Dealer Groups

Larry H. Miller Group Expands in Original Market


One of the nation’s largest dealership groups is one dealership larger, as the company expands its footprint within its original market.

On Friday, Larry H. Miller Dealerships announced the acquisition of Pro Chrysler Jeep Dodge Ram of Thornton, Colo., now renamed Larry H. Miller Chrysler Dodge Jeep Ram 104th.

The acquisition boosts the group’s presence in the Denver market, which began in 1988, and marks the location of the start of the career of company founder Larry H. Miller in 1970, as a parts salesman.

The Thornton store joins the company’s six other Denver-area dealerships.

“For 26 years we’ve served the greater Denver area both financially and philanthropically, and we are excited to add a Chrysler Dodge Jeep Ram store to our offerings,” said Dean Fitzpatrick, president of Larry H. Miller Dealerships.

“We look forward to continuing to provide exemplary customer service, employee growth opportunities and to conduct business in-line with our company values of honesty and integrity,” he said.  

Former owner of the Thornton store, John Schenden, said the auto group’s commitment to employee retention was a key factor in his decision to sell.

“Selling a business is difficult, especially since I have invested the past 21 years into the store,” Schenden said. “Knowing that I am selling to a company that values not just their customers and employees, but the betterment of their communities, made the decision easier.”

“We always consider employees part of the asset when we acquire a new store, and we invest in their growth,” said Steve Starks, executive vice president of Larry H. Miller Management Corp. “In addition to retaining current store employees, we have full-time trainers in our dealership group who work with staff to help them be successful.”

Larry H. Miller Dealerships operates 53 dealership locations in six western states.

Through Larry H. Miller Charities, the company also gives back locally; focusing on women’s and children’s issues with an emphasis on health and education, it has donated more than $223,000 to Denver-area nonprofits since 1996.


19 Straight Quarters of Used-Car Gains for Public 7

CARY, N.C.  - 

The string of consecutive year-over-year increases in same-store used retail sales has reached 19 quarters, according to a recent post on Manheim Consulting chief economist Tom Webb’s blog.

Market conditions, tough as they may have been, and steep comps couldn’t deter growth for the retailers, whose streak of quarterly gains is now approaching five years.

“That was despite the dampening effect of harsh weather in many parts of the country,” Webb said of the latest quarter’s triumphs, in his blog post. “And, obviously, as this string has continued the year-over-year comps represent an increasingly high hurdle.”

He pointed out that gross margins are slim, but dealers have started to see these numbers even out on a year-over-year basis. Not to mention, fast-turning inventory, robust F&I income and more efficient operations have led to record profits, Webb added.

Interestingly enough, he went on to note that the used market is stronger than some indicators would suggest.

“As we have noted in explaining the strength in wholesale pricing this year, the retail used-vehicle environment is stronger than suggested by nationally reported unit sales,” Webb said.

“Last quarter’s earnings reports confirm that,” he continued. “And conversations with the large privately-held dealerships groups indicate they did as well as — if not better — than the seven publicly traded ones.”

On an overall sales basis, here is a rundown of how the dealer groups total retail used-vehicle sales fared in their most recently reported quarterly performances, according to their respective earnings releases:

Asbury Automotive Group
Q1 Retail Used-Vehicle Unit Sales: 18,503
Year-Over-Year Change: Up 13.2 percent

Q1 Retail Used-Vehicle Unit Sales: 52,136
Year-Over-Year Change: Up 3.2 percent

Retail Used-Vehicle Unit Sales: 132,856
Year-Over-Year Change: Up 12.3 %
*Note: Results are for its fiscal fourth quarter ending Feb. 28.

Group 1 Automotive
Q1 Retail Used-Vehicle Unit Sales: 26,877*                       
Year-Over-Year Change: Up 15.7 percent*
*Note: Includes international and U.S. results

Lithia Motors
Q1 Retail Used-Vehicle Unit Sales: 16,316     
Year-Over-Year Change: Up 19.4 percent

Penske Automotive Group
Q1 Retail Used-Vehicle Unit Sales: 45,370*
Year-Over-Year Change: Up 14.8 percent*
*Note: Includes international and U.S. results

Sonic Automotive
Q1 Retail Used-Vehicle Unit Sales: 27,657
Year-Over-Year Change: Up 4.5 percent

As these dealership groups have reported their quarterly performance, Auto Remarketing has been sharing the used-car strategies that their respective leaders have discussed in Q1 (or fiscal Q4 ending Feb. 28 for CarMax) earnings calls.

