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To view this year's Ward's Megadealer 100, click here. After years of seeing annual revenue growth of at least $8 billion, the 16th annual Ward's Megadealer 100 collectively saw modest gains in 2002. The gains came entirely from the six public retailers who increased 2002 revenue more than $2.2 billion, enough to offset other retail groups' revenue decreases compared to 2001. The revenue hike came


After years of seeing annual revenue growth of at least $8 billion, the 16th annual Ward's Megadealer 100 collectively saw modest gains in 2002.

The gains came entirely from the six public retailers who increased 2002 revenue more than $2.2 billion, enough to offset other retail groups' revenue decreases compared to 2001.

The revenue hike came despite the public groups selling 9,000 fewer new retail vehicles in 2002. The other 94 groups making up the Ward's Megadealer 100, meanwhile, collectively saw a decrease in revenue of $1.5 billion.

That stems from fewer car sales and pressure on used-vehicle prices due to aggressive new-car incentives.

Wall Street Woes

Despite the revenue growth for the publicly held automotive retailer groups, they are failing to gain respect on Wall Street.

“There seems to be a lot of interest in us, but we can't seem to get any traction,” says United Auto group CEO Roger Penske.

Publicly owned auto retailer groups “trade as if they're on the verge of bankruptcy,” says Sheldon Sandler, founder of Bel Air Partners, a New Jersey-based dealership brokerage firm. “Their profit margins are better than average, but nobody understands that. The story hasn't been told well.”

Potential investors don't fully appreciate the high margins that service and parts can bring, says Rick Nelson, an analyst with Stephens Inc. But he adds, “None of the public groups have been public during a severe downturn yet.”

Therein lies the problem. No one really knows how the public groups will perform during a slump.

Lehman Brothers analyst Jeff Black, in a report on AutoNation Inc. says, “Forecasting operating margins based on historical comparisons has real limitations.”

But Lithia Motors Inc. Chairman and CEO Sidney DeBoer says, “Historically, auto retailers as a group, have never lost money - even during the worst recession.”

Sonic Automotive has had five consecutive years of double-digit growth in earnings per share. “We've proven that earnings are stable and predictable year after year,” says Sonic Vice Chairman Scott Smith.

The public groups continue to point to the revenue streams from fixed operations and the finance and insurance departments that seem to be insulated from the effects of a downturn. In fact, the public companies report increased profit margins and revenue increases of $1.1 billion in service and parts in 2002.

F&I revenue per vehicle also rose for each of the public retailers in ‘02 (see story on page 40) as they focused more on extended service agreements and menu selling.

Sonic executives point to their Northern California stores as evidence of how well the company can handle a downturn. New vehicle sales dropped almost 20% from 2000-2002. Service and parts revenue, however, increased 12% and profit margins overall only fell from 4.2% to 4%.

Four straight years of industry-wide sales of more than 16.8 million new vehicles have increased the numbers of vehicles in operation, which in turn, should lead to increased service and maintenance work for dealerships.

Publicly owned groups such as Asbury Automotive Group and Sonic invested significant capital in 2002 to add more than 100 service bays each. United Auto Group has extended its service hours to increase its service revenues. In 2002, 11% of UAG's total revenue came from service and parts, yet that generated 34% of the total profit.

Brand Mixing Helps

Brand mix also seems to play a role.

UAG and Asbury claim their mix — heavily weighted toward luxury and import brands — should lead to more sales and increased service business.

The domestics have been losing market share (although General Motors Corp. gained slightly in ‘02 and Ford Motor Co. was up in the first quarter) while the imports have made significant gains.

Also, the luxury customer is considered to be more likely to adhere to manufacturer-suggested service inspections than those people owning domestic brands.

For several years, dealerships selling the domestic brands have “enjoyed” the added revenue of warranty work due to poor quality. But the quality is improving. Warranty costs were down 18% for the Big Three last year and up 21% for import brands, says Bryan DeBoer, senior vice president-Mergers & Acquisitions/Operations for Lithia.

UAG has been aggressively reducing its exposure to the domestics since 1999. Now imports make up 73% of its portfolio.

Sonic President and CEO Theodore Wright says the company is working to reduce its exposure to the Ford, Chrysler and Jeep brands. “Unfortunately, we are overweighted in domestic lines in some of the markets that objectively show weaker employment data,” he explains.

