Dealer Groups

LHM opens new Mercedes-Benz store in Utah

DRAPER, Utah - 

Larry H. Miller Dealerships announced the opening of its Mercedes-Benz of Draper dealership on Thursday.

The dealership was formerly named Mercedes-Benz of Lindon and recently relocated to a newly built 45,069-square-foot building on 5.5 acres of land in Draper, Utah.

Mercedes-Benz of Draper includes a 1,100-square-foot AMG Performance Center, with specially-trained AMG sales and service personnel, according to LHM.

“We’re thrilled for our customers to experience our new state-of-the-art dealership. From the beautiful design of the building, to the customer lounge, large private offices for customers to complete their vehicle purchase, and additional service bays, we look forward to continuing to deliver the same outstanding experience to which our customers have become accustomed,” Mercedes-Benz of Draper general manager Ray Gunn said in a news release.

An AutoHaus2-designed Mercedes-Benz showroom features automotive-grade finished steel columns, exposed steel structure, a full-height window wall, silver metal roof canopy and stainless steel accents.

Additionally, a fully-enclosed service drive has 22 bays and the showroom houses a customer lounge that includes a children’s area, refreshments and Wi-Fi, according to LHM.

The dealership is located at 11548 South Lone Peak Parkway.

Sun Auto Group pre-owned stores aim for 'new-car experience'

CARY, N.C. - 

The ramp-up of standalone used-car stores from the likes of Sonic Automotive, AutoNation and Penske Automotive Group is certainly one of the key pre-owned strategy moves leading the retail auto market right now.

But it’s not just the big kids on the block.

Todd Caputo and his Sun Auto Group — a small collection of one franchised dealership and two pre-owned stores — has been in the used-car standalone store game since the 2000s.

Caputo’s father, Joe Caputo, opened Sun Chevrolet of Chittenango, N.Y., in 1979, having previously been a used-car dealer in Syracuse, N.Y.  

Todd Caputo, who is now 46 and the dealer principal and president of the group, grew up working in the new-car dealership and continued to do so through college.  

In 2004, he opened the first standalone used-car store, which had been a Lincoln-Mercury store in Cicero, N.Y., that closed. Caputo purchased the building and turned it into a pre-owned vehicle superstore.

In 2009, Caputo opened another used-car superstore, this time in Cortland, N.Y., after purchasing a building that had been a Ford location.

Caputo, who put together his own branding as the “Used Car King” in the local market, realized an opportunity in standalone pre-owned stores early in the game.

“I really saw, even back then, that I thought it was a good opportunity for me to kind of have a cluster in this market, where I could cluster a new-car store and kind of piggyback off the Sun name, and be able to use the resources from my new-car store to sell used cars,” he said.

These days, the three locations — Sun Chevrolet, Sun Auto Warehouse (located in Cicero) and the Sun Auto Warehouse of Cortland — combine to retail 4,800 to 5,000 used cars each year, Caputo said. They sell about 800 to 1,000 new cars in total.

New facility

And in recent news, the group constructed a new facility that replaces the building at the Cicero location, which was the first standalone store it opened.

“I was able to acquire the land around me at my Cicero location. When I first bought the property, it was about five acres. And about five years ago, I was able to purchase another 48 acres around the property,” Caputo said. “So, that allowed me to build a larger building, which I desperately needed to do.

“Because that dealership, the Lincoln-Mercury store that I bought, used to retail like 40, 50 cars a month. And we were selling 200, 250 used cars a month out of that place. We just outgrew it,” he said.

What’s more, the group’s centralized business development center was there, so “we just didn’t have the room,” Caputo said.

Construction on the new facility, which can fit 20 used cars in the showroom, began in March of last year, and the group held a soft opening in November. A larger grand opening is on tap this winter.

“Everything that the manufacturer has asked a lot of the new-car facilities to do, I did; from a child’s playroom to a convenient waiting area with a fireplace. I built a very large service drive, a service department,” Caputo said of the new facility for the standalone pre-owned store. “There’s an indoor delivery area where customers can take delivery of their cars inside; especially this time of year, it really matters a lot. So all of the deliveries are done indoors.”

