florida to New York to California. The firm has closed dealership transactions with a value of more than $3.6 billion during the past 20 years.

The Haig Report is published each quarter and includes comprehensive data, analyses and opinions about the auto retail industry. Also included in each edition are Haig Partners' blue sky multiples that can serve as a gauge for franchise values.

To download the report, go to this website.

Black Friday is no turkey when it comes to car shopping

CARY, N.C. - 

While many Americans might be napping off that extra helping of turkey, car-shopping activity isn’t likely to hit the snooze button on Black Friday.

New research from Cars.com indicates that 18 percent of car shoppers say they have more reason to visit dealerships that day. And nearly three-fourths of that crowd (74 percent) say it’s directly due to the special deals and incentives being offered on Black Friday.

Interestingly enough, though, it’s not just the sweet deals that are driving some consumers into the showroom.

“With deals aplenty, shoppers have good reason to go car shopping,” said Cars.com editor-in-chief Jennifer Newman, in a news release. “However, our research indicated that regardless of deals and incentives, 16 percent of shoppers are more inclined to visit a dealership this Black Friday because they have more available free time, and 8 percent said they’d shop over Black Friday simply because ‘it’s fun.’”

And Black Friday may be even more prosperous for dealers than the following Cyber Monday or any other portion of the weekend, according to data from Dealer.com.

The company’s Dealer DataView index shows that after dipping modestly at the end of summer, total dealership website traffic climbed 3 percent from September to October.

Views of vehicle detail pages climbed 2 percent, the index found.

These two measures combined indicate that fall is showing a “relatively robust selling climate,” Dealer.com said in a news release, noting that dealers are preparing to see activity spikes for both Black Friday and Cyber Monday.

“However, insights from last year regarding credit application volume — a leading indicator of purchase intent — suggest that dealers have a compelling reason to prioritize Black Friday over the rest of the holiday weekend,” the company said.

Last year, credit applications on Black Friday were up nearly 40 percent against other Fridays that November, according to data from Cox Automotive sister company Dealertrack that was cited by Dealer.com.

But Cyber Monday did not see a similar lift, as there was just a 2.6-percent rise against other Mondays that month.

“The DataView index provides a timely snapshot and actionable insights for dealers seeking to better understand consumer sentiment,” said James Grace, senior director of analytics products at Cox Automotive Media Solutions, in a news release. “As dealers gear up for the holiday season, the November report points to another period of robust demand and purchase intent from car shoppers.”

Auto industry social media response rate high, but response time slow

CARY, N.C. - 

While automotive comes in as the industry least likely to be complained about in a top 10 list of industries most complained about on social media, the industry still has room to improve its response time, shows recent consumer data from Sprout Social.

“People don’t buy cars everyday — so while maintenance issues and product questions can pop up anytime, they may not have as much reason to negatively call out auto brands as they would for the CPG brand that, for example, makes the cereal they eat for breakfast every morning,” Sprout Social director of content Lizz Kannenberg said in an email interview.

“The potential payoff for complaining about your car is different than it is when you complain about your cereal; whereas you might get a coupon for a free box if you complain about your o’s or flakes, you’re unlikely to get a comparable ‘make good’ from an automaker.”

At 12 percent, the automotive industry average response rate on social is higher than the all-industry average at 11 percent. But among the list of 10 industries examined in the Q3 2017 Sprout Social Index, automotive also came in as the No. 6 industry needing the most help with social customer service.

“While the volume of consumer complaints may not be as high, people aren’t getting the responses they’re looking for when they do reach out,” Kannenberg said.

The auto industry’s average response time to consumers on social is 13.5 hours, the second longest average response rate out of 15 industries, according to the study.

“Responsiveness on social is crucial to how consumers view a particular brand. Think through how people are welcomed when they walk into your showroom, dealership or garage. You wouldn’t ignore them point-blank. Extend the same type of welcome to people who reach out to you on social to build the brand, and the customer relationships, that will pay dividends in terms of long-term loyalty,” Kannenberg explained.