Below are links to some of our stories on the seven public retailers that can keep you up-to-date on the latest used-car happenings for these groups:

Asbury Automotive Group



Group 1 Automotive

Lithia Motors

Penske Automotive Group

Sonic Automotive


Group 1 Expands Houston Market


Group 1 Automotive announced a first this week, namely the addition of Mercedes-Benz to the company’s offerings in the Lone Star State.

The acquisition of Alex Rodriguez Mercedes-Benz in League City, Texas, a suburb of Houston, marks the first time Group 1 will provide Mercedes vehicles and service to its existing customer base of franchises serving the Houston market. 

The acquired dealership will operate as Mercedes-Benz of Clear Lake and is expected to generate $85 million in estimated annual revenues, the company said.

The business also includes the Mercedes Sprinter commercial vehicle franchise.

Hyundai Expansion in Houston

Also this week, Group 1 announced the expansion of its Hyundai operations in Houston, with the opening of an all-new South Loop Hyundai dealership facility.

South Loop Hyundai, which launched operations in July 2012, now opens the doors to its state-of-the-art sales and service facilities for Hyundai and its luxury brand, Equus. 

Group 1 also owns and operates Sterling McCall Hyundai in the Houston market.

"We are delighted to strengthen our relationship with both Mercedes-Benz USA and Hyundai Motor America while building scale in our hometown market of Houston," said Earl J. Hesterberg, Group 1 president and chief executive officer.

"Adding Mercedes-Benz of Clear Lake will enable us for the first time to provide Mercedes vehicles and service to our existing customer base of Group 1 franchises already serving over 300,000 Houstonians. 

“And our new South Loop Hyundai facility will support growth in our Hyundai vehicle and service sales, which has become a fast-growing part of our business in recent years," Hesterberg said.  


Group 1 Talks Winter Impact on Used Margins


Despite storms in the U.S. that threw a monkey wrench into its operations in early 2014, Group 1 Automotive still managed to increase its global used-car retail sales by nearly 16 percent in the first quarter and boost its U.S. numbers by nearly 8 percent.

When looking at consolidated international and U.S. results, Group 1 posted used retail revenue of $549.9 million, a 16.7-percent year-over-year increase. In the U.S., specifically, used retail revenue was up 7.7 percent at $450.5 million.

On a consolidated basis, Group 1 retailed 26,877 used cars throughout its U.S. and international operations during the first quarter, which marked a 15.7-percent year-over-year hike. It was pulling in gross profit per unit of $1,592 on these cars, which was 8.1 percent softer than a year ago.

In the U.S. alone, the retailer sold 22,743 used retail vehicles during the quarter, a 7.7-percent increase. Its gross profit per unit on these sales was $1,646, down 7.6 percent year-over-year.

In a conference call Thursday on the retailer’s Q1 performance, Group 1 president and chief executive officer Earl Hesterberg was asked by an analyst to discuss U.S. gross profit per unit trends.

“Used-vehicle margins, I don't think we did a particularly good job in the first quarter. But again, much of that came from the Eastern half of the country. After we had 45 days of dreadful sales, we started to really move out a lot of our used-vehicle inventory,” Hesterberg said, according to a transcript of the call from

“We keep a 30-day supply and we had a lot of aging vehicles. So, I think we retailed some at margins that we wouldn’t normally. And we also wholesaled more than we normally would. And to give you some flavor for the pressure we felt in the East Coast in the first quarter, we had a decent same-store new-vehicle sales increase in the first quarter, but the Eastern half of the U.S., even after a great March, was still down double digits in same-store new-vehicle sales,” he continued.

“And in New York and New Jersey, we were down for the quarter 25 percent. That was after a good March. So, when your activity backs up like that, it really damages your business, which is what we were concerned about when we made our announcement in mid-February,” Hesterberg added.

