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Lithia Motors Inc., now the largest seller of new vehicles in the U.S., appears to have eliminated around 1,000 unspecified positions this year.
The move comes amid lower gross profits on new and used vehicles and as the auto retailer’s same-store new and used vehicle sales slipped in the first quarter compared to a year earlier.
Lithia COO Chris Holzshu, on the company’s first-quarter earnings call last week, said the group has been focused on “right-sizing” in certain pockets that had increased its selling, general and administrative expenses “in a declining [gross profit per unit] environment and sales environment that we had to adapt to.
“Since we last spoke coming off of Q4’s call, we’ve eliminated about 1,000 positions in the field and have right-sized a lot of pay plans, kind of getting folks ready for this new environment that helps us leverage the gross and the net. And so, [in] March actually, we saw a lot of that come through the bottom line and we’re anticipating additional strength coming into Q2.”
Lithia did not comment directly on what type of positions were eliminated, where they were located, when the cuts took place or if they were open positions. The group did divest one dealership in the first quarter.
“At Lithia & Driveway we are a data driven organization and regularly assess staffing to better serve our customers and support our business needs,” the company said in a statement to Automotive News. “To maintain our momentum and growth strategy, we continue to set a culture of high performance, while nimbly responding to the environment with driving efficiencies and managing performance.”
Lithia said that selling, general and administrative expense for the first quarter was $764.4 million, up 3.3 percent from a year earlier and 1.5 percent from the fourth quarter.
“Given that 75 percent of our [selling, general and administrative expense] is personnel that is commission-based in most cases, high [gross profit per unit translates] to high commissions,” Holzshu said on Lithia’s fourth-quarter earnings call in February. “That’s high commissions not just for salespeople, but for our management team, for our store operators, our general managers, our [finance and insurance] managers. All of those things have been inflated due to this unusual supply and demand equation.”
Jonathan Elias, an analyst with Guggenheim Securities, in a note to investors last week said that while Lithia faces headwinds with a return to more normal gross profits on new vehicles, the company could see some improvement in its selling, general and administrative expense as a percentage of gross profit due to its reduction in jobs and pay plan changes.
It’s not clear how many employees Lithia now has. As of Dec. 31, it employed 21,875 people “on a full-time equivalent basis in our North American network of 296 retail locations,” according to Lithia’s 2022 annual report.
The company’s first-quarter net income fell 33 percent to $229.6 million. Its average gross profit per new retail vehicle fell 20 percent to $4,924, while its average gross profit per used retail vehicle plunged 30 percent to $2,120 in the first three months of the year.
Lithia ranks No. 1 on Automotive News‘ list of the top 150 dealership groups based in the U.S., retailing 271,596 new vehicles in 2022. Lithia’s sales figures include dealerships outside of the U.S.