The end of Lithia & Driveway’s second quarter came with good news for the publicly traded company.

The retailer reported the highest Q2 revenue and earnings per share in company history ($0.42 per share for the second quarter).

Lithia’s Q2 revenue was up almost a quarter (20%) from 2021 Q2 results, soaring to $7.2 billion. Second-quarter income came in at $338 million, up 11% from Q2 2021.

"The second quarter results demonstrate the diversity and strength across our business lines as we have delivered the highest quarterly revenues in our history," Lithia president and chief executive officer Bryan DeBoer said in a news release.

"These results directly reflect the team's outstanding track record of operational excellence and integrating acquisitions, while building a strong finance portfolio and ecommerce business. We are excited about our progress thus far as we are well on our way to achieving our 2025 plan and leading the consolidation of our industry,” he said.

Taking a look at Driveway, in particular — the dealer group’s ecommerce offering — Lithia said the site reached 2.3 million monthly unique visitors in June. The site achieved a grand total 4,600 vehicle transactions in June, up 740% from 2021.

DeBoer said during the earnings call, “Our second quarter results reaffirm our ability to leverage the value of our network to expand market share. Customers have the option of visiting our Lithia stores or accessing our e-commerce channels of Driveway and GreenCars, improving our ability to drive efficiencies in our operations.”

The pre-owned vehicle sales trends and numbers within the dealer group back up these assertions. DeBoer shared that the company sold 90 used vehicles per month per dealer location, “quickly approaching our 100-unit goal,” he said.

Amid a tight used supply environment — and new, for that matter — Lithia ended the quarter with new- and used-vehicle supply of 32 and 62 days, up 39% and 5%, respectively year-over-year. 

One analyst on the call noted that for used vehicles, it seemed “a bit on the high side.”

DeBoer said, “We’re pretty comfortable. That's a real normalized level of where we were pre-COVID. And I think today knowing that we have two additional national brands in GreenCars (its arm that focuses on EVs and hybrids) and Driveway, what our efforts are trying to push is the ability to find cars.”

For Lithia, the ability to grow inventory is top of mind because it expands the selection to its customers through all three of its sales channels.

“Most importantly, when we're starting to see now some of our ecommerce peers are used-only peers that are really struggling just getting inventory,” DeBoer said.

“So, we're pretty comfortable at that 61- 62-day supply and know that there is probably some softness that will come in the market towards late summer,” DeBoer said. “But again, we're talking about a two-month supply, and we'll adjust things according to what the market conditions are heading into fall and winter.”

Lithia’s own finance arm is performing well, too. Driveway Finance Corp. (DCF) has continued its success as the No. 1 finance company to Lithia customers, achieving a 12.9% penetration rate.

DeBoer called DCF Lithia’s “most developed horizontal.”

“With the continued strong performance, our investments in Driveway and Driveway Finance were accelerated,” said DeBoer.

Again, Driveway received 2.3 million monthly unique visitors in June, DeBoer said during the Q2 conference call.

“Our ecommerce business vertical, Driveway, builds our online presence by integrating our physical infrastructure and logistics to develop a premier omni-channel business,” said DeBoer during the call. “We reported another strong quarter of Driveway performance, demonstrating how we are making inroads finding new customers, while many of our competitors are having to reexamine their own growth strategies.”

Lithia and Driveway combined retailed nearly 32,000 vehicles, many of which involved ecommerce tools.

The company’s consumer site includes the aforementioned GreenCars ecommerce offering, as well, for those customers trying to generate value in the future of the EV market.

“GreenCars continues to gain traction as we attract consumers with our sustainable vehicle learning center and marketplace powered by Driveway,” DeBoer said.

There was strong online activity on GreenCars during the second quarter. 

“Higher fuel prices have boosted consumer interest in all types of electric vehicles, and GreenCars provides a wealth of information on sustainable options from BEVs to hydrogen propulsion solutions centered around affordability for all customers,” DeBoer said.

To date, the company has installed 600 chargers, supporting the adoption of sustainable vehicles.

“Our integration of optionality in our ecommerce tools allows us to serve a diverse and evolving set of consumer interests,” DeBoer said.

The company also experienced extensive growth this past quarter, with the company acquiring 13 locations in Q2.

These included:

  • Sisley Honda in Thornhill, Ontario
  • Nine Lehman Auto World locations
  • Two Esserman International locations in Miami-Dade County in Fla.
  • Henderson Hyundai and Genesis in Henderson, Nev.

And in July, Lithia acquired Elk Grove Ford in Elk Grove, Calif.

"Our operating results continue to perform ahead of expectations, giving us the opportunity to invest further in our network, expand our adjacencies to grow earnings and expand our many competitive advantages," said DeBoer.

Looking forward, during the Q&A portion, a participant asked company leadership how the company would fare and react to a potential moderate to severe recession.

“I would say, the relaxation in pricing on transactions allows us the ability to deploy our war chest of capital that's quite robust right now. And even in a lower earnings type of environment, we're going to be generating $1.2 billion to $1.5 billion in cash flow,” DeBoer answered.

Later in the call, DeBoer said yes, there’s still a backlog for most manufacturers and will be for the foreseeable future, but there’s hope in pre-owned.

“Our used vehicles are still turning at quite a high rate. I'm going to guess on this, but we probably added five to seven days supply just from buying vehicles in other parts of the country and then getting them to reconditioning centers that are a little further away,” he said.

DeBoer went on to note that being able to do your reconditioning in-house is an invaluable tool, as well for pre-owned operations.

DeBoer explained some used-car retailers may not have the ability to recondition trade-ins because it tends to be complicated, and take more advanced technician experience.

A webcast listener did touch on the idea that used-vehicles prices may return to normal after an unheard-of jump over the past two years. What segments would Lithia and Driveway be most interested in then?

“Our real thrust is in our core business. That's 63% of our volumes today, and that's really the heartbeat that comes from those trade-ins of high-demand vehicles that create better margins and the ability to sell lesser-demand cars at a more attractive price than used only dealers,” said DeBoer.

“If we do see a recession, I think Lithia and Driveway are nicely positioned with adjacency to continue to execute through our strategy that we've developed, to maximize shareholder returns and maximize our ability to grow to become the largest automotive retailer in the country and probably the world,” DeBoer said.