More buy-sell moves as well as fundraising activities involving dealerships surfaced on Friday.
Beginning first with more actions connected to mergers and acquisitions, Haig Partners was the exclusive sell-side advisor to the McDermott Auto Group on the sale of David McDermott Lexus and Dave McDermott Chevrolet located outside New Haven, Conn.
According to a news release from Haig Partners, the buyer was PSD Automotive, which now owns 31 dealerships.
David McDermott has been in the automotive retail industry since 1961. He has owned numerous dealerships throughout the years and has built a reputation as a highly respected dealer. Chevrolet, Lexus, Chrysler and Hyundai have elected him to their national dealer councils numerous times.
“My family has been encouraging me for years to retire David McDermott said in the news release. “When the buy-sell market heated up, I decided that the time was right to sell the dealerships. This has been a terrific deal for all concerned. I’m thrilled that the buyer was sufficiently impressed with our organization that he hired every one of our employees and is retaining the name. My customers and I will miss each other, but they will be happy with the new owner, too.
Patrick Dibre is owner and chief executive officer of PSD Automotive.
“I’d like to congratulate Dave McDermott as he begins his retirement,” Dibre said. “Everything went very smoothly and I’m thrilled to have the opportunity to represent Lexus and Chevrolet in southern Connecticut.”
McDermott also shared his perspectives on how this transaction unfolded.
“I’d also like to say how pleased I was with Alan Haig and Nate Klebacha at Haig Partners,” McDermott said. “Many dealers have called through the years to buy our Lexus and Chevrolet stores, and I’ve sold some of the other dealerships I’ve owned over the years on my own.
“However, Alan and his team had come highly recommended and they lived up to their reputation as being trustworthy advisors who were highly effective. The transaction was fast, pleasurable and I’m more than happy with the deal terms,” McDermott went on to say.
The team at Haig Partners has advised on the sale of 39 dealerships in the Northeast since 2019.
“The buy-sell market remains as strong as I have seen it in my career. Dealership profits are at all-time high levels, allowing sellers to get unprecedented prices while still providing attractive returns for buyers. I’m regularly using superlatives these days as we all need to recognize that these are special times. For dealers considering an exit, conditions are excellent,” Alan Haig said.
“This transaction also demonstrates that Lexus remains an aspirational franchise for almost all dealership groups as we had numerous parties that were keenly interested. We are grateful to Dave McDermott for his trust in our firm. For those who know Dave, I’m sure they will agree with me that his warmth, enthusiasm and entrepreneurial spirit embody much of what is special and good in our industry. It was truly a pleasure and an honor to assist him,” Haig went on to say.
Smail’s efforts involving breast cancer
Meanwhile, the American International Automobile Dealers Association shared the philanthropic activities at the Smail Auto Group, which has been family owned and operated for more than 75 years and has 10 franchises in Greensburg, Pa.
The group highlighted the Smail Cares Breast Cancer Awareness Campaign generated more than $42,984 in October for four charities, including:
— American Cancer Society: Real Men Wear Pink
— Magee Women’s Institute and Foundation
— Pink Pamper Halo Fund
— Westmoreland Walks
“The breast cancer charities represented impact women and families with cancer on a variety of levels, including research and awareness, early detection, patient support programs, hair replacement options and scholarships,” Smail said. “We hope to continue our fight against breast cancer and build upon the $620,303 that Smail Auto Group has raised to date. Thank you to all our customers and employees who helped to make this year’s campaign a success.”
North Dakota dealer rewards local school employee
Kramer Chevrolet and Kramer Subaru — locally operated, full-service dealerships in Mandan N.D. — said they made a memorable difference in their community on Jan. 14.
The stores, which joined Foundation Automotive Corp. in 2019, made their first move as a part of what they initially called Giveback Giveaway. This month, the dealerships gave a 2013 Subaru Outback to Laurie Kunz, a staff member at a local elementary school.
Over the holidays, Kramer Chevrolet and Kramer Subaru launched the program and began to accept nominations for a deserving candidate to be awarded a vehicle. With more than 125 entries, a committee of community members chose a winner and helped plan “the surprise of a lifetime for the lucky recipient,” according to a news release from the dealerships.
