Not only did Sonic Automotive sell more used cars than it ever has before in a quarter, but the retailer also posted a record for first-quarter pre-owned gross profits.
Reporting Q1 results on Tuesday morning, Sonic said it sold 27,657 pre-owned vehicles during the period, an all-time high. This was up from 26,469 used sales in Q1 of 2013.
This tally also put the group at 90 used unit sales per store per month for the quarter. Sonic’s pre-owned gross profits came in at $40.7 million, a Q1 record.
“We have been very busy in the first quarter. I'm happy with the progress we have made in both pre-owned and in our customer experience initiatives,” said Scott Smith, Sonic’s president. “We are very excited about the opening of our pre-owned stores in Denver expected in the fourth quarter 2014. Our collection of highly skilled professionals, operational playbooks and state-of-the-art technology will provide us with a competitive advantage over others in this pre-owned space.
“With our customer experience initiative (One-Sonic One-Experience), we intend on helping the retail automotive industry change toward the way current and future consumers want to shop for cars and trucks. Our goal is to provide options to customers that are enjoyable, transparent and consistent with their lifestyles,” he continued.
Smith added: “We plan on beginning the roll out this new shopping experience to our customers in the Charlotte, N.C., market in the third quarter of 2014, and we will launch the customer experience initiative in other markets after the Charlotte rollout is complete.
“We would also like to reiterate our targeted range of diluted earnings per share from continuing operations for full year 2014 of $1.95 to $2.05. This range includes an expected $0.14 per diluted share effect related to costs of our stand-alone pre-owned initiative. Excluding the anticipated effects of this initiative, our targeted range of diluted earnings per share from continuing operations for full year 2014 is $2.09 to $2.19.”
Jeff Dyke, Sonic’s executive vice president of operations, also offered some commentary on the quarter.
“We continue to demonstrate our ability to operate and grow in the pre-owned space at record levels. Compared to the prior year quarter, we were able to grow pre-owned unit sales by 4.5 percent and pre-owned gross profit by 7.0 percent,” he said. “In addition, our fixed operations teams were able to achieve record results despite the weather issues that plagued many of our southeastern stores during the quarter.
“We achieved fixed operations revenue and gross profit growth over the prior year quarter of 7.5 percent and 5.5 percent, respectively. While new retail unit volumes were relatively flat compared to the prior year quarter, we were able to increase our gross profit per unit to $2,191, up $58 per unit versus Q1 2013. We continue to make progress on our One-Sonic One-Experience and stand-alone pre-owned store projects, which are all on track. While the weather caused a slowdown in January and February, we still beat our internal forecast for Q1 2014, and we remain on track to achieve our EPS target for the full year.”
“We continue testing our True Price pricing methodology. This quarter we began to see two things happen: as the market grew stronger, our share stabilized, and we grew market share sequentially over the prior quarter, and we were able to grow new car margin by $58 per retail unit. This marks the first time in over a year of adjusting our model that both share and margin grew together in the quarter,” Dyke added.
“As we move toward our One-Sonic One-Experience launch, we expect to gain significant market share as customers benefit from the entire complement of our new shopping experience. Bottom line, when we fully implement One-Sonic One-Experience, we will offer the automobile buying community a shopping experience that no other competitor in our industry can offer, or will be able to offer, for several years to come,” he continued.
Dealers and dealer groups are making moves at a rapid pace, as research shows acquisition rates are on the way up.
According to an industry report released Monday, auto dealership buy-sell transactions rose by double-digit rates in 2013, and analysts are predicting this year’s rates will continue to rise.
The buy-sell market is reviewed in The Blue Sky Report from Haig Partners LCC, and the report shows public retailers committed more than $1 billion to acquisitions for the first time since 2006 last year.
And these stores are going for more, as the value of public dealerships’ acquisitions climbed 16.5 percent from 2012 levels, according to the report.
The number of private transactions rose 14 percent.
