Hottest Year for Used Sales in More than a Decade


CARY, N.C. - 

Though not without recent bumps in the road, if there’s any question as to how the overall used-vehicle sales picture is looking this year, data from CNW Research provided to Auto Remarketing may provide the answer.

It has been more than a decade since year-to-date used-vehicle sales at April’s end have been as high as they were through the first four months of 2013, according to CNW.

The firm’s data indicates that 11.26 million used cars were sold year-to-date through the end of April (this includes sales from franchised dealers and independent dealers as well as sales between private parties).

The last time used sales were this strong in the opening third of the year was 2002, when 11.47 million vehicles were moved.

Not to mention, the year-to-date figure for April 2013 was a 5.33-percent increase from the same period of 2012. And last year turned out to be the best year for used-car sales since 2007, according to CNW.

More good news?

As is typical, the market could get stronger in the year’s warmest months. In early May, Carfax was predicting 22.1 million used-car sales in the five months between May and the end of September.

Interestingly, the company explained that history shows that more than half of all used cars sold this year will be bought during these months.

“Summertime is typically when car sales, especially used-car sales, kick into high gear,” said Larry Gamache, communications director at Carfax.

“As the economic recovery continues, it's likely that more people will take advantage of an increased supply of used cars and great deals being offered at dealerships throughout the season.”

Shift to Casual Sales?

As for CNW’s data on used sales specific to dealers, franchised shops moved 4.01 million units in the first four months of 2013, compared to 3.69 million used sales in the year-ago period. Independents sold 3.72 million used units, up from 3.51 million.

There were 3.53 million private-party sales, versus 3.49 in the same period of 2012.

While the year-over-year gain in private-party sales through the end of April was not as steep as the respective increases for franchised or independent dealers, CNW said the used market began to actually shift toward casual sales in April — a trend the firm expected to continue over the warmer months.

CNW’s Retail Automotive Summary released before the end of April suggested the springtime “shift toward private-party sales” in the used-car business had begun to accelerate.

CNW predicted in the report that casual sales would drive the bulk of the expected growth in used-car sales for April — a projection that ended up coming to fruition.

Overall, used sales for April hit 3.82 million, up from 3.79 million in April 2012.

There were 1.24 million private-party sales during the month, which was more than a 4-percent hike over the year-ago period. Independents also sold 1.24 million units, but this number was essentially static from April 2012.

Used sales for franchised dealers were actually down a bit in April, falling from 1.37 million to 1.35 million.

“As expected and reported, the shift toward private-party sales is increasing as the weather turns warmer and spring begins,” CNW president Art Spinella said in the report.

“Expect the trend toward private-party sales to continue for the next four months,” he added. “Overall, however, all channels are going to finish the year ahead of 2012.”

That being said, there appears to be a bit of a rough patch for dealers thus far in May.

According to the latest Retail Automotive Summary from CNW released last week, May could end up being a flat market for used-car sales.

The firm is predicting 4.32 million used sales for the month. This would be a 0.3-percent year-over-year hike; an increase Spinella finds “slumpish.” What’s more, that growth is attributable to casual sales.

Franchised dealers are expected to see their used sales dip 2.1 percent at 1.55 million, which is “chipping away at the year-to-date gains,” Spinella noted.

Meanwhile, independents are on track to drop 12 percent with 1.30 million sales this month. This group of dealers is “losing much of its year-over-year increase to casual or private party sales that are up nearly 18 percent.”

Specifically, CNW is forecasting 1.47 million casual sales this month, which would mark 17.8-percent growth over May 2012.

Further explanation of May trends can be found here.

Q1 Trends

While used sales for franchised dealers slowed a bit in April — and apparently are moving down again in May —  the first quarter appeared to be a huge success.

Consider what Manheim chief economist Tom Webb had to say in his recap of how public dealer groups fared in Q1.

Webb noted in a blog entry that for the 15th straight quarter, the nation’s seven publicly traded dealership groups saw their same-store used-vehicle retail unit volumes increase.

And this, he said, together with more operational efficiency, dealers turning their inventories faster and hearty income in the F&I office, helped push record profits.

Signs of used-car operational improvements were peppered throughout the recent quarterly conference calls from these seven groups (which include CarMax, AutoNation, Penske Automotive Group, Sonic Automotive, Group 1 Automotive, Asbury Automotive and Lithia Motors).

Take AutoNation, for example.