In the submission, her colleagues mentioned that Kunz is a mother of two, currently working two jobs and going to school to become a teacher.
“The vehicle she was driving was unreliable and not safe to transport herself and her two young children. With countless deficiencies, she was unable to afford the repairs or a new vehicle. Laurie’s colleagues mentioned that she is a hardworking woman very deserving of the donation,” the dealers said.
After presenting the Kunz the vehicle and the success of the initial launch, Kramer Chevrolet and Kramer Subaru managing partner Phil Alalouf said the program would now be called Project Purpose.
“We want to give back to the community that we all love so much. We kicked it off with a car giveaway, but moving forward we also want to show support in all of the ways a dealership can with Project Purpose,” Alalouf said in the news release.
“We will be helping people in our community fix their vehicles and get them on the road with safe transportation when they cannot afford it. We have a team that is actively looking for these people so we can do what is right,” he continued. “When the community is the foundation of any business, there’s no greater way to show appreciation than giving back.”
Foundation Automotive chief operating officer Chuck Kramer added, “Our core company values are employee satisfaction, strong community involvement and excellent customer service. We are grateful that we have the ability to do what’s right and help the people in the community who need it most.”
Hendrick Automotive Group has opened another dealership with a sports legend as its namesake, but this time around, the name of the game is baseball, not NASCAR.
On Tuesday, the retailer announced the opening of Reggie Jackson Airport Honda in Raleigh, N.C.
The Major League Baseball Hall of Famer partnered with Hendrick Automotive to open the store, which is located near the Raleigh-Durham International Airport.
“Rick (Hendrick) has been an incredibly supportive friend for nearly 30 years,” Jackson said in a news release. “We’ve worked together on community service events and long shared a deep love of classic cars, so I could not be more grateful to partner with him to help operate this new dealership.
“Raleigh is a growing area with a tremendous customer base loyal to the Honda brand. The dealership has the best of everything facility-wise, and it is centrally located to a lot of economic activity. It’s a home run!” Jackson said.
“This venture also gives me the chance to do something I have always wanted to do, which is help foster a more diverse workforce in the automotive industry,” he said. “Rick and Honda have been committed to this effort as well. The opportunity to introduce more people from different backgrounds to careers in the car business truly piqued my interest.”
Jackson has held an interest in Rick Hendrick Chevrolet Naples in Florida since 2015. He has also been an advisor with the Hendrick Leadership Academy.
Shaye Johnson, who was previously the general manager of Rick Hendrick Toyota of Fayetteville, will lead the new store as GM.
“I’ve known Reggie for a long time. He’s a dear friend with a passion for the car business and for expanding diversity and inclusion efforts in the industry,” Hendrick Automotive Group chairman and chief executive officer Rick Hendrick said in a news release. “We’ve had great success working together, and this opportunity with Honda was a perfect opportunity to build on our relationship. Reggie is a champion in everything he does, and I couldn’t be more thrilled about being part of his team. He will be a tremendous dealer.”
Lithia’s online platform growth
In other news involving dealer groups, Lithia & Driveway said Wednesday that the group’s online platform for consumers to shop, finance and sell vehicles beat its December transaction target by 32%.
There were 1,650 transactions done via Driveway last month, the group said. The target was 1,250.
Lithia said 96% of Driveway customers are new to the retailer, which translates to a contribution of $500 million in estimated annual incremental revenue.
Combining that with the e-commerce business of Lithia stores equals roughly $5 billion in annualized revenue.
“We are excited with Driveway's outperformance of the December milestone,” Lithia president and CEO Bryan DeBoer said in a news release.
“Our continued investment in innovation, such as Driveway and Driveway Finance, and building a consumer-centric omni-channel experience is key to generating greater than $1 of EPS for every billion dollars in revenue.”
Several dealership groups did more than just retail vehicles to finish up 2021.
From Asbury Automotive Group completing one of the biggest acquisitions of the year to Sonic Automotive expanding its used-vehicle enterprise to Key Auto Group broadening its diverse business portfolio, these operations had a busy December.
