Dealer Groups

Lithia to add dealerships, boost used-car sales this year


For the past two consecutive years, Lithia Motors acquired dealerships that generate over $1 billion in annualized revenue, and it is poised for additional growth this year, said its president, Bryan DeBoer.

Speaking during Lithia’s quarterly conference call on Feb. 14, DeBoer also said the group expects to continue making progress toward increasing its used-vehicle per-dealership, per month count.

Lithia opened one dealership and acquired 18 others in 2017, and dealership acquisition activity in 2018 is “off to a robust start,” he added.

In January, Lithia acquired Ray Laks Honda in Orchard Park, N.Y., and Ray Laks Acura in Buffalo, N.Y., which are expected to generate $140 million in annualized revenue.

“The plateauing new-vehicle sales environment seems to be further accelerating the number of acquisitions available, and we believe 2018 activity may exceed 2017 totals,” DeBoer told analysts and reporters on the call.

DeBoer said Lithia expects recent federal tax reform to create positive gains “in both our existing store operations as well as new acquisition opportunities.” The company’s effective tax rate will drop to 27 percent from 38 percent, resulting in an incremental $40 million in annual cash flows, he said.

At the time of the reporting for this story (in February) for the print edition of Auto Remarketing, Lithia owned 171 dealerships representing 30 brands in 18 states.

DeBoer said Lithia retailed an average of 67 used vehicles per month, per store in the quarter that ended Dec. 31, up from 66 used units per store in the year-ago quarter, putting it closer to its goal of 85 used vehicles per store, per month.

Though Lithia’s newly acquired stores typically sell fewer than 40 used cars and trucks per month, its “seasoned” stores exceed 85 per month, and some sell as many as 200 used units per month, DeBoer said.

Lithia stores that sell lower volumes of used vehicles have the location, people and potential to “expand their reach, and there really is no limit to what the upside is,” he said. 

“That’s why that 85 units — our seasoned stores do more than that — we believe that’s realistic.”

(Editor's Note: This story first appears in the March 15 print issue of Auto Remarketing. After this story was written for that issue,  Lithia announced on Feb. 27 that it had acquired Day Automotive Group in Monroeville, Pa., a suburb of Pittsburgh. Then on March 1, Lithia announced that it had acquired six marquee stores from Prestige Family of Fine Cars in Bergen County, N.J., including a BMW, Mini, Mercedes-Benz, Toyota and two Lexus stores.)

CPO down; other used sales up

In the quarter, same-store sales of certified pre-owned vehicles dropped 7 percent, sales of its “core” units increased 8 percent and sales of its “value auto” units increased 3 percent.

In a previous conference call DeBoer said Lithia’s “core” used vehicles are 3 to 8 years old and generate a gross profit margin of about 12 percent; “value auto” vehicles are over 8 years old and yield a gross profit margin of about 18 percent; and its gross profit margin on certified vehicles is 8 percent to 9 percent.

DeBoer said sales of CPO vehicles in the fourth quarter decreased because the supply of lower-cost, core vehicles is growing, and the company typically acquires its value auto vehicles as trade-ins on core vehicles.

“We make a higher margin on those (core) vehicles, which we’re excited about,” he said.

“Lastly, it’s a lot less likely when you sell core and value auto vehicles that you’re going to be cannibalizing new like you do on certified, which can be difficult. So, we always are preferential to core for that single reason.”

Tax law changes help

Lithia’s net income in the quarter benefited from a gain of $32.9 million related to changes in the federal tax law in December. 

Lithia’s net income in the quarter that ended Dec. 31, rose 74.2 percent to $89.4 million; it’s revenue for the quarter grew 17.9 percent to $2.7 billion compared to the previous year.

For all of 2017, Lithia’s net income rose 24.4 percent to $245.2 million; it’s revenue for the year grew 16.2 percent to $10.1 billion.

The company’s new-vehicle retail sales grew 17.3 percent in the quarter to 45,202 units, and for the year were up 14.7 percent to 167,146 units. Its retail used unit sales in the quarter grew 12.3 percent to 32,242, and for the year rose 14.5 percent to 129,913.