The announcement to which he was referring was sent out on Feb. 18 and indicated that the widespread severe weather throughout the U.S. this winter had led to “significant business interruptions” at most of the retailer’s U.S. stores that ranged from one to three days.

At that time, Group 1 said 105 of its 118 stores here had been affected by conditions that made it hazardous to drive or shut roads down altogether, leading to either store closures or major declines in store traffic. The company said this meant losing 391 store selling days — or about 9 percent of total available selling days — through Feb. 16 

“While we lose selling days every winter, the severity and extremely widespread nature of the storms this year is far beyond our normal experience,” Hesterberg said in the February statement.

“We have lost days in areas of the country that stretch from Houston to New Orleans to Atlanta that are normally safe from winter weather and our stores in areas like Boston, New Jersey, New York, New Hampshire, Oklahoma, and Kansas have seen significant closures that far exceed normal winter conditions,” he added.

In the conference call on Thursday, Hesterberg noted that its stores in New Hampshire, Massachusetts, New York, New Jersey and Maryland took the biggest hits. However, he pointed out that South Carolina, Georgia and North Texas has several store closures, “which is very unusual.”

Lithia Says It's Not Ready to Join Used Stand-Alone Push

MEDFORD, Ore. - 

Two other publicly traded dealer groups are well on their way to rolling out special stand-alone stores that only sell used vehicles. Lithia Motors tried that retail concept about seven years ago, and company executives don’t appear eager to attempt it again.

When investment analysts asked Lithia leadership whether an approach like the respective concepts Sonic Automotive and Asbury Automotive Group unveiled, Lithia executive chairman Sid DeBoer said, “I think we learned our lesson on stand-alone for now.”

Lithia unveiled stores under the moniker L2 back in August 2007, but about a year later the company chose to wind down the initiative.

On Wednesday, Asbury announced it will be opening two stand-alone used-car stores in Florida this year that will operate under the “Q auto” brand. Asbury plans on opening the first store in June in Tampa, Fla., then a second store this fall in Jacksonville, Fla.

And Sonic again discussed its stand-alone strategy last week. Company executives still are reluctant to share specifics on how their forthcoming stand-alone used retail business differs from the CarMax model.

No matter what Asbury, Sonic or even CarMax might be doing to turn used metal, Lithia is confident in its plan to move steadily toward its goal of retailing 75 used vehicles per month per store. The company took a step toward that mark in the first quarter, averaging 55 sales per store, up from 50 turns a year earlier.

To hit that target, president and chief executive officer Bryan DeBoer thinks Lithia can reach it with how its current network of dealerships is structured.

“I really believe that in our size markets, we have so much space capacity within our existing lots and they sit in prime locations. Our issues with used-car growth is more about procurement, so it’s not about space or exposure to the consumer. We really believe that if we can find more used cars, we’ll put them on our existing lots with no additional capital expense,” DeBoer said.

“In terms of Lithia’s opportunity to grow used cars, we believe that’s in our existing footprint of stores,” he continued.

DeBoer elaborated how gradual improvement in used-vehicle supply — stemming from the model years since the recession when automakers manufactured more units — will help, too.

“That’s why we’re starting to see these increases in certified at a higher rate than core and value auto, we’re starting to have some years come back that are more normal years at 14 million, 15 million SAAR where those are now used cars,” DeBoer said.

“As those cars push into what we would call core products in 3- to 8-year-old vehicles, now we’ve got more supply of those cars, which are the cars that really generate the profit and the trade-ins of value auto vehicles that generate that third generation,” he said. “So we’re pretty excited about that and we don’t think we need to change our existing footprint. We can offer those opportunities to our customers where we currently are.”

Sid DeBoer closed the topic with some arithmetic.

“If you do the math ... if we had 100 stores and every store did 20 more used cars, that’s 2,000 a month more sales. It’s a lot of growth,” he said.

