The used-vehicle department at Lithia Motors turned in another sterling performance during the third quarter as the dealer group reported double-digit improvements in both same-store and overall used-retail sales.
On a same-store basis, Lithia indicated the rise came in at 11 percent. Altogether, group stores retailed 29,636 units during Q3, representing a 13-percent jump year-over-year.
What Lithia accomplished with its used division helped the company generate the highest third-quarter revenue and earnings per share in its history.
The company shared when it released its Q3 financial statement on Thursday that unadjusted net income totaled $54.0 million, or $2.14 per diluted share. That’s up from $43.4 million, or $1.64 per diluted share, for the third quarter of last year.
Lithia calculated that adjusted net income for the third quarter was $52.0 million, or $2.06 per diluted share, compared to the year-ago figures of $53.6 million, or $2.03 per diluted share.
The company’s Q3 revenue increased by 9 percent, or $185.1 million, to $2.3 billion.
Helping to enhance that figure was how Lithia’s dealerships turned new metal, too. The company turned 38,417 new models during Q3, marking a 2.7-percent lift year-over-year.
While Lithia retailed more units both in the used and new departments during Q3, the dealer group saw gross profit per unit soften a bit again. On the new side, grosses dipped by 4.3 percent to $1,974 while used grosses ticked 2.3 percent lower to $2,322.
Helping to offset that pressure was how Lithia’s F&I gross profit per unit posted a 7-percent jump to come in at $1,289.
Looking ahead, Lithia leadership rattled off a wide array of projections for 2017, which included:
—New vehicle same store sales increasing 1.5 percent
—New vehicle gross margin of 5.5 percent to 5.7 percent
—Used-vehicle same-store sales increasing 5.5 percent
—Used-vehicle gross margin of 11.5 percent to 11.7 percent
—Finance and insurance gross profit of $1,270 to $1,295 per unit
“Though considerable opportunities remain, we delivered record results in the third quarter,” Lithia president and chief executive officer Bryan DeBoer said in the company’s news release accompanying its Q3 results. “Our store leadership increased revenue in all departments, though selling expense grew slightly.
“In the moderating new vehicle sales environment, sustaining sales volume and taking market share from our competitors is crucial to future incremental used vehicle and service transactions, and maintains high performance levels for our manufacturer partners to earn continued support for acquisitions,” DeBoer continued.
“Our entrepreneurial leaders are adjusting to the dynamic marketplace and will seek continued earnings growth in the future,” he went on to say.
Executive promotions
Lithia also mentioned some top executive moves when it shared its Q3 report.
Effective Jan. 1, Chris Holzshu, who currently is senior vice president and chief financial officer, will be promoted to executive vice president and chief human resources officer.
Meanwhile, John North, who currently serves as vice president of finance and chief accounting officer, will be promoted to senior vice president and chief financial officer.
“Given our ambitious growth objectives, ensuring we maximize employee potential to further improve our performance-based culture is critical to our success,” DeBoer said.
“Chris' promotion emphasizes the importance of each and every team member and how accelerating employee development to earn customers for life is vital to our future,” DeBoer continued. “As executive vice president, Chris will lead our human resource, information technology and store administration teams.
“Additionally, I am pleased with the success of our leadership development as demonstrated by John's promotion to CFO,” DeBoer went on to say. “Both Chris and John exemplify our core values of continuous improvement and personal ownership.
“On behalf of the entire organization and our board of directors, congratulations,” he added.
Group 1 Automotive saw a 2.2-percent bump in its used vehicle revenues during the third quarter, thanks to higher unit sales.
When eliminating for the effects of exchange rate fluctuations, i.e. adjusting for constant currency, that increase was 4.8 percent.
Consolidated results (representing the company’s U.S. and international operations) for the three months ended Sept. 30 show that Group 1 retailed 33,012 used units, a 1.6-percent increase from the same period a year ago.
During a conference call with investors, president and chief executive officer Earl Hesterberg said the average used-vehicle selling price increased 0.6 percent (3 percent on a constant currency basis. Used-vehicle retail gross profit increased 2.9 percent (1.1 percent on a constant currency basis).
In the U.S., Group 1 retailed 27,201 used units in the third quarter, down 1.7 percent from a year ago. But for the first nine months of the year, U.S. used units sales were at 80,888, up 1.6 percent year over year.
