Executives with Group 1 Automotive have touted new efforts to capitalize on the higher mileage spectrum of the used-car market through the company's latest pre-owned car project: Val-U-Line, a proprietary brand for high-mileage pre-owned vehicles.
It was in the first quarter that the company launched Val-U-Line, with the goal of growing it to represent 10 percent of the Group 1's used-vehicle business by year-end.
Val-U-Line products have already grown to 9 percent of total used retail unit sales — that’s more than double the company’s previous mix of high-mileage vehicles, according to the company's latest quarterly results.
Group 1 chief executive officer Earl Hesterberg and U.S. president Daryl Kenningham discussed the impact of the growing used-vehicle project, as well as several other recent investments and initiatives during Group1’s latest quarterly conference call.
The higher mileage Val-U-Line vehicles have historically only represented roughly 4 percent of Group 1’s total retail unit sales, according to Hesterberg.
He said, “We plan to grow this penetration to at least 10 percent of our used business by the end of the year, and we are already well on the way to accomplishing this.”
Hesterberg went on to explain that Group 1 will utilize its existing brick-and-mortar presence to reach the company's goal — “which will better leverage our existing assets.”
While used-vehicle gross profit per unit declined $296 from the prior year to $1,226 during the quarter, the company also saw the highest same-store used retail unit sales growth seen in 10 quarters.
Group 1’s same-store used retail unit sales increased 7.7 percent during the quarter, according to the company.
“U.S. same-store used vehicle retail sales grew 8 percent, as focus on growing our used car business is beginning to pay off,” Kenningham explained.
Only three months after launch, Kenningham said that the addition of Val-U-Line vehicles did not particularly aid the pressure Group 1 saw in used-vehicle margins during Q1.
“Our increased mix of Val-U-Line vehicles was not a significant factor in our reduced used-vehicle margins,” he said.
When it comes to the company's used-vehicle gross profit drop, the company points to significant contributing factors away from any of its newly launched used-vehicle segment initiatives.
“This decline was significantly more pronounced in our luxury brands and primarily in our CPO business, as we work with our OEM partners to absorb and increase [the] supply of off-lease and loaner vehicles,” the company said. “A portion of the decline relates to the continuing shift in consumer demand from cars to trucks.”
Attention to marketing service loaner and off-lease vehicles has left the higher mileage spectrum of the used-vehicle market neglected, Hesterberg contended in a March news release.
“We believe this market segment presents a major opportunity for Group 1,” Hesterberg said during the call.
Impact of employee retention iniatives
Meanwhile, Hesterberg also discussed the progress of newly launched strategic initiatives aimed at boosting employee retention.
Group 1 recently announced initiatives focused on expanding capacity, as well as training and retaining key dealership personnel.
While the company has added about $3 million of costs in Q1, Hesterberg holds that the adoption of the initiatives are worth the investment.
“The incremental gross profit they will generate over time should provide a very strong return on our investment,” he said.
In addition to approximately $3 million in costs associated with a one-time bonus for qualified U.S. employees, Group 1’s first-quarter results include another $3 million of costs associated with the company’s new strategic initiatives.
“We have launched several important strategic initiatives in our U.S. market that are designed to expand our used-car sales and further strengthen our parts and service operations,” Group 1 explained in its Apr. 26 news release.
Last month, the company installed a new work schedule in 65 of its U.S. dealerships.
Group 1 already reports an improvement in both retention and hiring, including an advisor headcount increase of 17 percent, compared to the same period last year.
“Our employees will benefit from enhanced pay plans, defined career paths, more flexible work schedules and a state-of-the-art Service Advisor University training facility, which is now complete and operational,” Hesterberg explained.
“The modified work schedules will also allow us to expand customer service hours over time and thereby expand our capacity by approximately 20 percent without any need for additional brick-and-mortar investment.”
He said while newly adopted initiatives bring added cost in the short term, “they are vital to strengthening the long-term growth prospects Group 1’s used-vehicle and aftersales business segments.”
“Although it is early, we are encouraged by the initial results,” Hesterberg said.
He said both used-vehicle and aftersales segments are considerably more stable and controllable than the new-vehicle portion of Group 1’s business.
Hesterberg asserts that the new vehicle portion of the company's business “is very cyclical and appears to have recently peaked in both the U.S. and UK.”