There is one school of thought in the used-car market forecasting an impending, drastic drop in used-car prices. But Tom Folliard, CarMax's president and chief executive officer, says he doesn't expect anything extremely volatile to result from the coming months. In fact, he expects things will likely roll out in a predictable manner.
When asked how the declines in used-car pricing were impacting the company’s business model during his company’s most recent quarterly earnings conference call, Folliard said the business was running as expected heading into the winter months.
“The fall is a time when we always see depreciation,” Folliard said. “We’ve had some anomalies going into the recession and coming out of the recession, but in a normal year, you expect some appreciation in January through the spring, and then you expect some depreciation throughout the rest of the year all the way through December.
“I think we’ve proven that we can manage in all kinds of different volatile environments, and this one is not as volatile as we’ve seen in the past. We view this as, I don’t want to say ‘business as usual,’ but it’s normal depreciation that we see during a third quarter,” Folliard continued, referring to the fiscal period ending Nov. 30.
When asked about the situation with his company in regards to investor concern over dropping used-car prices, Folliard remained optimistic.
“Whatever the market delivers, we’ve done a pretty decent job of navigating through it,” Folliard said. “I’m always a believer that lower prices are better for the consumer, and we turn our inventory quick enough that we can manage the margins in a declining environment. But I’m also not a believer that we’re going to see this giant decline in car prices because there’s some tidal wave of supply coming our way. I think things tend to find a way to equal out.”
CarMax held the conference call after announcing its results for the fiscal third quarter (period ending Nov. 30) shortly before the holidays. Among the highlights, the company noted a substantial increase in its total used unit sales (14 percent year-over-year). CarMax also reported a 10-percent increase in total wholesale unit sales. Its net earnings of $130.0 million was a 22.2-percent increase. Net earnings per diluted share of $0.60 marked a 27.7-percent hike.
“We had another great quarter,” Folliard said in the earnings release. “Continued strong performance in our used, wholesale and CAF operations, along with the growth of our store base and our ongoing share repurchase program, contributed to our record third quarter earnings per share.”
Asbury Automotive Group announced its second Ford dealership acquisition in as many weeks, revealing Wednesday that it has bought Texas Motors Ford. With the purchase of this Fort Worth dealership, the retailer now has seven stores in Texas.
The dealership, which has annual revenues of about $140 million, will be rebranded as David McDavid Ford Fort Worth.
“We are excited to announce our first acquisition in Fort Worth and are pleased to expand our suite of Ford stores,” said David Hult, Asbury’s executive vice president and chief operating officer.
“We are looking forward to carrying on the superior quality of service and sales the customers of Texas Motors Ford have come to expect. We welcome our new employees to the Asbury family and are excited about our opportunities in Fort Worth,” he added.
Just over a week ago, Asbury announced the purchase of Sandy Springs Ford. With that acquisition, Asbury now has 16 stores in Georgia. The dealership, which has been rebranded Nalley Ford Sandy Springs, brings in about $110 million in revenues annually.
Asbury had mentioned in its third-quarter earnings release that during the period, it had entered agreements — subject to OEM approval and customary closing conditions —- to buy two stores that had combined annual revenues of approximately $250 million.
Edmunds.com chief executive officer Avi Steinlauf — whose company’s own Price Promise tool also aims to foster online-to-showroom efficiency — says he commends AutoNation for introducing a car-shopping tool like SmartChoice Express and “moving the process online.”
“I give them a lot of credit for moving the process online. At the get-go, they’re only going to have certain elements of it online, but aspirationally, would like to move other elements online in terms of the financing, in terms of the trade and things along those lines” Steinlauf told Auto Remarketing in an interview Thursday, the same day SmartChoice Express launched in South Florida.
“So, we certainly welcome that because we know that our shoppers are interested in those types of things, and for those that are (interested), having the ability to do some of the elements online I think is a very positive thing,” he said.
On Wednesday, Steinlauf, linking to an article in The Wall Street Journal, praised AutoNation chairman and CEO Mike Jackson in a Twitter post “for pushing the envelope” as well as the 30-minute target to which the program aspires.
Auto Remarketing talked with Steinlauf about that Tweet and asked him what importance he has seen consumers put on a quick turnaround at the dealership.
“I think that’s a great target,” he said, of the 30-minute target referenced in The Wall Street Journal article and elsewhere in the media. “I think a lot really depends on each individual situation, so it’s hard to generalize.
