Q4 2023 Earnings Calls

New Vehicle Resilience, Lightly Used Inventory Scarcity, and Disappointing EV Sales

Public Auto Dealers

After reviewing earnings calls from executives of the six publicly traded auto dealers, the market for new vehicles appears resilient. Improved inventory balances and wider availability of models have relieved pressure from the new vehicle market. As a result, transaction prices have been falling, and consumers have been able to find the models they are looking for with more success. Meanwhile, used vehicle availability has been mixed, with lightly used models falling short. However, the demand for electric vehicles has been disappointing, and capital allocation decisions have become more complicated in the current environment.

Here is what auto retailer executives had to say during the Q4 2023 earnings calls. The major themes from the Q4 2023 Public Auto Earnings Calls are outlined and discussed below:

Theme 1: The Market for New Vehicles Has Been Resilient

Auto retail executives emphasized that improving new vehicle inventory has led to greater sales volumes and a resilient topline performance for new vehicle departments. While GPUs for new vehicles have moderated, growth in sales volumes has more than made up for declining per-unit profitability.

  • Consumer demand for new vehicles remains robust. During the quarter, our total new vehicles revenue increased 7.0%, and unit sales increased 5.0%. This reflected strong import growth, as well as a seasonal uplift in premium luxury sales. New vehicle margins continue to decline, but the rate of moderation in the fourth quarter, which is approximately $120 per month, was more modest than earlier quarters.”
    Michael Manley, CEO, AutoNation
  • “New vehicle units sold outpaced the industry. We were up 14.0% on a same store basis and up 19.0% on an as-reported basis. […] These strong unit sales reflect the resiliency of demand and our emphasis on driving volume. Gross profits performed about as expected and continue their slow glide path down as inventories return. […] Mood’s good. Traffic counts are good. We were really pleased with our growth in the quarter, especially new vehicle. […] So the demand is soaking up that additional production. And we were ecstatic, especially with the last few days of December.”
    – Daryl Kenningham, President and CEO, Group 1 Automotive
  • “2023 was a record year for us as we reached just over $31 billion in total full year revenues. Results in the quarter were driven by continued strength in new vehicle sales with same-store units up 10% and aftersales revenues up 3%. This was offset by lower new vehicle GPUs continuing to normalize, declining approximately $150 sequentially per month, in line with our expectations for new vehicles. Our manufacturer partners continue to replenish inventory at a steady pace. With manufacturer incentives, both lower subsidized rates and cash rebates continued to support consumer demand across a variety of brands and models.”
    – Bryan DeBoer, President and CEO, Lithia Motors

Theme 2: Lightly Used Inventory Has Been Scarce, and Used Vehicle GPUs Have Been Soft

Auto retail executives highlighted the current issues surrounding used vehicle departments. While inventory balances are certainly easier to acquire than in 2022, there are still issues with acquiring lightly used units due to the large deficit of new vehicles accumulated over the last four years. Significant volatility in used vehicle pricing has been difficult to navigate for many dealers, though a couple of executives lamented not chasing more volume at the risk of exposing themselves to that volatility.

Many used vehicle consumers are returning to the new vehicle market, eroding used vehicle department profitability. On the dealer side, many operators are forced to go beyond the trade-in market to source used vehicles, further eating into department profitability. However, as noted above, dealerships can also have more profitable used vehicle departments if the increase in volume offsets declines in per-unit profitability.

  • “The used vehicle market will likely remain constrained, as late model used vehicle availability remains limited […] The key is going to be our effectiveness, as always, in pricing and turning our inventory, and we’re going to remain nimble in our approach to those things in the market as it develops. […] I think one of the things that, as we came into 2023, our inventory levels were very low, and I felt that we missed out on some of the marketplace.”
    – Michael Manley, CEO, AutoNation
  • “I would say that we have had a conservative approach on acquiring [used] inventory and maybe too conservative. We’ve been, right or wrong, more focused on gross profit than we have volume. We need to take a more aggressive stand at acquiring vehicles. Naturally, when we acquire or purchase a vehicle our gross profit is lower than when we take it in a trade.
    – David Hult, President, CEO and Director, Asbury Automotive Group
  • “Used car gross is right now significantly below historic levels. And right now, trying to really procure and get the core product that we need, which is kind of those three to seven-year old vehicles, it’s a firefight. The benefit we have as being a top-of-funnel new car dealer is 70% of our trades are coming in from consumers. […] Used vehicle revenue was down 11% and units were down 6%. […] Used vehicle pricing continues to moderate in line with the recovering supply of new vehicles. Sales of certified vehicles were up nearly 2%, while our core vehicle segment, which accounts for more than half of our used vehicle sales, was down 10% as the impact of COVID production constraints is working through the supply chain. […] Used vehicle GPUs, including F&l, were $3,789, down 7% from last year and well below our historic average. Our teams are reacting to a volatile used car marketplace in response to the massive rebound in new car inventory that continues to add new vehicle supply. As the average APR and used vehicle loan is almost 11. 7%, the outlook for lower consumer borrowing rates will eventually serve as a tailwind for consumers and relief in their monthly payments.”
    – Chris Holzshu, EVP and COO, Lithia Motors
  • “We ought to be in great shape for the year. The used car business is strong. It’s always been strong. We’ve just been short on the one to five-year-old model for EchoPark, and that caused some turbulent times over the last couple of years. That’s dissipating. And as we move throughout ’24, it’s just going to get stronger and stronger. […] We’re not out of the troubled waters, but it’s not anywhere near as choppy as it was. And with the wholesale market prices dropping, it’s just progressively going to get better, as we move throughout ’24 and into the beginning first quarter of ’25.”
    – Jeff Dyke, President of Sonic Automotive