Gross profit per used vehicle was $1,441 in the third quarter — down slightly from last quarter but with what the company anticipated for the latter half of the year.
Hesterberg noted that U.S. used-vehicle inventory stood at 13,500 units, representing a 33-day supply. As far as units under a stop sale, he said that was less than 4 percent of used inventory.
Responding to a question from an investor later on in the call, Hesterberg said the increase in used supply does put some pressure on margins.
“But the good news is, the used-vehicle market appears to be quite strong, even in a market like Oklahoma, where new-vehicle sales were down 18 percent but used were down only 2 percent to 3 percent, and some months the market is still somewhat flat on used. But yes, there is more supply, which will give us some volume opportunity, but will probably have a little bit of margin trade-off.”
Another investor asked what Group 1 was seeing in terms of leasing, given that the industry sits north of 30-percent lease penetration and is bracing for a flood of end-of-term vehicles to begin hitting the market.
“My impression is that OEMs are starting to back off or slow down a little bit on leasing,” Hesterberg said, adding that “leasing is not as big for us because of our geographic concentration in the South Central U.S., where it’s about 17-percent leasing, whereas the industry is, as you say, closer to 30 percent. So it’s not the same concentration for us, because leasing is quite heavy in the northeastern U.S. and California.
“But with used-car values likely having peaked sometime in the past, my impression is the OEMs are starting to become a little more prudent about how aggressive they get in pushing higher levels of leasing.”
Lithia Motors completed its third dealership acquisition in less than a month by securing Audi Auto Gallery in Woodland Hills, Calif.
The dealer group indicated on Thursday that the store will be relocated to Calabasas, Calif. and named Audi Calabasas, adding an additional $120 million in estimated annual revenues.
In the middle of September, Lithia expanded its East Coast operations, announcing that it acquired the nine-store Carbone Auto Group that operates in New York and Vermont.
Then before the month closed, Lithia brought on one of the largest franchised dealerships in Wyoming with the acquisition of Greiner Ford Lincoln of Casper, Wyo.
Following the announcement of this Audi store in California, Lithia president and chief executive officer Bryan DeBoer said in a news release, “We are excited to extend our recent cadence of acquisitions by welcoming our new team to the Lithia family. We look forward to providing the community of Calabasas wonderful customer service through its first exclusive Audi dealership.
“This acquisition brings our cumulative 2016 annualized acquired revenue to over $1 billion,” DeBoer continued. “We believe that considerable acquisition opportunities remain that require an equity investment at the low end of our 10 percent to 20 percent of revenue guideline.”
Wyoming might be small in terms of population, but Lithia Motors now has one of the largest franchised dealerships in the state.
Lithia recently acquired Greiner Ford Lincoln of Casper, Wyo., in a move to secure a store that will add an additional $75 million in estimated annual revenues, according to the dealer group.
“We are pleased to welcome the newest members to the Lithia family,” said Lithia president and chief executive officer Bryan DeBoer. As the largest standalone dealership in Wyoming, Greiner is a quintessential example of our Lithia exclusive market strategy. Their proven leadership will serve as a generator of operational talent to expand beyond our current footprint of 152 stores.
“The addition of Greiner Ford brings our 2016 acquisition activity to a cumulative revenue total of nearly $1 billion,” DeBoer continued. “We believe that considerable acquisition opportunities remain and that our entrepreneurial driven model can continue to deliver industry-leading returns on these investments.”
Lithia Motors Inc. announces the grand opening of a Volkswagen franchise in Freehold, N.J.
Operating as DCH Volkswagen of Freehold, the store is expected to add $35 million in annual revenues.
“We are pleased to expand our partnership with Volkswagen and to increase our presence in New Jersey, as DCH Volkswagen of Freehold is our fourth store in the Freehold market,” said Bryan DeBoer, Lithia’s president and chief executive officer. “This allows us a greenfield expansion opportunity as we continue to grow our store footprint in both DCH and Lithia markets.”
Lithia Motors purchased DCH in 2014, creating one of the United States' largest dealership chains.
This week, Walser Automotive Group, one of the largest dealer groups in Minnesota, announced that it has completed the acquisition of Wichita Luxury Collection, a luxury automotive retailer in Wichita, Kan.
Officials highlighted the award-winning Wichita Luxury Collection (WLC) brings 10 luxury brands — including Acura, Audi, BMW, Jaguar, Land Rover, Lexus, Mercedes-Benz, MINI, Porsche and AMG — to Walser’s existing 15 franchises.
