Contributions from acquired businesses, a growing e-commerce platform and successful navigation of the supply and demand environment.

Those are factors that Lithia & Driveway ) president and chief executive officer Bryan DeBoer listed as helping the company achieve record annual 2021 revenues of $22.8 billion.

“[Lithia & Driveway] has a track record of exceeding targets through strong execution in any environment as demonstrated in the 18 months since the launch of its 2025 plan, the 25 years since becoming a high-growth public company, and our 75-year history since our inception here in southern Oregon,” DeBoer said.

DeBoer made his remarks during LAD’s 4th quarter 2021 earnings call that took place on Feb. 9, saying the company achieved the highest adjusted fourth quarter EPS in its history at $11.39 per share, which was a 109% increase over last year. Its full-year adjusted EPS of $40.03 was also a record and a 120% increase over the previous year.

Used-vehicle sourcing

As of Dec. 31, LAD’s supply of new vehicles was at 24 days. The company showed a 61-day supply of used vehicles.

“Our teams excelled in increasing used-vehicle volumes to offset the decline in new volumes, with same-store sales revenues up 39% and volumes up 11% compared to last year,” said Chris Holzshu, chief operating officer for Lithia, who added that used-vehicle gross profit per unit, including F&I, increased 37% over last year.

Holzshu elaborated on the sourcing situation, saying that the company’s store leadership team is taking actions that are within its control.

“For new vehicles, this means increasing our sales velocity and exceeding manufacturer expectations, allowing us to take market share and obtain incremental allocations,” Holzshu said.

Holzshu continued, “For used vehicles, it’s increasing the proportion of vehicles we're sourcing directly from the consumer and vehicles we retail versus wholesale and retain in our network.”

Lithia sourced 74% of used vehicles direct from consumers in the fourth quarter, with 26% coming from other channels such as auctions, other dealers, or wholesalers. Lithia in the quarter increased the percentage of vehicles it sourced from consumers by 8%, earning more than $1,400 more in gross profit and turning them 14 days faster.

Acquisitions

Lithia in its Feb. 9 earnings release noted that in the fourth quarter it completed several acquisitions expected to contribute $700 million in annualized revenue. This year, the company has acquired three California stores from the Sullivan Auto Group, and one of those is Roseville Toyota, one of the highest-volume Toyota stores in the United States, according to the release. The other stores are John L. Sullivan Chevrolet and John L. Sullivan Dodge Chrysler Jeep Ram.

"Since the launch of our 2025 Plan 18 months ago, we have acquired over $11 billion in annualized revenue," DeBoer said in the release, addressing Lithia’s 2025 Plan to achieve $50 billion in revenue by 2025.

He continued, discussing Driveway, which is Lithia’s e-commerce platform. “Increasing our network fuels Driveway's growth, our overall size and scale and ability to further expand our competitive advantages in used-vehicle procurement, reconditioning, and logistics. LAD's reputation in the marketplace and the magnitude of the deal pipeline makes us confident in our ability to strategically expand our network while meeting our disciplined return thresholds.”

E-commerce

DeBoer noted that in January, which was the 13th month since the inception of Driveway, the company achieved more than 2,000 transactions.

“In addition, 28,000 of our Lithia channel sales in Q4 were e-commerce, representing a combined annual revenue run rate of $6 billion in LAD e-commerce revenues,” DeBoer said.

He later talked about Lithia’s 2019 launch of greencars.com, which he described as an educational site and marketplace for consumers to research the environmental benefits, performance, and affordability of sustainable vehicles.

He said Lithia this year will continue upgrading and boosting the GreenCars marketplace with Driveway 's proprietary new and used technology.

Supporting that will be what he said would be a “20-fold increase” in the company’s marketing spending to champion education about sustainable vehicle ownership.

“In addition, our early learnings have shown that these affinity buyers convert at a higher rate, and cost about half the amount of our other e-commerce leads,” DeBoer said.

Moving on to discuss aftersales, DeBoer said sustainable vehicles appear to have lower repair and maintenance needs than comparable internal-combustion vehicles through their first seven to 10 years of ownership.

“Now that we are approaching the expected battery replacement windows for Gen 1 BEV and PHEVs, ultimate affordability will become much clearer,” DeBoer said.

Limited data still exists today on battery replacement and the impact it will have on total ownership costs, residuals, or salvage values, he said.

“Combined with income streams from battery replacements and reconditioning, LAD in-home service offerings, proprietary diagnostic service equipment, and expanded customer retention through longer warranty periods on sustainable vehicles will enable us to both retain and conquest business from third-party after-sales competitors,” he said.

Supply, demand navigation

An analyst asked during the Q&A portion of the earnings call whether Lithia saw consumer hesitation toward elevated prices and whether the “lower-end consumer” was constrained in that area.

“I think the easy answer is absolutely not,” Holzshu said.

Holzshu continued, “As fast as we are replenishing our new-car inventory, which started off January probably in the best position that we've seen since last summer, we’re able to retail out of those units at the consistent margins that we've seen really in the back half of the year. So, demand is very high right now and we're taking advantage as much as possible in both new and used in that capacity.”

Describing last year as “one of the most challenging years ever in automotive retail,” Holzshu acknowledged the achievements of his company’s 22,000 team members. He said the company saw through the pandemic and inventory shortages to achieve record levels of profitability and continue to evolve the business to ensure that all customers can “buy, sell, or service their vehicles wherever, whenever, or however they desire.”

Holzshu said, “This also enabled the company to significantly outperform our 2021 annual operating plans and set us up for another year of high performance in 2022.”