October 2017

Standalone used-car stores a big 'opportunity' for Penske

Tuesday, Oct. 31, 2017, 05:38 PM

By Joe Overby
Senior Editor

BLOOMFIELD HILLS, Mich. -

During the Q&A portion of Penske Automotive Group’s latest quarterly earnings call, chairman Rogers Penske was asked if his viewpoint on CarShop and CarSense had changed since the dealer group purchased the respective used-car standalone retailers.

“Yeah, it’s changed. I like it more,” Penske said with a laugh.

“I think we’re very fortunate to get into this business,” he said. “The technology, the people. We’ve had no turnover with senior management. Both of these businesses, I think they applaud the fact we’ve come in with capital, with ideas, with an expansion mode offense.”

Fortunate and prudent, perhaps.

Quarterly numbers, expansion plans

In the third quarter, Penske Automotive’s standalone used-car businesses — which include CarSense in the U.S. and CarShop in the U.K — retailed 11,626 units.

Year-to-date, which includes results since acquisition, the standalone platforms have retailed 30,952 used units.

Quarterly revenue from the standalone stores in Q3 approached $200 million, while year-to-date revenue was at $535.7 million.

Gross profit per unit retail was at $1,152 in the quarter, with the year-to-date figure at $1,222.

F&I gross profit per unit on these sales were $1,188 in Q3 and $1,182 year-to-date, putting the total variable gross profit per unit at $2,340 and $2,404, respectively.

“We believe these used-vehicle dealerships further diversify our business and provide an opportunity to capitalize on a highly fragmented used-vehicle marketplace. We also believe these businesses provide an unlimited white space for scalable expansion,” Penske said during the call. “We’ve identified several new markets for expansion of the CarSense and CarShop brands and are on track to double those number of locations within 24 months of the initial purchase.”

The group announced in early January it had signed an agreement to buy CarShop, a chain of five standalone used-car retail stores in the U.K. That deal ultimately closed in February. Penske announced the purchase of US-based CarSense in December, then closed that purchase in January.

There are likely to be a handful or more of expansions from these two platforms.

In the U.S. in particular, CarSense will likely be “growing off that base” in Pennsylvania and New Jersey.

“The interesting thing is, when you look at those two businesses, take all the inventory out, probably the total net-book value of the fixed assets is probably around $5 or $6 million,” he said. “So we don’t have tens of millions of dollars of fixed assets … we have cash and we have cars and we have profit.”

Penske’s goal is to take what its learning from those standalone stores and see if it can be utilized in the retailer’s traditional business. However, the goal is not — or does not appear to be — to compete with CarMax.

Brushing aside any comparison to CarMax, Penske said that used-car giant exists in a “zip code that we’re not in.”

Penske’s goal, rather, is to go into areas that can be scalable for the company, where it has employees, and so forth.

“What we’re trying to do is look at areas that we can go into, where we have scale and we have people that we could transfer from the traditional business into this business as we expand,” he said. “I’m very confident that we’ll see at least six, either through acquisition or new-store openings, take place in our two businesses next year.”

Fair investment

These standalone stores, of course, aren’t the only used-car projects on Penske’s radar.

Fair, an app that provides used-car leasing to consumers on a flexible basis, announced on Oct. 20 that it was closing a BMW i Ventures-led strategic funding round that also includes investments from Penske Automotive Group, among other strategic investors.

In a news release, Fair founder and chief executive officer Scott Painter said the company will utilize Penske’s physical infrastructure.

In the same release, Penske president Robert Kurnick said: “Penske is committed to be on the leading edge of technology, and our investment with Fair reflects that commitment. The potential appeal of the Fair app to consumers is compelling while keeping our company at the forefront of bringing mobility solutions to the marketplace.”

During the quarterly call, Roger Penske also discussed the Fair investment.

“We’ve invested $1.2 million, less than 1-percent ownership. We think this is an interesting startup,” he said. “You’re seeing GM and Ford and all these other people investing in some of these different business ventures and ideas, so we’re going to learn from this one and see if there’s any way that this might have an application to us at this particular time.”