The design, Caputo says, gives the store a bit of “personality.” And, he said, the goal is to provide an experience at the used-car store that is just like one you would receive at the new-car store.

He noted that “we wanted to give them the experience of a new-car experience while they’re buying a used car, regardless of what they pay.”

The look of the store, he said, is similar to that of a luxury car brand store: “That’s the feel that you get when you walk in, and that’s the way we try and treat people.”

As for what’s in store for this Cicero location, Caputo has big plans.

“We’re expecting to sell 3,000 cars out of here this year, and I truly believe we’re going to do it,” he said.

And they have already begun a similar remodel to the Cortland store, which is scheduled to finish this spring. 

Advantages to standalone pre-owned stores

One plus to having standalone pre-owned car stores, Caputo said, is that, “I can brand myself and not necessarily worry about the manufacturer controlling how I brand myself. I can build the building the way I want to build it. I don’t have to worry about the manufacturer dictating to me what my processes need to be … I don’t have anybody to answer to. When you have a franchise, you have a lot of people you’ve got to answer to, a lot of rules that you have to follow, a lot of guidelines that you have to follow. And this gives me the flexibility not to have to do that …”

Another perk has to do with trade-ins.

The average used car they sell has about 28,000 miles and is 2 to 3 years old. The average price is in the low $20,000 range.

So with these being later-model units, it actually helps the new-car side of the business take in trades that they might not otherwise have utilized.

Keys to success

Caputo, who says he has kept up with the public dealer groups’ efforts around standalone pre-owned, was asked what has made Sun Auto Group successful at operating their own used-car outlets.

“Our biggest strength would probably be the organization of people that I have — management team, back-office people, fixed operations … branding and marketing,” he said. “More than anything else, honestly, I’ve got really good car people working for me in all three stores. And that’s really been the key to our success and our growth more than anything else, and I would probably say that’s No. 1.”

AutoNation touts millions of savings thanks to federal tax reform

FORT LAUDERDALE, Fla. - 

About a week after being chosen as this year’s chair for the Federal Reserve Bank of Atlanta, AutoNation chairman, chief executive officer and president Mike Jackson highlighted how much the dealer group should benefit from federal tax reform recently signed by President Donald Trump.

On Tuesday, AutoNation announced that it expects a benefit of approximately $41 million in the fourth quarter of 2017, or approximately $0.45 per share, due to the recent tax reform bill and the one-time impact on its deferred tax liability. 

AutoNation also anticipates a benefit of approximately $75 million to $100 million, or approximately $0.80 to $1.10 per share, for the full year 2018, resulting from the decrease in the corporate federal tax rate.

AutoNation said it will use the savings from tax reform to invest in its future and its employees, through enhancing its benefits programs, including launching an innovative cancer program to assist employees and family members who were recently diagnosed with cancer, and investing in progressive training programs that will allow its associates to better serve its customers and drive their career advancement. 

The company also plans to accelerate its brand extension strategy as well as further expand its Drive Pink initiatives.

“We are excited about the pro-growth environment for business in the U.S., which includes the recently signed tax reform bill,” Jackson said.

“As a U.S.-based company, our employees, customers and shareholders will benefit greatly from a reduction in our corporate tax rates,” he continued.

Jackson certainly is familiar with federal financial policy as a part of his commitment to the Atlanta Fed, which covers the Sixth Federal Reserve District and includes Alabama, Florida and Georgia, and portions of Louisiana, Mississippi and Tennessee.

The Atlanta Fed has branch offices in Birmingham, Ala., Jacksonville, Fla., Miami, Nashville, Tenn., and New Orleans.

Each Reserve Bank has a nine-member board of directors. The Board of Governors in Washington, D.C. appoints three of these directors and each year designates one of its appointees as chair and a second as deputy chair.

Serving as the Atlanta Fed deputy chair is Myron Gray, who is president of U.S. operations for United Parcel Service (UPS).

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.”

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