As discussed in previous installments of this blog series, six primary publicly traded auto dealers own over 1,300 new vehicle franchised dealerships as of year-end 2022. In other words, that’s less than 10% of the total number of dealerships in the U.S. (approx. 16,750 as of NADA’s mid-year 2022 report). The proportion of total U.S. dealerships that these publics own has increased, though it still demonstrates how fragmented the industry continues to be.
Our goal in highlighting Public Profiles is to serve as a reference point for private dealers who may be less familiar with the public players, particularly if they don’t operate in the same market. Larger dealers may benefit from benchmarking to public players. Smaller or single-point franchises may find better peers in the average information formerly reported by NADA or more regional 20 Group reports but might still find value in staying plugged into public auto dealers’ performance.
This week’s post covers Asbury Automotive Group, the second smallest of the six publicly traded automotive retailers in the United States.
In 2022, fewer than 14 million light vehicles were sold, which was the lowest level since 2011. Supply constraints hampered productions from automakers, which led to higher profits for auto dealers on each vehicle they were able to acquire and sell, both new and used. Vehicle production improved gradually throughout the year, which is anticipated to continue through 2023.
This week we review the Q4 2022 earnings calls from the executives of six publicly traded auto dealers and discuss some of the major themes.
We are pleased to release our latest edition of Value Focus: Auto Dealer Industry Newsletter. The newsletter features a commentary on industry data from mid-year 2022. Additionally, this issue includes two timely articles: “2022: How Is the Auto Industry Doing and What Does the Future Hold?” and “Earnings Calls: Executive Summary.”
How the Pandemic Darling May Have Flown Too Close to the Sun
Lately, Carvana has been in the news for all the wrong reasons. Its share price is down over 90% since its pandemic peak and currently sits below the low levels of March 2020. This post provides an abbreviated history of Carvana from its founding in 2012 to 2022 and discusses what its successes and struggles mean for traditional auto dealerships.
The May 2022 SAAR was 12.7 million units, down 12.6% from last month and 24.9 % from May 2021. The SAAR for this month fell short of expectations, and the drop in May’s sales pace makes it more likely that the second quarter of 2022 will not improve on the first quarter’s average SAAR of 14.1 million units. The SAAR for May was low due to low inventory across the country.
In this week’s blog post, we compare the stock prices of Ford, Stellantis, and GM to the timing of rate hikes by the Federal Reserve in 2022 in an attempt to answer the question “have higher interest rates hurt auto manufacturer stock prices?”
Large Dealer Groups Continue to Invest in the Franchise Dealer Model, Managing Their Dealerships as Portfolios
It’s earnings call season again. Themes from the Q1 2022 earnings calls were affordability issues, managing stores as a portfolio, the health of the franchise dealer model, and who repairs electric vehicle components and what that means for dealerships. All this against a backdrop of the continued inventory shortage makes for an interesting post. Read more here.
There are six primary publicly traded auto dealers that own approximately 923 new vehicle franchised dealerships as of year-end, or approximately 5.5% of the total number of dealerships in the U.S. In this blog, we focus on the largest automotive retailer in the United States, AutoNation.
Our goal with the Public Profiles blog series is to serve as a reference point for private dealers who may be less familiar with the public players, particularly if they don’t operate in the same market.
Inventory Shortages Continue to Dominate the Auto Dealership Operating Environment
Inventory shortages are at the forefront of many of Q4’s earnings calls themes. While dealers across the country are looking to increase their new vehicle inventories, used vehicles are in greater supply. Numerous executives noted they are carefully managing this used inventory to avoid getting burned on currently elevated prices. In addition to inventory shortages, we also highlight comments concerning dealers charging above MSRP and the effect that has on the market.
Q3 earnings calls across the group of public auto dealers began with similar themes from the prior two quarters: record profits and earnings, record Gross Profits Per Unit (GPU) on new and used vehicles, and tightening inventory conditions. In addition to those themes, we also discuss M&A, inflation, and other areas of profitability for the public auto dealers.
In three consecutive weeks, 117 auto dealerships were bought across 3 transactions, each scooping up more dealerships than the last. The three smaller pure-play public auto dealership companies (Group 1 Automotive, Sonic Automotive and Asbury Auto Group) all made sizable acquisitions in a red hot M&A market coming after Lithia purchased a large private auto group back in April.
In this week’s post we discuss how these transactions highlight a couple of key themes in the marketplace for auto dealers.
There are six primary publicly traded companies that own approximately 923 new vehicle franchised dealerships as of Q2 2021, or 5.6% of the total number of dealerships in the U.S. (16,623 at year-end 2020 per NADA). In this second installment of our series profiling the six publicly traded companies, we focus on Sonic Automotive.