Penske added that the company is exploring making $1 million to $5 million investments in similar projects like ride-sharing over the next 12 months.

Web engagement steady; online traffic dip less steep

Tuesday, Oct. 31, 2017, 02:01 PM

By Auto Remarketing Staff

ATLANTA -

This year’s end-of-summer online car-shopping drop was less notable than prior-year seasonal changes, according to new Dealer.com data.

Dealer.com’s October DataView index found that total dealership website visits in September dropped by 6 percent compared to August.

Meanwhile last year, Dealer.com found a 9-percent drop in total traffic in September compared to August. And in 2015, the monthly contrast was 10 percent.

Dealer said the Houston area saw a significant drop in both traffic to Dealer.com websites and leads submitted to dealerships, following Hurricane Harvey.

But about a month later, activity returned to normal levels just after a spike, as Houstonians shopped for cars to replace those damaged in the storm.

In Florida, following Hurricane Irma, there was also a drop in web traffic before the hurricane's landfall and returned to normal levels about five days after the storm. But there was no spike to follow in Florida, which suggests that the damage in the state was not as severe as Houston’s, according to Dealer.com.

"A critical value of the DataView reporting is providing context and understanding around cyclical industry trends such as seasonal fluctuations," Cox Automotive Media Solutions senior director of analytics products James Grace said in a news release.

"As dealers continue to carefully monitor the sales climate, the October reporting points to continuing demand and purchase intent from U.S. consumers."

Consumer engagement in September was generally consistent with how it has been through the rest of the year, meaning SUVs remain popu;ar and mobile traffic is climbing.

More specificially, 35 percent of all VDP views were SUVs, making it the most popular segment. Mobile has climbed to the point where it is now accounting for 57 percent of total VDP visits, according to Dealer.com.

Sonic’s EchoPark used-car stores: cash-positive, in line with expectations

Tuesday, Oct. 31, 2017, 01:54 PM

By Arlena Sawyers
Correspondent

CHARLOTTE, N.C. -

Sonic Automotive’s newest EchoPark used-car store in Colorado Springs, Colo., was “cash positive” in its third month of operation — about six months ahead of when the company’s initial EchoPark stores reached cash positive positions, said Sonic president Scott Smith.

“EchoPark results were in line with expectations,” Smith said during the company’s third-quarter earnings call in October. “Our store platform in Colorado was again cash flow positive during the third quarter and moving towards overall profitability.”

The Colorado Springs EchoPark store opened in June.

Smith also said the dealership group plans to open 10 more EchoPark stores by the end of 2018.

Those stores are slated for Florida, Georgia, North Carolina, South Carolina and the Texas markets of Dallas-Fort Worth, San Antonio, Houston and Austin.

Sonic’s pre-owned stores segment, which includes its six EchoPark stores, all in Colorado, and its two non-EchoPark stores in Florida and Texas, retailed 2,400 used units in the quarter, up 815 units, or 51.4 percent, the company said.

Used-vehicle gross profit per unit retailed at Sonic’s pre-owned stores decreased 24.3 percent to $830, “due primarily to higher costs of acquisition of inventory at auction as the company ramped up inventory at our newest locations,” according to a document Sonic filed with the federal government.

Jeff Dyke, Sonic executive vice president of operations, said Sonic remains committed to establishing EchoPark as a national brand capable of going head-to-head with used-car retailing giant CarMax Inc.

Sonic opened its first EchoPark used-only store in November 2014 in Denver.

“I can’t put a time line on when we’d be at the same level of stores as CarMax, but certainly our goal is to build a brand that will compete with them,” Dyke said during a telephone interview immediately following Sonic’s earnings call.

“They’re kind of by themselves — from our perspective — across the country, and there’s plenty of room in that space. We think there is lots of upside, and that’s our target.”

A national brand

As Sonic adds more EchoPark stores and establishes its national brand, look for stores to open in markets where Sonic does not have a new-car store presence, Dyke said.

“That’s been our intention all along, and we are growing as quickly and efficiently as we can,” Dyke said during the earnings call. “You can expect to see an EchoPark in most of the major metros and used-car markets across the country.”

