Asbury Automotive Group is turning away the vast majority of potential dealership acquisitions, primarily because the sellers are asking for too much money, based on financial results that are inflated by the current, temporary imbalance in supply and demand, says David Hult, Asbury president and CEO.
Asbury, based in Duluth, GA, will “stay disciplined in our approach” to acquisitions, Hult says in a July 27 conference call to announce record second-quarter earnings. He says, “It’s a lot easier to buy things than it is to run it.”
To be sure, Asbury is participating in extraordinarily high returns, too. For the second quarter, Asbury’s reported net income was $152.1 million, more than triple the year-ago quarter. That’s on a 70% increase in total revenue, to about $2.6 billion, vs. a year-ago quarter that was hit hard by the COVID-19 pandemic.
But Hult (pictured below, left) says that even after supply catches up with demand – which probably won’t happen before the end of this year – Asbury expects to hang onto its gains in efficiency, both in-store and online, with the company’s Clicklane digital sales platform.
In addition, Hult points out that Asbury has a much a higher mix of luxury brands than it did before. At the end of 2020, Asbury’s mix was 48% luxury, 36% non-luxury import and 16% domestic, compared with 33% luxury, 47% non-luxury import and 20% domestic in 2018.
“We’re a different company from pre-COVID,” he says. When new- and used-vehicle inventories are back to typical levels, Hult says, “We’ll float well above our past margins.”
Asbury operates 91 dealerships with 112 franchises, representing a total of 31 brands. A year ago, the group had 83 dealerships with 102 franchises, representing the same number of brands. It’s No.7 in the WardsAuto 2021 Megadealer 100, based on 2020 total revenues of about $7.1 billion.
The increase in luxury mix is due largely to the acquisition last year of Dallas-based Park Place Dealerships, representing about $1.7 billion in annual revenues. Today, Asbury has letters of intent to acquire dealerships that represent a total of about $400 million in annual revenues, Hult says.
“In the last six months, we’ve probably walked away from $3 billion to $4 billion in business, because we just didn’t feel it was priced appropriately,” he says.
In addition, he says the group is in less-formal discussions with dealerships and dealership groups that represent close to $9 billion in annual revenues.