On a same store basis in the quarter Lithia’s:

  • total revenues were up 2.6 percent to $2.3 billion, and total gross profits were up 4.3 percent to $346.2 million;
  • new-vehicle units sales were up 0.8 percent to 38,669, and used unit sales were up 2.8 percent to 29,273;
  • gross profit per new vehicle retailed grew 14.2 percent to $2,182; gross profit per used vehicle retailed dropped 9.3 percent to $2,003 and finance and insurance gross profit per unit was up 6.7 percent to $1,342 and
  • service, body shop and parts revenue increased 4 percent. Customer pay work increased 4 percent, warranty work increased 4 percent, wholesale parts increased 1 percent and body shop work increased 6 percent.

Of the vehicles Lithia retailed in the quarter and on a same-store basis, it arranged financing on 71 percent, sold a service contract on 44 percent and sold a lifetime oil product on 25 percent, said John North, the company’s chief financial officer.

Lithia keeps growing, adding 6 NJ stores

MEDFORD, Ore. - 

Lithia Motors continues to add more stores to the dealer group near locations already in the company’s portfolio.

Within days of announcing an acquisition near Pittsburgh, Lithia said on Thursday that it has acquired six marquee stores from Prestige Family of Fine Cars in Bergen County, N.J., including a BMW, Mini, Mercedes-Benz, Toyota and two Lexus stores.

The group is estimated to generate $900 million in steady state annual revenue.

“We are pleased to welcome the Prestige team to our family,” Lithia president and chief executive officer Bryan DeBoer said. “These stores are centrally located in Paramus and Ramsey, New Jersey near our existing DCH operations. These are high volume, luxury stores nicely matching one of the most affluent areas in the country.”

DeBoer maintained that the proximity to the company’s existing locations will allow Lithia to share best practices and realize synergies among the Prestige, DCH and Carbone stores.

He added Prestige will diversify the group’s brand mix in the Northeast, strengthening our luxury product offerings.

DeBoer also emphasized that Lithia seeks strong franchised stores in dominant market areas that have yet to realize their full potential.

Commenting on the acquisition activity, DeBoer stated,

“With this transformational acquisition, along with the previously announced Day Auto Group and Ray Laks transactions, we have added over $1.3 billion in steady state annual revenue in the first two months of 2018,” DeBoer said.

“As a result, we are increasing our annual outlook to a range of $12.0-12.5 billion in revenue and $10.60 in earnings per share,” he continued. Day and Prestige are contributing minimally to our 2018 earnings due to their relative underperformance and incremental debt costs, but can deliver earnings similar to our core operations in the future.”

Lithia broadens Pittsburgh footprint by acquiring Day Automotive Group

MEDFORD, Ore. - 

Lithia Motors obviously likes turning metal in the Steel City.

On Tuesday, Lithia announced it has acquired Day Automotive Group in Monroeville, Pa., a suburb of Pittsburgh. The Day group is estimated to generate $340 million in steady annual revenue.

Day joins Baierl Auto Group as the second acquisition in 10 months in the Pittsburgh metro area and creates a combined platform with nearly $1 billion in annual revenue.

“We are excited to add the Day team and their strong franchise mix to our operations in Pennsylvania,” Lithia president and chief executive officer Bryan DeBoer said in a news release.

“This acquisition rounds out our presence in Pittsburgh, adding stores in the desirable southeastern metro area to complement our locations in affluent Cranberry Township,” DeBoer continued. “We continue to see a robust acquisition environment and anticipate more acquisitions in the near term.”

Day’s brands include Audi, Chevrolet, Ford, Subaru and Volkswagen. The Baierl acquisition included Acura, Cadillac, Chevrolet, Ford, Honda, Kia, Subaru and Toyota franchises.

“We seek strong franchised stores in dominant market areas that have yet to realize their potential. We continue to expand our omni-channel retail strategy to innovate and serve customers throughout the United States,” Lithia said.

Used-car sales show improvement from January

CARY, N.C. - 

If the latest projections from Edmunds are any indication, look for an improvement in retail used-car sales this month.

Edmunds expects February will end with 3.5 million used-car sales, which would beat January’s 3.1 million pre-owned sales.

That would translate to a seasonally adjusted annualized rate of 39.1 million used cars, up from the 38.9-million SAAR seen last month.