Our goal with this series is to provide information and insight that can serve as a reference point for private dealers who may be less familiar with the public players, particularly if they don’t operate in the same market. Larger dealers may benefit in benchmarking to public auto dealers.
Public Auto Dealers Weigh Record Profits, Days’ Supply, and Capital Allocation
Second quarter earnings calls across the group of public auto dealers began with similar themes: record profits and earnings, record Gross Profits Per Unit (GPU) on new and used vehicles, and tightening inventory conditions. This week we take a deeper dive into some of those themes including remarks from management, related to expectations moving forward.
How Large Used-Only Auto Retailers Are Measuring Up
As our dealer clients know, automotive retailing competition has intensified with large, well-capitalized online-only retailers getting plenty of attention. Due to imbalances between supply and demand, gross margins on both new and used vehicles have increased in 2021.
In this post, we survey gross margins for the publicly traded dealerships, in light of the current operating environment and reconsider the investment thesis put forth by the new entrants.
Sales Return Quicker than SG&A Expenses, But Inventories Continue to Lag Amid Chip Shortages
As we do every quarter, we provide themes from the Q4 earnings calls as discussed by the major players in the auto industry. These trends give insight to the market that may exist for a private dealership which informs our valuation engagements.
This post is the first of a series where we profile the six public new vehicle dealerships; our goal is to provide a reference point for private dealers. Dealers may benefit in benchmarking to public players, particularly those that are significantly larger with numerous rooftops. Smaller or single point franchises will find better peers in the average information reported by NADA in their dealership financial profiles. Public auto dealers also provide insight as to how the market prices their earnings. This week, we start with Lithia Motors (LAD).
Constrained Inventories and Improved SG&A Margins Expected to Normalize While the Future of Omnichannel Initiatives Stays Top of Mind
As expected, the COVID-19 pandemic has thrust many dealerships into relying on their digital and omnichannel offerings due to complications arising from stay-at-home orders. Further government restrictions have curbed new vehicle supply as manufacturers have struggled to ramp up supply. Many dealers noted inventory shortages. However, with sales volumes significantly below the 17 million seen over the last several years, both the numerator and denominator of the days of supply statistic are declining. Lower sales mean lower inventory isn’t a deal breaker; in the short term, limited supply has led to some gross margin improvement. However, total gross profit is still significantly down due to the lower sales (combination of lower inventory and lower demand). While sales have improved sequentially as restrictions have eased, parts and service (particularly collision) have trailed in their recovery as fewer miles driven has translated into reduced demand. Analysts inquired about the potential for stay-at-home orders to be ramped back up, particularly in large states such as Texas, California, and New York, though executives largely downplayed the likelihood and the impact it would have on their businesses.
In this week’s post, we review a timeline of the Asbury-Park Place transaction, along with an analysis of Asbury’s stock price against the rest of its public competitors and also examine the operational strategy of Asbury over the years to explain aspects of the Park Place acquisition. As with any merger or acquisition, the true success or failure of the deal may not be known for years. Investors and industry professionals can try and play armchair quarterback and try to predict the outcome. This blog post aims to provide ample information so that you can “make the call” on the transaction.
As we teased last month, Vroom filed an S-1 with the SEC in May enabling its initial public offering (IPO) on June 9th. The online automotive retailer priced the 21,250,000 shares at $22/share. By the end of the trading day, Vroom’s stock had increased 118% to $47.90. For perspective, the NASDAQ as a whole rose only 0.3% that day. The company positions itself as “an innovative, end-to-end platform designed to offer a better way to buy and a better way to sell used vehicles.” A press release also touted its “contact-free” nature, apparently seeking to distinguish Vroom from traditional, franchised, brick-and-mortar dealers as COVID-proof. In this post, we’ll consider Vroom’s business model compared to other online dealers, the company’s investment thesis that may have driven their spike, and see what the filing could tell us about the broader industry and the IPO market more generally.
COVID-19 Causes Declines in Q1, but Executives Maintain Optimism Going Forward
Auto dealers stock prices declined in the first quarter of 2020 following the broader market trend. Though many dealers saw year-over-year gains in sales and earnings in the first two months of the year, earnings calls focused on the coronavirus pandemic. Volumes have fallen across the country, though executives pointed to recent positive trends. Downturns have muddied the M&A market, and some companies don’t plan to rehire everyone that has been let go. Many praised the support of OEMs including significant incentives such as 0% financing. With dealership doors shuttered, many executives touted their online presence, though there was not a consensus on digital’s long-term place in the market.
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