Lithia Motors’ 2020 reboot of its deep subprime captive Southern Cascade into the full-credit-spectrum captive finance company Driveway Finance Corp. has blown through expectations over the past year. It’s also made a compelling case for a dealership group to have a captive.

Lithia in April predicted Driveway Finance would be the lender on 7 percent of the vehicles sold by the group in 2022 for a $1.7 billion loan portfolio, up from a 4 percent penetration and $700 million worth of credit last year. By July, Lithia scrapped those projections for even better ones — estimating Driveway Finance would write $1.2 billion of loans and finance at least 9 percent of Lithia’s sales this year. It was beating that penetration rate by 2 points during the third quarter.

Lithia also in July increased its 2023 Driveway Finance penetration estimate and added $1 billion to its loan portfolio estimates for 2023 and 2024. The captive is expected to take a $20 million loss in 2022 but be profitable in 2023 with a $10 million yield on a $4 billion portfolio.

Long term, Lithia wants Driveway Finance loan penetration to be 15 to 20 percent of the group’s vehicle buyers. 

“I think we’re well on our way for that,” said Lithia CFO Tina Miller, 42, who often works with Driveway Finance Vice President Chuck Lietz to understand the new business and its capital requirements. Miller called it “exciting to see that growth.”

Driveway Finance loans are three times as profitable as traditional indirect loans arranged by Lithia, and Miller said having a captive improves customer experience and gives Lithia more customer insight.

Lithia estimates that 15-20 percent penetration alone would mean $17 billion in new loans each year generating $650 million in income annually.