In challenging times, used-vehicle sales are there to take up the slack.
At least that was the case for Group 1 Automotive in the fourth quarter and full-year 2018.
When times are good for auto dealers, used-vehicle sales also often play a prominent role, and that was the case for Asbury Automotive Group, too, as used vehicles helped that company achieve a record-breaking sales year in 2018.
For Group 1, its 2018 revenue of $11.6 billion was an all-time record for the company. Group 1 retailed more than 170,000 new and approximately 150,000 used vehicles.
But for fourth-quarter 2018, Group 1’s U.S. comparisons to fourth-quarter 2017 faced some challenges, in part because of the company’s accelerated 2017 sales in its Houston and Beaumont, Texas markets after Hurricane Harvey. New-vehicle sales for those areas were down in the third and fourth quarters of 2018.
For the full year of 2018, however, used-vehicle sales helped save the day for Group 1.
“Despite these difficult comps, our U.S. operations team delivered positive full-year, same-store gross profit growth through a continued focus on improving our used-vehicle and aftersales business as well as a record-setting year in F&I,” Earl Hesterberg, Group 1 president and chief executive officer, said during the company’s 2018 fourth quarter and full-year financial results conference call on Feb. 5.
Retail used-vehicle gross profit increased 4.7 percent on a revenue increase of 13.1 percent. The company retailed 147,999 used vehicles in 2018, a 13.9 percent increase over 2017.
Used vehicles help Group 1 ease new-vehicle challenges
Hesterberg did not provide an update on the specific measures Group 1 is taking to improve its used-vehicle business, but last year the company launched Val-U-Line, a proprietary brand for older-model, high-mileage, pre-owned vehicles. The company notes that Val-U-Line targets a growing customer demand and allows Group 1 to retail lower-cost units that would have otherwise been sent to auction.
In the conference call, Hesterberg mentioned the used business as helpful in offsetting new-vehicle challenges. He started by discussing the new-vehicle business, noting that total consolidated new-vehicle revenues in the fourth quarter decreased 4 percent on a constant currency basis, driven by a 6-percent decrease in unit sales related to Hurricane Harvey comps and U.K. emissions legislation.
Moving on to discuss the used-vehicle business, Hesterberg said the company retailed more than 36,000 used units in the fourth quarter of 2018, with the United States and United Kingdom performing well. Total consolidated used-vehicle revenues grew 8 percent on a constant currency basis, and the company sold 6 percent more units with a 2-percent increase in the average used-vehicle selling price. Total used-vehicle gross profit increased 9 percent on a constant currency basis.
“The used volume and per-unit margin increase were the result of our corporatewide focus in this area of our business and especially our Val-U-Line initiative in the U.S.,” Hesterberg said.
He added that on a year-over-year same-store basis, he was proud to see continued strong growth in used retail unit sales, with an 11-percent gain in the fourth quarter. He noted that the Val-U-Line retail unit sales generated more than 10 percent of the company’s used volume during the quarter.
Responding to a conference call participant who asked for more information on the benefits of Val-U-Line, Daryl Kenningham, Group 1 president, U.S. operations, said the company feels Val-U-Line’s 10 percent of quarterly used volume is a good level at this point.
“We’re always watching to make sure it’s incremental,” Kenningham said. “It is not substitutional. That’s a continual focus for us.”
The numbers consistently showed used vehicles helping to save the day for Group 1. Retail used-vehicle revenues increased 8.8 percent (10 percent year-over-year comparable basis) in the fourth quarter on 12.8 percent higher unit sales. Retail used-vehicle gross profit increased 1.4 percent (2.4 percent year-over-year comparable basis) to $41.1 million.
Used vehicles’ strong role in Asbury’s record year
Asbury Automotive’s record year in 2018 included generation of $6.9 billion of revenue, as well as retailing of more than 185,000 vehicles and servicing of more than 2 million vehicles.
“Our success was driven by growth in our used-vehicle business, higher F&I gross profit and continued solid growth in parts and service,” David Hult, Asbury president and chief executive officer, said in the company’s fourth quarter 2018 earnings conference call on Feb. 6.
Asbury increased its used-to-new ratio by 160 basis points, resulting in used-vehicle unit sales increasing by 5 percent and a 7-percent increase in used-vehicle gross profit, said John Hartman, Asbury’s senior vice president of operations.
He added that the company’s deployment of omni-channel initiatives along with Asbury’s used-car enterprise software, contributed to some of the strong results. Hartman noted that the company’s used-vehicle inventory of $159 million was at a 34-day supply which is within its targeted range of 30 to 35 days. He added that increased volume sales led to an F&I gross profit increase of 3 percent.
“The improved used-vehicle sales drove reconditioning work within parts and service to increase by 5 percent,” Hartman said.
A more detailed look at the sales numbers provides additional evidence of how used vehicles came to the rescue for Asbury. For all stores, Asbury’s new-vehicle revenue increased 6 percent in the fourth quarter, with new-vehicle gross profit decreasing 6 percent.
But used-vehicle retail revenue and used-vehicle gross profit both increased by 10 percent in the quarter, as well. Finance and insurance revenue and gross profit increased by 6 percent. On a same-store basis, new-vehicle gross profit decreased 7 percent. However, used-vehicle gross profit on a same-store basis increased 7 percent, and used-vehicle retail revenue also increased 7 percent.
More on used vehicles helping Group 1 results
But although used vehicles played a key role in Asbury’s record sales year, their role in helping Group 1 through its challenges was key. The Worldwide Harmonised Light Vehicle Test Procedure legislation, which caused new-vehicle supply shortages in the U.K., was another challenge.
“Our strong performance in used vehicles, parts and service, and F&I allowed us to deliver positive same-store gross profit growth despite these very significant headwinds in our new-vehicle business,” Hesterberg said.