Its same-store used retail revenue for the first quarter climbed 8.6 percent year-over-year and hit $870.2 million. Same-store used retail unit sales jumped 6.7 percent, as the dealer group moved 49,201 units.

President and chief operating officer Mike Maroone touched on AutoNation's used-car strides during the group's quarterly call. He emphasized the progress made from bringing in Steve Strader and the efforts made by the new senior vice president of retail operations and his used-car team.

“He and the used-car folks really focused on wholesaling less, retailing more; moving units appropriately; and pricing to market, controlling our discounting. There’s a whole series of executive issues that I think they’ve done an excellent job of working through, and we think there’s even more opportunity in that business in the recovery,” Maroone said.

Maroone later noted how additional training resources and people in the field, along with the effort to acquire the right vehicles at the right time, have helped.

“It’s a comprehensive effort and that’s what gives us confidence that we think, going forward, we’ll be able to continue to perform in a good way,” Maroone shared.

AutoNation chairman and chief executive officer Mike Jackson acknowledged the challenges that remain when it comes to supply and demand in the used-car space, but emphasized that the retailer’s used performance has taken “a step forward.”

Jackson was talking specifically about his own company, but the same sentiment can likely be shared for much of the dealer group community.

Asbury, for example, has made progress in and entered Phase II of its 121 program, which aims for a one-to-one used-to-new sales ratio.

“Our used-to-new sales ratio was 81 percent for the (first) quarter, as our markets continue to react favorably to the increased availability of pre-owned product,” said Asbury executive vice president and chief operating officer Michael Kearney  during the company’s quarterly call in April.  

“The impact of the Asbury 121 Program on our used-vehicle performance is evident when you compare our used-to-new sales ratio of 81 percent today versus the 60 percent range we produced back in 2007 and 2008 time frames.”

Likewise, executives at Lithia were quite pleased with the results of its used-vehicle division, including a 21.5-percent lift in same-store used retail revenue and an 18.5-percent hike in same-store used retail unit sales during the first quarter.

During the group’s conference call in April, leadership was quick to attribute a great deal of the success to the managers and personnel doing the day-in, day-out work to make each part of Lithia’s used department move on an upward track.

“The decentralized, entrepreneurial atmosphere that we’ve created at every store is attracting more and more of those people who have the capacity to grow used-car sales,” said Lithia founder, executive chairman and chairman of the board of directors Sid DeBoer.

“That is a key talent that the best managers in this business have. It is a skill set. It’s not something you can do at corporate.”

Record Profits Amid Sluggish Margins

Going back to Webb’s analysis, what might be the most striking point in his insight on the dealership groups is that the strong profits he mentioned have occurred even in the midst of 13 straight quarters of year-over-year gross margin decline.

“Given that future F&I income will likely be under greater pressure, dealers will need to stem in the deterioration in upfront grosses,” Webb wrote. “But, given the competitive nature of the used-vehicle marketplace, it is unlikely that margins will increase.”

He went on to re-iterate the two impacts of slimmer margins emphasized in his prior entry on dealer groups. Those two implications being the following, as listed on the blog:

1. Thinner margins mean that the linkage between the retail and wholesale market will become tighter.  Changes in one market will be more quickly, and more acutely, felt in the other.  With the cushion of wide margins gone, look for subtle shifts in retail demand to be quickly reflected in wholesale buying.

2. As average margins narrowed, so too has the range of grosses on individual transactions for individual dealers.  Lacking “home-run” (high-gross) deals, dealers can now ill afford the outsized losses associated with buying the wrong car at the wrong price.  So, for commercial consignors, who often benefited from that one dealer paying too much in a speculative bid, the need of getting their portfolio in front of right buyer — the first time — takes on added importance

The aforementioned gain in same-store used retail unit volume is based on a weighted average for CarMax, AutoNation, Penske, Sonic, Group 1, Asbury and Lithia. CarMax’s results are shifted one month ahead to correspond with the calendar quarter, Webb’s blog noted.

To read Webb’s entire blog entry, visit:
http://manheimconsulting.typepad.com/manheim-consulting/2013/05/dealerships-post-sales-growth-record-profits-and-narrower-margins.html.
 

Editor's Note: This story ran in the June 1–15 issue of Auto Remarketing, which featured our Used-Car Progress Report. Check out the issue for more on auction prices, off-lease supply and more. Staff Writers Sarah Rubenoff and Nick Zulovich contributed to this story.

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