MEDFORD, Ore. -

After articulating various points about what he’s so upbeat about the dealer group’s used-vehicle department current and future performance, Lithia Motor president and chief executive officer Bryan DeBoer staunchly defended how the company is fending off what the investment community is seeing as would-be challengers that operate solely online.

During Lithia's latest conference call, when it highlighted its first-quarter results — which included nearly 31,000 used-vehicle retail sales — one participant didn’t mention the online retailer by name but made an insinuation regarding Carvana since that operation recently rolled out plans for an initial public offering. When the questioner asked how Lithia can compete with retailers such as Carvana that function online and go to the potential buyer where they are, DeBoer began by stating, “Lithia Motors is already there.”

DeBoer said the dealer group “probably” sells 40 percent of its used vehicles via what he called “end-to-end solution.”

He continued by saying, “I really believe that auto retailers have built a model that’s an end-to-end solution, where it’s a living room to living room model. We have applications, we have websites, and we have the inventory to do that and we do it at a profitable level, an extremely profitable level.

“And I think when you start to think about sector killers, or people that could modify what the used car model is, I think you need to go back and look at what’s occurred in those segments and understand that auto retailers and especially Lithia Motors that is very adept at selling used vehicles that’s built into who we are and has been built in for the last decade or so,” DeBoer went on to say.

“And I think most importantly, remember, the top of the food chain is the new car trade-ins, OK. And that’s something that used car retailers aren’t at liberty to have, which is what creates that waterfall effect,” he added.

Certainly Lithia could end up with a sizeable amount of trades since the dealer group reported that it retailed 35,616 new models during the first quarter, representing an 8.8-percent lift year-over-year. DeBoer noted that if a Lithia store doesn’t have particular pieces of used inventory that managers deem to be necessary, he’s encouraged by the opportunity to procure those units via wholesale channels.

“The past half-decade of results have been stunted by the lack of vehicle supply, a trend which is finally reversing,” DeBoer said during his opening remarks.

“We’re pleased to see that that supply chain is getting a little looser,” he added later in the conference call. “And with those people out there now understanding what vehicles to procure and which ones build demand from our consumer base, we’re going to continue to build upon that positive impact of supply increase.”

DeBoer also mentioned that Lithia likes to keep between one and two months’ worth of used inventory at its stores. He believes that’s the correct level to push each store toward the goal of retailing at least 75 used vehicles each month.

Update on acquisition activity

Lithia certainly has been active on the acquisition front during the past couple of years, including the procurement of DCH Auto Group in the summer of 2014 and then the Carbone Auto Group last September.

DeBoer did more than hint that the company is far from done expanding its footprint.

“I think when we think about acquisitions at Lithia Motors, this is something that perpetuates in each and every leader in the organization, here in Medford or in the stores,” DeBoer said. “It’s a day-to-day process that each of us are looking for growth opportunities.

“If we look at the physical market, it is the most robust market that we probably ever seen,” he continued. “We believe that pricing is starting to equalize where sellers are asking relative prices to what buyers can be expected or willing to pay and I believe that the coming quarters and years will be a good acquisition climate.”

DeBoer pointed out that the amount of cash Lithia generates annually — $200 million to $300 million — gives Lithia the flexibility to make the moves it chooses. Furthermore, he said Lithia is seeing synergies of blending together its portfolio of stores.

However, the Lithia boss reiterated that it’s an ongoing process.

“We want to build market share, we want to build stability and we want to build those margin improvements and those revenue growth over a period of time,” DeBoer said. “To be fair, it can take two, three, four, five years to be able to build upon that foundation, which is what creates that organic dry powder which allows us to continue to grow our same store sales to reach potential within those new acquisitions. It just takes some time.”

On new-vehicle incentives

Another hot topic DeBoer addressed stemmed from incentives being slapped onto new-vehicle deliveries. Auto Remarketing highlighted the recent analysis from Kelley Blue Book and ALG that mentioned average incentive figures above $3,500 in March.

DeBoer didn’t sound an alarm about what cash is being slapped on the hood or other carrots automakers might be using to get consumers into a new vehicle.

“I think we are not seeing large changes or any type of scenarios that we believe in the next coming quarters are going to change dramatically,” he said. “We typically see pretty stable incentives throughout the summer months. As we begin to move into the fall is when incentives start to accelerate.

“I think as we start to look at the build of vehicle, we’re obviously still overproducing for what the current SAAR run rates are, which does lead to those incentives,” DeBoer continued. “But fortunately we’ll be able to be rewarded for those if our inventories are in a controllable position, whereas each individual market can respond separately based of the value proposition that each of those individual stores has created for their individual markets and the consumers.”