DULUTH, Ga. -

Asbury Automotive Group is confident company dealerships are primed to have a great first quarter and beyond because of a higher level of used-vehicle inventory already in stock and the projected burst of off-lease volume coming into the wholesale pipeline.

Asbury executive vice president and chief operating officer Michael Kearney indicated that the group ended the fourth quarter with $127 million of used-vehicle inventory, or 38 days’ supply on a trailing 30-day basis.

Kearney told investment analysts on Tuesday when Asbury reported its Q4 and full-year financial performance that level of used inventory came because dealerships took in a large amount of trade-ins to close 2013.

“This level of inventory, although higher than previous quarters, should allow us to take advantage of the traditional spike in pre-owned sales we see in the first quarter,” Kearney said during the portion of Tuesday’s conference call that included his prepared remarks.

When asked about the used-inventory level later in the call, Kearney added, “The December sales moved out a lot of (new-model) product. We took a lot of trades at the very end of the month and as you know the first quarter can traditionally be a very strong used-car market so we’re comfortable with that.”

With a flood of trades and ample supply of off-lease vehicles already in the auction lanes, Mike Levin of Deutsche Bank wondered if Asbury might abandon its efforts to retail older, higher-mileage vehicles, a strategy many franchised dealerships had to employ to overcome wholesale supply shortcomings during the past couple of years.

“A number of years ago, we put in what we call our Asbury 1-to-1 Program and that indeed is a dealership cultural shift, so we don’t abandon a particular segment of vehicles just because there is more of another segment available,” Kearney said.

“We actually are looking at some wonderful opportunities with more products in that sweet spot coming online,” he continued. “But I will tell you that the internal process that we put into place two and three years ago, which broadened our price band and broadened our mileage that we sell, we will not abandon that just because there is prettier girl on the block right now.”

And those “prettier girls” presumably are certified pre-owned vehicles. Kearney estimated that Asbury’s CPO inventory levels vary greatly by automaker. The company’s range goes from as high as 80 percent of used inventory from luxury OEMs being certified to as low as 10 percent of domestic manufacturer inventory being a CPO unit.

With inventory at the ready, Kearney acknowledged he would love to see Asbury continue to post year-over-year gains in used sales of 10 to 20 percent on a quarterly basis, “but I don’t think that’s a realistic expectation.”

Despite tough comparisons against 2013 performance, Kearney insisted, “We do believe that we have high single-digit expectations of growth in the used-car volume.

“I sound like a broken record but I’ll say it over and over,” he continued. “There are roughly 40-plus million used vehicles sold in this country every year and franchised dealers account for about a third of those. We are just putting programs and processes in place to see how much more of the other two-thirds we can get.

“Incrementally, we believe we can continue to grow in that single digit pace. We think the inventory is available. We know the consumers are available. The rates are very attractive,” he went on to say.

Update on Major Initiatives

Brett Hoselton from KeyBanc Capital Markets asked Asbury executives if they’re preparing to push out a major undertaking similar to what other publicly traded groups are doing such as the branding strategy in the works at AutoNation and the pre-owned sales plan unveiled by Sonic Automotive.

Asbury president and chief executive officer Craig Monaghan tackled the response.

“We are constantly thinking on different initiatives,” Monaghan said. “We tend not to call them out. We feel like they’re part of our day-to-day responsibilities and part of our operating objectives. The success you’ve seen Michael and the team have with used vehicles is because there was some money spent on the front end and some programs put in place to make that work.

“There’s a lot of technology investment going on. There’s still more to be done,” he continued. “We think the way consumers buy a car in the future is going to change dramatically. There’s a lot of energies being spent on mobile applications right now. What we can do to expand our CRM and improve not only the customer experience but the way we sell a car in the store.

“While we don’t call them out to you as big one-off programs, I feel our philosophy here is one of continuous improvement and that is non-stop,” he went on to say.

Bringing More Stores into the Group

With this year’s new-vehicle SAAR predicted to climb about 16 million this year by many industry observers, Stifel Nicolaus analyst James Albertine wondered what kind of dealership acquisition opportunities might be on Asbury’s radar.

“I think what we have learned is that every seller is unique. There is always market out there. It doesn’t necessarily behave the way you were think it would behave. I look back about two years ago when the tax laws were changing, we thought that year we’ll have a rush of sellers and it never materialized,” Monaghan said.

“I think the age of the seller and their estate planning is sometimes one of the biggest drivers. So, where are we today? We are constantly talking to potential sellers,” he continued.

Monaghan also shared that Asbury’s most recent acquisitions — Volkswagen and Bentley dealerships in Roswell, Ga. — worked out well for the company. The company acquired those stores in December 2012.

“We’ve got a couple of folks we’re talking to today. They may or may not come to fruition,” Monaghan said. “I think the bottom line is that this is something that we cannot control. We will not overpay to get a deal done. We can always buyback our own stores as we have share repurchases. We just take what the market brings us.”