Acquisition Activities

During the conference call, Lithia recapped its store acquisitions and dealership openings since the beginning of the year. All of the additions are estimated to boost Lithia’s annual revenue by $230 million. The new-location rundown included:

— Island Honda in Kahului, Hawaii
— Stockton Volkswagen in Stockton, Calif.
— Honolulu GMC Buick Cadillac and Honolulu Volkswagen in Honolulu
— Access Ford Lincoln in Corpus Christi, Texas
— Lithia Chrysler Jeep Dodge Ram of Wasilla in Wasilla, Alaska

Only one of those new additions wasn’t located near the Pacific Ocean. Analysts again wondered if Lithia ever considers venturing east of the Mississippi River? Bryan DeBoer responded by saying the company has to do quite a bit of analysis when considering acquisitions in an Eastern market.

“Our prerogative would be to fill in areas that we already have management staff and we don’t have to spread our wings quite as far,” he said. “We don’t have anything active really in the East at the current time.

“However, we still believe that there is going to be an opportunity to be able to buy a group that comes with some people,” DeBoer continued. “That’s how we’ve always been discussing it the last few years. We have to find a group that is much like we were, that has the ability to grow people and really just needs the capital injection to be able to expand their footprint. And so far, it hasn't quite come to be, but we are still actively looking and I think we'll still be able to find something in the future.

“In the interim, if things come up in the West, it probably means the (return on equity) rates were much higher than what we’re still seeing in the Eastern markets,” DeBoer went on to say.

Off-Lease Influx to Grow Penske Used Business


In discussing its first-quarter performance, Penske Automotive Group highlighted double-digit increases in used-vehicle retail sales while also touching on how the expected rise in off-lease vehicles may lead to even bigger opportunities in pre-owned.

Looking at the company’s retail performance in Q1, it retailed 45,500 used units during the quarter for a year-over-year increase of 14.8 percent.

“We're up 15.9 percent in premium/luxury, up 13.7 percent in volume foreign and up 3.1 percent in the Big Three,” said chairman and chief executive officer Roger Penske of the company’s category performance in a conference call held Thursday to discuss Q1 results.

These sales spikes led to a used-to-new ratio of 0.9-to-1, compared to 0.88-to-1 during Q1 of 2013.

Used-vehicle revenue rose 21.6 percent to $1.2 billion, Penske highlighted, due in part to the 5.9-percent rise in used-vehicle average transaction price during Q1.

The company ended the quarter with 35 days’ supply of used vehicles at the end of March. This was down from 38 days’ supply during the same period of 2013, but that might just be about to change.

The reason?

The influx of off-lease vehicles the industry is expecting will hit the market this year and into 2015.

When asked during the question-and-answer portion of the call what impact the increased amount of leased vehicles coming into the market will have on the company’s used performance, Penske turned to the certified pre-owned side of the business.

“A big portion of our business is used cars,” said Penske, noting that the majority of pre-owned supply is, in fact, coming from off-lease vehicles.

He went on to note that CPO accounts for 34 percent of the used vehicles the dealer group retails.

“I see the certified pre-owned driving one thing. It drives a loyal customer who knows that they have, in many cases, the same warranty that's available on the new vehicle. And in many cases, the same financing or lease terms,” he said. “So to me, that's a real opportunity, and we use that where we can.”

Interestingly, he noted the company wants to keep CPO used share to 30-35 percent — which Penske called “a sweet spot” — in order to keep reconditioning and sales costs down.

But as supply grows right along with Penske’s used department, the CEO explained the boost in pre-owned biz is contributing to the parts and service business, as well.

Margins in Penske’s parts and service branch are currently approaching 60 percent, Penske pointed out.

On top of outlining how increased supply is growing the company’s CPO department, Penske also explained how the company’s specialty in premium and luxury vehicles give them a leg up when it comes to off-lease supply.

Sixty-six percent of the company’s revenue comes from luxury vehicles. And Penske pointed out of those vehicles stemming from brands such as BMW, Audi, Lexus, and more, about 50 to 55 percent are leased.

“So the good news is, those are 30- to 36-month leases, and we see those cars coming back, and we get first choice on those,” Penske said. “So that's a nice pipeline of vehicles for us from the standpoint of opportunities. So I know there's been lots of discussion about a big surge coming back.”

“We look forward to that, specifically as we go forward to build our used car business,” he added.