Headquartered in Charlotte, N.C., publicly-held Sonic Automotive on Sept. 30 operated 104 new-car dealerships in 13 states, representing 25 brands.

CarMax of Richmond, Va., also publicly-held, is the nation’s largest retailer of used vehicles with over 180 used-vehicle stores in 39 states. It retailed 671,294 used cars and trucks in its most recent fiscal year that ended Feb. 28, 2017.

Dyke said EchoPark has been “very” successful in its mission to purchase from consumers many of the used cars and trucks vehicles it sells, but would not provide details.

“We don’t want to give out too much information, but we’ve had some really nice short-term success with EchoPark,” Dyke said. “We want to keep watching the brand grow. As we become more successful, we’ll share more information.”

Sonic’s used-vehicle days’ supply stood at 38, down from 41 in the third quarter of 2016.

Smith said he expects used-vehicle days’ supply “on the Sonic side” to continue to drop through the end of the year, and inventory will be added as new EchoPark stores open.

A “challenging” quarter

In its third quarter that ended Sept. 30, Sonic’s revenue dropped 2 percent to $2.51 billion compared to last year’s third quarter.

Smith said the hurricanes that hit Texas in August and the southeast in September made the quarter “challenging” from an operational standpoint.

Hurricane Irma either temporarily closed or impacted to varying degrees 24 new-car dealerships in Sonic’s Alabama, Florida and Georgia markets; Hurricane Harvey temporarily closed 19 new-car dealerships and five collision repair centers in its Houston market.

The BMW brand is “at the bottom of their cycle in terms of product” said Dyke, explaining that the company’s BMW dealerships in its Houston market were already struggling prior to the hurricane.

BMW is “30 percent of our profit mix, and when they struggle its more difficult for us to overcome,” Dyke added.

But despite those headwinds, Sonic’s net income increased 7.3 percent to $19.4 million in the quarter, and its gross profit increased 1 percent to $362.6 million.

Sonic’s financial results were boosted by its F&I revenue, which was up 3.7 percent to $92.9 million and its F&I gross profit per retail unit, excluding fleet, which was up 4.8 percent to $1,408.

Sonic’s overall used-unit sales dipped 0.3 percent to 30,841, and its revenue per used unit was up 0.1 percent to $21,391 compared to the year-ago quarter. Gross profit per used unit was down 0.9 percent to $1,269.

Sonic’s same store used-unit sales dropped 2.3 percent to 29,854, revenue per used unit rose 0.2 percent to $21,471, and its gross profit per used unit declined 1.1 percent to $1,224.

Pearl integrates Experian's propensity scoring platform

Tuesday, Oct. 31, 2017, 12:59 PM

By Auto Remarketing Staff

DALLAS -

Pearl Technology Holdings announced it has expanded its relationship with Experian to integrate its propensity scoring platform, designed to target consumers who have the highest propensity to make a purchase or lease a vehicle within a particular period of time.

Pearl now has the capability to calculate more than 1,000 elements when scoring a consumer’s propensity to buy or lease.

“We are simply thrilled to expand our relationship with Experian. We contemplated building our own scoring methodology, but ultimately there is no better data or analytic interpreter than Experian,” Pearl chief executive officer and founder Bruce Thompson said in a news release.

“Understanding what consumers are likely to purchase or lease, as well as when, is what it’s all about. Overlaying our existing technology on top of 240 million pre-screened records allows our clients to win big with much less investment. No more wasted advertising dollars with a shotgun approach. This new integrated platform gives Pearl one of the most powerful and accurate vehicle marketing system in the industry,” he continued.

Additionally, the newly enhanced platform enables Pearl to help dealers identify and market to pre-owned buyers, who amount to the largest segment of buyers, according to the company.

“We’re excited to continue our work with the Pearl team,” said John Gray, Experian automotive business unit president. “Understanding the current market landscape and when a consumer is in the market to buy is critical for automotive dealers and OEMs alike. With these insights available, dealers will be able to unlock the potential of the data and to uncover new pockets of opportunity, increase profitability and improve the overall consumer experience.”

