Strong used sales make the difference for publics

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Strong used-vehicle sales helped the five public dealership groups reporting second-quarter earnings last week to buffer headwinds on the new-car side.

Penske Automotive Group Inc., Group 1 Automotive Inc. and Sonic Automotive Inc. each drove used-vehicle sales higher by double digits. Lithia Motors Inc. and Asbury Automotive Group Inc. posted moderate increases. All credit their used-vehicle operations for higher profits in the quarter.

AutoNation Inc. reports its second-quarter results Wednesday, Aug. 1.

Several of the groups are making even bigger investments on the used side to help make up for skinnier new-vehicle margins and flattening new-vehicle sales.

For instance, Group 1 is doubling down on its efforts to retail older, higher-mileage cars after experiencing success with its new Val-U-Line brand in the first half of the year.

Group 1 launched Val-U-Line in the U.S. in the first quarter. In the second quarter, the company “really focused on this Val-U-Line initiative, where we’re taking a look at older-model cars that traditionally would have gone to the auction,” Pete DeLongchamps, Group 1 senior vice president of manufacturer relations, financial services and public affairs, told Automotive News.

“We have redoubled our efforts on retailing those particular cars. It’s changed from about 5 percent of that type of car to above 10 percent of our overall used-car business.”

So far, Group 1 has moved 2,000 low-margin wholesale vehicles into its retail operations, which has lifted the used-vehicle margin $60, CFO John Rickel told analysts.

Group 1’s U.S. used-vehicle retail sales jumped 13 percent to 28,484 in the second quarter as new-car sales fell 1.3 percent to 30,388.

CarSense, EchoPark

Penske and Sonic also said their used-only stores are growing.

Penske has five CarSense locations in the U.S. and nine in the United Kingdom. The company expects sales of 15,000 vehicles in the U.S. this year and 55,000 in the U.K., generating $1.2 billion in revenue for 2018.

“Used cars are not subject to OEM pressures and perform well in economic downturns as many consumers turn from new to used,” Chairman Roger Penske told analysts.

In the second quarter, vehicles retailed at Penske’s CarSense locations sold at about $15,000 on average.

“We expect to grow the stand-alone business through a combination of e-commerce initiatives and new market introductions,” Penske said.

Used-vehicle sales climb, profit dips Used-vehicle sales climbed as much as 17% for the public dealership groups that reported 2nd-quarter earnings last week. But even in the used business, profit per vehicle declined for every group except Penske.   Used-vehicle retail sales Profit per used vehicle Asbury 21,685, up 7% $1,549, down 3% Group 1 28,484, up 13% $1,362, down 6.5% Lithia* 33,328, up 4.4% $2,294, down 1.2% Penske 73,143, up 10% $1,538, up 8.6% Sonic 35,779, up 17% $1,043, down 20% *Figures are on a same-store basis because of Lithia’s aggressive acquisition strategy. Source: Company reports

The dealership group operates five CarSense stores around Philadelphia and Pittsburgh. It plans to open another location in the U.S. in the next six to seven months in the same market, Penske said. It also has purchased land for two other stores on the West Coast that could open in a year to 18 months and plans to open three dealerships in the U.K., he said.

Penske’s used-vehicle retail sales increased 10 percent to 73,143 in the second quarter as new-vehicle sales fell 4.5 percent to 61,071.

Meanwhile, Sonic’s used retail sales jumped 17 percent, hitting a record-high 35,779 vehicles.

CFO Heath Byrd said the company plans to open stores under its used-only EchoPark brand in Houston and Charlotte, N.C., in the fourth quarter.

The company now operates seven EchoPark locations and plans to add four more by the end of next year.

“We remain committed to our pre-owned EchoPark brand and continue to see improvements in that segment’s operating performance,” he said in a statement.

Sonic CEO Scott Smith praised EchoPark’s growth.

“We’re most proud of the top-line revenue growth experienced in our EchoPark stores as we continue to open new stores and our ramp-up period [is] shortening and volumes are building at a more rapid rate,” Smith told analysts.

The EchoPark stores were profitable as a group in June, making more than a $1 million, and results were tracking better for July, said Jeff Dyke, Sonic’s executive vice president of operations.

“We’re selling a bunch of cars, and it’s really clicking,” he told analysts.

Sonic expects EchoPark to make about $15 million in profits next year.

Asbury, Lithia

Asbury and Lithia also improved used-vehicle operations in the second quarter.

Asbury’s used-vehicle retail sales rose 7 percent to 21,685, compared with a 4 percent rise in new-vehicle sales.

As retailers face margin pressure, CEO David Hult told analysts that the company is sticking to its plans for 2018.

“We will continue to focus on the aspects of the business that we can control, specifically parts and service, used cars, F&I and overall expense management, while continuing to intelligently deploy capital towards the highest returns,” he said.

Used-vehicle margins slipped 3 percent to $1,549 at Asbury, which was still less than the 5 percent decline in new-vehicle margins. The company is focused on vehicle acquisition and reconditioning costs to keep margins high, said John Hartman, senior vice president of operations.

Lithia’s used-vehicle retail sales rose 4.4 percent on a same-store basis to 33,328 in the quarter as new-vehicle sales dipped 2.5 percent. In total, Lithia’s used-vehicle retail sales soared 22 percent, but that increase largely reflects the retailer’s aggressive acquisition strategy.

CEO Bryan DeBoer told analysts, when discussing Lithia’s plans to showcase inventory online more effectively: “We believe that the ability to procure inventory, primarily in the used-car arena, is key to success. We also know that we’re pretty darn good at that.”

Christopher Holzshu, executive vice president, added that certified pre-owned sales fell 1 percent in the quarter as lease returns slowed, but “Our focus is our core product, which was up 7 percent in the quarter, has a highest gross profit per unit, which is at $2,600 per unit,” he said. Lithia defines its core product as 3- to 5-year-old vehicles. “And then, of course, the residual effect of that is focused on our value auto vehicles, which was up 4 percent and still has a $2,100 gross profit per unit.”

The average price point for a value auto — an older, higher-mileage vehicle — is $12,000, he said. The core product sells at $22,000, and CPO units are around $25,000.

Holzshu sees continued opportunity to grow the core and value auto lines, “which is kind of the secret to our long-term success in used cars,” he said.

Melissa Burden contributed to this report.

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