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Asbury: 'Choppy' Retail Environment Drives Down Q2 F&I Gross Profit

August 17, 2016

DULUTH, Ga. — A favorable lending environment in the second quarter drove up Asbury Automotive's F&I profit per vehicle average (PVR) 3% to $1,436, officials said.

Despite the rise in the group's per-copy average, total F&I gross profit fell 2% from a year ago to $63.9 million. Officials attributed the drop to a "choppy" retail envirinment for the 4% and 5% drop in new- and used-vehicle sales, which totaled 25,223 new and 19,272 units, respectively.

“While the overall [seasonally adjusted annual rate] for the quarter was relatively flat compared to last year at 17.2 million … Our teams responded well to the challenge. We stabilized our new-vehicle gross profit per unit. We continued to improve our used vehicle margins, and we delivered excellent F&I results,” said Craig T. Monaghan, president and of Asbury Automotive Group.

On a per unit basis, new vehicles generated $1,840 in gross profit, a 1% decline from the year prior. Domestic vehicles played a big part in the decline, as they generated an average of $273 less per unit. Import vehicles generated an average of $39 less per unit.

Were it not for the group’s luxury vehicle performance — which saw gross profit per unit grow by $249 to $3,615 per unit — and a 3% increase to average selling price, the new-vehicle segment would have performed much worse, officials said. Total gross profit from new vehicles amounted to $46.4 million, a 5% year-over-year decline.

“Based on incentives available in the quarter, we decided that in some of our import and luxury stores, we were not going to chase volume. As a result, we were able to stabilize our gross profit at $1,840 per unit,” said David W. Hult, COO and executive vice president of Asbury Automotive.

While new vehicles suffered year-over-year declines on nearly all fronts, the opposite was true for used vehicles. They generated an average $1,769 in gross profit per unit, a 7% increase from the year prior. Total gross profit generated by used vehicles amounted to $33.5 million, a 3% increase from the year-ago period. The average selling price of a used car during the second quarter was $21,368, a 1% year-over-year increase.

Hult said sales of used vehicles were hurt by the stop-sales imposed by the Takata airbag recall. He noted that about 33% of the group’s stores were impacted by the stop-sales — up to 40% at some locations.

“They don't have cars to sell and, in some cases, we're looking for nearby lots in order to park these vehicles, so it has become very disruptive. But they are vehicles that, when we get the airbags, we think are going to be very marketable. So we are holding on to them for the most part, and we're just going to ride this thing out,” Monaghan said.

However, the group’s current inventory of recall-affected vehicles isn’t expected to start moving anytime soon, Hult added. The airbags that Asbury needs to perform repairs are being sent at a much slower pace than anticipated, and Hult said that the company isn’t expecting to receive a higher volume of airbags until later in the third quarter or early in the fourth quarter.

“Despite these challenges, with better used-vehicle management, we were able to improve our gross profit per unit by $114 to $1,769, our highest level in over a year,” Hult said.

During the second quarter, gross profit generated from the group’s parts and services department grew 8% from a year ago on a same-store basis to $192.2 million. Fixed operations, according to the group, continues to deliver steady growth and contributed to 45% of the group’s overall gross profit for the quarter.

Looking toward the future, the group is experimenting with the idea of ramping up the number of its locations that will offer completely online buying experiences.  

“Q auto stores have the ability to do a sale 100% online, so do our core stores, have the same ability. We are working with some third parties who are developing those technologies. I would consider it experimental in both the core and the Q stores,” Monaghan said.

Hult noted that the group has already implemented a completely online sales option to several of the company’s stores and that they’ve been happy with the results so far. There’s potential in a completely online sales process, he added, but it is currently a “very, very small” part of their business.

Looking at the company’s Q auto segment, one new location was opened this year in the Tampa, Fla., market and another is slated to open in the same market by the end of the third quarter. Combined with the existing two locations, Asbury Automotive will have four of its one-touch hybrid used-vehicle stores by the end of the year.

“All in, we lost about $0.01 in the quarter. Essentially, what's happening is the two existing stores make money and cover the corporate overhead that's associated with Q and then we had to absorb the start-up costs that we're starting to occur now in the third store and fourth store,” Monaghan said. “But we continue to be very optimistic about Q auto. We think it's a very interesting concept that could have a very bright future. And we're learning a lot. We're committed to it. We continue to move forward.”

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