First surfacing at the end of September, Asbury needed a little less than 90 days to complete the previously announced acquisition of the Larry H. Miller Dealerships and Total Care Auto, powered by Landcar.
In the process, Asbury added 54 new-vehicle dealerships, seven used-vehicle dealerships, 11 collision centers, a used-vehicle wholesale business and an F&I product provider.
Asbury projected the LHM acquisition will add approximately $5.7 billion in annualized revenues.
“We are excited to complete the transformative acquisition of Larry H. Miller Dealerships. With its strong culture and stewardship mentality, coupled with the ability to rapidly expand Asbury’s presence into these desirable, high-growth Western markets, it is a rare opportunity,” Asbury president and chief executive officer David Hult said in a news release.
“Larry H. Miller Dealerships is a well-run operation with a rich history, and we are honored to be the stewards of Larry and Gail’s vision,” Hult continued. “We have enjoyed getting to know the Larry H. Miller team members during this acquisition process and look forward to working together to continue the journey.”
LHM Group owner Gail Miller reflected on what the journey to this juncture has been like.
“Our family expresses deep gratitude to the employees of Larry H. Miller Dealerships for their ongoing commitment to our organization over the past 42 years,” Miller said. “Our employees have continually exemplified our values of hard work, stewardship, integrity and service. Their dedication to our customers and our communities has allowed us to become the second largest privately held automotive group in the nation. We treasure them, our loyal customers, many partners and deep friendships built during four decades in the automobile business.
“David Hult and his team have been exceptional to work with and we appreciate their approach and care during this transaction. Our family looks forward to continuing our mission of enriching lives through reinvestments in new business opportunities and continued philanthropy,” Miller continued.
This acquisition diversifies Asbury's geographic mix, with entry into six Western states: Arizona, Utah, New Mexico, Idaho, California and Washington, and adds to its growing Colorado footprint. LHM Dealerships portfolio mix of largely domestic brands has historically delivered strong and stable margins in these markets.
LHM dealerships sold approximately 120,000 new and used vehicles during the 12-month stretch that ended Sept. 30.
“We couldn’t be more pleased with the approach and stewardship Asbury Automotive Group has taken during this process,” said Steve Starks, chief executive officer of LHM Group. “We know they are people-focused, which includes their associates and customers. Our employees now have an opportunity to continue building an exciting future with a leading automotive group that will have coast-to-coast operations.
“We want to thank Dean Fitzpatrick and the LHM Dealerships leadership team for their incredible work and tenacity throughout this transaction, as well as their constant efforts over the decades to grow the automotive business. Moving forward, the LHM Group expects to further diversify and grow our portfolio of operating businesses and investments,” Starks continued.
In addition to the dealerships, Asbury acquired Total Care Auto (TCA), a provider of service contracts and other vehicle protection products; a move the company sees as delivering enhanced profitability and cash flow.
“TCA is comprehensively integrated with Larry H. Miller Dealerships and presents a compelling opportunity for Asbury to generate significant additional operating income by activating this captive top-quality F&I products provider across our entire, now national, store footprint. Like the dealerships, this service contract company is extremely well run.” Hult said.
“Our now national footprint with our digital retailing capabilities in Clicklane and the full reach of TCA create a truly expansive platform of dealerships,” he added.
Fitzpatrick, president of LHM Dealerships, offered this perspective on what the entire company will be like going forward.
“We are excited to complete this transaction and to join Asbury,” Fitzpatrick said. “Our team is proud to share in the heritage and foundation created by Larry and Gail, and the entire Miller family. We are grateful for the opportunities they provided to our employees and their families.
“It is with much admiration and appreciation to the Millers and the LHM Group that we now take our first step forward as part of Asbury, a well-respected and employee-focused national leader. We know our LHM Dealerships customers will continue to experience exceptional service,” Fitzpatrick went on to say.
Sonic continues EchoPark expansion in Tennessee
Three days before Christmas, Sonic announced the opening of its new EchoPark delivery center in Chattanooga, the fourth-largest metropolitan area in Tennessee.
Located near the Georgia border, Sonic highlighted the Chattanooga Delivery Center is EchoPark’s third location in Tennessee, following the opening of the Knoxville delivery center and Nashville retail sales center in 2020.
