Tag - Pag

Root canals, first dates, colonoscopies, images of James Carville—just a few of life’s unavoidable discomforts. Interaction with a car salesman is another. Only the loneliest among us enjoy whiling away an afternoon with someone who couples a gift for oleaginous banter with an overbearing manner.

Nevertheless, whiling away we must if the goal is to acquire a new ride. Today, more of us are whiling away at chain-owned dealerships, including those owned by Asbury Automotive Group (NYSE: ABG), one of the largest new and used auto retailers in the United States.

Asbury operates 88 dealerships that spread south from New York through the Carolinas and Texas, and west to California. The network encompasses a wide swath of American, European and Asian brands, concentrated in luxury and mid-line imports such as BMW, Acura, Lexus, Mercedes-Benz, Honda (NYSE: HMC), Toyota (NYSE: TM) and Nissan (Nasdaq: NSANY). The agglomeration accounts for 68% of new vehicle sales.

Asbury’s goal is for even more people to while away time at its dealerships and to that end, it’s adding more of them to the fold. In the first half of 2007, Asbury acquired three dealerships, increasing annual revenue by $140 million. The goal is to add a few more to rev the revenue number to $300 million by year’s end.

The strategy is sensible: retail auto sales are highly fragmented, with the 100 largest automotive retailers generating approximately 17% of industry revenue. What’s more, the large capital requirements necessary to operate and compete make it likely that consolidation will continue.

The downside is that chief competitors AutoNation Inc. (NYSE: AN) and Penske Automotive Group, Inc. (NYSE: PAG) are pursuing similar strategies, which is driving up import dealership prices (Asbury’s wheelhouse).

In today’s environment, acquisitions are the only reasonable avenue for driving top-line growth. Anyone following the travails of General Motors Corporation (NYSE: GM) and Ford Motor Company (NYSE: F) knows that new auto sales are anemic at best. A residential housing recession, higher gas prices and more stringent lending practices have all extracted a toll. New auto sales—topping 16.6 million in 2006—are expected to ease to 16.3 million in 2007.