Lithia Motors expects the new-vehicle inventory shortage because of high demand and low supplies of computer chips and other raw materials, will begin to improve in the next couple of months.
“We expect inventories to continue to normalize throughout the back half of 2021 and in the first part of 2022,” said Chris Holzshu, Lithia chief operating officer, in an earnings conference call.
“By indications of what we’re getting and what we’re seeing in allocations, I think July and August should be the low-water mark and we should see improvement after that, just based on the increasing allocations we’re seeing (from) certain OEMs already,” he said.
Lithia reported net income of $304.9 million for the second quarter. The figure represents nearly four times the $77.7 million net income during the pandemic. Lithia cites the recovering U.S. economy, acquisitions and improved productivity as the reason for the boost.
The Medford, Oregon, retailer operates 216 locations, representing 33 brands, in 22 states. It also operates a potentially nationwide Driveway online commerce platform. The WardsAuto Megadealer 100 ranked Lithia as the No.3 retailer in 2021, based on 2020 total revenues. But the retailer aims to top this list by 2025.
The retailer hopes to achieve $50 billion in annual revenue, up from $13.1 billion in 2020, by 2025. Growth will come from acquisitions, same-store growth within the group’s existing franchised network, and Driveway.
Lithia president and CEO Bryan DeBoer says so far the company is outperforming its targets, despite low inventories.
Lithia brands with the leanest inventories include Toyota, Subaru and General Motors. “But all indications from them make us believe we will see improvement in those allocations over the next couple of months,” he says.
Lithia had a 23-day supply of new vehicles as of June 30, down from 50 days on Dec. 31, 2020. The retailer has an additional 20-day supply of new vehicles in transit, DeBoer says.
Lithia reports a 58-day supply of used vehicles, down from 65 days on Dec. 31, but up from 47 days in 2020.
DeBoer reports it would benefit retailers if automakers were to adopt a “build-to-order” system like that used in Western Europe counterparts. He expressed doubts that this will happen, especially among domestic brands that offer a complex variety of trims and equipment on average, especially in pickups and SUVs. Asian import brands, he says, offer less variety and typically operate with leaner inventories.