“The Wichita Luxury Collection offers a unique luxury experience unlike any other in the retail automotive arena,” chief executive officers Paul and Andrew Walser said. “We’re grateful that the city of Wichita has welcomed us.
“All of these outstanding franchises are new to Walser, so we're excited to offer a much greater selection to both our current and future customers,” they continued.
The group indicated Bobby Cuillo will remain as managing partner of Wichita Luxury Collection and will run daily operations, customer, vendor and manufacturer relationships, and will be responsible for growing the luxury collection brand in and outside of Wichita. Cuillo has been with WLC since 2008 and has been crucial to the addition of the Audi, Land Rover, MINI, BMW and AMG franchises.
After more than 50 years at the helm, Vic Scholfield, Tom Devlin and Steve Hatchett — the other partners of WLC — felt it was time to retire.
“We would sincerely like to thank these great automobile franchises for giving us the honor of representing them in the Wichita area,” Hatchett said. “We would also like to thank our thousands of valued customers for their loyalty and our wonderful employees for their dedication and professionalism all these years.
“We wish the Walser organization and our partner Bobby Cuillo the best in the future,” Hatchett added.
Walser believes ownership of Wichita Luxury Collection will allow it to grow and serve the Wichita community in ways never before possible. WLC will remain a locally run, locally operated business, but with the depth and bench of talent of a much larger entity.
"We are very fortunate that all of our manufacturers have embraced Walser and are excited for this next chapter in the history of our exciting growth,” Cuillo said. "This was a natural fit for us, since both Walser Automotive Group and Wichita Luxury Collection have an extraordinary commitment to customer and employee satisfaction.
“Once again, we will raise the bar on a true luxury experience,” he went on to say.
The Blue Sky Report from Kerrigan Advisors released on Monday highlighted that the number of large, multi-dealership transactions rose by 52 percent year-over-year during the first half of 2016.
Along with seven other key findings from its analysis of the first six months of the year, Kerrigan Advisors found there was a decline in overall transaction activity. However, the firm also noticed the average size of transactions rose significantly.
Laying out the high, average and low multiples for each franchise in the luxury and non-luxury segments for the quarter, the report mentioned seven other key findings, including:
• 32 multi-dealership transactions completed.
• 22-percent increase in average transaction size as average dealership group sold represented more than three franchises.
• 16 percent decline in overall transaction activity.
• Dealership group sellers spurred by retirement, estate planning, lack of a succession plan and rising real estate prices.
• Domestic buy/sell market share increases as buyers attracted to higher return on investment versus imports.
• Private buyers continue to drive the market as publicly traded dealerships’ market caps decline.
• Publicly traded dealerships, as a group, sold nearly as many dealerships as they acquired.
“Many owners of multi-franchise groups, particularly those at or near retirement, are capitalizing on their ability to sell their groups to a single buyer in today’s market,” said Erin Kerrigan, managing director of Kerrigan Advisors.
“Even with the exit of most of the public buyers, private buyers and new entrants remain active and are often attracted to the scale provided by larger group acquisitions,” Kerrigan continued.
“And, while the activity level in the first half of 2016 was lower than the first half of 2015, if annualized it would exceed the number of transactions completed in 2014,” she went on to say.
The report also identified three key trends for the second half of this year, including:
• Transaction sizes will continue to rise.
• Public valuation declines in the first half of the year portend potential private valuation declines.
• The quality of current and future sales may weaken.
“While buy/sell activity declined in the first half of 2016 for the first time since the recession, driven primarily by the exit of most public buyers, we expect the pace of acquisition activity to increase in the second half of 2016, as private buyers and new entrants continue seeking sizable acquisitions and sellers continue to capitalize on attractive valuations,” Kerrigan said.
“But it must be noted that the decline in the public dealership values as noted by The KAR Index may portend a decline in future private values and the quality of industry sales may be weakening, increasing industry risk and resulting in lower dealership earnings,” she added.
The Blue Sky Report is published four times a year and includes Kerrigan Advisors' signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. The multiples are based on Kerrigan Advisors’ view of franchise values in the current buy/sell market and can be applied to adjusted pre-tax dealership earnings to estimate blue sky value.
The complete report can be downloaded here.
