“Very tough to predict.”

That was the response from Asbury Automotive Group president and chief executive officer David Hult to an analyst’s questions regarding when vehicle inventories would return to normal. The analyst went on to ask, would inventories return to somewhere between where they are now and where they used to be, or would they return all the way back to where they used to be?

But although Hult hesitated to make a prediction on those specific questions during Asbury’s Q4 2021 earnings call on Feb. 15, he and other company officials did provide some insight on where they feel the market is headed. Elaborating on the question of when supply might return to normal, Hult said he believes the industry has learned it can be effective with fewer days of supply.

It could be too early to tell, however, if inventory would stabilize at 35 or 40 days of supply versus 65 or 70, Hult said.

“But to me, the demand seems so high right now, even when they’re able to start catching up on the inventory between the rental car companies and fleet businesses and everything else, I just don't see the demand settling until sometime into ’23,” he said.

No predictions were necessary on the topic of fourth quarter 2021 earnings for Asbury. Its adjusted EPS of $7.46 was a fourth quarter record, as was its gross margin of 20.4%. The company also achieved an all-time record in the digital arena, achieving more than 149,000 online service appointments.

Additional insight

Continuing a trend from top auto groups’ recent earnings reports, used vehicles played a substantial role in those record achievements. Asbury’s used retail volume increased 15% and gross margin was 8.2%. That represented an average gross profit per vehicle of $2,623. At the end of December, Asbury’s total new-vehicle inventory was $207 million with an eight-day supply, which was down 32 days from the prior year.

Hult said Asbury expects the days’ supply to remain low as 2022 progresses and to move up moderately toward the end of the year.

Continuing on the topic of predictions, Hult said everyone has been wrong when trying to figure out inventory trends. He said inventory levels were higher and margins were a little bit lower for the first two quarters of last year.

“And then that reversed itself in the second half of ’21,” Hult said, noting that inventory came down and margins went up.

“We see the reverse of that in ’22,” Hult said.

He continued, “I don't know that we’ll be right, but we think the first half of ’22 will certainly have elevated margins like we saw in the fourth quarter. And then the second half of the year might look a little bit like the first half of ’21.”

Hult opened his comments during the earnings call by noting the company in the fourth quarter closed on what he described as “the transformative acquisitions” of Larry H. Miller Dealerships and Total Care Auto, powered by Landcar, Kahlo Chrysler Jeep Dodge Ram in the Indianapolis market, Arapahoe Hyundai-Genesis in the Denver market and the Stevinson Automotive Group in Colorado. Those acquisitions represented approximately $6.6 billion in annualized revenue.

He said those acquisitions represent the right brands in high-growth markets and are aligned with Asbury's culture.

Hult also mentioned the company’s completed rollout of its online transactional tool, Clicklane, to all the legacy Asbury stores.

“Clicklane continues to deliver impressive metrics, generating over $570 million in additional revenue for three quarters in 2021,” Hult said. “Despite lower new-vehicle levels, inventory levels, Clicklane contributed an incremental 7% to our same-store growth.”

He added that the company showed record profitability in a challenging new-vehicle market by improving its new-vehicle margin, increasing its used-vehicle sales and growing its parts and service business. That all took place while maintaining improved employee productivity and using its strong cash flow for acquisitions.

“Our multiple business lines allow us to adapt and continue to deliver strong earnings in any business environment,” Hult said.

Hult mentioned some of the company’s key objectives for 2022, including continuing the transition with all of its new team members, continuing the growth of Clicklane and rolling it out coast to coast into Asbury’s recent acquisitions; integrating its insurance and F&I product provider, Total Care Auto, across all Asbury dealerships; executing its company-wide training initiative to continue the development and growth of employees; and maintaining its operating margins and SG&A.

More predictions

Hult also said the company is excited about 2022, and he provided additional predictions.

“We see good opportunities for automotive retail, and we expect that demand will continue to exceed supply for most of the year,” he said.

Another analyst pressed the company to make additional predictions, asking what direction used-vehicle valuations would go.

Asbury senior vice president of operations Dan Clara started his answer by saying values starting in November and December have adjusted, meaning that they are not seeing as mudh growth as they were before.

“Our belief is until the inventory levels for new cars somewhat stabilize, the used-car valuation is going to remain where it is right now,” Clara said. “And … we don't believe that when there is a correction that it will be an immediate correction. It's going to be a gradual correction. “

Hult also said the company anticipates a gradual recovery in inventory levels in the second half of this year as OEM production improves. As a result, the company is planning its business for a SAAR of 15.5 million to 16 million units and vehicle margins consistent with 2021.

“We will remain nimble and vigilant to adapt as conditions evolve,” he said.

He continued, “SG&A as a percentage of gross profit should continue to benefit from active expense management and improved employee productivity. We look forward to continuing to deliver strong results for our shareholders, be outstanding partners with our OEMs to steward their great brands and offer an environment where our team members can thrive while providing the most guest-centric experience in automotive retail.”