Over at Cox Automotive, the company said in its February Industry Update released two weeks ago that it still is anticipating 39.5 million used-car sales this year, despite a 2-percent year-over-year decline in used sales during the first month of the year.

Nothing that January’s dip “does not materially change the forecast,” Cox Automotive said in the report: “Now that used-vehicle pricing is back to pre-hurricane levels, used sales should pick up momentum for a strong March and April.”

That would perhaps help continue a trend spotted by now retired former Cox Automotive chief economist Tom Webb.

Webb, citing earnings from the companies, said in a tweet Tuesday that same-store used retail unit sales increases for the publicly traded dealer groups have climbed in 33 of the past 34 quarters — albeit with increasingly softer margins.

One of those publicly traded groups is Sonic Automotive, which released quarterly results Tuesday morning and emphasized the momentum in its standalone used-car retail stores.

Sonic’s EchoPark stores enjoyed nearly a 167-percent spike in sales for the fourth quarter, executive vice president of operations Jeff Dyke said in a news release.

“We sold over 10,600 units for the year with nearly 4,500 units retailed in the fourth quarter as our business model is accelerating volume at a rapid pace.  This represents a 100-percent increase in volume for EchoPark year-over-year,” Dyke said.

“We expect our EchoPark brand to sell in the range of 25,000 cars in 2018, more than doubling 2017 volume,” he said. “In just a few years, the EchoPark brand has become nearly 20 percent of Sonic’s total pre-owned volume, and, given the volume increase we are experiencing with our model, we fully expect EchoPark to eclipse the volume we currently produce in our Sonic franchised dealerships over the next few years.”

Group 1 eyes more dealerships


Group 1 Automotive is looking for new-car dealership “opportunities” in the United States, United Kingdom and Brazil markets, the company said during its recent quarterly conference call.

And as far as the standalone used-car store concept that has become increasingly popular, Group 1 chief executive officer Earl Hesterberg said his company has looked at the pre-owned stores “quite a bit.”

But he also noted that competitors Asbury Automotive Group, Lithia Motors and AutoNation, all tried and abandoned the concept — although AutoNation got back into the standalone used-car business in 2017.

Sonic Automotive, also publicly held, operates standalone used-car stores under its EchoPark brand.

“So, we see that expansion back into that concept,” Hesterberg said, during Group 1’s Feb. 8 conference call.

“We’re certainly studying it to see who’s successful. Thus far, it seems like the only real success has been with those who want to be the bank also, which is the interesting concept and not one we’ve considered.”

He said the company is also looking at and discussing with its board mobility trends such as ride-sharing and fleet servicing. “We have interest,” Hesterberg said. “We don’t know exactly how to make reasonable investments for our shareholders into some of those emerging trends.”

Hesterberg touted the company’s acquisition of a Land Rover dealership in the U.K. and Audi and Subaru dealerships in El Paso, Texas, in January.

“These three franchises are expected to generate approximately $100 million in annual revenues,” he said. “We expect to continue our strategy of disciplined growth through acquisitions in all three of our markets over the course of 2018.”

Group 1 has 175 dealerships: 117 are located in the U.S. and generate 75 percent of the company’s new-vehicle sales; 42 are located in the U.K., generating 20 percent of new-vehicle sales and 16 are located in Brazil, generating 5 percent of new-vehicle sales.

Tax laws changes helped

Looking at the fourth quarter, Group 1 said it benefited from changes in the U.S. federal tax law that cut corporate taxes.

Group 1’s net income in its fourth quarter that ended Dec. 31 included an “approximate $73 million” benefit from changes in the U.S. federal tax law, the company reported. In the fourth quarter that ended Dec. 31, Group 1’s overall adjusted net income, excluding the tax benefit, increased 18.8 percent to $44.3 million on revenues that increased 9.2 percent to $2.9 billion.

Overall new-vehicle unit sales in the quarter rose 6.4 percent to 44,713, and used-vehicle unit sales were up 5.4 percent to 32,015.

The company’s annual overall adjusted net income excluding the tax benefit was almost flat, dipping 0.1 percent to $163.5 million on revenues that grew 2.2 percent to $11.1 billion. Overall new-vehicle unit sales for the year were almost flat, up 0.1 percent to 172,200; used-vehicle unit sales were up 0.6 percent to 129,933.

