Lithia expands to boost used-car sales

Lithia Motors Inc. is focusing on people, property and pro-cesses in its bid to sell an average of 75 used vehicles per store each month.

In the third quarter, Lithia sold an average of 57 used vehicles per store per month, up from 52 a year earlier. The company can reach its 75-unit target in "a couple" of years, CEO Bryan DeBoer told Automotive News.

"The area that will help used-car sales is our ability to find used cars. That is the biggest barrier to Lithia's used-car growth," DeBoer said, adding that building that ability is "hard lifting."

To find cars, Lithia is looking for people.

In the past 12 to 18 months, Lithia, which has 92 stores mostly in the Pacific Northwest and California, has added more than a dozen used-car operations positions, primarily used-car managers.

Lithia also is expanding some dealerships to be able to stock more used vehicles, DeBoer said. And it's being more creative in how it finds used cars to sell.

"We believe that the used-car business is more than half of the potential profits of our stores," DeBoer said. "In some of our stores, our used cars can be a third of our fixed ops profits."

Lithia's used-vehicle retail sales rose 17 percent from a year earlier to 15,496 in the third quarter. The average gross profit per retail used vehicle sold rose 7 percent to $2,687.

Lithia's retail used-vehicle sales in the latest quarter produced a 15 percent gross-profit margin, compared with 6 percent for new-vehicle sales.

Lithia is No. 9 on Automotive News' list of the 125 largest U.S. dealership groups, with retail new-vehicle sales of 56,960 units in 2012. In used-vehicle sales it also ranks No. 9, with retail used-vehicle sales of 49,067 in 2012.

DeBoer said the primary focus in Lithia's recent manager meetings has been on "used-car development and consumer behavior, and how do we capture it."

He says that finding or developing people who possess the business skills to procure used vehicles is "what it's all about."

Since starting the effort, Lithia has promoted or hired about 15 used-car managers, DeBoer said. Traditionally, Lithia would have promoted or hired about half that number to such jobs over the same time frame.

Lithia will promote or hire at that same pace over the next 12 months, he said.

About a quarter of those jobs were filled by outside hires.

Some Lithia stores sell an average of 30 used cars a month. Others sell 225, DeBoer said.

Stores that sell only 30 typically can't afford a used-car manager to help them grow. But if that store can get up to selling 50 to 70 used cars a month, "now you can justify the cost of a manager. So as we hit those levels it becomes easier to grow your people," DeBoer said.

To help stores boost their used-car sales, Lithia is buying used cars "off the streets," fostering relationships at auctions, and developing stocking plans to "determine which cars we should sell [wholesale] to free us up to buy those cars that we know will sell," DeBoer said.

Lithia general managers collaborate with other Lithia dealerships within the network to trade used cars with each other. In some rare instances, Lithia dealerships have relationships with rival dealers and do trades. DeBoer said Lithia has become better at taking in customer trade-ins on used cars, too.

"Our people are understanding that the mark-up we make on our trade-in vehicles is not the mark-up that is out there when you have to buy the car on the street," DeBoer said. "So we are able to pay our customers much closer to what we would pay for that used car at an auction."

Some of the stores that sell a lot of used cars are constrained by real estate, DeBoer said. "We have two stores that have expanded their space to store more inventory," he said. He estimates three to five more stores will expand soon to store more inventory.

"Once you get those cars, you need to align it with your consumer base. That comes from merchandizing and advertising," DeBoer said. "So we are growing and finding used vehicles and people as well."