Lithia Motors saw strong performance in used vehicle sales in Q4 2013, and used vehicle sales performance has been in synchronicity with new vehicle performance. The company saw a used-to-new ratio of 0.8:1 during that quarter – 13,100 retail used units and over 16,000 new vehicles in the fourth quarter. Lithia has set the target of reaching 75 used sales per month per store but has been averaging 53. Those sales transactions have been profitable, and the dealer network has been working on expanding its used supply to reach that mark.
Here’s some analysis from Lithia CEO Bryan Deboer during the company’s recent shareholder call:
- Retail used vehicle sales increased 16% in Q4 compared to a national average of 4%. Gross profit per used vehicle retailed came in at $2,570 compared to $2,455 in Q4 2012 – a $125 per unit increase.
- The company expects to see an 8% increase in used vehicle sales this year, and should reach a point of hitting its sales goals in the next two years.
- Deboer said Lithia defines used cars in three generations: First generation is made up of certified pre-owned vehicles; second generation is core products that come in on trade; and third generation is the value vehicle. Value cars are the most attractive to subprime customers. Dealers with strength in core products see peak performance, according to Deboer. “So I think if we look at the competitive environment and who’s going to capture those vehicles, it’s who can sell the most of those core products or the upstream used vehicle sales that take those on trade and has the ability to obviously recondition them and get them to the front line safely,” Deboer said.
- Rental fleet used vehicles are attractive for Lithia’s used inventory. Getting them at the front line at auctions takes a bit longer – most of its stores are about 300 miles from an auction, which is a day commute on a transport truck. They’re able to buy them in bulk at auction and distribute them at their stories, keeping them competitive even with the extra cost of transport.
- Lithia has partnered with First Look to help in managing its used vehicle inventory. Company management now allows its stories to do different things with their used car management software; but there is a consistent practice that is similar across the stores so they can transfer vehicles or do internal auctions. The most important application of the software is looking at where margins are within vehicles and how it related to consumer demand and pricing on the internet.