“But a shopper who’s coming in has, already made up their mind, may have already test-driven a vehicle, has identified the actual vehicle down to a VIN level, and may have already taken care of their financing and some of the other details, ought to be able to get in and out in a short amount of time, if that’s what they’re interested in.”
Steinlauf acknowledges that “not everybody is interested in that,” pointing out that some shoppers may want to receive a comprehensive lowdown on a car in-person while at the dealership.
However, he said, “I think for a large number of folks, they are interested in being able to get in and out in a quick fashion. And historically, the process could have taken a long time, and so, I gave kudos to Mike Jackson and his team because that if they’re able to pull that off, that’s going to be fantastic for everybody.”
And AutoNation may not be the last to move in this direction — particularly, if companies continue to press meeting the changing needs of the consumer base. Steinlauf, for one, says that consumers are becoming increasingly savvy when it comes to using the Web to shop.
“They’re using the tools — whether it’s on their phone, whether it’s on their tablet, whether it’s on their computer — to do their research, to make up their minds and to identify exactly what they’re interested in,” he said. “It doesn’t replace the touch and the feel and the smell, because I think that’s very important. And so there is definitely a place for that test-drive and being able to assess the physical elements of the vehicle.
“But things that used to happen perhaps in an off-line world, if it can be migrated to an online world and become more efficient for both parties — really all parties involved, whether it’s the shoppers and/or the retailers, that being the dealers in this case — I think it’s a good thing,” he added. “I think we’re seeing it in other industries and I think we will continue to see more of it in the automotive industry in way that, again, benefits all of the parties.”
In what parallels much of the online-to-showroom efficiency discussion, Edmunds.com, itself, has implemented things like a dealership “takeover” meshes the third-party and in-showroom experience. Not to mention, the site’s Price Promise program — which gives shoppers a “convenient and reliable way to know exactly what price they’ll pay at the dealership” — has made significant progress, Steinlauf said.
He also hinted that it may be headed to the pre-owned space. Steinlauf told Auto Remarketing that the Price Promise tool could soon be expanded to the used-car market, with a pilot program perhaps rolling out in the first quarter of 2015 and a nationwide rollout to follow in the summer.
Initial testing of Price Promise, he said, has generated a positive reaction from consumers, “and we think there’s a great opportunity for used-car shoppers to be able to see which actual vehicles are available and at what selling price from dealers in their area.”
AutoNation is launching its transaction website SmartChoice Express in South Florida today that allows consumers to shop for and reserve a vehicle online before picking up their car at the dealership.
After its debut in Florida, the program will be rolled out nationwide in 2015.
According to a video shared by AutoNation, the process involves five steps.
First, the consumer can shop at www.autonation.com. Once the shopper finds the car of choice, he or she punches in basic information and receives an AutoNation SmartChoice price on the car, plus vehicle details, final price and payment options.
The shopper then gets a price certificate on the car, which they can view or print, and have it sent to a smartphone or email address.
Next is reserving the car and setting up an appointment. The consumer puts credit information in through PayPal. There is an authorization hold on the card. The shopper sets an appointment with the store, and once the store confirms, it takes the car out of its inventory and holds it in a reservation area until the appointment.
The consumer then has 48 hours from reservation time to visit the store, review the paperwork and test drive the car. Once that is final, the car is theirs to take home.
Manheim officially announced today a selective partnership with the DriveTime Automotive Group that will make the auction company the exclusive remarketer for DriveTime’s inventory.
Susie Heins, vice president, major dealers at Manheim, took the time to speak with Auto Remarketing to outline her company’s excitement for the new arrangement.
“DriveTime, which is the largest subprime dealer in the United States, has selected Manheim as their exclusive remarketing partner,” Heins said. “What that means is all the inventory that DriveTime sells in the marketplace, wholesale, will now come either to a Manheim facility or to one of our auction companies named Go Auto Exchange, as well. It brings it to close to 30 locations between the two companies that they will be sending all of their inventory.”
In addition to Manheim locations all over the country, Go Auto Exchange features locations in key areas such as Atlanta, Phoenix, Houston and Orlando.
“The biggest benefit for DriveTime, obviously, is that they’ve got multiple places to drive inventory, at multiple marketplaces, as well as to multiple types of buyers,” Heins said. “But they’re also able to offer financing and take advantage of all the wholesale expertise that Manheim is able to bring to them.”
Heins hopes the evolution of their relationship will allow the two companies to simplify and strengthen each other’s business goals.
