Lithia to hire, acquire stores after big jump in revenue
Lithia Motors Inc. will hire more sales and service employees this year because of higher new- and used-vehicle sales and increased service business.
The ninth-biggest U.S. dealership group continues to look to buy stores east of the Mississippi River, where it presently has no locations, CEO Bryan DeBoer told Automotive News Wednesday.
DeBoer said Lithia wants to buy import- and domestic-brand dealerships in mid-sized markets and luxury dealerships in slightly larger markets.
“There’s no perfect acquisition, and we’re pretty open-minded and willing to work with sellers,” DeBoer said. “I look forward to doing more of that in the future.”
Lithia has the financial muscle to do it.
The company has $135 million in liquidity and expects its free cash flow to be north of $50 million next year.
Lithia said its third-quarter net income jumped 40 percent to $23.2 million, from $16.6 million on rising car sales and lower costs.
Quarterly revenue climbed 24 percent to $888.4 million.
Same-store new-vehicle sales rose 30 percent during the quarter, while used-vehicle sales rose 24 percent, the company said in a statement.
As Lithia’s top line increased, it was been able to reduce expenses as a percentage of its gross profit to 66.8 percent, from 70.2 percent a year earlier.
That means it can invest in hiring more people, DeBoer said.
“I don’t know if we have a static number of how many we look to hire,” DeBoer said. “When we look at staffing in our stores, we look at productivity in our teams, and we want our people to make above-average compensation.”
Lithia expects a salesperson to sell 10 vehicles a month, a service technician to produce 160 to180 hours of work a month, and service advisers to write 600 to 800 hours of work per month, DeBoer said.
“We grew at 6 percent in service and parts this quarter; that’s a pretty substantial increase,” DeBoer said. “That’s another 8,000 to 10,000 people, so that’s about 10 to 12 service advisers and 30 to 40 technicians added to our organization. So, yeah we’re hiring.”
Lithia closed on a deal to buy Bitterroot Toyota in Missoula, Mont., on Wednesday, the day it released its third-quarter earnings results.
That’s the company’s third acquisition this year with estimated annual revenues in the mid-$40 million range, DeBoer said. Lithia will begin rebuilding that store in 30 to 60 days and have it completed in eight months.
“It’s a store we’ve had our eye on for years,” DeBoer said. “We’re still looking for opportunities in new marketplaces. We’re competitive, good buyers and we do what we say we’ll do. We complete transactions and we don’t have deals fall apart.”
Earlier this year, Lithia’s stock price was a more attractive buy than pursuing acquisitions, DeBoer said.
“We were able to buy our own stock back rather than purchasing acquisitions, so we’re always balancing,” DeBoer said. “But we’re very motivated in finding a talented team to help us grow east of the Mississippi.”
Lithia also wants to increase per-store used-vehicle sales. In the third quarter Lithia sold an average of 52 used vehicles per store, up from 40 in 2011. Lithia’s goal has been to average 60 used-vehicle sales per store. DeBoer raised that goal to 75.
DeBoer says Lithia can do better at acquiring more used vehicles from such channels as trade-ins, internal and external auctions, wholesalers, private party purchases and building relationships with other dealers to do trades.
“Every single one of those channels can yield a number of vehicles month in and month out,” DeBoer said. “A majority of our stores now are doing that. There is opportunity in some of those channels with a few of our stores, but they know it and recognize it and it’s a matter of building relationships and opportunities.”
The long view
Lithia believes U.S. new-vehicle sales will continue to recover slowly.
Sid DeBoer, executive chairman of Lithia, said in a statement, "New safety and technology features, improved fuel economy and improving consumer credit markets, coupled with an aging fleet of vehicles, are all tailwinds for increasing sales levels through the remainder of 2012 and in 2013.”
In a conference call, Lithia’s CFO Chris Holzshu estimated the fourth-quarter U.S. seasonally adjusted sales rate will be 14 million to 14.5 million vehicles. Next year’s SAAR will come in at 15 million to 15.5 million vehicles, he predicted.
As sales volume slowly rose, Lithia’s new car margin fell by about $200 per new vehicle in the latest period, said Bryan DeBoer. He said he’s OK with that.
“We balance margin with volume. It’s as simple at that,” DeBoer said. “We’ll lean toward volume because it creates additional business. It creates a used car trade-in and a service customer. And if we do our jobs properly it could create referral business.”
Lithia said it expects full-year per-share earnings of $2.88 to $2.90, on revenue of $3.2 billion to $3.3 billion. The company projected 2013 earnings per share at $3.11 to $3.21, on revenue of $3.5 billion to $3.6 billion.
Lithia’s board also approved a regular quarterly dividend of 10 cents per share.
Lithia is ranked No. 9 in Automotive News’ top 125 U.S. dealership groups with total new retail sales of 44,537 last year.
Reuters contributed to this report
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