Trolling the Transcripts: 4 Pearls From the Public Dealer Groups
All in all, the 2013 third quarter was good for public dealer companies. No surprise, strong new and used vehicle sales, coupled with gains in F&I, parts and service, drove a largely positive financial performance for the groups reporting their quarterly results last week.
In reviewing the earnings call transcripts from Asbury Automotive Group, AutoNation, Group 1, Lithia and Sonic Automotive, I found a few take-aways worth sharing:
A higher level of used vehicle competition. To a company, the public dealer groups are going after used cars. Sonic, in particular, announced plans to build a network of stand-alone used vehicle retail outlets—an initiative that will launch in Denver and could expand to nearly 100 locations. This isn’t good news for dealers who aren’t proactively finding ways to acquire and retail a greater number of vehicles in a more efficient manner. Sonic execs say its stand-alone stores will be different than CarMax and will offer a customer experience “not yet seen in retail automotive.” It’ll be interesting to see how the initiative plays out, particularly given Sonic’s success at nearly doubling used vehicle sales at each of its dealerships.
Potential pressure on F&I income. Analysts queried the companies for their views about F&I income reductions that may come from federal scrutiny (via the Consumer Financial Protection Bureau) of current vehicle financing practices and compensation. AutoNation Chairman and CEO Mike Jackson told analysts that if the lenders go to a fixed or flat rate for compensating dealers to arrange vehicle financing, he doesn’t anticipate a significant impact for the company. “If they go to a fixed rate or a flat fee, if you’re a company like AutoNation, which is already in a pretty narrow bandwidth, it’s a very easy adjustment. If you’re running your business like the Wild West and you’re all over the place, it’s going to be a shock to you.”
“Total gross” awareness. During Lithia’s earnings call with analysts, CEO Bryan DeBoer explained why the company deploys a “total gross” mentality across its stores to drive margin improvement while increasing market share and new/used vehicle sales volumes:
“We challenge our stores to look at the total gross profit within the dealership that they generate.…it may take a while to convince their teams that they’re going to sell every vehicle, which means at times, you have to lower margins to be able to convince them of that….But what we typically find over time is that the stores, through good management and development of their team, are able to recapture those margins….If you decide to sell a vehicle for too little of money or something that you believe that is less than what the marketplace is yielding, then you look at what the implications of the F&I or the trade-in or the downstream service and parts business that can occur from that….Most of our people are very good about thinking the big picture.”
Daring to be different. AutoNation execs talked about their goal to deliver a technology-driven, “peerless customer experience.” Meanwhile, Sonic is betting big with its “One Sonic-One Experience” initiative, offering customers a no-haggle “True Price” on vehicles and sales associates who handle and complete all aspects of a vehicle deal in an hour or less. To me, such efforts underscore the reality of today’s Internet-driven marketplace: Customers want dealers to provide more efficient, personal, satisfying and transparent experiences. It’s up to us, as dealers, to deliver these experiences in a manner that distinguishes us from the competition and paves the way for long-term profitability and success.