The company added the new Chattanooga delivery center is also EchoPark’s 35th location to date, continuing the brand’s expansion toward a nationwide distribution network that is expected to reach 90% of the U.S. population and generate $14 billion in revenues by 2025.
“Our new delivery center in Chattanooga is an important part of EchoPark’s ongoing growth strategy, and further enhances our expanding regional and national footprint,” said David Smith, chief executive officer of Sonic Automotive and EchoPark Automotive. “With three strategic locations in Tennessee, guests have multiple options to experience the EchoPark difference no matter where they live in the region.”
Key Auto adds Thomas Chevrolet Buick
According to a news release from Performance Brokerage Services distributed last week, the dealership brokerage firm announced the sale of Thomas Chevrolet Buick in Perry, Fla., from Cal Thomas to Key Auto Group.
Thomas Chevrolet Buick was established in 1972 by Cal Thomas’ father, Lewis Thomas.
“Deciding to sell the dealership that my father purchased almost 50 years ago was not an easy decision,” Cal Thomas said in the news release. “I would like to thank our loyal customers for their support over five decades, and all the staff who became like family to my brother Al Ray and me.”
Key Auto Group owner Anthony DiLorenzo, began his career in the automotive industry in 1986 as a sales associate at Edwards Toyota. Key Auto Group was established in 1994 with the acquisition of Somerset Auto Center, and then added Portsmouth Chevrolet in 1997.
Over the past 11 years, the company continued to grow, adding additional automotive dealerships, collision centers, a brewery, a rental car company and fitness centers.
DiLorenzo has set the vision and mission for the entire group of businesses, which has grown to more than 400 employees.
“Our group had been looking to expand into the Southeast and was very familiar with Performance Brokerage Services,” Key Auto Group regional vice president Todd Jackson said in the news release. “After several discussions, Courtney Bernhard was able to successfully negotiate a deal with Cal Thomas of Thomas Chevrolet. We are very excited to help grow the dealership and support the community.
“We look forward to working with Courtney Bernhard and George Chaconas on more dealership acquisitions in the near future,” Jackson added.
The dealership will remain at its current location at 2128 South Byron Butler Parkway in Perry and has been renamed to Key Chevrolet Buick of Perry.
Chaconas, the Southeast partner for Performance Brokerage Services, served as the exclusive advisor for this transaction.
“I had the pleasure of meeting Cal Thomas about five years ago and discussed potentially selling his family’s automotive dealership. I am happy that we were able to identify a buyer so that Cal and his family could hand over their legacy of almost 50 years, allowing Cal and his brother to move into the next chapter of their lives and enjoy retirement.
“Courtney Bernhard and I look forward to helping Key Auto Group grow throughout the Southeast and thank everyone involved for making this a smooth transaction,” Chaconas went on to say.
The National Association of Minority Automobile Dealers and Ally Financial recognized Andrea Park Zadd, who is the president of Cresmont Auto Group in Cleveland, with the “Ally Sees Her” award at NAMAD’s annual conference.
The award spotlights women dealership leaders for their commitment to boosting their communities and auto industry diversity.
As part of Zadd’s recognition, Ally is donating $10,000 to the Korean American Professionals in the Automotive Industry nonprofit and the May Dugan Community Center in Cleveland.
“It’s so important for kids to see someone they can identify with as they dream of a successful future and careers that spark their interest,” Zadd said in a news release.
“While Crestmont Automotive has many female sales professionals and service advisors, I’m hopeful initiatives like this will inspire more young women to seek automotive retail careers,” Zadd said. “It’s a dynamic industry and I’m proud of the work we’re doing to create a more inclusive and flexible work environment.”
Natalie Brown, director of corporate citizenship at Ally, added: “This award celebrates the drive and passion that women automotive leaders bring to the table. The future of our industry is stronger when everyone sees the contributions of innovative leaders like Andrea who excel in business and give back to their communities. We’re proud to be an ally in NAMAD’s quest to expand opportunities for minority auto dealers.”
