In more ways than one, this is sounding like a broken record after what was already a strong earnings report week for the publicly traded auto dealer groups.

Lithia, AutoNation, Asbury and Penske reported record third quarter 2021 earnings during their calls in late October.

On Oct. 28, Sonic Automotive and Group 1 Automotive announced their results, and they did not disappoint, adding to the earnings record parade.

“During the third quarter of 2021, Sonic delivered another quarter of record revenue and an 11th consecutive quarter of year-over-year EPS growth,” Sonic chief executive officer David Smith said during that company’s earnings call.

Group 1 reported an all-time record third quarter 2021 net income per diluted share of $9.33, a 36.5% increase from $6.83 per diluted share as reported for third quarter 2020.

Also like the other four dealer groups, Group 1 and Sonic reported that they achieved those record results while dealing with supply issues that have plagued the auto industry and other sectors throughout the country.

And in yet another similarity to the other four groups, Group 1 and Sonic reported that their used-vehicle business played an important role in those strong earnings.

Sonic: Market conditions could normalize in ’22

Sonic contributed to the broken record trend, reporting that its EchoPark Automotive standalone pre-owned stores showed all-time-record quarterly revenues of $663 million.

That is an increase of 72% from the prior year, and it is the fifth consecutive quarter of record EchoPark revenues. EchoPark showed a record third quarter retail sales volume of 21,255 units, which is a 41% year-over-year increase. EchoPark market share during the quarter increased 110 basis points to approximately 4% of the 1- to 4-year-old vehicle segment in its current markets.

Sonic achieved record third quarter pre-tax income from continuing operations of $112 million — up 39% year-over-year — and earnings from continuing operations of $85 million or $1.96 per diluted share.

Smith addressed what he described as ongoing supply chain disruptions that limited new-vehicle production and inventories.

Because of those disruptions, the company believes third quarter new-vehicle unit sales volume was negatively impacted by the low supply of new-vehicle inventory despite continued consumer demand. Sonic franchised dealerships’ new-vehicle inventory was approximately 2,400 units. That was just a 10-day supply and down from nearly 13,000 new vehicles at the same time last year.

Used-vehicle inventory, however, was in line with the company’s target level of 27 days' supply, or 8,200 units.

EchoPark used-vehicle inventory at the end of the quarter was approximately 9,800 units for a 41-day supply. EchoPark for the third quarter reported a pre-tax loss of $32.9 million and adjusted EBITDA loss of $28.5 million.

Smith said new-vehicle inventory shortages have continued to drive used-vehicle wholesale pricing higher. That had a negative impact on EchoPark margins and profitability in the near term.

The company continues to strategically manage its pricing and volume during what Smith said was a temporary disruption in the used market pricing environment. The company expects EchoPark margins and profitability to rebound once market conditions normalize, and Smith said the company expects that to take place in mid-2022.

“Despite these short-term challenges, we continue to believe in the long-term potential of the EchoPark brand and remain very committed to growing our nationwide distribution network,” Smith said, adding that the company looks to reach its goals of 25% population coverage by the end of 2021 and 90% population coverage by 2025.

During the Q&A portion of the call, chief digital retail officer Steve Wittman said the company would launch its new echopark.com site in the fourth quarter. Wittman said the site would allow the consumer to “go end-to-end online with a real deal,” with “real online document signing.”

Sonic expects EchoPark’s proprietary digital retail platform to go live by the end of this year and roll out to its entire network in early 2022.

An analyst during the Q&A portion of the earnings call asked for a preview on some of the features of the new platform. Wittman said the company reviewed what he described as 10 different components in the consumer journey, including the ability of the consumer to shop a network of Sonic’s preferred lenders, and the ability to sign real documents online, not documents that the consumer would have to sign again when coming into the store.

The omnichannel shopping ability is another component, with the consumer able to stop halfway online and finish in store. Wittman said most consumers want that capability, in addition to the ability to test drive the car before they finalize the deal.

“Our new platform enables that,” he said.

He added that the sales team members will be able to sell more cars because they won’t have to spend three or four hours executing the deal.

Wittman said the process would be fully automated and will use robotics process automation to create the right documents. No humans will be involved unless the customer wants that, he said.

Group 1: Digital platform a ‘difference maker’

After Group 1 contributed to the broken record trend by reporting its record results, CEO Earl Hesterberg said the company’s profit results were mainly a result of strong vehicle margins that he said were able to more than offset unit sales declines. The strong results were also a result of cost control and continued growth in aftersales.

“Consumer demand for vehicles remains extremely strong heading into the fourth quarter,” Hesterberg said. “And we continue to sell most units almost immediately after OEM delivery.”

Assuming no material change occurs in consumer demand, Hesterberg said that dynamic should continue throughout the fourth quarter, and potentially longer. The company reported that 2,700 U.S. new-vehicle inventory units were in stock as of Sept. 30, with an 11-day supply. Used inventory stood at 10,000 units and a 25-day supply.

Daryl Kenningham, Group 1 president of U.S. operations, reported that Group 1’s same-store used-vehicle retail unit sales improved by 15% compared to the third quarter of 2020. He added that his team worked to increase gross profit per retail unit, which he said was a result of increased purchases directly from vehicle owners.

“We continue to be very aggressive, yet judicious with our used-vehicle inventory sourcing strategy, which has allowed us to hold a supply relatively constant while largely avoiding public auctions,” Kenningham said.

Kenningham during the Q&A portion of the earnings call said the company is seeing strong growth in its aftersales business. He said that means more opportunities to buy cars from customers coming to the service drives.

He said 14% of sourcing in the quarter was from individuals, some of that from service drives, which is double the amount from a year ago.

Group 1 spent a good portion of its earnings call discussing its digital retailing platform, AcceleRide, with Kenningham describing it as “a difference maker for our customers.”

Kenningham said Group 1 sold 5,200 vehicles in the third quarter through AcceleRide, and that was a 68% increase over last year.

“And since we have very little inventory, pre-selling incoming new vehicles is critical to our business, and AcceleRide allows customers to finalize transactions on in-transit units and take deposits digitally,” Kenningham said. “In addition to expanding our reach at in-transit inventory, AcceleRide has proven to be an exceptional way to grow our footprint.”

Seventy-five percent of AcceleRide buyers in the third quarter were new to Group 1. Of the customers who placed orders online in the quarter, nearly 50% uploaded a driver’s license, 25% uploaded proof of insurance, and 36% of the orders had a completed credit application.

“We believe that giving customers control of completing any or all of the car-buying process online is critical to their overall satisfaction, and our ability to continue to generate incremental volumes through the platform,” Kenningham said.

AcceleRide is also providing an advantage to the company in the area of sourcing used vehicles, he said, adding that the company during the quarter purchased nearly 5,000 used vehicles from customers through AcceleRide through trades or through individual acquisitions. That's up 30% sequentially from the second quarter.

Nearly 1,000 customers out of the 5,000 took advantage of the digital payment feature in AcceleRide.

The company will soon launch AcceleRide at Group 1’s newly acquired dealerships in Texas and California.

“And our AcceleRide footprint will expand significantly in the Northeast with the upcoming [Prime Automotive Group] dealership acquisitions,” Kenningham said.