“We’re really, really excited,” Heins said. “They’ve been terrific to work with over the years, and this is just one more confidence in Manheim in being able to select us, and it really enables them to drive and sell inventory at multiple locations. But it also frees both of us up to really look at other projects we want to work on that’s going to further their business, as well. They’ve been great to work with — Ray Fidel (president and chief executive officer of DriveTime) and his team is awesome.”
Jeff Dyke doesn’t mind competition stopping by and checking out EchoPark Automotive, the pre-owned vehicle retail store concept recently launched by Sonic Automotive.
In fact, Sonic’s executive vice president of operations welcomes them, along with the OEMs, Wall Street folks and many others who have checked out the pre-owned program that opened its first store in early November.
“I’ve had competition coming to EchoPark. We’ve had some of our big competitors come in. And they’re more than welcome,” Dyke told Auto Remarketing in an interview late last month. “We’ve invited everybody to come in, see what we’re doing, how we’re doing (it) — because we think, ultimately, that it’s the best thing for the customer. That if the industry goes this way, the guest is going to benefit the most. And that’s what we’re focused on.”
EchoPark is built on a hub-and-spoke model, Dyke explained. The first “pod” opened in the Denver-area town of Thornton, Colo., on Nov. 3. Sonic has plans to open two “neighborhood” stores this month, two more in the second quarter of 2015 and then one in Q3.
“Then, we’ll take a little break; we’ll make sure everything is going great, the way we want it, and then we’ll start a campaign to roll out two to three pods a year for the next 10 years,” Dyke said.
These initial five neighborhood “spokes” — which are designed to be 12,000- to 15,000-square-foot facilities , as compared to the 60,000- to 70,000-square-foot hub — are in the Denver area, as well, circling the city.
“The idea of the neighborhood store is to literally, as it says, move into the neighborhood so the consumer doesn’t have to travel far from either where they work or where they live,” Dyke said.
Where EchoPark Stands Out
Dyke said he gets this question a lot: Is CarMax the No. 1 competitor?
“People ask me all the time, ‘Do you consider CarMax to be your main competition?’ and things like that, and the answer is no. I don’t pay a lot of attention to what those guys are doing. If we’re focused on what my competition is doing, then that’s exactly what they want and I’m a follower,” Dyke said.
“And really, we’re focused on our guests and what they’re doing. And I don’t pay a whole lot of attention to those guys, other than I have a lot of respect for what they do,” he added.
And not only is EchoPark different than the CarMax model, it’s also quite a few shades apart from the traditional dealership model, as well.
When you walk into EchoPark, the look is “kind of a cross between Apple and a Google experience,” Dyke said.
“It does not look like a traditional dealership. When you walk into the store, one of the things that you notice real quickly is the technology; huge screens, ample iPads for everybody to use, to search at their leisure without having any pressure,” he said.
That last point is key: all of the associates are paid on salary, which means there’s not the same kind of sales pressure that can often come from a commission-based approach.
The Consumer Reaction
Here is a tidbit that shoppers may find interesting when they arrive at EchoPark: the service department is completely wide open with glass walls, “so you can see everything that’s going on inside,” Dyke said.
There is also a spot where kids can push a microphone button to talk with the technician in that corner of the service department and ask questions.
It probably “drives the technician crazy,” Dyke admits, “but it’s a lot of fun for them to get involved with what’s going on in the store.”
And based on the customer reaction so far, the overall concept of this type of car-shopping has been fun for adults, too. When Auto Remarketing talked with Dyke, he was expecting more than 100 sales at the debut location for November.
That was without a great deal of advertising yet, either, as Sonic was shying away from driving too much traffic during the soft-launch period so that it could work out any technological glitches that can crop up when such a brand-new process is installed (and most of those glitches have been solved, Dyke says.)
“Our guests love it,” Dyke said. “The experience from the consumer’s perspective has just been fantastic. It’s relaxed, it’s transparent. We’re delivering on the promises that we made and the fact that we can get a car done in less than an hour with very little paperwork that has to be signed. It’s been so well-received.”
This week, Asbury Automotive Group acquired Sandy Springs Ford, a franchised dealership that generates approximately $110 million in revenues annually.
Asbury rebranded the dealership as Nalley Ford Sandy Springs, bringing the number of group stores in Georgia to 16.