“Auto dealers are enjoying record profits, new vehicle sales are strong and rising, and the economy is improving. Those factors are driving valuations to all-time highs. It’s an ideal environment for sellers,” said Alan Haig, founder of Haig Partners. “But the sellers’ advantageous position isn’t deterring buyers. It’s a low-yield world with few attractive alternatives for investment capital. Even with high purchase prices, dealership acquisition returns are very compelling.”
New firm Haig Partners advises owners on selling their dealerships. Its founder, Alan Haig, led the automotive retail practice for the investment banking arm of The Presidio Group LLC, and was head of AutoNation’s corporate development group.
Haig explained the buy-sell market will remain “robust” for a variety of reasons.
The report states private buyers are very active and interested in both single-point stores and larger groups.
Haig also shared that most all of the public retailers have expressed “a desire to grow through meaningful acquisitions.”
“Many dealership groups have the capacity to make commitments of $100 million or more, with several capable of $500 million deals,” according to the report.
The range of brands is growing, as well.
According to the report, the 10 largest dealer groups acquired 16 different franchises in 2013.
"For sellers, dealership values appear to be at an all-time high. Plus, almost every franchise is in demand today. More dealers are taking this opportunity to sell their business for values that were not conceivable just a few years ago. And the market is ripe for the sale of large dealership groups," the report stated. "We remain in a 'win-win' period for dealership sales: strong returns for buyers and strong pricing for sellers."
Editor's Note: For from from the year-end Blue Sky Report, see Wednesday's Auto Remarketing Today.
Though used supply has expanded greatly since post-recession lows, dealer groups were still dealing with tight pre-owned supply as 2014 got underway — perhaps stemming from developments on the new-car side of the business.
During AutoNation’s conference call late last week to discuss Q1 results, president and chief operating officer Michael Maroone explained despite positive used-vehicle sales results during the first quarter, the company was challenged by scarce used supply.
“We had a challenge with tight used vehicle inventory in the quarter, when the new market froze, as a result, our intention turned to maximizing margin, and we are very pleased with the results,” said Maroone during the call, according to a transcript from Seeking Alpha.
At the end of Q1, AutoNation’s used vehicle base supply was 31 days.
He reported that supply challenges, due in part to a slowing of industry new-car sales, increased the need to look for alterative routs for sourcing used vehicles.
“Supply challenge emphasized the need to accelerate initiatives that expand our alternatives for sourcing used vehicles in a strategic manner that consistently drives the right product and the right price at the right time. It is not entirely linked to the new vehicle market,” Maroone said.
These external sourcing initiatives included a “centralized buying team, partnerships with various third parties, and a 'We Buy Your Car' guarantee to offer pilot program that we will launch this summer,” Maroone said.
On the internal side, the company is working on increasing appraisals, winning more trades, reducing third-party wholesale and equity monitoring in the service lane.
Company results showed same store retail used vehicle revenue of $932 million increased $32 million or 4 percent on 51,100 used vehicles retailed, up 600 units or 1 percent with unit volume increases in the premium luxury and domestic segments
Maroone explained this growth offset a volume decline in the import segment.
During the question and answer portion of the call, a participant touched on a similar topic: the used-to-new ratio and whether supply constraints stemming from the new-vehicle cycle would push used volume down in the future.
“I really think that we are going to continue to work hard to source vehicles, so that we are not totally dependent on that new vehicle cycle. I think there is almost unlimited opportunity on the used side, and I don't think we have to give up a ton of margin to get there,” said Maroone.
“It's very different than the new-vehicle business. Every single used vehicle is different, and if we acquire it properly, recondition it to our AutoNation standards and deliver the right experience, I think that we have big time opportunity. So we don't feel constrained and don't want to be constrained from new-vehicle trade, availability and want to supplement that with the things that we talked about earlier,” he continued.
Another key topic in used supply discussion: how much these units are costing.
Maroone was met with another question regarding the outlook for used inventory acquisition costs.
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In answering, Maroone touched on the quantity of off-lease vehicles expected to hit the market in the coming months.
