During a quarter in which new-vehicle sales slipped, used-vehicle sales grew 6% for Asbury Automotive, one of the six largest publicly traded dealer groups.
Used-vehicle sales totaled about 19.5 million on a same-store basis for the group, while new-vehicle sales totaled roughly 24 million units on a same-store basis, which was down 1% year-over-year.
However, while more used vehicles were sold in the quarter, gross profit from the used segment was down. Asbury reported $31.3 million in gross profit from its used segment, a 3% decline from the same time last year.
Gross profit generated from the vehicles it sold to wholesale was up 125% from a year ago at $200,000.
In a second quarter earnings call, David Hult, executive vice president and chief operating officer, attributed his company’s decline in used profits to aggressive new-vehicle pricing and the continued flow of off-lease vehicles.
This year has seen a rising number of leased vehicles returning to market. The steady supply of young, low-mileage vehicles is giving dealers more vehicles that they can sell as CPO, send to auction, or return to the manufacturers. However, the majority of vehicles returning to market are cars, a market that many consumers have strayed away from, in favor of crossovers, SUVs, and trucks.
“When you think off-leased vehicles and you think of the mix [from] a few years ago, it’s obviously weighted more car than truck,” said Cragi Monaghan, Asbury's president and CEO. “So you have that factor. And, when you have that much influx of inventory in the market there is a huge benefit from a dealer perspective in acquiring these vehicles, [but] it’s also depressing the retail price.”
As a result of the rising number of off-lease vehicles, Monaghan added, dealers are sitting on excess cars. And in order to stay competitive with other dealers — who are also sitting on excess cars — they’re dropping the prices on these cars, cutting into gross margin.
CPO sales are up 7%, Monaghan noted, but gross margin is still down.
In addition to rising off-lease vehicles returning to market, aggressive pricing coming from the new-vehicle segment is also hurting used-vehicle gross margins, Hult said. Rising incentives for new-vehicles to combat waning unit sales and growing inventory levels have resulted in lower new-vehicle prices. So, dealers have to factor the lower new-vehicle prices when determining used-car prices in order to keep the segment attractive.