Lithia expands area dealerships

Lithia Motors' acquisition of Reno Jeep Chrysler late last month fits closely with the company's strategy of building clusters of dealerships for economies of scale in advertising and other overhead costs.

And the fast-growing company based in Medford, Ore., has made the most of its opportunities as it posts numbers well above average in the auto industry.

After Lithia's acquisition of Reno Jeep Chrysler, a dealership with annual sales of approximately $55 million, the company operates six stores in the Truckee Meadows.

Its franchises in the area cover Chrysler/Jeep, Volkswagen, Audi, Lincoln/Mercury, Subaru, Hyundai, Suzuki and Isuzu.

Sid DeBoer, the company's chairman and chief executive officer, said Reno has been a solid performer for the company since it entered the market in 1997.

And Lithia will be looking for other acquisitions in northern Nevada, said Dan Retzlaff, the company's director of investor relations.

In fact, Retzlaff said, Lithia considers acquisitions until its dealerships have about a 40 percent share of a metropolitan market.

After that, he said, the company's dealerships begin cannibalizing sales from one another.

With its newest acquisition in Reno, Lithia will operate 79 stores in 12 Western states.

Those stores represent 148 dealer franchises.

Many of them are in medium-sized markets Reno, Fresno, Boise and the like and Lithia says more than threequarters of its dealerships are in cities where they have no competition from other dealerships selling the same brand.

Lithia particularly likes Reno because the market posts strong sales of trucks and SUVs vehicles that often are among the most profitable sold by a dealership.

The company knows how to wring above-average profits out of every sale.

In the third quarter of last year, for instance, it reported that it generated an average of $932 per vehicle through financing and insurance deals with its customers.

The industry average $438 per vehicle is less than half that.

In 2002, Lithia arranged financing for 77 percent of its new car customers compared with an industry average of 55 percent.

The company keeps profits strong, too, by selling a higher proportion of used cars on which margins are higher.

The average U.S.

dealer sells 0.77 used cars for every new vehicle sold; at Lithia, the figure is 0.85 used for every new vehicle sold.

Here's how that makes a difference: In its annual report for 2002, Lithia said its gross margin on used vehicles was 12.5 percent.

On new vehicles, the gross margin was 8.5 percent.

The company protects those margins, meanwhile, by clustering its dealerships.

That, Retzlaff said, allows the company to cut better deals on advertising.

In 2002, the last year for which figures are available, the company spent $17.8 million on advertising 46 percent in newspapers, 21 percent on television.

A cluster of dealerships also allows Lithia to pull them together for major regional promotions such as tent sales, Retzlaff said.

Founded in 1946, Lithia didn't make any forays out of its southern Oregon home turf until it completed a public stock offering in 1996.

Since then, the company has had the pedal to the metal.

It had five stores and annual revenues of $143 million when it went public; in the first three quarters of 2003, its revenues were just a shade under $2 billion.

In fact, it's the second-largest publicly held company in Oregon, trailing only Nike.

In filings with the SEC, Lithia has said its acquisition strategy often begins with dealers who are nearing retirement age but don't have a clear-cut strategy to leave.

The well-capitalized company gives them an exit.