In additional news involving NAMAD, Cox Automotive teamed up with the organization to honor Amber Martin, who is director of community and business partnerships at Martin Management Group, with its Rising Star Award.
“To be recognized as a Rising Star by Cox Automotive is an incredible honor and receiving this award is even more special because of the long-standing partnership that my family’s company has with both Cox Automotive and NAMAD,” said Martin.
NAMAD president Damon Lester and Keisha Duck — who is the vice president of talent, learning and culture at Cox Automotive — presented the award to Martin on Thursday at the NAMAD event’s awards dinner.
“On behalf of Cox Automotive and in partnership with NAMAD, I am honored to recognize Amber Martin as the 2021 Rising Star. Not only does Amber exemplify the words ‘rising star,’ but she also exemplifies a core value of Cox and the Cox family — community engagement.”
Lester added, “Amber Martin is truly a ‘rising star.’ Her business acumen, personality and experience are a testament to her success in our industry.”
Cox is donating $5,000 in Martin’s honor to the Institute of Behavior and Health, Inc. (IBH) and its Stop Drugged Driving initiative, and is also launching a new philanthropic partnership as part of the award. The company is teaming up with City of Refuge to held fund its Automotive Technician Training program.
Cox is making a $10,000 donation this year in Martin’s name to pay for the tuition of a student in the program.
In other dealer-related news, Florida-based Ed Morse Automotive Group said Friday it has purchased four dealerships and a parts center from Sellers-Sexton Automotive and Norman Roy.
The stores and parts center are located throughout Illinois and Missouri. They will be renamed:
- Ed Morse Ford formerly Sellers-Sexton Ford at 341 VFW Memorial Drive, Saint Robert, Mo.
- Ed Morse Chevrolet Buick GMC formerly Weir Chevrolet Buick GMC at 1507 S. Main Street, Red Bud, Ill.
- Ed Morse Ford formerly Weir Ford at 1615 S. Main Street, Red Bud, Ill.
- Ed Morse Chrysler Dodge Jeep Ram formerly Weir Chrysler Dodge Jeep Ram at 801 New Baldwin Road, New Athens, Ill.
- Ed Morse Parts Center formerly Weir Parts Center at 1450 W. Market Street, Red Bud, Ill.
“This is our second expansion into the great state of Missouri, and we’ve been so impressed with our results that we wanted to continue our growth not only there but into Illinois,” Ed Morse Automotive Group chairman and chief executive officer Teddy Morse said in a news release.
“When our organization makes an acquisition and enters a new market, we pride ourselves on not only delivering on our promises to support the community but making significant capital improvements.These enhancements will provide our new employees with greater opportunities to be successful and provide our customers with a world-class experience,” Morse said.
This week, Foundation Automotive and Group 1 Automotive each described their latest charity endeavors.
Beginning with Foundation, two of its stores — Kramer Chevrolet and Kramer Subaru — hosted their 15th annual Military and Customer Appreciation Event and Car Show on Sept. 11 with all proceeds going directly to the North Dakota National Guard Emergency Relief Fund.
With the event taking place on the 20th anniversary of 9/11, Foundation highlighted that it made an ambitious goal of raising $50,000, which the group surpassed with a total of $57,402 raised, according to a news release.
The company said the successful event was complete with a classic car show, silent auction, free food and entertainment for the whole family.
The Military Emergency Relief Fund is a non-profit charitable organization whose purpose is to provide financial support in sudden and unforeseen emergency situations. The organization supports the North Dakota National Guard soldiers and airmen, as well as their dependents.
“In today’s world there are a lot of organizations to donate to. To think of our service members, our soldiers, our airmen, and their families, this means so much to everyone. We really appreciate it and know it’s going to a great cause,” said Brigadier General Jackie Huber, who accepted the check on behalf of the North Dakota National Guard Emergency Relief Fund.
Kramer Chevrolet and Kramer Subaru joined Foundation Automotive in 2019. This is the second year since joining the growing corporation that Kramer has been able to put on this event.
“The other stores in the group and a lot of our vendors really stepped up with donations to make this event such a success,” said Terry Wezner, managing partner of Kramer Chevrolet and Kramer Subaru, which are locally operated, full-service dealerships in Mandan, N.D.
