Lithia Motors leadership discussed people in significant detail during its first-quarter conference call with the investment community.
Lithia is keeping close tabs both on individuals who employed by the dealer group as well as its customer base that is exhibiting changing behavior.
Lithia president and chief executive officer Bryan DeBoer intrigued Wall Street watchers during his opening comments when he mentioned how the company is making strides in bringing retail and repair services to the customer and not always waiting for them to walk through a dealership door.
“Expanding our service and delivery sites builds the scale and national footprint that can accelerate our success in the evolving ecosystem of personal transportation,” DeBoer said. “Future expansion into the Southeast and pockets in the Midwest remain an objective in the coming years.
“A larger organization with coast-to-coast coverage provides scale and inventory, cost management, financing and technology,” he continued. “The web rewards size, while owning and controlling the inventory is paramount. We have one of the largest new- and used-vehicle inventories online with over 75,000 units available for sale.”
Later during the call when DeBoer also revisited how weather impacted Lithia’s Q1 retail performance, the company’s top executive described how consumer behavior is so much different nowadays with commerce perhaps starting on a couch and transmitting online.
“I think when we look at who we are today, much of our business has transitioned away from traditional, what we would call, old retail automotive business, where a customer drives by the dealership and they see a car and they decide to stop and come in, or we advertise in the newspaper or on TV and they decide to come in, and their car breaks and they decide to bring it into their closest service facility. Today, most of our interactions with our consumers begin on a web-based interaction,” DeBoer said.
“We mentioned the fact that over 81 percent of our business is done and initiated online, which means the interaction was found online on that vehicle unlike driving by that vehicle,” he continued. “It typically starts with chat or it starts with email discussions or possibly a phone call, where we’re looking at how do we meet our customers’ needs and then how do we fulfill that engagement with that customer, whether it’s delivering at his home or whether it’s them coming to one of the dealerships to be able to take delivery of that car.
“The same happenings are happening in service and parts, whereas many of our stores today, it’s a different experience,” DeBoer went on to say. “People aren’t hanging around the dealership as much as they used to. They may come in and drop their cars off or we may go pick it up in their living room and bring it back to our store, then redeliver it back to their home. If they’re bringing their cars in, many times the customers will just get an Uber and go home or we’ll shuttle them or we have loaner vehicles that are there. But the interactions are mostly more in passing rather than long interactions, which is making technology a lot easier to interact with our customer.
“And I think I could get into a lot of different examples of how technology helps those interactions by online appointment making, by online payments and so on and so on to be able to talk about those,” DeBoer added. “But the business that we’re in today is about fulfillment and fulfilling those needs of the consumers the way they choose within the comfort of their own homes rather than trying to draw them into the dealerships, where they're sitting around and hopefully they'll have a reciprocal effect and buy a car or do something else to be able to spend their time and money.”
Rewarding company employees
With devices like smartphones changing how Lithia interacts with its customers, the dealer group recognizes that it still needs a strong human component to be successful. Executive vice president and chief human resources officer Chris Holzshu described how Lithia is nurturing its 15,000 employees to be able to respond to customer demands either via the retail channel or service drive.
Holzshu pointed out that Lithia internally promoted 80 percent more managers within its system last year than in 2016, rewarding employees to are leveraging the company’s personnel development endeavors.
“Our entrepreneurial culture rewards innovation and technology and is helping us to attract seasoned leaders from across our industry,” he said.
And Lithia’s workforce is relatively young, too, as Holzshu mentioned that more than 50 percent of the dealer group’s employees are millennials, “boosting our familiarity with technology that enhances online buying, financing and servicing experiences for our customers.
“By allowing our teams to utilize a variety of technology and tool sets as they see fit, we can evaluate and experiment with the best technology solutions,” Holzshu continue. “Similar to an app environment, Lithia relies on competition between our internal developers and technology vendors to remain nimble and to avoid mandating a single solution across the entire organization.”
Diving deeper into metro areas
Continuing on the human resources and customer behavior discussions, DeBoer was asked about Lithia has responded when taking a deeper dive into metropolitan markets, especially with all of its acquisitions during the past couple of years. Previously, Lithia concentrated in cities that served as outposts for rural areas.
“I think if we’re comparing and contrasting our exclusive market strategy versus our metro market strategy, specifically looking at what we’re learning in metro markets, the upside is huge,” DeBoer said. “I think from a technology standpoint, you have to be much more savvy in metropolitan areas, which is helping bring a lot of value into our exclusive markets as well. I think if we look at the competition or even the consumers, they’re less tolerant, which means you have to be even better at what you do, which leads to the third item, which is are you able to keep the people.
“When we first combined with DCH, we weren’t sure that people were going to be as stable and would be more transient,” he continued. “We’re really pleased to find out that there are similarities between stability of people in metros versus exclusive markets. Our turnover rates are very similar to our exclusive markets. And if you run a good business and provide opportunity and ownership for those people to be able to make their own decisions, we’re finding that the stability of people is very similar, which means you're able to continue to grow and season the stores.
“If we look at where we're at in terms of margin today, our margins in the metropolitan areas are slightly worse than our exclusive areas. However, we have multiple stores that are showing us that the margins in metropolitan areas have the potential to be even higher than what exclusive markets are,” DeBoer went on to say. “And I think some early examples of that are maybe a Paramus Honda in Bergen County or the new Toyota store in downtown (Los Angeles) that are starting to reach volume levels where you’re levering your fixed cost at such a high amount that everything is dropping to the bottom line. And I think we're very pleased with our entry into metropolitan areas because of that.”