Lithia Motors is moving closer to its used-vehicle sales goal.

In its third quarter that ended Sept. 30, the Medford, Ore., new-car dealership group retailed an average of 67 used cars and trucks per store, per month. That was up from 65 in the year-ago quarter, said its president Bryan DeBoer.

Lithia’s goal is to sell an average of 85 used-vehicles, per store, per month, DeBoer said.

Over the last several years Lithia has been on a buying spree, acquiring single-line dealerships and large dealership groups.

The dealerships it purchases are typically underperforming their potential and sell significantly fewer used vehicles than the 71 units per month average sold by stores Lithia has owned for more than two years. The typical dealership Lithia acquires sells about 38 used-vehicles per month, DeBoer said.

“We are making incremental progress towards our goal of 85 used units per store, more than offsetting the effect of acquisitions that sell fewer used vehicles than our seasoned stores do,” DeBoer said during the company’s quarterly earnings conference call in October.

“I think our opportunity is coming in the three- to eight-year-old vehicle, which is still somewhat depressed,” he said. “And that’s what’s going to really take us up to that next level and get to that 85 units per store.”

Three- to 8-year-old cars and trucks Lithia calls “core” vehicles generate a gross profit margin of about 12 percent, DeBoer said.

The company’s gross profit margin on certified vehicles is 8 percent to 9 percent and its “value” vehicles over 8 years old yield a gross profit margin of about 18 percent, he added.

Publicly held Lithia operates 166 dealerships, representing 30 vehicle brands in 18 states.

This year, Lithia has opened one dealership and acquired 15 others. Its latest acquisition is Downtown Los Angeles Auto Group in Los Angeles, which it purchased in its third quarter.

Lithia chief financial officer John North said the company anticipates buying more dealerships, especially if the seasonally adjusted selling rate plateaus or slows down.

“Conversely, if the SAAR is strong, it’s going to keep acquisitions maybe on the sidelines a bit more,” North added.

Revenue grows, net income drops

Lithia’s net income in the quarter that ended Sept. 30 dropped 4 percent to $51.9 million compared to the same quarter last year. But its revenue for the quarter grew 18.7 percent to $2.7 billion compared to last year.

Used-vehicle retail sales accounted for $679.6 million of that revenue, which was a 17.0-percent improvement over last year’s third-quarter results. The company retailed 34,737 used cars and trucks in the quarter, up 17.2 percent.

The average selling prices of a used car or truck at Lithia dealerships slipped 0.2 percent to $19,565 in the quarter, and the average gross profit per used unit retailed dropped 2.5 percent to $2,264.

Lithia’s same-store retail used-vehicle revenue was up 1 percent to $2.3 billion, same-store used retail sales grew 3.3 percent to 30,133 units and same-store average gross profit per vehicle retailed was up 1.1 percent to $2,364.

Same-store sales of certified used vehicles account for about a quarter of those sales but were “down a little bit” from July through September, DeBoer said.

In the quarter, same-store certified unit sales volume decreased 4 percent, core unit volume increased 7 percent and value auto unit volume increased 4 percent.

‘Mining core product’

“When certified are pretty plentiful, which they are now, they’re easy to find, which means we can spend our time on going and mining core product and value product, which is where we make all of our money,” DeBoer said.

As of Sept. 30, Lithia’s days’ supply of used vehicles stood at 63, up from 57 on the same day last year. North said the uptick in used-vehicle supply is a result of the company ramping up used inventory before cost of sales catches up.

“When you look at the aging overall, we’re really comfortable with where the level is,” North said. “We think that those are investments. That’s the incremental dry powder we’re trying to unlock.”

Lithia’s retail new-vehicle sales in the quarter grew 18.6 percent to 45,570, and average gross profit per new vehicle retailed dropped 2.1 percent to $1,932. The average new vehicle selling price rose 1.2 percent to $34,169.

Lithia reported that F&I revenue in the quarter was up 15.2 percent to $101.0 million and that average F&I gross profit per unit slid 2.4 percent to $1,258. F&I gross profit generated by recently acquired dealerships ranged from $800 to $1,100 per unit while it was “running north of $1,400 a copy” on Lithia’s more seasoned stores, said Christopher Holzshu, Lithia executive vice president and chief human resources officer.

Of the vehicles Lithia retailed in the quarter, it arranged financing on 72 percent, sold a service contract on 45 percent and sold a lifetime oil product on 26 percent, North said