Used-car demand going strong at dealer groups

As new-car demand appears to be leveling off, the largest U.S. dealership groups are seeing used-car sales remain a steady, and hefty, percentage of their total revenues.

That’s one of several insights from the Automotive News Data Center, which compiled data from survey information to produce its annual list of the top 100 dealership groups in the U.S., as ranked by used-vehicle retail sales.

Revenue from used-vehicle retail sales totaled $57.79 billion at the 100 largest dealership groups in 2016, up 6.6 percent from $54.23 billion at those same groups in 2015 and good for about 27 percent of the groups’ total revenue. It is the third consecutive year that used sales have accounted for more than a quarter of revenue at the largest groups.

In total, the top 100 dealership groups sold 2.84 million used retail units in 2016, a gain of 6.3 percent from the 2.67 million units sold in 2015.

The gains in used-vehicle sales at the largest dealership groups mirror larger market trends. Used-car demand and sales have risen in recent years as high-quality, off-lease vehicles return to market, offering consumers a cheaper alternative to increasingly costly new cars.

The glut of off-lease vehicles, the result of a surge in leasing this decade, has pushed used-car pricing down following years of strength, by some measures faster than most predicted. For instance, the seasonally adjusted NADA used-car pricing index was down 8 percent in February from a year earlier.

While that could cause some headaches for lenders, automakers and new-car dealers, demand for used vehicles is unlikely to slow. After seven consecutive years of growth, used-car retail sales are set to rise again in 2017, according to the 2017 Manheim Used Car Market Report. Dealerships that speed up used-vehicle inventory returns and reduce selling expenses could continue to benefit even as margins slip, Manheim says in the report.

‘Tremendous opportunity’

AutoNation Inc. is one of several publicly traded groups that are doubling down on used-car offerings this year in the face of rising demand.

The company is reviving its AutoNation USA name for a series of used-vehicle stores. The first two of the company’s five planned standalone used-car stores will open in the second quarter, with the next three opening by year’s end. Another 20 are in development.

“There’s just a tremendous opportunity in the used-car business,” AutoNation spokesman Marc Cannon said. “And there are a tremendous amount of consumers looking for that product.”

The AutoNation USA stores will compete against market giant CarMax Inc. and used-only stores from other new-car retailers such as Sonic Automotive Inc.’s EchoPark and Asbury Automotive Group Inc.’s Q auto.

AutoNation’s used retail sales eased 0.7 percent in 2016 to 225,713, making it No. 2 on the used-retail ranking.

The seven publicly traded companies sold about 1.5 million used vehicles in 2017, up 4.4 percent. Each of the groups except AutoNation and Asbury Automotive Group Inc. recorded year-over-year used-car sales gains.

Of the top 100 groups, 75 posted higher retail used-vehicle sales.

Newcomer at 59

A newcomer to this year’s list is Island Auto Group of New York City. Island, of Staten Island, made a splash by acquiring 11 dealerships over the course of the year, in addition to launching two used-only locations. It ranks No. 59 on the list with 10,704 used retail units sold.

Island co-owner Josh Aaronson said the dealership group is looking to improve its new-car-to-used-car retail ratio to one-to-one in the near future. Island sold 8,000 more new vehicles than used in 2016.

“The goal would be one-to-one,” Aaronson said. “Having dealerships in New York, we’re a little landlocked in terms of the used-car inventory we can hold. But we turn about 100 percent of our inventory. We always want more.”

Thirteen dealership groups sold more used than new vehicles in 2016.

Top 10

The 10 largest dealership groups by used-car sales remain nearly unchanged from last year’s list, with eighth-place Asbury and ninth-ranked Larry H. Miller Dealerships swapping spots from a year earlier.

CarMax Inc. remained the largest U.S. retailer of used cars by far, selling 619,936 units in 2016, up 6.5 percent. CarMax sold more used vehicles than the next three largest used-car sellers — AutoNation, Penske Automotive Group Inc. and Group 1 Automotive Inc. — combined.

CarMax added 15 stores in its fiscal year ended Feb. 28, bringing its store total to 173 in the U.S. It said in April that it plans to open 15 stores during its current fiscal year and between 13 and 16 stores in 2019.