Asbury Automotive Group said through social media accounts earlier this week that the head of its Q auto program, Casey Coffey, will also take on the role of national used-car director for the dealer group.
Coffey will continue to lead the Q auto program, which includes standalone used-car retail stores.
“Casey is a proven leader who is very knowledgeable about our business. We look forward to the new level of performance and excellence Casey will foster with Asbury’s Used Vehicle Department,” the Facebook post from Asbury said. “Please join us in congratulating Casey in his new role.”
Hendrick store relocates
In other news from dealer groups, Hendrick Automotive Group announced that its Hendrick Honda of Charleston has relocated from 1478 Savannah Highway in Charleston, S.C., to 1539 Savannah Highway.
The store is now adjacent to Hendrick Hyundai of Charleston.
“We’re grateful for the opportunities we’ve had in Charleston over the past 36 years,” Rick Hendrick, chairman of Hendrick Automotive Group, said in a news release.
“Not only is it a popular tourist destination, it’s also a terrific place for our customers and more than 800 of our team members to live and do business,” he added. “We are committed to the community, which includes our continued investment in the revitalization of the West Ashley area.”
Hendrick Honda of Charleston general manager Wendell Hairfield added: “We couldn’t grow into a new facility without a focus on our employees and customers. With the addition of 25 more team members, an expanded retail area, extended service drive and the latest interactive product technology, this dealership is a benchmark location for Honda in the Southeast. It will provide an incredible overall experience for our retail and service customers.”
Lithia Motors president and chief executive officer Bryan DeBoer projected it would be “an extremely busy second half” of the year pertaining to the dealer group’s acquisition activity. On Thursday, Lithia backed up DeBoer’s comments when the company shared its second-quarter financial results.
Lithia has acquired Kemp Ford in Thousand Oaks, Calif. The company indicated the store will be renamed DCH Ford of Thousand Oaks and will add $65 million in estimated annual revenues.
“We are pleased to welcome DCH Ford of Thousand Oaks to our team,” DeBoer said. “This store marks the third acquisition for our DCH platform this year and complements our existing operations in southern California.
“We are excited to expand our relationship with Ford and further diversify our brand mix,” continued DeBoer, who now has eight Blue Oval franchised stores in the portfolio. “We remain focused on continued acquisition growth within both rural and metropolitan markets in the future.”
Findlay Automotive Group recently purchased a Jaguar franchise to add to its Land Rover Las Vegas store. The franchise was previously owned by Gaudin Automotive Group, which managed it for nearly 30 years.
The transaction was completed July 1. Financial details were not disclosed.
As the only exclusive Jaguar Land Rover Centre in Southern Nevada, Jaguar Land Rover Las Vegas has become a leading retailer in the western United States.
“This is an extraordinary milestone for the luxury automotive sector in Las Vegas,” Ray DiNardi, general manager of Jaguar Land Rover Las Vegas, said in a news release.
“The addition of the Jaguar brand to our existing Land Rover franchise will allow Jaguar Land Rover Las Vegas to offer the Las Vegas and surrounding communities with our elite fleet of vehicles while delivering the superior customer experience our patrons have come to expect.”
The recent launch of the Jaguar F-PACE helped propel Jaguar Land Rover to its best-ever May, with retail sales jumping 18 percent. This was the company’s fifth consecutive record-breaking month. On the certified pre-owned side, the Land Rover brand sold 1,675 units in June (up 25.7 percent year-over-year), according to Autodata Corp., its best-ever CPO month.
“We couldn’t have acquired this brand at a better time,” continued DiNardi. “The new generation of Jaguar has completely revolutionized the Jaguar lineup. With the additions of the all-new Jaguar XE and Jaguar F-PACE, we are poised for instant growth at Jaguar Land Rover Las Vegas and are confident the brand will continue its radical progression.”
While sales are expected to grow, management has emphasized its continued commitment to philanthropic and civic efforts that support the Las Vegas community.
“We are an active organization in the community, sponsoring the Boy Scouts, The American Diabetes Association and various other charitable organizations,” DiNardi said. “Jaguar Land Rover Las Vegas is also proud to support The Conservation Fund. Our efforts have resulted in planting over 5,000 trees that have offset over 6,400 tons of CO2 to date, and we take great pride in continuing our support for these causes.”
Jaguar Land Rover Las Vegas is located at 5255 W. Sahara Ave. Store information may be found at jaguarlv.com and lrlv.com.