When looking at off-lease supply, it’s prudent to also take a look at the different automakers’ lease trends.

“Well, the off-lease, I think you got to look at the different manufacturers and what's the penetration by the captive, and I think if you look at our peers, most of the them dealing in premium/luxury are leasing,” said Penske. “And with those leased vehicles, we get the opportunity from the captive finance company to buy those and that gives us a strong chance to grow our used-car business.”

“The rental vehicles are key for us,” he said.

Rental vehicles have always held a big role in Penske’s strategy, the CEO said, noting, “The business will generate a nice profit for the full year, and yet, we get the benefit of leased vehicles from a sales standpoint when we sell them off to the dealerships.”

Penske also pointed out the company will benefit from the 6,000 cars it has in the Rent-A-Car fleet, over half of which will turn over in the next 12 months.

“Those have been 'spec’d' at the time of purchase with sunroofs and some of the things that make those cars more desirable in the marketplace,” Penske said. “So as for used-car opportunity, I think it is there.”

Editor's Note: Portions of Seeking Alpha's transcript of the call were used in this story. The transcript can be found here.

Lithia Continues Drive Toward Monthly Used Sales Mark

MEDFORD, Ore. - 

Lithia Motors took another step during the first quarter toward reaching its goal of turning 75 used vehicles a month at each of its stores.

The dealer group reported on Thursday that it retailed 16,316 used vehicles during Q1, representing a 19.4-percent lift year-over-year. Selling the extra 2,655 used vehicles above the year-ago quarter’s total of 13,661 units meant Lithia stores averaged 55 used sales per month.

While Lithia moved more used metal in Q1, the company watched its gross margins on those used deals soften by 110 basis points year-over-year. The group’s gross margin on used retail sales in the first quarter settled at 13.5 percent, down from 14.6 percent a year earlier.

Nonetheless, the used-department retail sales improvement helped Lithia post the highest first-quarter adjusted net income level in company history as increased adjusted net income from continuing operations climbed 24 percent above the prior-year period.

Lithia said its Q1 adjusted net income from continuing operations came in at $27.1 million, or $1.03 per diluted share. That’s up from $21.9 million, or $0.84 per diluted share during the first quarter of last year.

The company’s unadjusted net income from continuing operations for the first quarter was $24.7 million, or $0.94 per diluted share, compared to $21.9 million or $0.84 per diluted share for the first quarter of last year.

The company’s Q1 revenue increased $175 million or 19 percent to $1.1 billion, up from $903 million for the first quarter of 2013.

Lithia mentioned several other year-over-year improvement highlights, including:

—Total same-store sales increased 12 percent.

—New-vehicle same store sales increased 10 percent.

—Service, body and parts same store sales increased 9 percent.

—Same store F&I per unit increased $84 to $1,200.

—Adjusted SG&A expense as a percentage of gross profit decreased 60 basis points to 68.5 percent.

“We grew same store sales in all four business lines in the first quarter,” Lithia president and chief executive officer Bryan DeBoer said. “Notably, we saw a 9-percent increase in service, body and parts sales driven by an 8-percent improvement in customer pay work and a 17-percent increase in warranty activity.

“March was a solid month for national new car sales with a SAAR of 16.3 million, the highest level since November 2007,” DeBoer continued. “March was also the best month in our company’s history in both revenue and pre-tax profit. Our store leaders increased same store used unit volume 12 percent in the quarter as we continue our objective to sell 75 used units per store per month.

“We believe opportunities remain for continued improvement and are optimistic for 2014,” he went on to say.

Analogy Offers Clue on Sonic's Pre-Owned Store


Although Sonic Automotive is still relatively mum on how its forthcoming stand-alone used retail business differs from the CarMax model, an analogy from the dealer group’s management team this week gives a bit of a glimpse.

During this week’s conference call discussing first-quarter results, Sonic’s leadership say they “very much admire” CarMax and said that they are the “kings of the industry right now in pre-owned, and probably will be for a long period of time.”

But the concept from Sonic will have a “completely different feel and different model than what CarMax has,” an executive said on the call.

If CarMax is the Wal-Mart of the stand-alone used retail model, the executive said, consider Sonic’s model “somewhere between a Target and a Starbucks.”

