MEDFORD, Ore. -

To hit a target of selling an average of 75 used vehicles per store monthly, Lithia Motors is looking to get its dealerships selling what it calls core units — models 3 to 7 years old — at the same level they’re turning certified pre-owned vehicles and what it dubs value autos, units with more than 80,000 miles.

Lithia president and chief executive officer Bryan DeBoer spent some time on Wednesday explaining how group dealerships can reach this mark when the company shared its record-filled second-quarter performance, a span in which CPO sales jumped 39 percent and value auto sales increased 30 percent, while sales for those core vehicles moved only 8 percent higher.

DeBoer admitted finding those core vehicles isn’t an easy process, since they mainly come from model years in which automakers reduced output as the recession hit.

“The biggest thing we work on with our store general managers and used-vehicle managers is opening up the five basic channels of how you procure cars,” DeBoer said. “Make sure we’re paying enough to our customers when we’re taking them in on trade. Working with auctions to be able to procure them whether it’s online or in the lanes. Working with other dealers. Working with wholesalers and buying cars off the street.

“We have wonderful reporting that allows us to look deeply into where we procure cars and where we divest cars to make sure that each and every store has those channels open,” he continued.

Lithia stores averaged 54 used retail vehicle sales during Q2, up from the year-ago average of 47. The company turned 13,457 used models in the quarter, a 16-percent jump year-over-year.

Average gross profit on those units also rose this past quarter as Lithia reported an $88 increase to $2,757, a figure $500 higher than the group saw for new models.

It’s that potential that has Lithia so driven to change the mindset about used-car potential away from a position DeBoer admitted can be found in nearly 50 percent of the company’s dealerships.

DeBoer explained some group stores either, “built their business off of new vehicles and focused gaining market share in new and they have tendencies to forget about used. Or they’re not confident in buying the cars and the really believe that if they have to pay a higher amount for a car rather than take it in on trade they can’t make the margin and they won’t be able to accomplish their goals.

“They’re very nervous about wholesale losses and the downstream effect of buying a car that’s more expensive than a trade-in,” he added.

So how does Lithia turn things around to strengthen its used-vehicle department even more to hit that 75-unit average?

DeBoer told investment analysts wondering the same thing that it’s about educating the staff at group dealerships.

“I believe it’s more of a training thing, the DNA in your people to understand and who are acceptant of the risk that it takes to go and find cars,” DeBoer said.

“As a new-car dealer, it’s very easy to get into the mode that trade-ins are the easiest thing and you don’t necessarily have to pay full market value because to some extent you have a captive customer,” he continued. “You can get lax in terms of what you really have to do to be able to buy cars. That mentality and that DNA are rebuilding in our organization and we’re challenging our teams each and every day to be able to accept a little bit of a risk to be able to go deeper into the market to find the right cars that sell quickly.”

DeBoer conceded that Lithia drained some of the used-vehicle expertise from group stores to create a centralized endeavor back in 2004, 2005 and 2006, a move he said, “damaged that DNA. I think we’re still feeling that.”

Nonetheless, DeBoer is confident Lithia’s stores can reach a performance level he enjoyed back when he was in the day-to-day trenches of a dealership. He said his team pushed the store to a ratio where it was selling three used models for every one new unit.

“It’s not as easy as going in and changing compensation plans,” DeBoer said. “When you’re buying cars, you have to make sure your customers understand that you’re stocking another level of car. You have to make sure your salespeople have the ability to sell those cars and most importantly your management staff has to believe in the cars they’re buying and buy the right cars.”

Lithia’s Record Q2 Performance

Lithia reported the highest quarterly adjusted net income in company history and a 42-percent increase in adjusted net income per share from continuing operations for the second quarter over the prior-year period.

The company highlighted its Q2 adjusted income from continuing operations came in at $27.4 million, or $1.05 per diluted share, up from the year-ago levels of $19.4 million, or $0.74 per diluted share.

Lithia indicated its unadjusted net income from continuing operations for the second quarter came in at $25.3 million, or $0.97 per diluted share, up from $20.0 million, or $0.76 per diluted share in the prior-year span

Beyond the used-vehicle performance, Lithia also mentioned:

— New-vehicle same store sales increased 19 percent.

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

— Adjusted SG&A expense as a percentage of gross profit decreased 330 basis points to 66 percent.

Lithia’s Q2 revenue from continuing operations increased $186.2 million, or 23 percent, to $1.0 billion from $822.3 million in the second quarter of last year.

“We exceeded $1.0 billion in quarterly revenue for the first time in our history,” DeBoer said. “The combination of acquisitions and same store sales growth increased revenue by 23 percent over the prior year. Our adjusted net income from continuing operations increased 41 percent from the prior year, significantly above the growth in revenue, as we increase our operating leverage.

“Based on our results through the first six months of the year, we are well on our way towards the first milestone for growth we established late in 2012, where total revenue increases by 25 percent from full-year 2012 results,” he continued.

For the first six months of year, Lithia reported that adjusted net income per share from continuing operations increased 42 percent to $1.89 compared to $1.33 for the first six months of last year.

Unadjusted, for the first six months of 2013, net income from continuing operations came in at $1.81 per diluted share, compared to $1.39 per diluted share for the first six months of 2012.

“Adjusted SG&A as a percentage of gross profit was 66.0 percent in the second quarter, and 67.5 percent for the first six months of 2013,” Lithia senior vice president and chief financial officer Chris Holzshu said. “This is a record result and is primarily a result of our stores’ continued focus on maintaining incremental throughput, or the percentage of additional same-store gross profit dollars that we retain after deducting selling costs, above 50 percent.

"On a same-store basis and adjusted for certain non-core items, incremental throughput was 56.5 percent in the second quarter and 52.9 percent for the first six month of 2013,” Holzshu added.

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