For all of 2017, Group 1’s new-vehicle retail sales in the U.S. dropped 2.6 percent to 127,141 units, and its used-vehicle retail sales were down 4.3 percent to 101,170 units.

Asbury cites software upgrade impacting Q4 used performance

DULUTH, Ga. - 

Just like that four-cylinder engine in a 2017 model is probably much more efficient and robust than the same level power plant in a vehicle 10 years older, Asbury Automotive Group is anticipating an ongoing software upgrade will rev up its used-vehicle department to a much higher performance than what the dealer group experienced to close the fourth quarter.

Acknowledging the software changeover had an noticeable impact, Asbury reported that its Q4 same-store used-vehicle retail revenue decreased 6 percent year-over-year while gross margin dropped by 10 percent on the same time comparison.

In terms of units, Asbury retailed 17,822 used vehicles during the fourth quarter, a drop-off of 2,059 vehicles or 10 percent year-over-year.

For the year, Asbury retailed 76,929 used vehicles, down 3 percent or 2,330 units compared to the 2016 total. The dealer group’s average gross profit per used unit retailed dipped 5 percent or $79 in 2017 to $1,574.

While those might be some negative figures, Asbury leadership is hopeful a dramatic software upgrade — expected to be completed by the close of the second quarter of this year — will provide the lift the company needs to enjoy record used-vehicle performance.

Asbury senior vice president of operations John Hartman told investment analysts during a February conference call, “While the new software will benefit us in the long-term, the implementation led to business disruption, putting pressure on our used sales.”

Later in the call, Hartman elaborated about some of the software’s capabilities.

“The biggest difference is we track market-day supply on used,” Hartman said. “Now if we look at a vehicle, if it has a low market-day supply, we know that vehicle will turn quicker and we can price it appropriately versus a vehicle that has a high market day supply and there's abundance of them in the market. We need to price that more aggressively to move it quicker. So the data is much more fine-tuned.”

Asbury president and chief executive officer David Hult immediately chimed in saying, “The other significant increase I’ll add to that, from appraising the vehicle, it’s more real time data, meaning today and this week what’s happening and the old software was really a 90-day look back.”

While Hult didn’t specify exactly how old Asbury’s software, it might be fair to assess that the platform might have been limited like that four-cylinder engine only pushing out a little more than 100 horsepower.

“We’re not a huge a company, but anytime you change something across the enterprise, it’s painful, so you put it off for long periods of time,” Hult said.

“The software we had was serviceable, but the data that it gave us wasn’t as timely as what the new software gives us,” he continued. “The new software is far more complex and more data-driven than the old, so we’re confident once we get comfortable with it, we’ll really be able to increase our turn, which is what we’re focused on. We want to turn the inventory faster and naturally grow our volume through trades.”

Top-line measurements

In other parts of its financial statement, Asbury reported its Q4 net income came in at $42.5 million or $2.03 per diluted share, down compared to $67.1 million or $3.08 per diluted share in the prior-year quarter.

The company explained its net income for the fourth quarter was adjusted for a $5.1 million pre-tax loss for franchise rights impairments ($0.15 per diluted share) and a $7.9 million benefit ($0.37 per diluted share) related to adjustments to deferred tax balances as a result of recent changes to the tax law.

As a result of recent changes to the tax law, Asbury is expecting its effective tax rate to be between 25 percent and 26 percent in 2018, which is down from its prior guidance of approximately 38 percent.

Finance office update

Asbury’s F&I performance was a bright spot during the fourth quarter. The dealer group posted a year-over-year lift of 10 percent or $153 in F&I gross profit per unit, landing at $1,652.

And by and large, Hult indicated that Asbury has the access to get its customers financed.

“I haven’t seen a big shift in the credit at all, as far as in the subprime market, which is a small percent of our business. The stipulations are getting a little bit tighter, but credit availability hasn’t been an issue in all the tranches,” he said.

Used-car momentum only beginning for AutoNation


AutoNation opened three standalone used-car stores in 2017, rolled out its fourth in January and has plans to open its fifth AutoNation USA location — this time in Las Vegas — by the end of this quarter.