Theme 3: Profitability and the Demand for Electric Vehicles Has Been Disappointing

Auto retail executives pointed to electric vehicle sales as an area of improvement. So far, GPUs for these vehicles have been lower than ICE vehicles due to the aggressive pricing strategies necessary to sell these vehicles. Furthermore, many of the transactions involving electric vehicles have been leases, which leads to more uncertainty down the line when lease terms inevitably expire.

  • “That’s the headwind in the fourth quarter. So if you look at our blended GPU that we reported for Q4, it reflects a $400 headwind from EV GPUs, running at a lower rate than the remainder of the business.”
    – Danny Wieland, VP of IR and Financial Reporting, Sonic Automotive
  • “There’s no question that demand for BEVs has slowed. And when you look at our business, 51% of our BEV business is in California and, of that business, 90% is leased.
    – Roger Penske, Chairman of Penske Automotive
  • “Battery electric vehicle product introduction and customer interest in these vehicles is clearly going to be a key dynamic this year. As widely reported, bad PVRs consistently fell during 2023 and in most instances, are lower than similar combustion engine vehicles.”
    – Michael Manley, CEO, AutoNation
  • “Our electric vehicle day supply for Q4 was 91 days and about 54 days supply in the used car arena. We did see an increase from Q3 to Q4, specifically in the new car arena, we saw an increase of about 33%. So obviously there’s no news out here, but EV sales [are] starting to slow down and inventory [is] starting to build. So we’re managing that as best we can. […] So expect the GPUs to be lower than our [GPUs on ICE vehicles] and when we’re working deals or work in leases, which most of these vehicles are being leased and that puts a little bit of pressure on the OEM or the lender institution from a residual factor. We’re having to get pretty aggressive in discount[ing] cars much more than we do traditional combustion engines.”
    Daniel Clara, SVP Operations, Asbury Automotive Group

Theme 4: Share Buybacks More Favorable than M&A?

The six publicly traded auto retailers have been buying back shares for the last couple of years. This means that those retailers view their own stock as a good investment compared to other investment opportunities like mergers, acquisitions, and organic growth.

Some executives noted high asking prices across the market for single-point dealerships and small dealer groups. It’s also notable that share buybacks do not come with the execution risk of integrating new stores into existing operations; spending excess cash on buying back stock improves ROIC and EPS, which is not available to private auto groups. As in most quarters, executives talked about the capital allocation decision-making process as it pertains to buybacks and acquisitions. Dealers are considering acquisitions, but there was more discussion of valuations needing to be correct than has been discussed in prior quarters. Some executives are waiting for earnings to continue to fall, which they anticipate will bring valuations toward more normalized levels.

  • “Now that we have realized the skills necessary to find, fund and operate new adjacencies, we will evaluate share repurchases with parity to acquisitions. Past practices prioritized acquisitions as more beneficial strategically than buybacks, but at our current size and scale, we are now returning to a balanced deployment of free cash flows to drive the strongest possible returns. We continue to monitor valuations of both, being patient for strong assets priced within our acquisition hurdle rates. And in today’s environment, what we’re seeing is that these one -these single point stores and even the smaller groups are bringing massive multiples like selling for as much as 10 to 20 times normalized earnings. When the lookback is a three-year lookback, that’s just not something that we’re going to chase. […]We bought back $40 million or so of shares in the quarter, primarily, because when acquisitions are at 10 times and we can buy our shares back at 7 times, we’re going to buy our shares back.”
    – Bryan DeBoer, President and CEO, Lithia Motors
  • We believe the dealership business is the best use of capital and we have demonstrated our ability to successfully integrate acquisitions very quickly. We continue to explore opportunities, to capture immediate growth through acquisition, and we also believe divesting smaller, underperforming stores and brands is a critical part of our strategy as well.”
    – Daryl Kenningham, President and CEO, Group 1 Automotive
  • You can imagine that sellers tend to have amnesia when it comes to where the prices used to be before. In all these run-ups in the last few years. But I don’t think that there’s been any market change in valuations, maybe here and there. […] And as we move frankly throughout last year and as we move further into this year, obviously the TTM is going to reflect the reality of the fact that there’s a normalization in earnings and ultimately it will impact values.”
    – Thomas Szlosek, CFO, AutoNation


At Mercer Capital, we follow the auto industry closely in order to stay current with trends in the marketplace. These give insight to the market that may exist for a private dealership, which informs our valuation engagements. To understand how the above themes may or may not impact your business, contact a professional at Mercer Capital to discuss your needs in confidence.