Lithia Motors president and chief executive officer Bryan DeBoer isn’t backing down from his objective that each of the group’s 130 dealerships in 14 states turn at least 75 used vehicles each month. In fact, DeBoer pointed to a pair of reasons as to why the company can see a lift from the average of 57 used retail sales the group generated during the first quarter of this year.

During Lithia’s quarterly conference call, DeBoer noted how the wholesale supply of what Lithia calls its “core used-car product” is starting to “loosen,” in part because of the new-vehicle SAAR staying near at or above 16 million “for some number of years.”

With that situation in mind, Lithia dealerships being able to find vehicles that are 3- to 5-years-old, the group’s “core product,” DeBoer said, “We really believe that that’s a pretty easily accomplished task.”

And consequently, the vehicles that often come in via trade when Lithia moves a core unit can fill the lots of what Lithia calls its value auto department. These units typically have more than 80,000 miles and often are sold to consumers with subprime credit histories.

DeBoer mentioned the 27 DCH stores that came into the Lithia pipeline last year typically didn’t pull the value auto lever within the used-vehicle department.

“It is a slow process, and it was with Lithia,” DeBoer said. “No matter what they have, there is lots of opportunity with their top of funnel trade-ins. That’s probably the easiest way to get to those value auto cars.

“We’re really excited to see the early stages as some of the stores start to take hold in that value auto segment,” he continued. “And I know general managers and service management teams are working closely to be able to recondition those cars and then market those cars to consumers that may not have looked toward the DCH stores in the path for that type of vehicle.”

DeBoer went on to emphasize to investment analysts who inquired about Lithia’s used-vehicle objectives that the group is trying to think well beyond this year.

“We continue to focus on procuring core product and selling 75 used units per store per month. We believe that the increased availability of used cars presents a continued opportunity for our stores to increase unit sales in the future. This remains a top priority for our teams in 2015 and beyond,” he said.

“So as we look at the year going forward and we look at the supply sort of there, I think it really comes down to a belief that they can start to find these vehicles and buy those core products that take in those value vehicles,” DeBoer continued later in the call.

Reaction to FCA Pricing Moves

Switching to the new-model side of the business, analysts wanted to know Lithia’s reaction to the pricing modifications Fiat-Chrysler made recently. Currently, 18 percent of the group’s dealerships are FCA stores, selling Fiat, Chrysler, Dodge, Ram and Jeep vehicles.

Lithia executive chairman Sid DeBoer tackled that question since he’s a member of the FCA National Dealer Council.

“Obviously, we’re not excited about them changing what appears to be our margin. But in reality, it could work out in our favor,” he said. “They’ve brought themselves in line with where Ford and General Motors are in terms of a discount, in terms of MSRP. But in reality, they’ve got such a stair-stacked incentive program, if nothing else, it’s put more money available because they are not going to give up market share.”

DeBoer then cheered the new-vehicle sales momentum FCA has enjoyed for quite some time.

“They are on a roll. They’ve gained market share. I think for, what, 16 months in a row. I just don’t see them allowing that to impact sales at all,” he said. “So it could end up, there is more of the gross profit hidden from the customer then. If they put it back in the incentive drawer, it could help margins.

“So I’m not negative on it. I don’t like it. I think it’s nice to have a high price and some room to trade but that’s just the old fashioned car dealer in me,” DeBoer went on to say.

More Acquisitions?

Lithia didn’t offer any specific store names, but Bryan DeBoer divulged the group has identified more than 2,600 potential targeted dealership acquisitions.

The most recent move Lithia made wasn’t an acquisition; rather the group opened Subaru of Clearlake in Texas. The store is a new franchise the group was awarded from Subaru with which Lithia estimated will contribute approximately $45 million in annual revenues.

“The acquisition market is robust and we anticipate continued activity as independent dealers seek attractive exit strategies,” Bryan DeBoer said. “We remain focused on pursuing accretive acquisitions and will continue to add locations to our portfolio in the future.

“We are not solely looking at $500 million or $1 billion acquisitions,” he continued. “We’re still looking at our typical strategies where we buy $50 million to $70 million store size. And there is a pretty active market in that arena both in our exclusive markets and now in the metropolitan markets.”