Lithia Motors, Inc. operates as an automotive franchises and a retailer of new and used vehicles in the United States. The company operates through three segments: Domestic, Import, and Luxury. It sells new and used cars, replacement parts, service contracts, vehicle protection products, and credit insurance products; provides vehicle maintenance, warranty, paint, and repair services; and arranges related financing. As of February 26, 2016, the company offered 31 brands of new vehicles and various brands of used vehicles in 139 stores in the United States; and online through Lithia.com and DCHauto.com. Lithia Motors, Inc. was founded in 1946 and is headquartered in Medford, Oregon.
(Summary) (Company) (Chart)
18 July 2016
1yr Target $102.40
Payout Ratio 14.43%
1yr Cap Gain 24.28%
1yr Tot Return 25.49%
EPS (ttm) $6.93
EPS next yr $8.12
Forward P/E 10.15
EPS next 5yr 25.00%
1yr Price Support $203.00
Market Cap $2.10 Bil
Revenues $8.06 Bil
Earnings $182.60 Mil
Profit Margin 2.25%
Quick Ratio 0.20
Current Ratio 1.20
1yr RevGR 45.89%
3yr RevGR 32.97%
5yr RevGR 31.03%
1yr EarnGR 31.36%
3yr EarnGR 30.69%
5yr EarnGR 67.76%
1yr DivGR 25.00%
3yr DivGR 14.31%
5yr DivGR 31.95%
Lithia Motors began in 1946 when Walt DeBoer opened a single car dealership in Ashland, Oregon. The first year the five person company sold 14 cars. In 1968, Walt's son, Sidney, took over the business and incorporated Lithia Motors. Sidney reorganized the business and in 1970 purchased a Dodge dealership in Medford. With this, Lithia’s base of operation moved to Medford and grew to a total of five stores with 19 franchises by 1990.
In December 1996 the company went public at $11 per share. By 2003 Lithia Motors had revenues of $2.5 billion from its 84 dealerships. By 2005 the company had increased its number of dealerships to 88.
In early 2007 the company began plans to build a new corporate headquarters in downtown Medford and a 60-acre auto mall north of downtown Medford. Three years later construction finally began. Lithia partnered with the Medford Urban Renewal Agency to create The Commons, a revitalization project that includes the headquarters and another $14 million in infrastructure and three park blocks paid for with MURA dollars. Lithia finally moved into their new headquarters in late 2012.
As of January, 2014, Lithia was operating 92 stores in 13 states. With the acquisition of the DCH auto group in late 2014, Lithia expanded to 139 stores in 14 states across the US, Hawaii, and Alaska.
Business Strategy and Operations
Lithia Motor's mission statement is: “Driven by our employees and preferred by our customers, Lithia is the leading automotive retailer in each of our markets.” The company offers customers convenient personalized service combined with the large company advantages of selection, competitive pricing and broad access to financing and warranties. Lithia Motors strives for diversification in their products, services, brands and geographic locations to manage market risk and to maintain profitability. The company has developed a centralized support structure to reduce store level administrative functions which allows store personnel to focus on providing a positive customer experience. With their management information systems and centrally performed administrative functions, Lithia Motors seeks to gain economies of scale from their dealership network.
The company offers a variety of luxury, import and domestic new vehicle brands and models, reducing their dependence on any one manufacturer. Encompassing economy and luxury cars, sport utility vehicles (SUVs), crossovers, minivans and trucks, the company believes that their brand mix is well-suited to what customers demand in the markets they serve. Their new vehicle unit mix is 54% import, 33% domestic and 13% luxury. This compares to the national market mix of 48%, 45% and 7%, respectively, for the year ended December 31, 2015.
In 2015, Lithia Motors sold 137,486 new vehicles, generating 23.8% of their gross profit for the year. New vehicle sales have the potential to create incremental future profit opportunities through certain manufacturer incentive programs, resale of used vehicles acquired through trade-in, arranging of third-party financing, vehicle service and insurance contracts, and future service and repair work.
In 2015, Lithia Motors represented 31 domestic and import brands ranging from economy to luxury cars, SUVs, crossovers, minivans and light trucks.
The company purchases their new car inventory directly from manufacturers, who generally allocate new vehicles to stores based on availability, monthly sales and market area. Accordingly, the company relies on the manufacturers to provide them with vehicles that meet consumer demand at suitable locations, with appropriate quantities and prices. In addition, the company can exchange vehicles with other automotive retailers and between their own stores to accommodate customer demand and to balance inventory.
At each new vehicle store, the company also sells used vehicles. In 2015, the company sold 99,109 retail used vehicles generating 20.5% of the company's gross profit.
The company acquires used vehicles through customer trade-ins, purchases from non-Lithia stores, independent vehicle wholesalers and private parties, and at closed auctions. The company's near-term goal for used vehicles is to retail an average of 75 units per store per month. As of December 31, 2015, their stores sold an annualized average of 62 retail used units per month. Used vehicle sales represent a significant area for organic growth for the company.
Vehicle Financing, Service Contracts and Other Products
As part of the vehicle sales process, Lithia Motors assists in arranging customer financing options as well as offering extended warranties, insurance contracts and vehicle and theft protection products. The sale of these items generated 24.1% of the company's gross profit in 2015 and arranged financing on 77% of the vehicles they sell.
The company believes that arranging financing is an important part of their ability to sell vehicles and related products and services. Their sales personnel and finance and insurance managers receive training in securing customer financing and possess extensive knowledge of available financing alternatives. The company attempts to arrange financing for every vehicle they sell and offer customers financing on a “same day” basis, giving the company an advantage, particularly over smaller competitors who do not generate enough sales to attract their breadth of finance sources.
Service, Body and Parts
In 2015, the company's service, body and parts operations generated 31% of the company's gross profit. Their service, body and parts operations are an integral part of establishing customer loyalty and contribute significantly to their overall revenue and profits. Lithia Motors provides parts and service for the new vehicle brands sold by their stores, as well as service and repair most other makes and models.
The service and parts business provides important repeat revenues to their stores. Customer pay for vehicle service performed on vehicles that have fallen outside the manufacturer warranty period, repairs not covered by a manufacturer warranty, or maintenance and service on other makes and models. The company believes that increasing their product and service offerings for customers differentiates them from independent repair shops and dealerships with less scale.