What’s more, the retailer is making additions on the wholesale side of pre-owned, too, with plans to open an AutoNation Auto Auction in Atlanta by the end of the quarter, the fourth auction facility for the dealership group.

This used-car momentum discussed by AutoNation management during its latest earnings call comes on the heels of what was a strong fourth quarter in pre-owned.

Total used-vehicle retail revenue was up 2.4 percent in the fourth quarter at $1.14 billion, with retail used gross profits up 7.7 percent at $75.2 million. AutoNation retailed 55,944 used cars during the quarter, up 1.3 percent from Q4 of 2016.

Wholesale revenue, however, was down 34.4 percent at $69.7 million, but gross profits there climbed to $2.8 million, up from a loss of $4.4 million a year earlier. 

During the Q&A portion of the call with analysts, AutoNation chief executive Mike Jackson was asked about AutoNation’s used-to-new retail sales ratio – estimated by the questioner to have softened year-over-year to 0.6-to-1— and whether the retailer could pivot to used to counterbalance what could be slower new-car sales for the industry.

“In pre-owned, you know, I’ll take a quarter like this the rest of my career, but I don’t think I’m going to get it,” Jackson said. “We had an increase in gross profit all-in in our pre-owned business, same-store sales, of 16 percent. Now every quarter is going to be a little different where you find the optimal line between margin and volume. Also we were much more effective in … our wholesale operations.

“Very good operational execution, combined with finding the optimal line between volume and profits, led to an outstanding result. I think over time, you’ll see our pre-owned business is growing faster than our new business, but in this particular quarter it went the other way, but the results all in are outstanding and I wouldn’t change a thing,” he said.

One thing that is changing, both at AutoNation and industrywide, are the growing presence of standalone pre-owned outlets.

Chief financial officer Cheryl Miller said it’s still too early to gauge the success of AutoNation USA, quite yet.

“We’re really talking about four or five stores at this point. (It’s) challenging to compare the early results, because two of those stores were in Texas. And so when you look at the impact of the hurricanes in Corpus and Houston, certainly you can’t extrapolate those trends from the early results. But stay tuned there,” Miller said. “But I’d say from a materiality standpoint, currently the AN USA stores are not material to the overall volume.” 

However, one area of the AutoNation USA business that is already starting to show some positive results is the customer-pay service initiative.

Scott Arnold, who is AutoNation’s executive vice president of customer care and brand extensions, said: “We are starting to see customer-pay traffic come into the store. We’re seeing that coming off of the used cars that are being sold. 

“We offer a maintenance program at no cost to the consumer when they purchase a vehicle. And so that customer is now starting to come back in to the earlier USA stores and showing up as a customer-pay customer,” he said. “So, yes, we are starting to see the traffic build. It will build slowly at first, but consistently and continue to move up.”


Penske to expand used-car superstore footprint in U.S. under CarSense brand


Penske Automotive Group will expand its standalone, used-vehicle supercenter footprint with three new used-car stores in the U.S., said chief executive Roger Penske.

The company will open the greenfield sites under its U.S. brand, CarSense, which operates five used-car supercenter locations in Pennsylvania and New Jersey.

The first new location will be in Phoenix and is to open in about six months, followed by locations in the New Jersey and Pennsylvania areas. All three locations will be up and running within “12 to 18 months,” Penske said.

Penske Automotive expects its standalone used-vehicle superstore operations, which also includes locations in the U.K., to sell approximately 70,000 used cars and trucks and generate over $1 billion this year.

“We believe these used-vehicle dealerships further diversify PAG’s business and provide an opportunity to capitalize on the highly fragmented used-vehicle marketplace,” Penske said during the company’s conference call on Thursday outlining its quarterly and annual financial results.

“In the fourth quarter, these businesses retailed 9,500 units, generated $176 million in revenue and $29 million in gross profit.”

Penske Automotive acquired CarSense in January 2017. It also purchased CarShop, which operates five used-car locations in U.K., in 2017.  In January, it closed the deal on The Car People, which operates four used-car locations, also in the U.K.

Penske Automotive’s adjusted income from continuing operations in its fourth quarter that ended Dec. 31 included a $243.4 million benefit from changes in the U.S. federal tax law.