“This money goes directly to the Military Emergency Relief Fund and is extremely important, especially with current events. We are passionate about getting money into the hands of those who need it most,” Foundation chief operating officer Chuck Kramer added.
And according to a post on Twitter from Group 1, one of the company’s stores in New Mexico did more than eat turkey on Thanksgiving.
The social media entry said, “The team at Lexus of Albuquerque took time out of their Thanksgiving to help those in need. They handed out 100 blankets, 80 pairs of gloves, 200 pairs of socks, and 80 toothbrush/toothpaste kits at a local homeless encampment. Most of this donation was funded by the employees.”
Sonic Automotive continues to expand its standalone used-car store program, announcing Tuesday that it has opened an EchoPark delivery center in Augusta, Ga.
This is Sonic’s third EchoPark facility in the state and 32nd overall.
“With the opening of our newest EchoPark delivery center, we continue to grow our network in the state of Georgia, adding to our two existing locations in Duluth and Marietta serving the Atlanta region,” Sonic and EchoPark chief executive officer David Smith said in a news release.
“We look forward to welcoming guests in the Augusta market and region with the same guest-centric approach and modern car buying experience we’re known for – one that is flexible, seamless, and convenient from start to finish,” Smith said. “Guests will be able to choose from an exceptional selection of high-quality, pre-owned vehicles, priced up to $3,000 below market, both in-store and online.”
In other news from public dealer groups, Lithia & Driveway announced a $750 million increase to the share repurchase authorization by its board. Lithia now has $885 million available for future repurchases.
“As discussed in our last earnings call, strong earnings have generated greater than expected free cash flows, which allows us to return capital to our shareholders through share repurchases, while preserving the liquidity necessary to achieve our 2025 Plan,” Lithia & Driveway president and CEO Bryan DeBoer said in a news release.
“Our capital allocation remains focused on acquisitions and internal investments, such as Driveway and Driveway Finance, to generate the highest long-term return for shareholders,” he said.
The company said that Driveway Finance has finished its inaugural issuance of asset-backed securities. It raised $344 million in capital, which will be utilized for growing the auto finance portfolio and network development, the retailer said.
“Driveway Finance received better than expected pricing and credit ratings, which was exciting for our first issuance,” DeBoer said.
“Planned future reoccurring ABS issuances, will enable us to more quickly ramp the volume of originations and accelerate the profit contributed by Driveway Finance in the coming years as we seek to derive more than $1 dollar in EPS for each billion dollars in revenue.”
Lithia said that roughly 5% of its overall business comes from Driveway Finance originations, a figure it expects to eventually climb to 15%.
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.
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.
Penske Automotive Group said Thursday it has opened a CarShop location in Scottsdale, Ariz., which is its eighth used-car standalone store in the U.S. and 23rd worldwide.
The store features a 45,000-square-foot facility located at the Scottsdale AutoShow on the Salt River Pima-Maricopa Indian Community.
“We are certain that our new Scottsdale location will become a trusted destination for car shoppers looking for an easy, fair, and dependable place to purchase quality vehicles,” company chair and chief executive officer Roger Penske said in a news release.
“With our well-established reputation, competitive warranties, enjoyable shopping experience, and top vehicle selection, our customers can be confident in their purchase from CarShop,” Penske said.
CarShop president Kirk Schrader added: “At CarShop, we put people first. We want every customer to have the best possible experience in our stores, working with people who genuinely have their best interest at heart.”
Lithia Motors & Driveway and AutoNation respectively announced record third-quarter earnings in October, with both retailers crediting their used-vehicle business for helping them address supply issues.
“Our operational teams executed our best-in-class used inventory procurement model to source and recondition a large volume of used vehicles in a highly cost-effective manner,” Bryan DeBoer, Lithia & Driveway president and chief executive officer, said during the company’s earnings call on Oct. 20.
AutoNation’s Mike Jackson, who transitioned out of the chief executive officer’s role on Monday, said during last month’s call that the period marked the company’s sixth consecutive all-time record quarter.
“In our used-vehicle business, our strong self-sourcing capability, digital tools and customer-focused sales processes are …
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