EUR 850.00 For Business Accounts Only

Morningstar | Asbury Keeps Operating at a High Level

Although no auto dealer is immune to macroeconomic risks, Asbury Automotive Group's size, focused acquisition strategy, and diverse revenue streams should allow the firm to grow at the expense of smaller dealers. Asbury gets about 55% of its revenue from new-car sales, and luxury and midline imports make up 80% of new vehicle revenue. Buyers of brands such as Lexus and BMW have higher-than-average incomes and can usually afford a new car and its maintenance despite a recession. Ford makes up about half of Asbury's 20% Detroit Three automaker mix. Used vehicles are a lucrative business for dealerships, and Asbury is no exception. Used retail vehicles make up about 29% of revenue but have a retail same-store gross margin of 7.2% compared with 4.4% for new vehicles. Asbury ended its Q auto stand-alone used-vehicle stores in 2017 as it wants to focus on retailing its trade-ins rather than sourcing used inventory via auctions, because a firm can overpay. Also, it seemed to us that Q was at a disadvantage without a captive finance arm because many customers are subprime. Asbury, like its competitors, now seeks to retail more of its used-vehicle inventory because doing so is far more profitable than selling used vehicles at auction. Even though three other public dealers are going ahead with stand-alone used stores, we think Asbury can still generate decent profits from its used business. We don't think a dealer must have stand-alone used stores to succeed.Parts and servicing was only about 11.9% of 2018 revenue but made up 47% of gross profit. This significant contribution to profitability is less volatile than new- and used-vehicle sales and will continue to partially mitigate the cyclical risk of the auto industry. Large dealers like Asbury are enjoying a growing competitive advantage for repair work, because most automakers require warranty work to be done at a dealer rather than an independent repair shop. Also, cars' increasingly advanced technology presents an obstacle for smaller repair shops, which are less able to afford the equipment and training needed to provide competent service.