New-vehicle sales have taken off in the first four months of 2012, but for dealers the real story has been used cars.  The focus has been on how to efficiently acquire vehicles and how to boost the ratio of new-to-used sales. The rollout of sophisticated pricing and management tools has been a key factor at large groups such as Sonic and Penske.

Sonic is rolling out its Sonic Inventory Management System, or SIMS while Penske Automotive is doing the same with its Retail First system.  “About 30 percent of dealers have SIMS at this date,” said Sonic operations chief Jeff Dyke. 

Sonic’s pre-owned revenue was up 9 percent and gross was up nearly 8 percent for the quarter.  March was the company's history for pre-owned volume and gross. The company’s used-to-new ratio drifted down a bit in the first quarter as new car sales have grown. But Dyke expects the level to stay at 0.9 to 1 to 1-to-1 area by the end of this year -- which is at or near the top of the industry.

“The benefit for us is having more new car volume throughput,” he said. “I still think we’ll lead the competitive set in terms of used-to-new ratio or be near the top. But as SAAR moves up it is hard to keep pace.”  Dyke said the company is achieving a good balance of gross along with its volume increase.

“We are trading for new cars, wholesale is down and we are still continuing really grow,” he said. “We pushed past that 90 mark on a per store basis which was a big feat for us. Now we’ve got 100 per store in our sites."

Added Sonic CEO Scott Smith: “That’s really the metric we use -- how many per month. The used-to-new ratio is kind of a fallout.”

At Penske, it was another quarter of double digit increase in used units sold and revenues, with a ratio of 0.89-to-1 compared to 0.78-to-1 in the first quarter of 2011. Penske’s used-vehicles sales were up 23.3 percent in the United States in the quarter.

“Overall from a used-car perspective overall we had a very good quarter,” said Chairman Roger Penske. “Only 55 percent of our inventory are trades and 45 percent are purchased vehicles,” he said. “We’ve really been on the offense, going out and purchasing vehicles. The advantage we have is the Internet, the way we present our vehicles on line. We’ve gotten some real rigor about what is expected by our operators.

"Penskecars.com are driving more customers to our brand and our mobile site usage is up 36 percent over 500,000 visits,” he added.

The chairman said the used-car business offers the dealership groups a chance to stand out from the crowd.

“We see that as a real opportunity,” he said. “Everybody doesn’t have the same car and the fact that we can bring a new customers into the company and we can get the internal gross profit from the reconditioning is powerful from the standpoint of gross margins."

Penske’s Retail First is being rolled out regionally. The metric determines what stores are wholesaling cars versus way more lucrative retailing.  “We are probably in the high 40s and 50s and we should be down in the 20s to 30s,” said Penske. “The important thing on used is we have to get aggressive on buying just not standing at the auctions.” 

Many of his stores are now using equity calculators.  “Every time a service customer comes into the shop we want to give them ability to have us purchase their car and that has been quite successful,” he said. “Not every (Penske store) has implemented that it takes time to get the discipline across the regions.”

 “You can look at cars that are coming into our service drive where we know the customer has equity and we can offer them a new car at, in some cases, at the same payment or less -- and not just selling certified cars. With the used-car business we’ve only just tapped the surface.

Penske’s used-to-new ratio can go much higher.  “I don’t think we are through at all,” he said. “That is a matter of supply and that has to be through trades and trades on trades and obviously through acquisitions. With the Internet our market is worldwide and I think we are managing that and I think the discipline is how we market those vehicles on the Internet. It’s how fast can we get the car on the lot from the time we receive that car through trade or purchase. I think there is still runway there.”