When a dealership group opens up standalone used-car stores, one of the questions that ultimately comes up is, “Where will the inventory come from?”
At AutoNation, the retailer has found some initial success in hosting car-buying events at its AutoNation USA used-car store in Houston.
The dealer group — which also has an AutoNation USA store in Corpus Christi, Texas — had held two “We’ll Buy Your Car” events at the Houston store, chief operating officer Lance Iserman said during AutoNation’s Aug. 2 quarterly earnings call.
Iserman, who is also the group’s executive vice president of sales, said AutoNation was able to acquire high-quality vehicles during those events, calling it a “good source” for the retailer to obtain inventory going forward.
Within the AutoNation franchised stores, three-quarters of used-car inventory comes from trade-ins, with 15 percent coming from auctions and 10 percent generated via off-lease, Iserman said.
As far as how that will translate to AutoNation USA stores, he noted that, obviously, standalone used-car stores don’t have that capacity to acquire off-lease, but AutoNation hopes to ramp up its “We’ll Buy Your Car” strategy.
“Currently, our inventory is a mix of auction purchases, vehicles from our franchised stores and our ‘We’ll Buy Your Car’ events,” Iserman said of AutoNation USA. “And that will be less dependent on our franchised stores as we move forward.”
More details on AutoNation USA
Sharing some overall thoughts on AutoNation USA, AutoNation chief executive Mike Jackson said: “This is an overarching approach where it’s one brand, including the franchised business and the extension into the USA stores, all with a one-price system.
“(It’s) very challenging, complex to create, as we talked about, but I think it will be very compelling, once we successfully implement it … AutoNation Parts and AutoNation Accessories are crucial to being able to do higher volume with better margins, with lower reconditioning costs and still put a frontline, outstanding vehicle (on the lot).
“Knowledge of the marketplace for our pricing system, including the auctions, needs to be there,” Jackson said. “So I think we have it pretty well thought through.”
Overall used-car results
Through six months of 2017, used-vehicle retail revenue for the dealer group is up 2 percent at $2.29 billion, while overall used revenue (which includes wholesale, as well) is down 2.4 percent at $2.44 billion.
Retail used-car gross profit is down 17.5 percent at $148.9 million, with overall used gross profit down 13.4 percet at $151.5 million.
Used-car retail sales, however, are up 3.6 percent, with AutoNation having sold 118,874 used units in the first six months of 2017.
In the company’s earnings press release, Jackson specifically addressed used-car margins. In the second quarter, gross profit per used vehicle retailed was $1,270, down from $1,531 a year ago.
For the first half, it fell from $1,572 to $1,253.
“Our pre-owned margins declined due to implementation challenges with our centralized One Price strategy during the quarter,” Jackson said in the news release. “However, we’ve taken decisive action to resolve those issues by realigning our leadership and structure to fully realize the opportunity of our brand extension strategy.”
In general, Jackson said during the call he expects growth in the retailer’s overall used-car business in 2018 through acquiring, reconditioning and selling used cars — and doing so at right price. AutoNation USA is still a relatively small piece of that overall used-car business, he said, so its operational impact reflects as much.
Asked why he is confident that the performance of the core used-car business will improve next year, Jackson said: “We’re absolutely thrilled with the customer response to One Price. It’s attracted tremendous traffic — new buyers — and they really express how much they like the process.
“We also see our ‘We’ll Buy Your Car’, which will be a very attractive source of vehicles, ramping up very nicely,” he said. “We know we’re going to have parts at a much more attractive price.
“So, I have good consumer response, building good sourcing to attract cars, good capability to recondition on a lower-cost basis. That gives me confidence we can grow the business profitably.”