Pearl’s incentive-based marketing platform VehicleXchange evaluates nearly 50,000 Experian consumer pre-screens per day for dealer and OEM clients.

Podcast: Brian Geitner of Cox Automotive Media Solutions

Tuesday, Oct. 31, 2017, 12:48 PM

By Auto Remarketing Staff

CARY, N.C. -

Our guest today is Brian Geitner, the president of Cox Automotive Media Solutions. That group, of course, includes the Autotrader, Kelley Blue Book and Dealer.com brands.

In a late-September interview at Cox Enterprises in Atlanta, Joe and Brian talk about how the "Big 3" brands in the group use advanced analytic tools. Plus, we dive into their improvements in search capabilities, the 20th anniversary of Autotrader and more.

Check out the conversation below.

Download and subscribe to the Auto Remarketing Podcast on iTunes or on Google Play.

You can also listen to the latest episode in the window below. All episodes can be found on our Soundcloud page or by visiting www.autoremarketing.com/ar-podcast.

Please complete our audience survey; we appreciate your feedback on the show!

Why Black Book and GM Financial see ‘steady’ and ‘stable’ wholesale market

Tuesday, Oct. 31, 2017, 12:05 PM

By Nick Zulovich
Staff Writer

LAWRENCEVILLE, Ga. and FORT WORTH, Texas -

Leaders from Black Book and General Motors Financial recently used the adjectives “steady” and “stable” when describing how the wholesale market is behaving.

The latest Black Book Market Insights report indicated used vehicles across most segments are depreciating at a “steady” rate. Editors determined only two vehicle segments — compact vans and sub-compact luxury crossovers — maintained or increased their value.

“Used-vehicle prices and sale conversion rates at the auctions hold firm. Post-hurricane sales activity continues but is slowing down in the Houston region,” said Anil Goyal, Black Book’s senior vice president of automotive valuation and analytics.

GM Financial president and chief executive officer Dan Berce touched on the used-vehicle space when the captive conducted its conference call to discuss its third-quarter performance.

“And a few more comments on the state of the used-car market. Our disposition proceeds on returned leased vehicles compared to estimates at origination in the September 2017 quarter were generally stable both year-over-year and sequentially,” Berce said.

“And based on recent used-car pricing trends that have remained more favorable than previously expected and the temporary impact from Hurricanes Harvey and Irma, we now expect used-car prices to decline less than 7 percent during 2017 compared to 2016, which was our previous guidance. But we do continue to expect the increased supply of used-car vehicles to pressure used vehicles into 2018,” Berce went on to say.

Getting back to Black Book’s latest analysis, editors noticed that based on volume-weighted information, overall car segment values decreased by 0.37 percent last week, similar to the average weekly decrease of 0.41 percent in values they spotted during the previous four weeks.

Black Book pointed out that the sub-compact car and compact car segments were the best performers last week.

Again looking at volume-weighted data, editors noted that overall truck segment values (including pickups, SUVs and vans) softened by 0.21 percent last week, nearly mimicking the similar the average weekly dip of 0.24 percent in values recorded during the previous four weeks.

While minivans declined the most, Black Book mentioned there was renewed demand for compact vans.

Turning next to what Black Book’s representatives shared from the lanes, the rundown began the same as it has since early September with an update on what’s happening in Texas.

“Post-hurricane sales activity continues in the Houston area. Several new buyers from just outside the Houston metro are showing up to purchase inventory at the auctions,” Black Book’s lane watcher in the Lone Star State said.

Where storms also hit, the story is slightly different.

“Older cars seem to be the focus for many dealers in our market. Buyers are being more selective in recent weeks.” Black Book’s representative stationed in Florida said.

Black Book also gathered two other anecdotes from the Southeast.

— From Tennessee: “Nice, clean vehicles with a little age on them continue to thrive. This is especially the situation with the pickup truck market.”

— From Georgia: “A good sale for this time of year, and the prices were consistently solid.”

Two other reports from the lanes originated in locations where the weather already has turned much cooler.

— From Pennsylvania: “Sales conversions and prices continue to hold firm.”

— From Indiana: “Retail remains pretty good here, but prices have slipped a little as has the consignment.”