Lithia floorplan interest expense up 465%

Lithia Motors ’ floorplan interest expense soared in the first quarter as the retailer group’s acquisition activity picked up steam. The Medford, Ore.-based retailer’s floorplan interest expense jumped 465.3% year over year to $27.7 million, according to the earnings press release. Finance and insurance (F&I) revenue clocked in at $318.3 million, a decline of 7.5% YoY and accounting for 4.6% of the retailer’s total Q1 revenue. F&I gross profit per unit ticked down 3.5% YoY to $2,181. Lithia sold 67,796 new vehicles and 78,142 used vehicles in Q1, increases of 4.4% YoY and 6% YoY, respectively. “GPUs were more resilient than expected across new and used [vehicles] and F&I, and we continue to focus on profitability, driving high-performance and improved efficiency,” Lithia President and Chief Executive Bryan DeBoer said on the retailer’s recent Q1 earnings call. ‘Mandate to grow’ Lithia’s acquisition activity has started off strong in 2023 after slowing in 2022 on the heels of a large boost in activity in 2021. The company acquired 29 franchise dealerships and sold 13 dealerships in 2022, according to data from Kerrigan Advisors provided to Auto Finance News . By comparison, Lithia acquired 80 dealerships and sold none in 2021. Activity in 2022 is more in line with Lithia’s 33 purchases and five sales in 2020. In Q1 2023, Lithia expanded into the United Kingdom with the acquisition of Jardine Motors Group in March, DeBoer said during the earnings call. The group operates 37 luxury retail locations and 50 franchises and anticipates generating more than $2 billion in annualized revenue. As a publicly traded company, Lithia “has a mandate to grow their business,” Erin Kerrigan , founder and managing director of Kerrigan Advisors, told AFN , adding that more than 90% of dealerships are held by private companies. “They were the first to say, ‘We want to be the largest, and we want to take advantage of the tremendous consolidation opportunity in this industry.’” The group also acquired Canada-based Acura of Thornhill in February and sold one dealership store in Q1, which generated $46 million in the past year, Kerrigan said. Lithia's estimated franchise activity

“Acquisitions are the foundation to how we build convenient proximity to our consumers and fundamental to our strategy,” Lithia’s DeBoer said during the call. “Our target of being within 100 miles of consumers allows us to leverage our physical infrastructure for vehicle procurement logistics, utilize our reconditioning and storage network, and expand our captive finance arm as we grow our customer base.” Buy/sell leader Lithia continues to lead the overall dealership buy/sell market, which in 2022 declined 2.4% YoY with 374 completed dealership transactions, according to Kerrigan Advisors ’ 2022 annual Blue Sky Report. The volume of deals increased 25% YoY during the first three quarters of the year. Lithia has “gone from being one of the smallest publicly traded auto retailers to being the largest in short order,” Kerrigan said . “It’s evidence of the fact that there is so much opportunity for consolidation in auto retail that you can have an organization go from a handful of stores to being a top 10 dealership group in the U.S. in a decade.” Acquisition activity is boosted by strong dealership earnings, which grew 9% YoY in 2022 industrywide to $4.43 million, Kerrigan said, adding that dealerships typically leverage their floorplan lenders to finance acquisitions. Lithia raised $113.3 million through debt issuance in 2022 and netted just over $2 billion in borrowings on its lines of credit, as well as raised $36.1 million in common stock — funds primarily used to purchase dealerships as well as capital expenditures, according to Lithia’s most recent 10K filing. In 2021, Lithia’s net proceeds totaled $817.4 million, and borrowing stood at $325.4 million. The retailer has credit and warehouse facilities with lenders that include Ally Financial , Bank of Nova Scotia , JPMorgan , U.S. Bank and Wells Fargo , according to the 10K filing. “We expect to achieve a historical acquisition annual run rate of $3 billion to $5 billion in acquired revenues a year with a continued prioritization to the United States,” DeBoer said on the earnings call, noting that Lithia funded its first-quarter acquisitions through a mix of free cash flows and capital facilities. Auto Finance Summit East, Auto Finance News’ new spring event, is set for May 10-12 at the JW Marriott Nashville featuring a fireside chat with Peter Muriungi, CEO of Chase Auto. Visit autofinance.live.

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