July 27, 2021

Lithia’s captive rebrands, grows originations

Lithia Motors Inc. has taken its captive finance company national with the goal of leveraging the indirect lender to boost the public group’s profitability 10 percent.

Previously known as Southern Cascades Finance Corp., the newly christened Driveway Finance Corp. has been part of Lithia’s growth strategy for nearly a decade. The omnichannel solution functions as a fintech for Lithia’s digital customers.

Omnichannel refers to technology and processes aimed at providing a seamless buying experience to consumers whether they shop online, in store or both.

Lithia CEO Bryan DeBoer told investors Feb. 3 that Driveway went live in the fourth quarter. It originated an average of 1,000 auto loans per month across Lithia’s in-store and digital channels, he said.

“Longer term, we expect that Driveway’s fintech platform will play a larger role in elevating the experience for our consumers and capture up to 20 percent of all vehicle sales transactions, further differentiating [Lithia] in profitability,” DeBoer said.

If Lithia is able to increase the penetration of Driveway auto loans and leases to 20 percent of vehicle sales online or in store, it would result in a 10 percent profit lift for the company.

Leveraging Lithia’s physical presence is key to Driveway’s continued growth, DeBoer said. Today, Driveway customers have access to 210 reconditioning and vehicle storage locations, more than 500 inventory procurement specialists and nearly 9,000 dealership associates that support the digital transactions.

While Lithia’s goal is to grow the business its captive captures, the company doesn’t plan to step on automakers’ toes. DeBoer told investors that manufacturer captive finance offerings are “hyper-important” to their relationship with automakers. Automakers funnel incentive programs, including subvented finance rates and other discounts, through their captive arms.

“We don’t plan on attacking that at all,” DeBoer said.

Lithia Chief Marketing Officer Tom Dobry told Automotive News that the retailer’s lending arm is targeting the used-vehicle space, rather than chasing new-car sales where automaker captives dominate.

Lithia’s finance company focuses on risk-heavy customers with lower FICO scores that captive lenders typically avoid.

Still, DeBoer said the company has been working toward enhancing its underwriting processes to grow further into the higher credit tiers.

“We have been in the deep-prime and subprime business for over a decade in Southern Cascades Financial,” he said. “And what we really did is build all our decisioning models over the last two years to move into the prime business, which is a hyper low-risk type of environment.”