Group 1 Automotive and Penske Automotive leaders spoke during their respective companies’ earnings calls last month about the various supply chain and consumer demand issues that have taken place since the start of the pandemic a couple years ago.

One of the similarities between the two companies’ quarterly earnings reports: Record earnings.

Group 1 Automotive president and chief executive officer Earl Hesterberg said during his company’s earnings call that adjusted earnings of $10.81 per diluted share as an increase of 96% over the prior year and an all-time quarterly record for the company.

These results occurred in large part because of a record-setting U.K. performance, strong contributions from recent acquisitions, and continued strong vehicle margins that were able to more than offset vehicle supply issues.

He said two additional factors were “continued double-digit growth in our U.S. after-sales business and impressive cost control.”

Penske Automotive also reported all-time-record quarterly results for the first quarter.

Penske chair and chief executive officer Roger Penske said during the company’s earnings call that earnings before taxes, net income and earnings per share more than doubled when compared to the first quarter of 2021.

And Penske Automotive and Group 1 both mentioned the hot demand for vehicles and how quickly they sell.

“Demand remains strong across our retail automotive dealerships, with most allocations in new vehicles being presold before they arrive at the dealership,” Penske said.

Hesterberg of Group 1 nearly mirrored that thought.

“Consumer demand for vehicles remains extremely strong exiting the first quarter, and we continue to sell most units almost immediately after OEM delivery,” Hesterberg said. “This dynamic should continue throughout the year.”

More Group 1 highlights

Group 1 president of U.S. operations Daryl Kenningham said strong growth in all segments of the company’s U.S. business was among several factors contributing to the big quarter, along with a continued focus on controlling costs and boosting productivity during a time of very limited vehicle supply.

The company’s 3,100 U.S. new-vehicle inventory units in stock as of March 31 represented a nine-day supply.

That was flat from the end of last year.

Used inventory, however, is stronger at 28 days. Same-store used vehicle retail unit sales declined by 4% compared to the first quarter of 2021. Kenningham said the company saw much fewer trade-ins because of a 17% decrease in new-vehicle unit sales.

He said Group 1 saw an improved focus on sourcing. That resulted in acquiring more than 7,400 vehicles directly from individuals through Group 1’s AcceleRide digital retailing platform, which was almost a 300% increase from the first quarter of 2021. The company also wholesaled 1,700 fewer units during the quarter as it focuses on building retail inventory.

Group 1 believes its after-sales performance was its most important profit driver.

Kenningham moved on to say the company also placed additional emphasis on technician recruiting and retention.

“And based on the attractiveness of our four-day work week schedule, we increased our same-store technician headcount by 16% versus the first quarter of 2021,” Kenningham said.

He elaborated on AcceleRide, saying customers continue wanting to do business through the platform. The company sold 5,800 vehicles through AcceleRide online in the first quarter, representing more than 9% of its total U.S. retail sales. Those 5,800 sales were a 22% sequential increase over the fourth quarter of 2021.

Kenningham said Group 1 has launched AcceleRide in all of its new acquisitions.

“And AcceleRide is bringing a new level of professionalism to our sales teams. It's simpler, more transparent and faster, and customers are responding,” Kenningham said.

He continued, “Aside from our volume increases, AcceleRide customers are more loyal to Group 1, drive more F&I profit and provide higher lifetime value to us, and we continue to make enhancements to AcceleRide. As an example, we now offer delivery in every U.S. dealership.”

Almost 700 customers chose delivery in the first quarter, and 70% of those customers are local, which allows Group 1 the opportunity to provide future service through its aftersales operations.

“In short, our customers continue to say yes to AcceleRide,” Kenningham said. “We launched AcceleRide to new dealerships during the first quarter. And because 60% of our customer interactions used AcceleRide in some way, we continue to see outstanding salesperson productivity results even in this depressed inventory environment.”

During the Q&A portion of the earnings call, an analyst asked Kenningham how the company measures what is sold online through AcceleRide and whether the 5,800 vehicles sold through the platform were sold fully online or partially done online.

“Those are people that start in AcceleRide and continue through the process and buy a car,” Kenningham responded.

He continued, “They may hop out of AcceleRide at some point to come in and test drive a car or something like that. But those are people that start the AcceleRide process and then end up buying a car from us.”

More Penske highlights

Penske discussed CarShop, the company’s used-vehicle operation, saying that during the first quarter, CarShop unit sales increased 71% to 19,500 units. Its revenue improved 113% to $516 million. Same-store units increased 54%, and revenue increased 89%. Same-store variable gross profit per unit retail was flat at $2,200.

Supply shortages of new vehicles continue to affect used-vehicle affordability, Penske said.

“Wholesale prices continue to rise,” he said.

He continued, “However, retail prices are not necessarily rising at the same pace, impacting our margin.” He said that in some instances, the price of a 1- to 3-year-old used vehicle is near or above the price of a comparable new vehicle.

Responding to an analyst’s question about supply during the Q&A portion of the call, Penske mentioned a recent ship fire, noting that the company lost 66 Porsches and about 33 Audis as a result of the incident.

“And then there was a second ship that had rough water where we lost another 33,” Penske said. “So that is a personal impact we have for our company, but it's a better supply than we've had in the past, but it's all pre sold.”

He said the company remains optimistic about the CarShop model.

“We will continue to grow CarShop based on the ability to precure affordable vehicles, which may impact our goal of retailing 150,000 by the end of ’23, obviously, reflecting our current market conditions,” he said.

In other news, Penske said retail automotive and commercial truck same-store revenue improved 11% and 47%, respectively, and he said Penske Transportation Solutions also showed record earnings.

Penske again nearly echoed a comment from Group 1’s Kenningham, saying, “Our strong Q1 results really came from all segments of our business.”

He discussed the company’s digital initiatives, saying its omnichannel strategy focuses on customer lifestyle and continues to evolve with the changing landscape. Online reputation management remains important to the company, which focuses on providing flexible buying options that allow customers to proceed at their own pace in buying their next vehicle or servicing existing ones.

“For sales, we continue to enhance our digital retailing strategy by embracing our OEM partner initiatives,” Penske said. “We are currently supporting programs for BMW/MINI, Porsche, Toyota and Lexus, Honda, Lincoln and Nissan. The OEM initiative offers some advantages versus an in-house solution. They enable a buy-online function from OEM sites, which is particularly important for new vehicle orders while inventory is low.”

Penske chief financial officer Shelley Hulgrave said the company expects the current supply challenges and strong demand to keep the its new vehicle supply at low but manageable levels for at least the next nine to 12 months. “Used-vehicle inventory is in good shape with a 41-day supply,” she said.

Optimistic notes

Group 1 had similar sentiments about supply.

Kenningham said that Group 1 as of March 31 had 3,100 U.S. new-vehicle inventory units in stock, representing a nine-day supply. That was flat from year-end.

“Our used inventory situation is stronger at 28 days,” he said.

Penske and Hesterberg closed their remarks on an optimistic note.

“I remain confident about the opportunities I see across our diversified enterprise driven by our strong balance sheet, capital allocation priorities and mostly our human capital,” Penske said.

Group 1’s Hesterberg said, “Growing our U.S. and U.K. businesses remained our top capital allocation priority, and we expect to find additional external growth opportunities in 2022.”