CARY, N.C. -

To see how recent third quarter earnings reports have gone for the top auto dealer groups, a statement from Asbury Automotive Group president and chief executive officer David Hult summarized it well during that company’s earnings call on Oct. 26. In spite of supply issues, Asbury reported record earnings.

“Though our new-car inventory levels continue to be challenged due to the chip shortage, our team delivered strong results and enabled us to deliver an impressive gross margin of 20%, an all-time record and an expansion of 180 basis points versus the third quarter last year,” Hult said.

Penske Automotive Group addressed similar themes during its Oct. 27 call: Record earnings in spite of supply shortages. Chairman and chief executive officer Roger Penske said that although supply shortages affected the company’s retail automotive and commercial truck dealership operations, third quarter 2021 was “the best quarter in the history of the company.”

“Looking at our retail automotive operations on a same store basis for Q3 '21 versus Q3 '20, units declined 8%,” Penske said. “However, revenue increased 7%.”

The strong earnings reports from Asbury and Penske came after Lithia Motors and AutoNation announced record earnings on Oct. 20 and Oct. 21.

For Asbury and Penske, used vehicles played an important role toward the record earnings performance.

Asbury: Record earnings, but low supply into ’22

Measuring same-store versus third quarter 2020, Asbury’s used retail unit volume increased 27% and gross margin was 8.4%. That represented an average gross profit per used vehicle of $2,402. Used-vehicle gross profit was up 45%.

The company’s used-vehicle inventory ended the quarter at $236.4 million, which represents a 28-day supply. That is down seven days from the prior year. Asbury’s used-to-new ratio for the quarter was 113%.

But regarding new-vehicle inventory, Asbury’s supply was at 12 days, down 35 days from the prior year.

“There’s still no clear understanding of when production will return to normal level,” Asbury senior vice president of operations Dan Clara said during the call. “We expect the days supply to remain low throughout the remainder of the year and into 2022.”

But more on the company’s record quarter: Adjusted operating income increased 69% to $204.5 million, which was a third-quarter record. Adjusted net income increased 81% to $143.6 million, also a third-quarter record.

During the Q&A portion of the earnings call, Clara addressed an analyst’s question on the company’s prioritization of the used-vehicle business between same-store sales comps versus gross margins and GPUs. Clara said the company’s cost of sale for used cars is increasing as many customers are seeing that their car is not going to be worth more than today.

“So, they are opting to trade that car in or sell it back to us,” Clara said.

Clara continued, “So I believe that that’s part of the issue. The other aspect is, we expect this to continue as long as the market conditions stay the same. And to be honest, we're not saying, ‘Hey, let's grow the used-car business from a volume standpoint and sacrifice margin.’ We believe that we can get both in this market.”

Clara also said during the Q&A that Asbury is acquiring about 79% of its used inventory from trade-ins, lease turn-ins and direct-to-consumer purchases.

Asbury covered several of its other initiatives during the earnings call, including the performance of Clicklane, its digital car buying platform. Another was its acquisition of Larry H. Miller Dealerships.

Asbury sold 6,000 vehicles through Clicklane in the third quarter. Forty-seven percent of those were new vehicles and 53% used.

Ninety-three percent of its transactions this quarter were with customers who were new to Asbury’s dealership network, Clara said.

“Average transaction time continues to be consistent with previous quarter, eight minutes for cash sales and 14 minutes for finance deals,” Clara said.

Clara also said, “We continue to expect annualized volume through Clicklane of approximately 30,000 vehicles by year-end. As expected, Clicklane customers are converting at greater rates than traditional internet leads.”

As for acquisitions, the company expects to close on what Asbury’s Hult described as the “transformative acquisition” of the Larry H. Miller Dealerships and Total Care Auto in the fourth quarter.

“With their strong name and brand mix in the right states and our aligned cultures, we look forward to jointly deploying our capabilities and growing together,” Hult said.

He said Asbury closed two recent acquisitions, Greeley Subaru in the Denver market and Kahlo Chrysler Jeep Dodge in Indianapolis. The company on the day of the earnings call was scheduled to close on its acquisition of Arapahoe Hyundai and Genesis in the Denver market.

Penske: CarShop helps boost used-vehicle sales

Penske’s overall total revenue increased 8.8% to $6.5 billion, and income from continuing operations before taxes increased 52.8% to $476 million.

The company’s retail used-vehicle same-store revenue increased 16.3%, while new-vehicle same-store revenue declined 3.1%

CarShop used-vehicle super centers played a role in that used-vehicle performance. In October the company opened two CarShop locations to bring its total number of those locations to 22.

The company expects to open one additional location before the end of the year and is targeting 150,000 in unit sales and $100 million of earnings before taxes for CarShop by the end of 2023.

For CarShop in the three months ended Sept. 30, retail unit sales increased by 0.4% to 18,451.

Revenue increased by 24.3% to $438.1 million. For the nine months ended Sept. 30, retail unit sales increased by 17.7% to 48,588 and revenue increased by 37.7%.

Roger Penske said during his earnings call comments that supply shortages in the company’s retail automotive and commercial truck dealership operations affected unit sales, earnings growth was driven by a 39% increase in retail automotive, a 135% increase in commercial trucks variable gross profit per unit retailed, and a 4% increase in retail automotive service and parts gross profit.

He mentioned CarShop again as he discussed the company’s digital initiatives, saying his company has introduced new tools and technologies to offer its customers what he described as a hybrid customer-driven shopping model. Customers can purchase fully online, in-store or any combination of the two and the company can deliver vehicles directly to a location that a customer desires.

“When you combine all of our digital tools, including new technology available at CarShop, a customer may perform any part of the transaction online or may use these tools to shorten their visit to the dealership,” Penske said.

An analyst asked during the Q&A portion of the earnings call whether consumers were holding off on buying used vehicles and waiting until more new inventory is available.

“I think one of the things on the used side is the prices are getting so high, it's almost like sticker shock, they can almost buy a new car, but of course they are not available. So, some people might be sitting on the side in order to get pricing right and then availability of new vehicles too to have another option,” Penske said.

The company reported on additional business areas, including Penske Transportation Solutions, which provides full-service truck leasing, truck rental, contract maintenance, and logistics services. Penske Transportation Solutions equity earnings increased 83.4% vs. third quarter 2020. That increase came from a strong North American Class 8 truck market and increased demand for the company's full-service leasing, rental, and logistics services. Improved efficiency and a reduction in operating expenses were additional factors.

Penske said its retail commercial truck dealership earnings before taxes increased 106.4% compared to the same period last year.

Toward the end of his comments, Penske said the company expects to continue growing.

“As we look across our diverse portfolio of businesses, we continue to target organic and acquisition growth, as well as further operating efficiencies to continue to grow and expand our businesses,” he said.