Lithia rolls out online brand Driveway after strong 2nd quarter

In a quarter expected to showcase the harsh economic impact of a pandemic-induced recession, Lithia Motors Inc. posted record-high adjusted profits that sent the stock price to a record of its own.

And as vehicle shoppers spent more time at home, the No. 3 U.S. auto retailer launched a national brand focused on serving customers outside of a physical dealership.

Driveway, which lets customers purchase or sell vehicles online and schedule at-home service, is expected in six regions by 2023 and should reach $9 billion in annual revenue in five years. Alongside growth through acquisitions, the portal is a key driver in a plan to nearly quadruple Lithia's annual revenue to $50 billion in five years, up from its current revenue of $13 billion. The venture also aims to continue the increased productivity Lithia dealerships have experienced during the crisis using digital retailing tools and remote processes.

"We're planning to roll out regionally in certain markets over the next few years, [in] significant markets where we have a significant footprint," Tom Dobry, Lithia's chief marketing officer, told Automotive News.

Vehicle purchases through the site are negotiation-free, the company said, and come with a seven-day return policy within 400 miles, which covers most of the U.S. Vehicle valuations for cars sold on the site also will be haggle-free, and offers are good for seven days. Home pickup and drop-off are standard.

Driveway eventually will absorb Lithia's other forays into virtual dealership processes, including Baierl.com in the Pittsburgh market, Dobry said.

Net income for the Medford, Ore., retailer jumped 26 percent to $77.7 million from a year earlier. Adjusted net income rose 23 percent to a second-quarter record of $85.5 million.

The profits came even as second-quarter revenue fell 14 percent to $2.76 billion on a 24 percent drop in new-vehicle retail sales. Gross profit per new retail vehicle increased 27 percent, however, and used retail sales ticked up 1.5 percent.

At the onset of the pandemic, Lithia furloughed more than 5,100 employees across its 188 stores. As regional markets reopened and social distancing requirements remained, dealership employees adapted to downsized staffing by leaning on remote capabilities, Dobry said.

Lithia brought back some furloughed employees but now operates with staffing at levels 20 percent smaller than before the crisis. Sales productivity is up 50 percent year over year at dealerships.

"We hope these types of productivity practices are here to stay," he said.

Lithia stock jumped more than 20 percent on earnings day, lifting its market capitalization over $5 billion.

Lithia resumed acquisition activity this month with the purchase of three dealerships.

The retailer expects to announce 11 more acquisitions this year.