Used-vehicle retailers shifted Q1 goals to profit over volume

Used-vehicle-only retailers and some of the six publicly traded dealership groups in their latest quarters said they favored boosting gross profit per used vehicle they retailed and not necessarily growing sales volume.

For used-retail giant CarMax Inc., keeping gross profit per vehicle stable was a priority, CEO Bill Nash said last month. Online used-vehicle retailers Carvana Co. and Vroom Inc. also said they swapped sales volume growth — which they chased as the e-commerce used-vehicle market heated up in 2020 and 2021 — to work on improving per-vehicle gross profit.

One of the public groups, Asbury Automotive Group Inc., said it focused on profitability in its used-vehicle side of the business.

"We just determined that it didn't make sense to chase volume," CEO David Hult said during Asbury's earnings call on April 25.

The retailers and dealership groups also said they grappled in their latest quarters with other factors impacting used-vehicle businesses: tighter availability of late-model used-vehicle inventory, heavier acquisition activity at wholesale auctions by rental car companies and increased consumer demand for more affordable vehicles.

CarMax kept per-vehicle profit steady in its latest fiscal quarter, ended Feb. 28, despite widespread affordability and economic concerns. It took in gross profit of $2,277 per used vehicle it retailed, up $82 from the year-ago period. Profit preservation came at the expense of volume. The company's retail sales tumbled 13 percent to 169,884 vehicles compared with the year-earlier period.

In an April 11 earnings call, Nash noted external title data showed market share gains the retailer made in the first half of its fiscal year were offset by share losses in the second. But that trade-off was deliberate: Nash said prioritizing per-vehicle profitability over near-term market share was the right goal.

Carvana sold 79,240 vehicles in the quarter ended March 31, down 25 percent from a year earlier, as it backpedaled on sales volume growth to focus on growing per-vehicle profits.

The company reported $1,388 in retail vehicle gross profit per unit, which it describes as its aggregate retail gross profit in a period divided by number of retail units sold in that period. That was up from $808 in the year-earlier period. Carvana attributed the increase, in part, to trimmed acquisition, reconditioning and transport costs tied to those vehicles. Carvana's total gross profit per vehicle, which combines retail, wholesale and other GPUs, rose 52 percent to $4,303.

The company plans to "keep the pedal down" on vehicle economics for the next nine to 12 months, CEO Ernie Garcia said during a May 4 earnings call. Once it achieves that, Carvana will turn its attention back to growth and capturing more market share, he said.

Vroom's sales volume fell in the first quarter as the company kept working through its long-term business plan, which includes a goal to prioritize improvements in vehicle economics over growth. The company sold 3,933 vehicles via e-commerce, down 80 percent from 19,473 in the year-earlier period.

Vroom reported $2,552 total gross profit per vehicle sold via e-commerce in the first quarter, up 45 percent from $1,763 in the year-earlier period.

Vroom expects a "significant portion" of its sales in second-quarter 2023 to be from aged vehicles, which will put pressure on gross profit per vehicle, CEO Tom Shortt said during the company's first-quarter earnings call May 10. He expects that to smooth out in the second half of the year as Vroom begins selling a greater mix of newer vehicles that net more profit.

Asbury Automotive Group Inc. sold 32,989 used vehicles at retail during the first quarter, down 14 percent from a year earlier. The company's average gross profit per retail used vehicle stood at $2,141, down 14 percent from a year earlier.

Hult said Asbury's used-vehicle gross profit is determined more by the amount it pays to acquire the vehicle rather than its sale price "because the market dictates what the selling price is gonna be."

Hult said Asbury focused on trade-ins, off-lease models and buying vehicles directly from customers rather than an aggressive strategy of sourcing used vehicles from channels such as auctions. He said nearly 70 percent of Asbury's volume in the quarter was from trade-ins and off-lease vehicles.

"We felt it was a better trade-off to have lower volume and higher gross profits, which really generate a better [earnings per share result] for us overall," Hult said.

AutoNation Inc.'s gross profit per used vehicle retailed rose to $2,117 in the first quarter, up more than 35 percent from $1,566 a year ago. AutoNation said that more than offset lower unit sales, which came in at 67,539, down 15 percent.

As of the end of 2022, the population of used vehicles five years or younger in age had dipped by about 10 percent from 2019, CEO Mike Manley said during the company's first-quarter earnings call April 20. Vehicle ages three years or younger were down more than 15 percent from 2019, he added.

"Last year in the first quarter we made the tactical decision to realign, reposition and reduce used-car inventory, and I think that proved to be a prudent move as the year went on," Manley said. "It did, however, set us up for [challenges] on unit volume in Q1."

reported $1,689 in gross profit per used vehicle retailed in the first quarter. That's down 16 percent from $2,005 a year ago. It sold 45,437 retail used vehicles in the period, up 3.7 percent.

To source used inventory, Group 1 is continuing to focus on "organic sourcing efforts," including acquisitions to accelerate customer trade-ins and service drive acquisitions, CEO Daryl Kenningham said during the company's first-quarter earnings call April 26.

Lithia Motors Inc. saw its average gross profit per retail used vehicle plunge 30 percent to $2,120 in the first quarter. Lithia sold 78,142 used retail vehicles in the quarter, up 6 percent.

CEO Bryan DeBoer, during the company's first-quarter earnings call April 19, said used-vehicle GPUs were more resilient than expected.

COO Chris Holzshu, also during the call, said Lithia in March "continued to see improvement in the used-vehicle market as inventory adjustments were made to meet demand of lower-priced units."

Penske Automotive Group Inc.'s average gross profit per used vehicle retailed was $1,808, down 21 percent from the first quarter of 2022. The company sold 67,836 used vehicles, down 0.6 percent.

Vehicle sales at Penske's standalone used-vehicle CarShop locations decreased 2 percent to 19,165 units in the quarter, CEO Roger Penske said during the company's first-quarter earnings call April 26. Variable gross profit per vehicle declined 5 percent as vehicle acquisition prices, plus reconditioning costs and logistics, continued to "impact customer affordability and our profitability," he said.

He added that the company continues to explore vehicle sourcing and cost improvement programs to improve CarShop's profitability.

Average gross profit per used vehicle at Sonic Automotive Inc.'s franchised dealerships fell 6 percent to $1,626 in the first quarter. Used-vehicle sales at its franchised dealerships were down 7 percent to 25,107 units in the quarter.

Sonic said the average gross profit per vehicle and F&I at its used-only EchoPark business was $1,907 in the first quarter, a drop of 30 percent. EchoPark stores sold 19,980 used vehicles, soaring 34 percent.

"In the used-vehicle business, wholesale auction prices for 3-year-old vehicles unexpectedly rose over 6 percent since the beginning of the year as nearly new inventory continued to face elevated demand from rental car companies and dealers at auction," CEO David Smith said during the company's first-quarter earnings call April 27.

President Jeff Dyke, also on the earnings call, said in January and February the auto retailer was buying vehicles at auction in the $24,000 range. But, Dyke noted, in two weeks in March, those vehicle prices rose to $27,500 or $28,000.

The uptick in pricing has impacted sales at EchoPark, Dyke said, who noted the business unit's volume was spiking in January, February and early March.

Mark Hollmer, Gail Kachadourian Howe, John Huetter and Jack Walsworth contributed to this report.