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HOUSTON -- Asbury Automotive Group Inc. has stopped selling used cars at Wal-Mart stores after losing almost $6 million on the experiment.
Asbury, the nation's fifth-largest dealership group, lost $4.8 million on the Price 1 Auto Stores pilot in 2002 and $900,000 in the first quarter of 2003, according to Automotive News.
The Stamford, Conn., automotive retailer spent $7.5 million to launch four stores in Houston last year from May to October. Asbury would not say how many vehicles it sold through its Price 1 stores and would not reveal its sales target. Allen Levenson, Asbury's vice president of sales and marketing, says sales "ended in the 50-per-store-per-month range."
The Houston pilot project was an attempt to capitalize on the Wal-Mart name and traffic with low-budget, no-haggle used-car lots. Though Asbury advertised Price 1 through a variety of media, it relied heavily on Wal-Mart to build traffic.
But Wal-Mart did not have the drawing power that Asbury expected. New-car dealerships proved more economical, even though Price 1 did not have to make a big investment in facilities. The stores were shuttered last week and 45 employees were offered jobs at Asbury's new-car dealerships. Executives say customer traffic was about half what was needed to be to make the operation profitable.
"Customer traffic was lighter than expected," says Asbury CEO Ken Gilman. "Given the cost of opening a second test market, we decided that we could more efficiently build our used-car business and realize higher and more certain returns by continuing to focus on improving used-car operations in our traditional franchised dealerships."
Retail experts say Price 1 was under-promoted, suffering from intense competition and low visibility from the road. They also say Wal-Mart customers were not likely to browse a car lot during a Wal-Mart shopping trip. "A car is not an impulse sale," says Jim Ziegler, an Atlanta sales consultant. "Consumers don't go to a low-end department store or grocery store to look for automobiles."
Ziegler added Asbury made a mistake selecting Houston for the test because the cost of advertising is high and competition is fierce.