For the past two consecutive years, Lithia Motors acquired dealerships that generate over $1 billion in annualized revenue, and it is poised for additional growth this year, said its president, Bryan DeBoer.
Speaking during Lithia’s quarterly conference call on Feb. 14, DeBoer also said the group expects to continue making progress toward increasing its used-vehicle per-dealership, per month count.
Lithia opened one dealership and acquired 18 others in 2017, and dealership acquisition activity in 2018 is “off to a robust start,” he added.
In January, Lithia acquired Ray Laks Honda in Orchard Park, N.Y., and Ray Laks Acura in Buffalo, N.Y., which are expected to generate $140 million in annualized revenue.
“The plateauing new-vehicle sales environment seems to be further accelerating the number of acquisitions available, and we believe 2018 activity may exceed 2017 totals,” DeBoer told analysts and reporters on the call.
DeBoer said Lithia expects recent federal tax reform to create positive gains “in both our existing store operations as well as new acquisition opportunities.” The company’s effective tax rate will drop to 27 percent from 38 percent, resulting in an incremental $40 million in annual cash flows, he said.
At the time of the reporting for this story (in February) for the print edition of AuSM, Lithia owned 171 dealerships representing 30 brands in 18 states.
DeBoer said Lithia retailed an average of 67 used vehicles per month, per store in the quarter that ended Dec. 31, up from 66 used units per store in the year-ago quarter, putting it closer to its goal of 85 used vehicles per store, per month.
Though Lithia’s newly acquired stores typically sell fewer than 40 used cars and trucks per month, its “seasoned” stores exceed 85 per month, and some sell as many as 200 used units per month, DeBoer said.
Lithia stores that sell lower volumes of used vehicles have the location, people and potential to “expand their reach, and there really is no limit to what the upside is,” he said.
“That’s why that 85 units — our seasoned stores do more than that — we believe that’s realistic.”
(Editor's Note: This story first appears in the March 15 print issue of AuSM. After this story was written for that issue, Lithia announced on Feb. 27 that it had acquired Day Automotive Group in Monroeville, Pa., a suburb of Pittsburgh. Then on March 1, Lithia announced that it had acquired six marquee stores from Prestige Family of Fine Cars in Bergen County, N.J., including a BMW, Mini, Mercedes-Benz, Toyota and two Lexus stores.)
CPO down; other used sales up
In the quarter, same-store sales of certified pre-owned vehicles dropped 7 percent, sales of its “core” units increased 8 percent and sales of its “value auto” units increased 3 percent.
In a previous conference call DeBoer said Lithia’s “core” used vehicles are 3 to 8 years old and generate a gross profit margin of about 12 percent; “value auto” vehicles are over 8 years old and yield a gross profit margin of about 18 percent; and its gross profit margin on certified vehicles is 8 percent to 9 percent.
DeBoer said sales of CPO vehicles in the fourth quarter decreased because the supply of lower-cost, core vehicles is growing, and the company typically acquires its value auto vehicles as trade-ins on core vehicles.
“We make a higher margin on those (core) vehicles, which we’re excited about,” he said.
“Lastly, it’s a lot less likely when you sell core and value auto vehicles that you’re going to be cannibalizing new like you do on certified, which can be difficult. So, we always are preferential to core for that single reason.”
Tax law changes help
Lithia’s net income in the quarter benefited from a gain of $32.9 million related to changes in the federal tax law in December.
Lithia’s net income in the quarter that ended Dec. 31, rose 74.2 percent to $89.4 million; it’s revenue for the quarter grew 17.9 percent to $2.7 billion compared to the previous year.
For all of 2017, Lithia’s net income rose 24.4 percent to $245.2 million; it’s revenue for the year grew 16.2 percent to $10.1 billion.
The company’s new-vehicle retail sales grew 17.3 percent in the quarter to 45,202 units, and for the year were up 14.7 percent to 167,146 units. Its retail used unit sales in the quarter grew 12.3 percent to 32,242, and for the year rose 14.5 percent to 129,913.
On a same store basis in the quarter Lithia’s:
- total revenues were up 2.6 percent to $2.3 billion, and total gross profits were up 4.3 percent to $346.2 million;
- new-vehicle units sales were up 0.8 percent to 38,669, and used unit sales were up 2.8 percent to 29,273;
- gross profit per new vehicle retailed grew 14.2 percent to $2,182; gross profit per used vehicle retailed dropped 9.3 percent to $2,003 and finance and insurance gross profit per unit was up 6.7 percent to $1,342 and
- service, body shop and parts revenue increased 4 percent. Customer pay work increased 4 percent, warranty work increased 4 percent, wholesale parts increased 1 percent and body shop work increased 6 percent.
Of the vehicles Lithia retailed in the quarter and on a same-store basis, it arranged financing on 71 percent, sold a service contract on 44 percent and sold a lifetime oil product on 25 percent, said John North, the company’s chief financial officer.