Dealerships with strong used focus land on top

Honing their used-vehicle operations proved critical again last year for franchised dealership groups contending with slightly improved but not fully recovered new-vehicle production.

Cavender Auto Family, of San Antonio, didn't get nearly enough new cars to sell in 2022, CFO Jon Briggs said. But adding five franchised dealerships last May and December in Oklahoma — the first market for the group outside Texas — and putting more emphasis on buying inventory from customers helped Cavender retail more used vehicles, he said.

"Part of it is really simple — if we can't sell apples, we'll sell oranges," Briggs told Automotive News.

Those efforts helped Cavender Auto Family leap 23 spots up Automotive News' annual ranking of the top 100 dealership groups in used-vehicle sales based in the U.S. Cavender retailed 19,611 used vehicles last year, up 35 percent from 2021, to land at No. 38.

The top 100 groups sold a combined 3,115,933 used vehicles in 2022, up 0.5 percent from the comparable and adjusted figure of 3,099,800 for 2021, according to the Automotive News Research & Data Center, which compiles the list. That adjustment in part omits 2021 figures from the collective tally for large used-only retailers CarMax Inc., Carvana Co., Vroom Inc. and Shift Technologies Inc., which were not considered for the 2022 list. For the first time, Automotive News is breaking those into a separate ranking of used-vehicle-only retailers to be published in May.

Ultimately, 2022 bore similarities to 2021: As new-vehicle supply remained tenuous, used-vehicle operations continued to sustain dealership groups. As consolidation kept up at a robust pace, many groups that acquired franchised stores reported selling more vehicles, used and new alike. But the market as a whole differed.

"2022 was pretty much a continuation of 2021, except for volume," Jonathan Banks, vice president of vehicle valuations at J.D. Power, said of the used-vehicle market. "Volume dropped compared to 2021."

High retail prices for used vehicles persisted, and though per-vehicle profit on used cars declined a bit, it was still "pretty high," Banks told Automotive News.

Still, there were some marked differences as market conditions evolved in 2022. Inflation and higher interest rates took root, causing a big shift in the consumers shopping for used cars and raising longer-lasting concerns about affordability, Banks said. Volatility in wholesale used-vehicle prices led dealers to reexamine how long to keep used vehicles on their lots before they depreciated, he added.

Del Grande Dealer Group, of San Jose, Calif., made the largest ascent up the list, rising 27 spots to No. 59. Open Road Auto Group, of Bridgewater, N.J., made the second-biggest leap, rising 25 spots to No. 49. Keating Auto Group, of Victoria, Texas, was next, rising 24 spots to No. 25.

Thanks to gains from its long-running acquisition spree, Lithia Motors Inc., of Medford, Ore., topped the 2022 list, with sales of 311,764 used vehicles. With the departure of CarMax, Carvana, Vroom and Shift Technologies, the other five publicly owned dealership groups all rose. AutoNation Inc. took the No. 2 spot, with Penske Automotive Group Inc., Group 1 Automotive Inc., Sonic Automotive Inc. and Asbury Automotive Group Inc. claiming the remaining top six.

Store acquisitions drove a 19 percent volume increase for Del Grande Dealer Group, which also climbed Automotive News' annual list of the top 150 dealership groups ranked by new-vehicle sales. Del Grande retailed 12,801 used vehicles in 2022.

"The majority of any of the volume from '21 to '22 is going to be around the [acquisition] growth, because obviously in 2022, the new-car supply was pretty desolate out there," Del Grande CEO Jeremy Beaver told Automotive News.

Del Grande worked to boost the used-car inventory it bought from consumers in 2022, launching last August a digital tool called Sell to DGDG that appraises customers' vehicles with the aim of making purchase offers in minutes. In the last several years, especially in the wake of the vehicle-supply crunch, more retailers have introduced such websites not only to gain better access to in-demand private-party used vehicles but also because consumers are seeking faster options for selling their cars. Del Grande buys around 60 vehicles through the tool each month and aims to ramp that up to a few hundred purchases monthly, according to Beaver.

"We worked really hard on sourcing, reconditioning times, merchandising on our vehicles online," he said. "That has been a key strategy for us as we continue ... to grow in the Bay Area."

In 2022, companies on the top 100 list retailed an average of 1:09 used vehicles for every new vehicle they sold. While the average used-to-new ratio has steadily increased since Automotive News started tracking the numbers in 2012, this year marks a reset for that average given the departure of CarMax and the online used-vehicle retailers. Their sales boosted that average ratio of 1:52 in 2021 and in earlier years.

For franchised dealership groups, a 1:1 ratio has long been the gold standard.
Used vehicles sustained Envision Motors, of West Covina, Calif., through the new-vehicle supply crunch, company CEO Simon Sarriedine said. At the beginning of 2022, Envision leaders shifted direction to pursue more used-vehicle sales.

"I have no control [over] how many cars Toyota can build or Mercedes can build or whatever manufacturer we do business with" can build, Sarriedine told Automotive News. "But certainly we have control over getting our ... used-car directors to go out there and buy cars and try and acquire cars from customers."

Envision's used volume rose 32 percent last year to 10,429 vehicles because of those efforts and dealership acquisitions, landing it at No. 79 in its debut on the top 100 list. Trade-ins were Envision's main source of used-vehicle inventory in 2022, and the group focused on buying from local customers, Sarriedine said.

Cavender's Briggs said the dealership group more aggressively sought used-vehicle inventory by increasing the number of employees who bid on or made equity estimates on vehicles in for service. Buying from existing customers was one part of a three-prong approach to used-vehicle acquisitions, he said. The other components were buying from traditional auctions and sourcing from rental car companies.

Acquiring vehicles from customers is "more fun," Briggs said, and a strategy that more franchised groups capitalized on last year — many of them no doubt taking inspiration from the longtime former leader of the top 100 list.

"CarMax has done a good job of that for a very long time," Briggs said. "And a lot of retail dealers, including us, haven't done as good of a job."