Via Survata, an independent research firm in San Francisco, Sprout Social surveyed more than 1,000 consumers online between July 10 and July 14 for the study.

Spokane LHM dealerships to fund Thanksgiving dinner for less fortunate

SPOKANE, Wash. - 

Larry H. Miller Dealerships announced Monday that, for the fourth consecutive year, its Larry H. Miller Lexus, Larry H. Miller Downtown Toyota, Larry H. Miller Honda and Larry H. Miller Hyundai dealerships will fund the Union Gospel Mission’s annual City-Wide Thanksgiving Dinner for more than 1,000 homeless and low-income individuals and families.

In addition to a $5,000 donation, LHM said it will donate turkeys for every car sold or leased at the participating dealerships from this coming Thursday to Nov. 22.

Last year, LHM gave more than 150 turkeys to the Union Gospel Mission, according to the group.

This year’s dinner will be held at the Spokane Convention Center on Nov. 22 from 3:30 p.m. to 6:30 p.m.

“Our employees really look forward to supporting the City-Wide Thanksgiving Dinner each year,” Larry H. Miller Lexus Spokane general manager Bob McLean said in a news release.

“When they’re out shopping for their own Thanksgiving gathering, many of them will purchase an extra turkey to donate to the UGM dinner. In addition, we all enjoy volunteering together as a group to serve the dinner to our neighbors. It’s quite meaningful to see exactly how our donations help and who they help,” he continued.

“On a holiday that’s all about gratitude, we’re very thankful to Larry H. Miller Dealerships for underwriting the City-Wide Thanksgiving Dinner for the fourth year in a row,” Union Gospel Mission executive director Phil Altmeyer said. “They share our heart for this event, which is about showing people who feel down-and-out that they are valuable. Serving a special meal tells people that in a way words can’t express.”

The Union Gospel Mission has worked with underprivileged residents of Spokane since 1951.

In its more than 65 years, the organization has grown from a soup kitchen into a ministry made up of four shelters, two thrift stores, an automotive business and a summer camp for youth.

“It’s important to us to give back and support those who are less fortunate in our downtown neighborhood. We hope that partnering with the Union Gospel Mission in providing a warm meal and a special place to gather brings joy during the holiday season,” added Scott Brewer, general manager at Larry H. Miller Downtown Toyota Spokane.

Members of the public who would like to contribute to the dinner can donate online at uniongospelmission.org/give or at any of the four participating dealerships.

CDK announces support for PCG's auto industry Google Analytics specification

HOFFMAN ESTATES, Ill. - 

CDK Global announced Friday that CDK websites will support the specification for Google Analytics that PCG Companies released for automotive dealers last year.

CDK dealers and dealer groups can now independently review website and marketing performance data from Google Analytics.

“We are excited to offer our dealers a standardized implementation of Google Analytics,” CDK Global product officer of consumer-facing products Max Steckler said in a news release.

“The demand for GA support from customers continues to grow, so it is the right time to meet that need and support this open standard. By leveraging the PCG specifications, our enterprise clients will be able to more easily compare the performance of our latest website technology and marketing solutions in their multi-vendor eco-system.”

The PCG specification provides dealer groups with a standardized set of measurement metrics across website platforms that can help dealers increase Return on Ad Spend from their marketing partners, according to CDK.

“Implementation of the PCG specification will be based on the CDK website data layer – a W3C specification for the uniform presentation of website data, which CDK supports with our responsive website platform,” the company said.

CDK joins a growing list of companies such as CarNow, which have recently publicly endorsed and implemented the PCG specification.

“By supporting a standardized implementation of Google Analytics, CDK demonstrates its willingness to increase data transparency with its clients. The PCG specification will allow dealers to more consistently document website conversions and engagement to improve marketing outcomes,” said Brian Pasch, founder of PCG Companies. “The support of the specification will also allow CDK clients to immediately leverage the independent data insights and traffic quality metrics in VistaDash, our popular Business Intelligence (BI) cloud software.”

This is the second specification published by PCG that has received widespread support from the automotive vendor community, according to CDK.