“There are a lot of vehicles coming off lease,” Maroone said.
And many of these off-lease vehicles are in the 3- to 4-year-old range, which Maroone called “a real sweet spot,” for used inventory.
He also explained these vehicles will be a welcome change from some of the high mileage vehicles coming in as trade-ins, as people continue to recover from the 2008 economic downturn and replace their older vehicles. With the average age of vehicles on the road in the U.S. reaching over 11 years, many of today’s trade-ins come with “extraordinarily high mileage,” said Maroone.
“It’s (off-lease vehicles) a nice complement to what we have,” Maroone said.
He also touched on the fact that CPO business is growing quickly, as well.
“But certified pre-owned business is really growing quickly. For us, certified pre-owned was up 12 percent in the quarter, is up to 32 percent of our sales … The off-leased vehicles had opportunity, and they are coming in pretty good quantity, and we still have the high miles, cheaper inventory that is still in very high demand, and turns very quickly,” he explained.
AutoNation reported its Q1 results late last week, reporting a 7 percent boost in revenue, as well as upticks in the dealer group’s used department.
2014 first quarter revenue totaled $4.4 billion for AutoNation, compared to $4.1 billion in the year-ago period, an increase of 7 percent.
The company shared this was driven by stronger performance in all business sectors – new vehicles, used vehicles, parts and service, and finance and insurance.
Used vehicle retail sales were up slightly, as well. The dealer group sold 52,136 used vehicles in Q1, up from 50,505 sold during the same period last year.
Used-vehicle retail revenue came in at $945.8 million, up from $899.2 million during Q1 of 2013.
Gross profit for used vehicles was also up, coming in at $92.8 million, rising from $83.4 million during the same period of last year.
Dealers also made a bit more on each of these units. Gross profit per vehicle retailed came in at $1,780, up from $1,651 during Q1 of last year.
Mike Jackson, chairman and chief executive officer, said, "AutoNation delivered solid growth in EPS and operating income in the first quarter of 2014 compared to the prior year, driven by gross profit growth in all of our business sectors. We continue to expect U.S. industry new vehicle unit sales to increase 3 percent to 5 percent, bringing U.S. industry new vehicle sales above 16 million units in 2014."
In the first quarter, AutoNation's retail new vehicle unit sales increased 4 percent on a same store basis and 6 percent overall.
Editor’s Note: For more on AutoNation’s Q1 results, see Tuesday’s Auto Remarketing Today.
CarMax revealed late last week results for Q4 and its fiscal year, which ended on Feb. 28, showing an almost 20 percent yearly gain in used sales. This also marks the first fiscal year the dealer group has ever retailed more than 500,000 vehicles.
Specifically, the dealer group saw total used unit sales rise by 12 percent in the fourth quarter and 18 percent in the fiscal year.
CarMax sold 526,929 used vehicles this past fiscal year and 132,856 during Q4.
And used unit sales in comparable stores increased 7 percent in the fourth quarter and 12 percent in the fiscal year.
The dealerships also earned a bit more on these vehicles, with used vehicle gross profit coming in at $284.4 million for Q4, up from $253.3 million during the same period 2013’s fiscal year.
“We had another great year, achieving several new milestones,” said Tom Folliard, president and chief executive officer. “Our comparable store used unit sales growth of 12 percent was our strongest since fiscal 2002, and for the first time, we retailed more than 500,000 vehicles in a single year … We believe our continued geographic expansion and market share growth will drive our success in the years to come."
The company managed to achieve these results during a much harsher winter than seen in year’s past.
During the company’s conference call discussing Q4 earning results, Folliard was asked what kind of impact these storms had on the company.
He explained though there was one day when over 30 of the company’s stores were closed as well as days when the entire Dallas market closed, “Historically we have always felt like we get those sales back and they might shift from quarter to quarter.
