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Lithia: More Acquisitions, More F&I Money

April 27, 2017

By Tariq Kamal

MEDFORD, Ore. — Lithia Motors Inc. set new company records for first quarter revenue and earnings per share, executives reported during America's fourth largest auto retailer's April 19 earnings call, along with gains in used-car sales, F&I revenue and product penetrations rates, and fixed-ops revenue.

“Since 2010, we have grown our revenue fourfold and our EPS sevenfold, all while currently maintaining a leverage ratio of less than two,” said President and CEO Brian DeBoer. “The ability to flex our balance sheet coupled with our free cash flow provides capacity to continue acquisitions at a similar or accelerated cadence in 2017 and beyond.”

The company, listed as the fourth largest U.S. dealer group, reported $2.2 billion in revenue for the first quarter, a 13% increase from the year-ago period. DeBoer cited a number of factors, including:

  • A 3% increase in total same-store sales
  • A slight uptick in new-car sales coupled with a 6% increase in used-car sales
  • A record F&I per-copy average of $1,353, a $62 increase from the first quarter of 2016
  • Improved penetration rates for financing (now at 73%), service contract (45%) and lifetime oil (27%)

The specter of falling used-vehicle values, which are susceptible to an oversupply of off-lease units and fleet returns, haunts the auto retail industry. But DeBoer said he sees a silver lining. “The past half-decade of results have been stunted by the lack of vehicle supply, a trend which is finally reversing.”

DeBoer stressed that the company’s hunger for further acquisitions has not yet been sated, despite the relatively recent onboardings of the DCH and Carbone groups, the latter of which was acquired in September.

“We see a path to grow our company another four- to sevenfold, while leveraging our existing operational strengths and creating new ways to serve our customers,” DeBoer said, adding that Lithia’s “entrepreneurial culture” helps the company attract and retain talent while fostering innovation and profitability.

Asked what factors are fueling Lithia’s F&I performance, the company’s executive vice president and chief HR officer, Chris Holzshu, was unequivocal: The longer a store is part of the Lithia family, the better its business office performs.

“Over the last three years, we’ve integrated about $4 billion in strategic acquisitions or over 60 stores. … The disparity that we have between really our seasoned stores that are running F&I, PVR consistent with what our peer group is doing and some of the more recent groups that we have is still significant,” Holzshu said. “We see a steady increase each quarter and we keep focusing on making sure we have the right products, the right people at the right price, and we feel like that upside should continue.”

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