For both Asbury Automotive Group and Group 1 Automotive, keeping a close watch on their used-vehicle inventories is an ongoing effort and one that influenced their first-quarter performance.
At Group 1 Automotive, its stores retailed 29,317 used vehicles during the first quarter. That figure represented a 7.3% lift year-over-year.
Daryl Kenningham, Group 1’s president of U.S. operations, pointed out that the company’s Q1 performance marked the first time it sold more used vehicles than new models within its U.S. business.
During Group 1’s quarterly conference call with the investment community, Kenningham also highlighted the successes of the most affordable segment of its used-vehicle department. The company reported its Val-U-Line sales grew 29% and represented 11% of its quarterly used volume.
Kenningham said Group 1 also produced an increase in total used gross profit per unit of $130.
“A shift of more business to the retail channel along with our recently implemented pricing strategies have been critical in driving used-vehicle gross profit growth, which was up 13% over the prior year on a same-store basis,” Kenningham said during the call.
And where is Group 1 finding these coveted Val-U-Line units? By not sending as many units to auction.
“The Val-U-Line sourcing, we try to source as many of those as possible internally, and those are vehicles that typically we would have wholesaled out through the auction markets,” Kenningham said.
“In the quarter, we wholesaled almost 2,300 fewer units than we did the same quarter a year ago, and that’s where the source of a lot of our Val-U-Line comes from, and we feel like there’s still some room to run there. It’s not unlimited, but we know that there’s still some opportunity there,” he went on to say.
Meanwhile over at Asbury, the company acknowledged that it finished the first quarter with used supply slightly below its target. Asbury held 29 days’ worth of used inventory when Q1 closed, and executives want that level at 30 to 35 days.
On a same-store basis, Asbury acknowledged the company was “disappointed” that Q1 used-retail sales softened 1.4%. However, all told, Asbury turned 21,083 used vehicles in Q1, up from 20,570 units a year earlier.
Asbury leadership is hopeful its entire used-vehicle operation is moving positively for the remainder of the year and beyond.
“As a company, we actually had markets that are up in used volume and some significantly,” Asbury senior vice president of operations John Hartman said during the company’s quarterly conference call.
“We did have a couple of markets with some personnel issues,” Hartman continued. “Those personnel issues led to some process issues that affected our results. We’re correcting those now and don’t see this as an issue moving forward.”
Streamlining via technology
Asbury president and chief executive officer David Hult reiterated during the conference call that the company has multiple initiatives in place to leverage technology not only to retail vehicles and quicken deliveries, but also to allow customers to use devices in the service drive to improve their experience in that part of a dealership, too.
“We’re kind of looking at the whole ecosystem of the automobile retail business,” Hult said. “We’re trying to look at areas of opportunity to reduce our staff levels, to be more productive using technology, being flatter and more transparent in how we choose to do business in both sales and service.
“So, initiating the kiosks that I mentioned in the service lane is a start for us. I made mention about tracking your car while it’s being repaired every step through the process. We don’t think it’s in our shareholders’ best interest to go out and invest in software companies. We think our core competencies are selling and servicing cars and trying to be the best at that,” he said.
“So, our differentiator is our guest experience. But we like to partner with software companies and share our ideas and get them to see that this is accretive for them and a good investment for them because they will be able to sell it to other dealers as well,” Hult continued. “We think the whole space eventually ends up in the same place. We just think that we might be a little bit ahead of others, how we look at it.
“We started this a few years ago with online sales handling the leads and calls. But naturally, it’s more of a transformation than that between the service appointment, communicating with the customer online, how quickly can we do a transaction, where is the best software application to use, how can we use the marketing and digital team that we have to integrate with that, and then, naturally, our best resource, which is our teammates in the field, who we think operate at a high leve?” Hult went on to say.
Growing group footprint
In February, Group 1 recapped that it disposed of a Chrysler-Jeep-Dodge-Ram dealership in California that generated approximately $60 million in trailing 12-month revenues. In March, the company opened a Kia add-point in an existing facility in the U.K, which is expected to generate approximately $15 million in annual revenues.
Year-to-date, the company has opened two add-points that are expected to generate $40 million in annual revenues and has disposed of seven franchises that generated approximately $120 million in trailing 12-month revenues.
Group 1 president and chief executive officer Earl Hesterberg responded when questioned about how the company might continue to modify its store portfolio.
“Well, our appetite is good for acquisitions, and I would say there’s been a fairly continuous stream of sellers over the past year,” Hesterberg said. “It’s just making the math work that has been somewhat challenging.
“I think you’ve seen the whole sector, trade down in valuations, which makes it tougher to find, to not destroy capital when you’re buying a new business, and you’re now having to project these businesses at lower future profit rates than what they generated two or three years previously in 17.5 million unit industry,” he continued.
“But markets adjust. There is a nice flow of opportunities, and we remain very interested,” Hesterberg went on to say. “We just have to balance how we use our capital and how creative these actions are, these two different ways of deploying our capital. But, yes, there are still plenty of sellers, and we’re still very interested.”