After entering the Denver market in the fourth quarter, Sonic said it will likely take about two to three years to generate some steam. The retailer is aiming for cash-flow positive in the third year and profitability in the fourth year, management noted in the call.

Editor's Note: Portions of Seeking Alpha's transcript of the call were used in this story. The transcript can be found here.

Sonic’s Record Quarter

Tuesday’s conference call followed its Q1 performance announcement, which detailed record used-car results.

Not only did the retailer sell more used cars than it ever has before in a quarter, but it also posted a record for first-quarter pre-owned gross profits.

Sonic said it sold 27,657 pre-owned vehicles during the period, an all-time high. This was up from 26,469 used sales in Q1 of 2013.

This tally also put the group at 90 used unit sales per store per month for the quarter. Sonic’s pre-owned gross profits came in at $40.7 million, a Q1 record.

“We have been very busy in the first quarter.  I'm happy with the progress we have made in both pre-owned and in our customer experience initiatives,” said Scott Smith, Sonic’s president. “We are very excited about the opening of our pre-owned stores in Denver expected in the fourth quarter 2014.  Our collection of highly skilled professionals, operational playbooks and state-of-the-art technology will provide us with a competitive advantage over others in this pre-owned space.

“With our customer experience initiative (One-Sonic One-Experience), we intend on helping the retail automotive industry change toward the way current and future consumers want to shop for cars and trucks.  Our goal is to provide options to customers that are enjoyable, transparent and consistent with their lifestyles,” he continued.

Smith added: “We plan on beginning the roll out this new shopping experience to our customers in the Charlotte, N.C., market in the third quarter of 2014, and we will launch the customer experience initiative in other markets after the Charlotte rollout is complete.

“We would also like to reiterate our targeted range of diluted earnings per share from continuing operations for full year 2014 of $1.95 to $2.05.  This range includes an expected $0.14 per diluted share effect related to costs of our stand-alone pre-owned initiative.  Excluding the anticipated effects of this initiative, our targeted range of diluted earnings per share from continuing operations for full year 2014 is $2.09 to $2.19.”

Jeff Dyke, Sonic’s executive vice president of operations, also offered some commentary on the quarter.

 “We continue to demonstrate our ability to operate and grow in the pre-owned space at record levels. Compared to the prior year quarter, we were able to grow pre-owned unit sales by 4.5 percent and pre-owned gross profit by 7.0 percent,” he said. “In addition, our fixed operations teams were able to achieve record results despite the weather issues that plagued many of our southeastern stores during the quarter.

“We achieved fixed operations revenue and gross profit growth over the prior year quarter of 7.5 percent and 5.5 percent, respectively.  While new retail unit volumes were relatively flat compared to the prior year quarter, we were able to increase our gross profit per unit to $2,191, up $58 per unit versus Q1 2013.  We continue to make progress on our One-Sonic One-Experience and stand-alone pre-owned store projects, which are all on track.  While the weather caused a slowdown in January and February, we still beat our internal forecast for Q1 2014, and we remain on track to achieve our EPS target for the full year.”

“We continue testing our True Price pricing methodology. This quarter we began to see two things happen: as the market grew stronger, our share stabilized, and we grew market share sequentially over the prior quarter, and we were able to grow new car margin by $58 per retail unit.  This marks the first time in over a year of adjusting our model that both share and margin grew together in the quarter,” Dyke added.

“As we move toward our One-Sonic One-Experience launch, we expect to gain significant market share as customers benefit from the entire complement of our new shopping experience.  Bottom line, when we fully implement One-Sonic One-Experience, we will offer the automobile buying community a shopping experience that no other competitor in our industry can offer, or will be able to offer, for several years to come,” he continued.



Used Growth Fuels New Asbury Stand-Alone Concept

DULUTH, Ga.  - 

On top of announcing impressive pre-owned sales results for the first quarter on Wednesday, Asbury Automotive Group executives also revealed plans to follow CarMax and other competitors into the stand-alone used-car retailing space.

Company leaders said in Asbury’s conference call to discuss Q1 results that the move was fueled in part by significant growth in its pre-owned business.