Excluding the tax benefit, Penske Automotive’s income in the quarter rose 11.9 percent to $86.6 million and was up 9.2 percent to $370.1 million for the year.

Penske Automotive’s revenue in the quarter increased 10.4 percent to $5.4 billion and its revenue for the 12-month period ending Dec. 31 increased 6.3 percent to $21.4 billion.

Penske Automotive operates automotive and commercial truck dealerships principally in the U.S., Canada and Western Europe.

AutoNation partners with Flexential to ensure IT stability


With so much of its business activity connected to technology nowadays, AutoNation made a move to ensure its customers can easily connect with its dealerships, and employees can complete work via the solutions they need.

Flexential, a hybrid IT infrastructure provider, announced the recent deployment of a high-density Disaster Recovery environment for AutoNation. The dealer group chose to house its DR environment within Flexential’s data center in Texas.

Combining the expertise of its people with state of the art infrastructure, Flexential said it helped AutoNation overcome a significant, time-intensive IT challenge faced by many organizations today.

“As a large enterprise, we recognize that investing in DR is critical to our core operations,” said Adam Rasner, senior director of IT operations and infrastructure at AutoNation.

“If our applications and data aren’t available, we can’t deliver for our customers,” Rasner continued.

Before turning to Flexential to fulfill its DR requirements, AutoNation moved its IT infrastructure into the public cloud. During testing, officials indicated that the dealer group quickly realized that its application and data needs required too much horsepower and were too expensive to operate in the cloud.

AutoNation recognized it needed a third-party colocation and DR provider with industry-leading power and cooling capacity that could accommodate its equipment within a small footprint to reduce costs. AutoNation toured several providers’ facilities, and ultimately chose Flexential.

“Flexential achieved for us what few providers could: a high-density DR environment at one of its newest and most innovative data centers,” Rasner said.

“The facility’s capabilities, coupled with the team’s expertise and flexibility, helped us take an original design of close to 20 cabinets at 5kW per cabinet and optimize that to seven cabinets at almost 20kW per cabinet — delivering the ability to scale our environment very cost-effectively as we continue to grow our business,” he went on to say.

To demonstrate this high-density capability to enterprises, the Flexential Texas data center features a test bed that showcases the ability to support high-density, hyper-converged server deployments. The facility is one of the company’s 41 data centers spanning the US, connected by a 100Gbps network backbone delivering network options and interconnection capabilities that extend to hundreds of global carrier offerings.

“AutoNation chose one of our most innovative and technologically advanced facilities, supporting density levels up to 2,000 watts per square foot,” said Tom Myers, regional vice president at Flexential.

“This is attractive for high-growth companies who require a small, dense physical footprint that enables them to cost-effectively scale their IT environment,” Myers added.

“We are glad our team and facility earned the trust and confidence of AutoNation,” Myers went on to say. “We look forward to helping support its business operations and enable further growth.”

Group 1 boasts 2 new El Paso stores; Penske announces cash dividend increase


Group 1 Automotive announced this week it has expanded its business presence in El Paso, Texas with the acquisition of new Audi and Subaru stores.

And in other news to stem from top dealer groups, Penske Automotive Group’s board of directors has also reported it approved an increase in the cash dividend to $0.34 per share for the fourth quarter of 2017. 

Group 1 said Monday that its new Audi El Paso and Subaru El Paso dealerships are expected to produce an estimated $65 million in annualized revenues.

“We are pleased to expand our dealership footprint in the fast-growing El Paso market and increase our existing partnership with Audi and Subaru,” Group 1 president and chief executive officer Earl Hesterberg said in a news release announcing the company’s recent acquisitions.

Group 1's El Paso market footprint has grown to seven franchises: Audi, BMW, Buick, Ford, GMC, MINI and Subaru.

Meanwhile, the cash dividend per share increase approved by the board of directors at Penske is payable on March 1, to shareholders of record on Feb. 12, according to the company.

“I am pleased to announce that our board of directors has increased the dividend for PAG's shareholders for the 27th consecutive quarter,” added Penske president Robert Kurnick, Jr. in a news release Tuesday. “The increase in the dividend reflects our commitment to increasing returns for shareholders and reinforces the continued confidence we have in the strength of the company's business model and cash flow."