AutoNation made a “strategic decision” to focus on new-vehicle margins and finance and insurance sales, Lithia Motors expects to resume buying dealerships after a year-long hiatus and both companies are laying groundwork to enhance their digital retailing platforms.
That is according to the companies’ chief executives during their respective first-quarter earnings calls in April.
Carl Liebert, who took over the helm at AutoNation from long-time CEO Mike Jackson in March, said he is “excited and energized” about new technology opportunities that enable employees to digitally perform tasks that are currently paper-based or done manually.
The company also wants to improve the experience for customers who use their mobile devices to set up service appointments and shop for vehicles, he said.
“We’ve got several thoughts, and we’re working on several pilots that we could use,” Liebert said during AutoNation’s April 26 call.
He also said as the company learns new capabilities down the road it looks “forward to sharing those with you when we have those up and running.”
Lithia Motors CEO Bryan DeBoer said internal digital transformations that are being piloted at baierl.com and “soon to launch” at lithia.com and Lithia’s partnership with Shift Technologies, a San Francisco-based digital retailer, are examples of his company’s latest e-commerce initiatives.
Baierl.com is the website of Baierl Automotive, a dealership group Lithia acquired in 2017. The site advises consumers they can buy their “car completely online” and have it delivered within a 100-mile radius around Pittsburgh.
“Shift provides an entirely new channel of direct-to-home vehicle purchasing and selling experiences,” DeBoer said during the April 24 call.
DeBoer said only three Lithia stores have “interaction” with Shift, and its impact on the company’s current used-car business is very small — about 50 to 75 used vehicles were procured using Shift’s technology in the quarter, he said.
But DeBoer also noted that the partnership with Shift is allowing Lithia “to learn how a digital company thinks and how they are so in tune with consumer behaviors and how to monetize those consumer behaviors through their technology.”
Lithia invested $54 million Shift in 2018.
Lithia targets Midwest, Southeast
DeBoer said Lithia actively monitors 2,600 dealership acquisition targets that have the earnings potential that the company seeks. He said Lithia would like to add stores in the Midwest and Southeast.
“I think it’s fairly clear that a lot of the (venture capital) and private equity money seems to be leaving the space and having a fair amount of troubles, which is breaking some stores loose and obviously makes the buying environment much less competitive,” he said. “So prices seem to be coming back into the realms of reality.”
In the quarter, Lithia’s revenue increased 7.1% to $2.84 billion, and net income rose 8.3% to $56.4 million, buoyed by strong same-store increases in its used-car, finance and insurance and service, parts and body shop businesses.
Lithia’s total gross profit rose 10.4% to $450.7 million. F&I gross profit was up 10.3% to $117.5 million, and parts, service and body shop gross profit was up 15.2% to $159.5 million.
The company’s overall new - unit sales dropped 4.3% to 39,695, but average gross profit per new unit retailed grew 3.3% to $2,165.
In the same period, overall used unit retail sales increased 12.6% to 40,675, and average gross profit per used unit retailed was up 2.0% to $2,079.
On a same-store basis, new unit sales dropped 6.8% to 37,540, but average gross profit per new unit was up 1.5% to $2,136.
Retail used unit sales were up 9.7% to 38,568, and average gross profit per used unit was up 2.3% to $2,106.
Also on a same-store basis, total gross profit was up 7.0% to $427.1 million; F&I gross profit was up 8.8% to $113.0 million, and parts, service and body shop gross profit was up 10.5% to $149.7 million.
Over at AutoNation
Vehicle sales, net income and revenue all declined at AutoNation in the quarter, but per- vehicle gross profit increased, the company reported.
Liebert said AutoNation’s focus on new-vehicle profit margins rather than volume is to make sure it has the right inventory for customers and is not saddled with excess inventory at the end of the month.
“This strategy optimized our total variable gross profit per vehicle retailed, which was up $200 or 6%, and our new-vehicle gross profit per vehicle retailed, which was up $134 or 8% compared to a year ago,” said Liebert during the company’s conference call.
“Moving forward, we will remain committed to running our play while seeking the optimal balance between new-vehicle pricing and volume.”
Reflecting back on having managed manufacturing operations in “highly dependent overhead businesses like appliances,” Liebert said he knows that such a strategy that curtails the number of vehicles the group buys can create friction with manufacturers that want to run “factories all out” and have targets to hit.
But AutoNation is being upfront with auto manufacturers about its strategy, which is to create a transparent and trustworthy experience for its customers, he said.
“I think it’s a balance that we have to strive for because of the customer experience we want to deliver in our stores, and it’s one of the reasons I’m so proud of our operating team,” he said.
Liebert anticipates “more friction-filled conversations down the road, and we’re going to have to make those choices with our OEM partners.”
In the first quarter, AutoNation’s overall revenue fell 5.3% to $4.98 billion and its net income slid 1.8% to $92.0 million.
Weaker sales environment, higher interest rates
Improvements to gross profits in the quarter were partially offset by decreases in new vehicle unit volume which was impacted by a weaker new -
vehicle sales environment, higher interest rates, rising vehicles prices and an increase in the off-lease supply of late-model used vehicles, the company said.
AutoNation’s overall gross profit of $849.2 million was up 0.8%, new-vehicle gross profit dropped 6.0% to $121.9 million and retail used-vehicle gross profit rose 2.8% to $84.3 million.
Overall F&I gross profits slipped 1.8% to $236.5 million, and parts and service gross profits increased 3.5% to $398.9 million.
In the quarter, AutoNation’s overall new unit sales dropped 14.4% to 63,513, but average gross profit per new unit retailed grew 9.8% to $1,919.
In the same period, overall retail used unit sales dropped 1.7% to 61,171, but average gross profit per used unit retailed was up 4.6% to $1,378.
Overall average F&I gross profit per new and used unit retailed increased 7.4% to $1,897.
On a same-store basis, AutoNation’s new unit sales dropped 13.2% to 62,897, but average gross profit per new unit retailed rose 7.5% to $1,914.
The company’s retail used unit sales dipped 0.5% to 60,230, but revenue gross profit per used unit retailed increased 3.5% to $1,385.
On a same-store basis, average F&I gross profit per new and used unit retailed rose 7.0% to $1,904.
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