Lithia Motors generated double-digit gains in same-store used-vehicle retail sales during both the fourth quarter and all of 2019 at 17% and 14%, respectively.
Dealer group management is eyeing even more growth this year and not just through what top Lithia executives called the “easy entrance point” of the used-vehicle space. Bottom line: Lithia wants each of its rooftops to turn 100 vehicles monthly, which would represent an 18% increase over its previous target of 85 units.
During the fourth quarter, Lithia stores turned 77 units per month on their way to 42,740 retailed used vehicles. The dealer group turned 170,423 used vehicles in 2019, up from 151,234 units a year earlier.
“Our experienced used-car managers remain focused on leveraging innovation to expand procurement of more used vehicles, which is the primary path to improving volumes,” Lithia executive vice president and chief operating officer Chris Holzshu said during the company’s fourth-quarter conference call.
“In addition, we’re looking closely at the 50,000 used vehicles we wholesale annually to ensure we capitalize on every opportunity we have to retail those vehicles,” Holzshu continued.
“Given the confidence we are gaining in the digital solutions that enable us to buy and sell more used vehicles, we have increased our target to sell at least 100 used units per location per month,” he went on to say while mentioning later in the call that some Lithia stores already are surpassing that goal.
Along with leveraging its wholesale strategy and relationships with more than 200 auto finance companies, Lithia highlighted that each segment of its used business produced gains in 2019. The company said sales in its value auto segment rose 12% while its core used vehicles climbed 21%. Lithia added that its certified pre-owned sales moved 8% higher.
It’s in that value segment — older, high-mileage vehicles that often are trades — where Lithia believes it can generate the most activity to reach its sales target. Lithia president and chief executive officer Bryan DeBoer explained.
“Getting into scarcer vehicles has lots of risk and without massive expertise in reconditioning, in sales, in guarantees and promises to our consumer. It’s not something that most people want to get into, because it’s messier. It also requires deeper financing sources, more specific and more unique financing sources,” DeBoer said.
“What you’re starting to see is the new entrants are pretty good at the 1- to 5-year-old vehicles, which is something that is attractive and there’s a plentiful supply of vehicles. And many of those (vehicles) don’t necessarily come from a new-car dealership. It comes after new-car dealerships decide they don’t want the car and they’re able to buy those cars at auction.
“So it’s the easy entrance point, whereas we believe that the profitability in both reconditioning, as well as in having people enter the Lithia family earlier, comes from those lower price vehicles,” DeBoer went on to say. “And our people are excellent at being able to recondition those vehicles and find those vehicles.”
“We’re more aggressive in terms of procurement of those vehicles,” he added. We believe that core and value are part of the promise of Lithia Motors gives to our customers when they’re at a new-car store. There are tendencies that consumers believe that they can’t buy cars that are a value or within their price range. What we provide is this is a great experience for them to be able to buy at a professional facility and be serviced in a professional manner.”
When asked again about retailing older used vehicles when late models are plentiful, Holzshu elaborated about why Lithia is leveraging this strategy to strive toward 100 retail sales per rooftop.
“As Bryan mentioned, there’s a lot of work that goes with it where our used car managers have to in some ways roll up their sleeves, get out and buy vehicles,” Holzshu said. “Right now, only a third of the used cars in the U.S. are sold through new-car dealers, and there’s no reason that number shouldn’t be much higher.
“Our whole focus right now is just to educate our stores on what the opportunity is, make sure that they have the resources, the capital, the expertise, the technicians, the reconditioning to be able to get those vehicles through the shops on the front lines and get them financed,” Holzshu continued. “There’s a lot of pieces that go into that, but it’s really about the people and the talent.”
Also of note from its latest financial statement, Lithia shared how several other portions of its business performed well as the company set a new record for quarterly revenue at $3.3 billion and for the full year at $12.7 billion.
Lithia reported used-vehicle gross profit per unit finished this year at $2,157 while F&I gross per unit came in at $1,478.
The group pointed out service, body and parts same-store sales increased 7% year-over-year.
“Our stores and their phenomenal teams continue to be focused on creating convenient and transparent consumer experiences to generate our strong results,” DeBoer said.
And soon after releasing its financials, Lithia acquired a pair of Lexus stores in California.
“With over $1 billion in liquidity through our cash, availability on our credit facility, and unfinanced real estate, we remain well positioned to take advantage of the robust acquisition market in 2020,” DeBoer said.