Scottie Scott of Prospect, who describes herself as a dedicated Jeep driver, checks out a new Chrysler Jeep while waiting for her husband at the Lithia dealership on Highway 62. Lithia reported a record sales month in March. file photo

Lithia Motors' profits soar as it shifts strategy

Used car sales played a substantial role as Lithia Motors rolled to another bumper-crop quarter, pocketing $21.9 million, or 84 cents per share, a 31.3 percent jump over the start of 2012.

The Medford auto retailer's revenue leaped 22 percent to $903.1 million during the first quarter, a $164.9 million gain over the $738.2 million in revenue during the first quarter of 2012.

While new car sales at the nation's ninth-largest auto retailer climbed 21.3 percent to 14,720 units, used car sales — producing higher margins — grew 21.9 percent during the period to 13,661 units. "We want to appeal to as many consumers as we possibly can," said Chief Executive Officer Bryan DeBoer. "We can do that by offering our value autos (that are eight years or older with 80,000 miles), and it's not typical for a new car dealer to do that. It gives us an opportunity to a start relationships with consumers earlier in their life cycle when they have a lower income and then they can move through our other products until they can by new cars."

Five years ago, when Lithia Motors was reeling from the same shot to the financial solar plexus as many of its customers, there was a lot of uncertainty and angst on both sides of the auto sales relationship. "The recession brought disposable income down for many of our customers to where we would have lost them and they would've gone some place else," DeBoer said. "It allowed us to review and go into a segment of the used car market we hadn't always been in."

Part of the solution to keeping those customers was developing tiers of used-car sales. As the company climbed out of its own depths it developed three classes of used cars: Certified pre-owned (2 years old or less), core product (3- to 7-year-old vehicles) and value autos.

In most regions, the used car market is 21/2 to 4 times larger than the new car market, DeBoer said. "In metropolitan areas, there are more pockets of wealth," he said. "In most of our areas it's pretty blended, like in Medford we cover the whole spectrum. You can change your used car inventory to meet demand. You're not at the mercy of what manufacturers produce, which could be in vogue or out of vogue."

Most new car dealers understand the value of used cars to the bottom line, but at Lithia it permeates the corporate soul from Corpus Christi, Texas, to Fairbanks, Alaska. "It's part of our organization's culture and understood in our stores," DeBoer said. "There is an art to getting and disposing used vehicles, and that DNA is starting to reside in our organization."

Of Lithia's 88 stores, 20 sell more than 90 used vehicles monthly. One in Boise sells between 220 and 240 used units each month. "That goes across all (income) spectrums and Boise is not that much larger than our typical market," DeBoer said.

Major national retailers routinely wheel and deal in the used car market, said industry analyst Jamie Albertine, who works out of the Baltimore office of Stifel, Nicolaus & Co.

"Everyone's target is 1-(new)-to-1 (used) sales," Albertine said. "Some are higher than others, and Lithia trends to the higher end. It's a testament to the job they are doing and it's hard to argue with the results Lithia puts up, relative to its peers."

By turning around the majority of trades and acquiring used cars from private parties, Lithia has built up its inventory.

"Instead of sending cars to auction, they're taking trades and being more aggressive to retail them. When you send a car to auction, you have to pay for it, and it's much more competitive and more difficult to extract income. If you keep a car, maybe it involves some reconditioning, but you capture the retail margin as opposed to the wholesale margin."

Reach reporter Greg Stiles at 541-776-4463 or Follow him on Twitter @GregMTBusiness, and read his blog at Edge.

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