The retailer announced it will be opening two stand-alone used-car stores in Florida this year that will operate under the “Q auto” brand.

Asbury plans on opening the first store in June in Tampa, Fla., then a second store this fall in Jacksonville, Fla.

During Wednesday’s conference call, when asked why the company chose these markets to start the initiative, chief operating officer Michael Kearney — who will retire on March 31 of next year — said the move was made in part because of how well the company already knows these markets.

“They are markets where we have a presence, and they are markets where we do a very good job of selling used cars. We know the streets, the intersections — we know which cars sell well,” said Kearney. “We have been identifying facilities that we feel we were attractive price points. We wanted to give this thing a shot with a reasonable amount of investment. It’s not a whole lot more complicated than that.”

Kearney said the Tampa store is held under a lease-to-buy contract, meaning the company has the option to buy in the future.

The Jacksonville store is already owned by Asbury, and previously housed a Toyota dealership, which is vacating to another location.

The company said it will likely take a year-and-a-half for stores to hit run-rate revenues and profitability.

“Over the last three years, we have grown used vehicle retail unit sales in excess of 55 percent and grown used-vehicle retail gross profit by close to 35 percent,” said company president and chief executive officer Craig Monaghan said in the statement announcing the new program.

“We remain excited about the opportunities we see in the used-vehicle market and believe there is an opportunity now for us to take our demonstrated used-vehicle retailing talent, technology, and processes and expand into a stand–alone used vehicle retailing model,” he continued. “This year, we plan on opening two free-standing used-vehicle stores, which we are branding as Q auto.”

Monaghan explained during the call that the company is currently focusing on just these two stores, and are not changing their acquisition outlook for the year.

Currently, the company is projecting acquisition spending this year to reach $0.5 billion.

As for the volume and size of these stores, Monaghan said the company is analyzing markets as they come in regards to potential volume for stand-alone used retail stores.

“We have looked at potentially different size stores for different markets, but I think we are really at a point in time right now that we just need to launch the storms and see how they perform,” he said.

Pre-Owned Growth Spurs Plans

Company leadership said Wednesday the plans to launch stand-alone used retail stores stemmed largely from growth in Asbury’s pre-owned performance.

“In terms of pre-owned, we have a very strong, dedicated culture toward pre-owned business, and we continue to push. So I think the pre-owned (success) is a result of continuing to talk about it and the culture we have created on how to maintain trades and take more trades at the desk, managing our inventory very carefully and how we price them on the Internet,” said Kearney.

This pre-owned strength was evident through Q1 used sales results, as well.

Same-store used-vehicle retail sales increased by 10 percent year-over-year in the first quarter, and Kearney said he expects this growth number to stabilize in the mid-single-digit area for the year.

And although Asbury’s same-store used sales profit margins decreased 50 basis points to 9.1 percent compared to the prior year period, “a substantial increase in volume more than offset the margin decline,” he added.

This resulted in a 7-percent increase in used-vehicle gross profit.

Though used growth has been steady, Kearney cautioned, “Please keep in mind that the first quarter of the year is traditionally the strongest quarter for used sales due to the timing of tax returns.”

The strong used performance resulted in a used-to-new sales ratio of 86 percent during the quarter, “and provided an additional source of trade-in vehicles," said Kearney.

“Our used-vehicle sales continue to grow faster than new-vehicle sales and will be in an important source of gross profit,” he added.

Asbury expects its new-to-used sales ratio to stabilize around 80 percent as the company enters into the second quarter, known for stronger new-vehicle sales.

“The pre-owned market is huge compared to the new-vehicle market. There is this huge opportunity out there, and as we have seen our teams grow, I think this (Q auto) is the next logical step,” Kearney said.

Stand-alone Sourcing

Another topic discussed during the conference call focused on how the company expects to source inventory for the new stand-alone used stores.

It may not be much of a challenge, though, judging by the company's current days’ supply.

The company ended the quarter with $139 million worth of used-vehicle inventory, translating to 36 days’ supply.

The company has invested $29 million in used-vehicle inventory over the past 12 months, which represents a year-over-year increase of 20 percent.

