MEDFORD, Ore. -

You know those high-mileage used vehicles that aren’t quite on par with your other pre-owned rides, but that might just be the right fit for someone out there? In the past, you may have sold these vehicles to local wholesalers and auctions, but one dealer group in particular is trying to capitalize on these cars for its dealers.

Lithia Motors’ Value Auto Program is “designed to allow all our Lithia stores the opportunity to sell high-mileage used vehicles, that in the past we sold to local wholesalers and auctions,” said Tim Freeborn, assistant vice president of used-vehicle operations at Lithia Motors.

 All vehicles sold with within the Value Auto Program have more than 80,000 miles, with no year limit.

“The Value Auto platform gives us the opportunity to service a broader range of customers and compete with the independent dealers in our markets, giving us the ability to sell and service all segments of the used-vehicle market,” Freeborn explained to Auto Remarketing.

This type of program also allows dealers to expand their customer base, marketing to lower-income customers and serving the whole community.

Though this program attracts subprime consumers, too, Freeborn explained that almost 50 percent of the buyers in this program are cash buyers looking for basic transportations for themselves or a relative.

An individual store leader develops a marketing plan that “focuses not only on retailing these less expensive vehicles, but driving business through purchasing and trades,” Freeborn said.

“The program develops customer loyalty in sales and our service departments,” he added.

 Responding to the Recession

The Value Auto Program is largely a result of the recent recession, during which the Lithia Executive and Used-Vehicle Department Teams were working on progressive strategies to maximize all segments of used-vehicle sales.

But the Value Auto program isn’t the only new development that came out of these discussions.

“We focused not only on selling the higher-mileage Value Auto vehicles, we also developed internal procurement plans with our core vehicles (model-years 2003 through 2008),” said Freeborn.

“This strategy helped our stores with quick turning sales, along with supporting our service department teams with additional reconditioning opportunities.  All of our Lithia stores have the Value Auto plan installed at all our locations,” he continued.

Now, more than five years later, Lithia Motors is reaping the rewards of this program.

“In 2012 our Value Auto Program increased 38 percent and the gross margin on these units was 21 percent,” said Freeborn.

The dealer group has high expectations for 2013, but sourcing quality used inventory still remains difficult in this tight supply environment.

“The  Value Auto Program has some interesting dynamics that comes with expansion and continuous improvement. Our biggest hurdle in the program is securing enough vehicles for our retail cycle. We continue to strive towards offering the most money on trade and purchase to our customers on every retail sale and procurement of inventory,” said Freeborn.

“We have not guided our Value Auto segment growth expectations for 2013, but we expect total used-vehicle growth to approach 10 percent.”

Dealer Response

Individual store leaders within Lithia’s network ascertain which Value Auto vehicles are kept for retail sale. And all vehicles pass Lithia’s 38-point vehicle inspections before they make it onto the lot.

“We strive to recondition and retail as many of our trades as possible through our service departments. This ensures safety and reliability of the vehicles we are selling. All other vehicles that do not pass the inspection are sent to our local auction partners, where they are offered for wholesale as one Lithia group sale,” said Freeborn.

“In addition, Value Auto vehicles also provide the marketing of less expensive vehicles  for all our Lithia stores; that helps drive Internet and floor traffic.”

And this approach is benefitting dealers. Just ask Jim Sterk.

The general manager of Idaho’s Lithia Ford Lincoln of Boise — Lithia’s No. 1 used volume store — said it has boosted numerous areas of the dealership’s business since the store adopted the program in 2008, not just the used-vehicle department.

Sterk said the program has “changed our culture a bit toward the less expensive cars,” leading to increased commission, service and parts, detail, bonus opportunities and more.

“It has created a volume bump in the store,” he added. “We were always trying to figure out how we could get our volume to exceed 200 units (per month); we would hover between the 125 to 175 unit mark and just couldn’t find a way to eclipse the 200-unit mark … We do so now quite regularly with the Value Auto line.”

Jason Lawrence, general manager at Lithia Oregon Klamath Falls Chrysler Jeep Dodge and Toyota stores, also expressed enthusiasm for the program.

“It has given us increased sales opportunities in our market. It has allowed us the opportunity to service more of our community, thus building additional relationships that we might have otherwise missed,” Lawrence said.

Both Sterk and Lawrence say their respective stores sell an average of 50 Value Auto vehicles a month. In fact, Sterk said this figure is “a number we’ve grown to count on.”

Lawrence also noted that this past March, the Klamath Falls stores sold 72 Value Autos.

Boise Ford uses mostly trade-ins from new and used unit sells to source Value Auto vehicles. And over at Oregon Klamath Falls, Lawrence said, “About 80 percent of the Value Autos that we sell are from trade-ins. The other 20 percent come from off the street purchases as well as some auction purchases.”

Sterk also gave Auto Remarketing some insight into the dealership’s Value Auto Customers.

“The misconception is that these cars sell to ‘subprime customers’ … not the case at all. All consumers are looking for a good value on a good reliable less expensive car. Not everyone buys and can afford new or late-model cars,” Sterk said.

Lawrence explained that this program allows families to purchase cars for their children or more easily add another vehicle to the household.

“It does allow us to serve more customers that we may have not seen without the program. It also allows us the opportunity to better serve our current customer base. Many of our current customers buy Value Auto vehicles for their children as well as second and third vehicles for household,” Lawrence said.

When asked if any particular models sell particularly well through the Value Auto Program, Sterk noted, “Consumer perception is that the higher-mileage imports are the better choices here, but we sell everything we can as long as it passes our inspection.”

 

Editor's Note: This article appeared in the May 1-14 print edition of Auto Remarketing.

 

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