MEDFORD, Ore. -

Lithia Motors is loving the results its used-vehicle division is generating — production such as used-model retail same store sales increasing by 22 percent during the first quarter.

But top executives are quick to point to the managers and personnel doing the day-in, day-out work to make each part of Lithia’s used department move on an upward track.

Lithia founder, executive chairman and chairman of the board of directors Sid DeBoer said, “The decentralized, entrepreneurial atmosphere that we’ve created at every store is attracting more and more of those people who have the capacity to grow used-car sales. That is a key talent that the best managers in this business have. It is a skill set. It’s not something you can do at corporate.”

DeBoer made that comment during a conference call with investment analysts on Wednesday — a session that kept returning to Lithia’s used performance.

The company reported that sales of certified pre-owned vehicles soared 39 percent year-over-year during the first quarter. Sales of what Lithia’s calls its core used product — vehicles three to eight years old — rose 13 percent. And sales from its Value Auto division — older models with more than 80,000 miles — jumped 29 percent, while gross margin on those particular units increased 22 percent year-over-year.

Lithia also broke down how a wider swath of its dealer network is contributing to that growth.

President and chief executive officer Bryan DeBoer indicated only six stores sold more than 90 used vehicles per month last year. In just the first quarter of this year, 20 Lithia stores surpassed that level, pushing the company’s overall Q1 used retail sales figure to 13,661 — which is 2,454 more than the same period a year ago.

“It’s an art on how to find and dispose of vehicles and our ability to attract and grow people in this segment,” Bryan DeBoer said about Lithia’s used-vehicle success, which he said is starting to embed itself in the “DNA” of the entire company.

Lithia is shooting for an average of 75 used-vehicle sales per month per store. The average in Q1 came in at 52. And Bryan DeBoer thinks Lithia can hit that target because of its Value Auto Program, which is only about three years old.

Auto Remarketing is spotlighting this segment of Lithia’s operation in the publication’s May 1-14 edition, which can be downloaded soon at digital.autoremarketing.com.

“The main driver is that ability to find core product — that three- to eight-year-old vehicle. As we get better at that, we continue to take more of those value autos in on trade,” Bryan DeBoer said.

“Our service and parts departments are getting very good at reconditioning these cars to a level that’s competitive in this new sector,” he contined.

“The other shocking thing, which I was never able to accomplish when I was a used-car manager, we have many of our stores out there today procuring Value Auto vehicles,” Bryan DeBoer went on to say. “We never looked at that as a key driver. Now that we are, it kind of busts the ceiling back off and allows you to grow at an even greater rate. We’re finding many pockets of the country to procure those vehicles.”

Other Q1 Performance Metrics

Lithia reported its first-quarter income from continuing operations came in at $21.9 million, or $0.84 per diluted share, up from $15.6 million, or $0.59 per diluted share in the same quarter a year ago.

Other Q1 operating highlights included:

—New-vehicle same store sales increased 22 percent.

—Service, body and parts same store sales increased 7 percent.

—SG&A expense as a percentage of gross profit was 69 percent.

The company went on to mention that first-quarter revenue from continuing operations increased $164.9 million or 22 percent to $903.1 million, up from $738.2 million a year earlier.

New Franchised Store and Acquisition Possibilities

Earlier this month, Lithia was granted a new franchise to sell Mini vehicles in Anchorage, Alaska. Bryan DeBoer indicated the store will be located next to the company’s Anchorage BMW location.

“Developing strong relationships with our manufacturer partners is a key to our success,” Bryan DeBoer said. “We appreciate the vote of confidence from Mini in awarding us the franchise. By understanding our customers and increasing our share of vehicles sold in each market we serve, we hope to find additional opportunities with manufacturers in the future.”

The new Mini store fits Lithia’s strategy of having standalone luxury stores in metropolitan markets while holding domestic and import brand locations in more rural areas. Surpassing 90 dealerships in its portfolio could be on the horizon for Lithia.

“The acquisition market is as active as I’ve ever seen it in the 20 years I’ve been doing it,” Bryan DeBoer said. “It’s shocking how much pent up demand there is sitting there.”

When asked by investment analysts, DeBoer thinks there is probably three-fold rise in the number of available acquisitions. But Lithia is taking a deliberate approach and the president and CEO explained why.

“The problem lies in that earnings have come back,” Bryan DeBoer said. “The multiples that were being paid during the recession were large multiples of five, six, seven times. Now that earnings are two or three times what they were in the recession, the amount of dollars it costs to buy a dealership isn’t quite as attractive.”

DeBoer acknowledged that Lithia usually considers 20 acquisition possibilities before making a move, “which shows you that the pricing is still a little out of whack.”

Bottom line: Is Lithia ready to make some acquisitions?

“I’m actually more optimistic because there are so many more leads out that than there were three months ago,” Bryan DeBoer said. “Again, when prices are high in our size markets because we don’t have a lot of competition with other buyers, we can kind of sit back. That will help bring the price back into our (return on equity) comfort level.

“It might take a little bit more time but I would definitely say there has been an acceleration of the last three months,” he went on to say. “I think we can expect something in the coming months and quarters.”

Nick Zulovich can be reached at nzulovich@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.