In broaching the topic for stand-alone store sourcing procedures, Monaghan pointed out the company’s wholesale activity first.

“We send 30,000 cars to auction; we are working on the mechanisms to move at least a portion of those stores to Q auto. Other than that, Q is very much a stand-alone operation. We want it to be a stand-alone format that is separate from our traditional model. That said, we do want to take advantage of the skill sets we have here,” Monaghan explained.

He pointed out there is an opportunity for the company to keep some of these cars in its system and generate sales.

Monaghan also shared that the company is still developing business rules for how it will sell cars to the Q auto entity.

“Of course, there are a number of vehicles that reside in our used-car bank at any given time, and we will now make those available to be purchased,” he shared.

Monaghan explained that store managers will also visit national and local auctions, solicit other dealers, and scan the Internet for private sellers, as well, in an effort to secure quality, used inventory for the Q auto stores.

Potential for Success

Many of the questions during the Q&A period of the conference call focused on this inquiry: Many have tried similar concepts in the past and failed, what is Asbury going to do differently?

 “We have not entered into this lightly. We have done a lot of homework. I have experience with this directly, the megastore concept, so we are well aware there have been a number of failures … This isn’t about what everyone else has tried or the way they go about it, this is essentially just an extension of what we already do today,” said Monaghan in response.

Company leadership said a variety of factors that may give the company an edge, such as Preferred Selling (the company’s no-haggle sales structure), technology infrastructure, pre-owned market experience and an in-depth knowledge about store locations.

“This is about Asbury. We look at the success we have had in used cars; we like the technologies we have in place; we think we have a great team, and we feel like we have a pretty good handle on the markets we do business in,” said Monaghan. “So these two stores we are talking about are in our backyard. We have a great team committed to this, and we have been doing a fair amount of homework. We think we can generate a fair amount of ROI that could potentially be quite attractive.”

Kearney went on to highlight the company’s Preferred Selling model and Asbury’s internal vehicle acquisition process as factors that will contribute to Q auto’s success.

“This is a normal expansion of what we think we have done a good job of over the past few years,” he added.

Another factor to consider is the lower capital required to run these stand-alone used stores.

Monaghan stressed that there is no blue sky (intangible value of a dealership) to pay with Q auto stores, “which is a significant piece of any capitol we put into an acquisition.”

Though the Q auto stores will feature the same sales model, utilize similar sourcing strategies, and offer service department functions to customers — similar to the company’s current stores — the company pointed out the stores will feature a different approach to customers in the showroom.

“It will look a little different; it will feel a little different, but it is still a used-vehicle retailing store,” Monagan concluded.


Asbury to Launch Stand-Alone Used Stores

DULUTH, Ga.  - 

Another public dealership group is jumping on the used-car outlet concept. Asbury Automotive Group announced Wednesday morning that the retailer will be opening two stand-alone used-car stores in Florida this year that will operate under the “Q auto” brand.

Asbury plans on opening the first store in June in Tampa, Fla., then a second store this fall in Jacksonville, Fla.

The company said it will likely take a year-and-a-half for stores to hit run-rate revenues and profitability.

“Over the last three years, we have grown used vehicle retail unit sales in excess of 55 percent and grown used-vehicle retail gross profit by close to 35 percent,” said company president and chief executive officer Craig Monaghan.

“We remain excited about the opportunities we see in the used-vehicle market and believe there is an opportunity now for us to take our demonstrated used-vehicle retailing talent, technology, and processes and expand into a stand–alone used vehicle retailing model,” he continued. “This year, we plan on opening two free-standing used-vehicle stores, which we are branding as Q auto.”

In other news, the company announced that executive vice president and chief operating officer Michael Kearney will retire on March 31 of next year.

Monaghan said: “We want to thank Michael for his 24 years of service and countless contributions to Asbury.  Michael's commitment to operational excellence leaves us with a strong operations team and a platform for continued success.  We appreciate Michael’s dedication to ensuring a seamless transition and we wish him the best in his future endeavors.”

Kearney added: “While I am looking forward to enjoying more time following personal pursuits, I am also excited for Asbury as it is well positioned for the future. I also want to thank all of Asbury's associates for their dedication and support over the years.”