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Lithia Reports Record Net Income

July 24, 2014

MEDFORD, Ore. — During its quarterly investor call on Wednesday, Lithia Motors reported its highest quarterly adjusted net income in its history. The dealer group also reported an increase in F&I profit per vehicle retailed.

Lithia’s second quarter adjusted net income from continuing operations was $35.2 million, or $1.34 per diluted share. This is compared to an adjusted net income from continuing operations of $27.4 million, or $1.05 per diluted share, in the same period last year — an increase of 28%.

“For the first time in our company's history, this quarter, we saw double-digit increases in all 4 business lines,” said Bryan Deboer, CEO, president and director of Lithia Motors. “Total sales increased 11% and the SAAR accelerated throughout the quarter, reaching a level of 16.9 million in June, the highest level since July 2006.”

During the quarter, new vehicle revenues increased 12%, while the average new-vehicle selling price increased 3%. “Domestic unit sales increased 7% compared to 6% nationally, import sales increased 10% compared to 7% nationally and luxury unit sales were up 11%, in line with the national average,” Deboer said.

The company’s F&I profit per vehicle retailed was at $1,206 in the second quarter, rising $104 from $1,102 in the year-ago period.

“Of the vehicles we sold in the quarter, we arranged financing on 73%, sold a service contract on 44% and sold a lifetime oil product on 38%,” Deboer said during the conference call. “Our penetration rates in the service contracts and lifetime oil sales increased 140 and 40 basis points, respectively.”

Lithia’s F&I products have a fixed price, and the dealer group only negotiates on term and deductible. F&I profit on used vehicles was about $300 less than F&I profit on new vehicles, something officials said they were working to improve.

“What we really noticed is that the penetration, both for service contracts, lifetime oil and our GAP products are improving,” said Christopher Holzshu, CFO and senior vice president for Lithia. “I think our service contracts were up — it was 120 basis points and lifetime oil was up 130 basis points and those products are great, not just for generating F&I product or profits, but also for retention back in the service drives. And we think that those products have been key for us, and have allowed us to see the last two quarters some really strong parts and service comps.”

The dealer group is focusing its F&I-related efforts on about 25 stores in hopes of getting its F&I per-copy average to $1,250 or $1,300, Holzshu added.

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