Lithia, Sonic, Asbury Brace For New-Model Shortages, Target Used Vehicles

Three of the nation's largest auto retailers - Lithia Motors Inc., Sonic Automotive Inc., and Asbury Automotive Group Inc. - are bracing for new-vehicle shortages stemming from the earthquake in Japan by stocking up on used vehicles.

The retailers are aggressively buying customer trade-ins and plan to offset the impact of tight new-vehicle supplies by emphasizing used-vehicle operations, reported Automotive News.

The companies had double-digit growth in new- and used-vehicle sales year-over-year during the first quarter of 2011.

Sonic's net earnings for the quarter were $15 million, more than triple the $4.2 million in profits posted a year earlier. Lithia earned $8.7 million in the first quarter, up sharply from $1.3 million a year earlier.

Asbury also said it expects "meaningful" supply disruptions as it posted quarterly earnings of $19.9 million compared with $7.4 million a year ago.

Sonic and Lithia said they expect new-vehicle shortages to begin in June and continue throughout 2011. Supplies of used vehicles - particularly late models - are expected to be tight.

Like their larger rival AutoNation Inc., Sonic and Lithia said a shortage of import vehicles could result in market share gains for Detroit automakers.

The tight supply of new models also could drive up prices - and profit margins - for some import models, the companies said.

Though used-vehicle values are rising, resulting in higher acquisition costs, the companies are also selling older, higher-mileage vehicles that cost much less as trade-ins.

These are vehicles that in the past the dealers would normally wholesale, sometimes at a loss.

"We are working to mitigate the situation through ... expanding our used vehicle business, seeking higher margins on vehicle sales, and more actively managing inventory across stores," Asbury COO Michael Kearney said.

Lithia told analysts in a conference call today that it raised its full-year earnings guidance to $1.42-$1.50 per share for 2011.

Even with supply disruptions and higher fuel prices "the economy is getting better," Lithia CEO Sid DeBoer said.

Sonic said supply shortages already are influencing pricing on Lexus and Honda models.

Jeff Dyke, Sonic's executive vice president, told analysts Tuesday that Lexus vehicles were retailing for about $1,000 more per unit on the West Coast than they were earlier in the year.

The company is also seeing wholesale prices jump $1,000 to $2,000 on used Honda and Lexus vehicles. Sonic expects Toyota prices to rise in the next couple of months as supplies dwindle, Dyke said.

The company is testing a new pricing strategy on new vehicles at Honda and Volkswagen stores. Dyke doesn't expect the shortages to affect the pilot program.

It has adopted market-based pricing - narrowing the gap between asking and retail price - in 10 Honda and three Volkswagen stores. It will adopt the program at six remaining Honda stores in May.

"These stores are up 96 percent in volume and 47 percent in gross, combining finance and insurance and the gross profit we make on the vehicle," Dyke said in an e-mail. "Our margins are right where we think they should be and the customer satisfaction scores are very good."

Lithia said it plans to acquire more import franchises, but domestic-brand vehicles still dominate its product mix. Import vehicle shortages could help its traditional network of domestic stores in small markets.

"We have the opportunity to take market share" at domestic-brand stores, said Bryan DeBoer, Lithia's president.

Though the company said used vehicles are in short supply, it has increased its sales of older vehicles with 80,000 miles and up.

While used-vehicle prices are rising, these "Value Auto" vehicles will help the company keep costs down, DeBoer said.

During the first quarter, unit sales of Value Auto vehicles nearly doubled to 2,200 units from 1,200 units in the first quarter of 2010.

The company also is beefing up its used-vehicle inventory by buying directly from consumers advertising their used vehicles for sale.

Lithia reported first-quarter net income of $8.7 million on revenue of $603 million, compared with profits of $1.3 million on revenues of $459.2 million a year ago.

Sonic posted first-quarter net profits of $15 million on revenue of $1.84 billion, compared with $4.2 million in net income and revenues of $1.54 billion during the year-ago period.

At Asbury, the top-selling brands in terms of sales at its stores are Japanese automakers Honda Motor Co, Nissan Motor and Toyota Motor Corp .

The group's quarterly revenue rose 18 percent to $1 billion.

New vehicle sales rose 20 percent to $571.2 million while used vehicle sales rose 21 percent to $301.4 million.

Asbury, with earnings per share of 35 cents for continuing operations, met Wall Street expectations. Analysts on average had expected earnings of 35 cents a share on revenue of $1.1 billion, according to Thomson Reuters I/B/E/S.