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Asbury Proposes Higher F&I Markups

April 22, 2002

The newest publicly-owned dealer consolidator, Asbury Automotive Group, wants more finance and insurance revenues. That’s not earthshaking news in view of the high profits contribution F&I delivers these days.

But Asbury, in the prospectus for its initial public offering this past March, adds another morsel which marks a first for any of the six major consolidators selling stock on the New York Stock Exchange.

“Based on size and scale,” states the prospectus, “we believe we will be able to continue negotiating with lending institutions and product providers to increase commissions on each of the products and services we sell.”

In other words, the 91-dealership 119-franchise Asbury is out front with a proposal for higher markups per F&I commodity. That usually unstated item may reflect concern on the part of the Asbury management over the challenge of enhancing F&I performance in what admittedly is a highly competitive market.

Asbury disclosed for the first time that its F&I revenues per new and used vehicles sold last year averaged $671. This sum, while up from $585 in 2000, kept Asbury in the lower middle range of F&I producers and trailed by nearly one-third the “public” segment-leading average of the west’s Lithia Motors group, which hit $977 last year.

On a revenue basis, Asbury’s nine platforms and 127 franchises maintained a sharply higher pace in 2001. F&I income reached $106.3 million, compared to $89.4 million the preceding year. The group generated $4.3 billion in total revenues, up from $4.0 billion, and net income rose to $43.2 million from $28.9 million.

Asbury’s jump to $4.3 billion in total income placed it fourth among all publicly-owned consolidators, outstripping Group 1 Automotive’s $3.9 billion.

Asbury, founded in 1995 and based in Stamford, Conn., includes several of the largest and most respected groups in Oregon and the Southeast, such as David McDavid in Texas and Luther Coggin in Florida; and its emphasis on boosting F&I margins and revenues reflects the importance attached to that area by company leaders.

Also, like other "public" consolidators, Asbury has credit and floorplanning agreements with the Big Three captive finance arms. A $550 million financing agreement was established Jan. 17, 2001, with Ford Credit, GMAC and Chrysler Financial. At the same time, $750 million in floorplan credit was obtained from the same captive financing sources.

Asbury’s executive team is led by its founding board chairman, former Subaru of America President Thomas R. Gibson, 59. The newly-named president and CEO of Asbury is an apparel retail veteran executive, Kenneth B. Gilman, 51, who joined the auto retail conglomerate last December after the sudden death of Brian E. Kendrick, who had occupied the top position for nearly two years.

F&I is overseen by Thomas G. McCollum, 46, who came to Asbury in April, 2001, after a 19-year career at F&I provider Aon Resource Group, where he had risen to executive vice-president. According to McCollum, Asbury arranged customer financing last year on more than 70 percent of the 158,417 new and used vehicles its dealerships sold.

“Profits from F&I in 2001 amounted to about 3 percent of our total revenues and 16 percent of total gross profit,” said McCollum. “And our goal is to become the most profitable automotive retailer in the markets our nine platforms serve.”

These markets include: Atlanta, Nalley Group, 13 franchises; St. Louis, Plaza Motor Co., eight luxury-car franchises; Dallas/Fort Worth/Houston/Austin, David McDavid Group (an Asbury director), 12 franchises; Tampa, Fla., Courtesy Group, 15 franchises; Jacksonville/Orlando, Fla., Coggin Automotive, 19 franchises; Portland, Ore., Thomason Group, five franchises; North Carolina/Richmond, Va., Crown Automotive, 21 franchises; Arkansas/Texarkana, Texas, North Point (McCarty Companies), 12 franchises; and Mississippi, Gray-Daniels, 13 franchises.

The Asbury common stock offering consisted of 7.7 million shares at a price of $16.50 per share. The investment firm which launched the Asbury dealership acquisition venture in 1995 is Ripplewood Investments of New York City.

Atlanta’s C.V. Nalley III, owner of the first group of dealerships purchased by Asbury, was one of three dealer platform principals selling stock in the offering. The others were Coggin and Royce Reynolds, head of the Crown group.

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