For the 15th straight quarter, the nation’s seven publicly traded dealership groups saw their same-store used-vehicle retail unit volumes increase, according to the latest blog entry from Manheim Consulting’s Tom Webb.
And this, Webb said, together with more operational efficiency, more quickly turning inventory 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-some used retail unit sales jumped 6.7 percent, as the dealer group move 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 said 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 said 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 a 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 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 said.
“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 that were 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.
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