Also, the negative trends in used-car sales were most prevalent in domestic markets, he says.

The negative feelings appear to be mutual. Ford refuses to allow Asbury to purchase the Bob Baker Ford franchise in California, citing poor performance levels at some of Asbury's other Ford stores.

“Ford is upset with our performance in 2000 and 2001 which predates me and my management team,” says, Tom Gilman, president and CEO-Asbury Automotive Group. “We're continuing to outperform Ford nationally in the markets where we have Ford stores. Hopefully, they'll come to their senses.”

Bob Baker meanwhile, has the matter before the California New Motor Vehicle Board in an attempt to force Ford to allow the deal to happen. A decision is expected in late June.

Group 1 Automotive and Lithia also report that Ford has asked them to focus on improving performance levels at their outlets before moving to purchase more of the brand's.

While everyone else is trying move away from the domestics, AutoNation is staying with the Big Three. Last year, 57% of its revenues came from the Ford, GM and Chrysler brands.

Black says AutoNation “is not the sexiest company…Brand mix is more suited toward Joe Six-Pack than Joe Millionaire.”

He gives AutoNation a favorable overweight rating because he likes the company's centralized strategy. He says it yields a lower expense rate and the highest operating margin (3.7%) of the public retailers. However, he sees AutoNation's brand mix as a potential risk.

AutoNation maintains its top ranking on the Ward's list, even though revenue dropped slightly in ‘02.


Much of the revenue growth for the public companies is driven by acquisitions, which picked up last year for a total of 137. The public companies acquired 79 stores equaling the number of purchases made by the entire Ward's Megadealer 100 in 2001.

Conventional wisdom is that in such situations, each $130 million invested in acquisitions will yield about $1 billion in additional revenue. But it takes a company with a lot of capital to grow that way.

AutoNation, the company with the best cash flow and balance sheet and thus best- positioned to make acquisitions, isn't doing so — at least not aggressively as they have in the past. AutoNation, instead, is working to improve its internal operations.

While Sonic and Group 1 both indicate they are looking to make significant acquisitions this year, their debt to capital ratios of 50.3% and 37.9%, respectively, may hamper some of those plans.

However, there may be a flurry of activity before the end of the year. Some of the public companies have stated recently that there seems to be a lot of interest from potential sellers.

Rising insurance costs, increasingly more stringent facility requirements from the OEMs, and the unpredictably of the market may make selling an attractive option. And the high prices that were being sought in the past two years that have kept a lid on acquisitions are coming down as the economic downturn continues.

Last year, notable groups such as the Don Massey and Miller Group, both mainstays on the Ward's Megadealer 100, were acquired by Sonic and Group 1.

Already this year, UAG has bought the Inskip Autocenter, based in Rhode Island and Group 1 has acquired the Bob Howard Group in Oklahoma.

The public companies aren't the only ones looking to buy. John Bergstrom of the Bergstrom Automotive Group in Wisconsin, says he is looking to significantly grow his company this year.

Revenue per store

Revenue per dealership dropped $2.6 million, to $59.8 million, because of an increase from 1,759 to 1,848 stores now owned by groups on the Ward's Megadealer 100.

Overall revenue increased $647.2 million, to $110.5 billion (or 0.6% compared to a 7.5% increase in 2001).

The nation's 100 largest dealer groups sold about 100,000 fewer new retail units in 2002 than in 2001. That's reflective of the entire industry. Ward's Megadealer 100 market share, however, held steady at 13.5%.

Fast Mega-Facts

2,267,013 New retail units sold

1,334,885 Used retail units sold

5,068,086 total new, used, fleet and wholesale

1,848 Dealerships

2,467 Franchises

137 Dealerships bought

43 Dealerships sold

751 Publicly owned dealerships

1,097 Privately owned dealerships

Total Revenue-publicly owned: $45.1 billion

Total Revenue-privately owned: $65.3 billion

Total Revenue-Megadealer 100: $110.4 billion

Average Revenue per store: $59,829,049

The public retailers: $60,166,776

The other 94: $59,597,843

Biggest jump: 75th to 23rd

Deardoff Automotive Group • Melbourne, FL

Increased fleet revenue $456 million.

(Budget Rent-A-Car was bankrupt and Deardoff grabbed its fleet business.)

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