DULUTH, Ga. — Asbury Automotive Group COO Michael Kearney reported this week that process, training and a favorable lending environment drove up the group’s F&I per-copy average $22 to $1,337. F&I revenues grew 7.9% from a year ago to $59 million.

The increase in profit per retail unit wasn’t enough to offset the drop in total front-end gross profit, which, combined with F&I, fell $5 per vehicle from a year ago to $3,200 thanks to lower margins on new- and used-vehicle sales. On a quarter-over-quarter basis, the group’s per-deal average fell $126.

“Our strategy and practice within the F&I segment of our business remains unchanged,” Kearney said, noting that third-quarter F&I revenues grew 7% vs. a year ago. “Disciplined execution of F&I sales, processes and training creates solid sustainable growth and results.”

The big news was the group’s parts and service business, which produced 60% of the incremental gross profit in the quarter. It was the main reason given for the group’s 43% jump from a year ago in net income, which totaled $32.5 million. Revenue increased 8% to $1.51 billion.

Parts and service revenues grew 9% from a year ago, while gross profit grew 12%. The year-over-year gross profit improvement was driven by an 18% increase in reconditioning work, a 25% increase in monetary work and a 7% increase in customer pay.

“For 2014, we believe we can continue to grow our customer pay parts and service business in the mid-single digit range while maintaining our current margins to our ongoing customer retention programs,” Kearney said, noting that the segment’s gross margin increased 170 basis point from a year ago to 62.5%.

Gains in all business lines also drove a 9% increase in gross profit from a year ago, which helped to push up Asbury’s operating margins from 4.2% one year ago to 4.4%.

Additionally, new-vehicle revenues increased 7% from a year ago, while gross profit grew 4%. New-vehicle retail sales grew by 6.7% from a year ago, while new-vehicle margins dropped 10 basis points from a year ago and 30 basis points from the prior month to 6%. Kearney noted, however, that the group grew its share in all regions and in all of brands on a quarter-over-quarter and year-over-year basis.

“Our new margins were down due primarily to a mix shift and the effects of increased volume-based manufacturer incentives,” the executive said. “I believe we can maintain new-vehicle gross profit per unit retail in a range of around $2,000 to $2,100 a unit.

“However, if these types of manufacturer incentives continue, we feel we could see continued pressure on margins,” he added.

Kearney noted that if the pace of sales remains similar to what was seen September and October, the industry could realize a SAAR of 16.5 million in the end-of-year quarter. “We’re currently planning for a SAAR in the mid-16 million-unit range for 2015.”

As for used, the group realized a gross profit increase of 1% from a year ago, which Kearny attributed to a 2% gain in unit volume. “We face two challenges: First, beginning the quarter with an elevated 42-day supply of used vehicle inventory, and, second, a decline in price environment pressured by increased manufactured new-vehicle incentives.

“Bringing these inventories down 23 million to a 130 million, or 35-day supply, by the end of the third quarter lowered our margin to 8.2%, a decrease of 30 basis points over the year-ago quarter results,” Kearney explained. “Going forward, we believe we can maintain used-vehicle margins equal to the third quarter year-to-date average of approximately 8.5%.”

The group also reported on its standalone used-vehicle stores branded under the “Q auto” name, with Asbury expecting to open its second store next month. The first store opened earlier this year in Brandon, Fla.

The Q auto outlets offer shoppers a one-person, one-price shopping experience, as well as the opportunity to reserve and buy any vehicle online through quato.com. And each vehicle sold is Q Protected, which means each vehicle comes with a five-day, unlimited mile return policy, Carfax’s buyback guarantee, has been put through a 75-point inspection and comes with a promise that the first dent or ding will be fixed at no charge.

Company officials said they expect capital investments of approximately $22 million in 2014 for the Q store platform. To date, the group has spent approximately $15 million on the initiative. However, the group doesn’t expect any capital commitment in the first quarter 2015.

“After seeing the result of their hard work over the last four months, we continue to remain excited about this opportunity as we launch our third Q auto store next month in Fort Myers, Fla.,” Kearney said. “I think the major parts of this that we’ve learned is that there are different ways to sell cars to consumers.

“We’re developing some technology that is different than we use in our other stores that is very promising and may be expandable in the future,” he said. “And we’re learning that there is a substantial amount of Internet business out there. So it has been a learning experience.”