There were two key factors driving down used-car gross margins for Asbury Automotive Group during the third quarter, but the period had some very positive results in both pre-owned and overall results. 

Starting with some of the used operational results, Asbury’s Q3 same-store used retail gross profit was up 1 percent at $31.9 million.  Executive vice president and chief operating officer Michael Kearney explained on Tuesday’s quarterly conference call that this was driven by same-store used unit retail volume growth of 2 percent, with 19,178 used cars sold, but partially offset by a 30-basis point decline in same-store retail gross margins.

Specifically, Asbury’ s same-store used-vehicle retail gross margins fell 0.3 percentage points year-over-year in the third quarter to come in at 8.2 percent.

Kearney specifically pointed out two challenges the retailer faced on the used side: a hefty inventory of used cars (41 days’ supply) at the outset of the quarter and a “declining price environment, pressured by increased manufacturer new-vehicle incentives.”

And having to slice the inventory to a 35-day supply by the end of Q3 dropped margins to that 8.2 percent level. But Kearney would also note the company expects margins to mirror what Q3 year-to-date average was: roughly 8.5 percent.

Sharing more used-car statistics, Asbury said same-store revenue per used unit retailed was at $20,388 during Q3, a 3-percent year-over-year increase. Same-store gross profit per used unit retailed fell 1 percent at $1,663.

Looking at results through nine months of the year, Asbury has generated:

• $97.1 million in same-store used retail gross profit, up 4 percent year-over-year.
• 55,315 same-store used retail unit sales, up 5 percent year-over-year.
• Same-store used revenue per unit retailed was $20,412, up 3 percent year-over-year.
• Same-store gross profit per used vehicle retailed was  $1,755, a 1-percent decrease.
• Same-store used retail gross margins were 8.6 percent, down from 9.0 percent a year ago.

Commenting on overall results in the company’s earnings announcement, Asbury president and chief executive officer Craig Monaghan said: “Asbury is pleased to announce another record third quarter EPS from continuing operations.The overall automotive retail and lending environments remain healthy. Going forward we will continue to execute our two part strategy: to drive operational excellence and to deploy capital to its highest returns.”

Kearney added in the announcement: “Our current quarter results demonstrate, once again, the strength and diversity of our business model. While we did experience some pressure on new- and used-vehicle margins, our parts and service gross profit grew at 12 percent, driven principally by growth in warranty and reconditioning.”