The newly acquired store is located at 7555 Roswell Rd in Sandy Springs, a northern suburb of Atlanta. For 30 years, company officials highlighted, this Ford store has served customers from all over Georgia.
In 2011, the Ford store won the President's Award for Superior Customer Service and Sales Excellence which is the highest honor from Ford.
Asbury president and chief executive officer Craig Monaghan said the company is dedicated to continuing this tradition of excellence.
"The acquisition of this Ford store provides a great addition and diversity to our suite of stores in Georgia,” Monaghan said. “We’re looking forward to carrying on the superior quality of service and sales the customers of Sandy Spring Ford have come to expect.
“We welcome these fine employees to the Asbury family and are excited about our future in Sandy Springs,” he went on to say.
Privately owned SoCal Penske Dealer Group announced this week is has acquired the assets of both Drew Ford and Drew Hyundai in La Mesa, Calif.
Roger S. Penske Jr., SoCal Penske’s president, is committed to maintaining the legacy the Drew family has established during their time as owners of the dealerships.
“We are thrilled to add the Drew Ford and Drew Hyundai dealerships to our group and to count their employees, guests, and neighbors among our friends and family,” Penske said. “We admire the Drew family’s strong community ties and plan to strengthen community relations by making additional investments in the city of La Mesa and the surrounding area.”
Bill Drew, of Drew Automotive, believes the dealerships will be left in good hands as the reigns are handed over to Penske.
“The Drew family is grateful to the people of San Diego County for the opportunity to be of service to them all these years,” Drew said. “We are very excited to have an organization like SoCal Penske continue that legacy here in La Mesa, and continue to maintain the high level of standards in vehicle sales and customer service.”
The two dealerships will be rebranded as Penske Ford and Penske Hyundai and will both receive upgrades to their facilities.
On Monday, the management team at Larry H. Miller Dealerships made its second acquisition in the Denver metro area this year and 10th acquisition in the last 18 months.
Now the group’s eighth store in Colorado is Lakewood Fordland in Lakewood, Colo.
Lakewood Fordland has been serving the Denver market since 1962, and recently celebrated 50 years in a new state-of-the-art facility consisting of 60,000 square feet. The store is located at 11595 W. 6th Ave. in Lakewood and has been renamed Larry H. Miller Ford Lakewood.
“We’ve been in a period of growth over the last two years as the auto industry is strong and the Denver market is thriving,” LHM Dealerships president Dean Fitzpatrick said.
“Colorado is one of our largest markets, and we’ve done business in the state since 1987 when we opened our first store,” Fitzpatrick continued. “This acquisition shows our continued commitment to the Denver metro area.”
The group’s history in Colorado is a long one.
Larry H. Miller began his career as a parts salesman in Denver in 1970. In 1987, he opened his first store in the state, Larry H. Miller Toyota Scion Boulder.
In 1988, LHM Dealerships opened Larry H. Miller Liberty Toyota Colorado Springs. Larry H. Miller Toyota Colorado Springs opened in 1992, and Larry H. Miller Kia Lakewood and Larry H. Miller Volkswagen Lakewood both opened in 2001.
A Nissan store was added to the group in 2006, with the addition of Larry H. Miller Nissan Highlands Ranch. In May, LHM Dealerships opened Larry H. Miller Chrysler Dodge Jeep Ram 104th in Thornton.
“I’ve done business with the Larry H. Miller Group for nearly 20 years through their company that provides vehicle service contracts,” said seller Robert Liedel.
“I know they take good care of their customers and employees and actively give back to the community,” Liedel continued. “It also brings me comfort to know that they’re retaining my current team of employees and welcoming them into the LHM family.”
LHM Dealerships strongly supports giving back in the communities where it conducts business. Through Larry H. Miller Charities, the dealerships give back to communities by focusing their united service and corporate giving on women’s and children’s issues, with an emphasis on health and education.
Since 1996, more than $225,000 has been donated to nearly 70 qualified nonprofit organizations throughout Colorado.
AutoNation began the fourth quarter with an 8-percent increase in new-vehicle sales as company dealerships turned 24,844 new models in October.
New-vehicle sales for AutoNation's operating segments were as follows:
• 7,497 for domestic, up 7 percent versus last October
• 11,917 for import, up 11 percent versus last October
• 5,430 for premium luxury, up 5 percent versus last October
On a same-store basis, AutoNation reported that new-vehicle sales in October rose 7 percent year-over-year.
AutoNation expects to report November new-vehicle unit sales on Dec. 3.