“So it is very difficult for us to attribute a sales loss or gain to a quarter because of weather. But it was obviously pretty significant as I said, with the number of closed stores; it also has an impact on our ability to introduce cars. So with the combination of traffic for sales and the shops being shut down and not being able to get inventory out front, I think the stores have done a fantastic job of working through some very challenging circumstances during the quarter to put us in a good position going forward,” Folliard continued.
With used sales so high for the dealer group this past fiscal year, company leadership also offered a bit of insight on the mix of used-car sales during the earnings conference call last Friday.
Folliard explained vehicles ages zero to 4 makes up approximately 70 percent the company’s total sales.
The other 30 percent is in the 5- to 10-year old range.
“As you remember a few years ago we talked about that number of 5- to 10-year-old cars having doubled, coming out of the recession from 15 percent to around 30 percent. But that number has been pretty stable for the last couple of years. And we really didn’t see much in terms of a mix shift in sport utilities or compacts or anything of that nature,” Folliard explained, noting the mix has been “relatively stable” for the past couple of years.
Folliard was also asked whether the company would see its percentage of zero- to 4-year old vehicles grow in the next few years.
“We have been anticipating with the increase in SAAR that we would see our mix of zero to four year old cars increase; it just didn’t happen over the last couple of years,” Folliard said. “So do we expect going forward at some point? Yes, but we’ve also seen a slowdown in the SAAR growth, I think it ended a little over 16 million at the end of last month and I think only like a 2 percent growth. But that’s really the driver of supply, obviously.”
He explained this trend also depends on consumer behavior, and how long they are choosing to stay in the same vehicle.
“So the other factor is going to be consumer behavior and how quickly do they trade out cars and that’s just something we really can’t predict. But over time we would expect our mix to start to move a little bit more in that direction as the supply comes back,” Folliard said.
DCH Auto Group announced today it has added another California dealership to its lineup.
With the acquisition of Honda of Mission Valley in San Diego, the dealership group expands its store count to 27 existing new and pre-owned car dealerships in New Jersey, New York and California.
The store, which will be renamed DCH Honda of Mission Valley is the 14th store for the group in the Sunshine State.
"DCH Honda of Mission Valley is a wonderful addition to the DCH family of dealerships," said Shau-wai Lam, chairman of DCH Auto Group. "We are very excited to become a part of the Mission Valley community."
The dealership will offer the full line of Honda vehicles, and is located at 5812 Mission Gorge Road in San Diego.
The company also shared that the store will be a “focal point” for the larger San Diego area as DCH brings it Teen Safe Driving Program to the Mission Valley community.
“DCH Auto Group is committed to reducing the number of car crashes involving teen and young drivers – car crashes are the number one killer of teens in the United States,” company officials shared. “Through the efforts of DCH team members and the company's partnerships with local high schools and community organizations, DCH works to educate teens and their parents about the dangers of distracted driving and the importance of the Graduated Driver's License, among other safe driving topics.”
DCH Auto Group grew to 26 dealerships this week, with the announcement on Monday that it has acquired Honda of Nanuet, located in Nanuet, N.Y.
The dealership will be renamed DCH Honda of Nanuet as it joins the company's 25 existing new and pre-owned car dealerships in New Jersey, New York and California.
"We're delighted with the opportunity to bring DCH's renowned customer-focused experience to Nanuet," said Shau-wai Lam, chairman of DCH Auto Group. "This is a wonderful addition to the DCH family of dealerships."
Offering the full line of Honda vehicles, as well as service and parts operations, DCH Honda of Nanuet will be located within close proximity of DCH's flagship store, DCH Paramus Honda in Paramus, N.J.
It becomes the auto group's 12th dealership in the tri-state area, and the third in New York state.
With the acquisition of the dealership, DCH also brings its award-winning Teen Safe Driving Program to the Nanuet community, a program aimed at reducing the number of car crashes involving teen and young drivers.
DCH team members, in partnership with local high schools and community organizations, work to educate teens and parents about the dangers of distracted driving, the importance of the Graduated Driver's License, and other safe driving topics.
