CEO Bryan DeBoer will transform Lithia Motors Inc. with his planned purchase of DCH Auto Group Ltd. But it won't be easy.
Lithia is the smallest of the publicly traded dealership groups, as measured by 2013 new units retailed, selling mainly Detroit 3 brands in smaller markets in the West, Midwest and Texas. By adding DCH, it will jump in the size rankings, break into Eastern U.S. and major metro markets, and diversify its brand portfolio so that Toyota and Honda stores make up 47 percent of its sales.
The transformation brings challenges, though. DeBoer will have to blend two quite different cultures and improve DCH's underperforming profit margins in metro markets -- markets in which Lithia has almost no experience.
And the transformation won't stop there. Lithia will hunt for more acquisitions, DeBoer said.
"This deal will allow us to look at two growth models: one in metro markets and one in smaller, rural markets," DeBoer said in an interview with Automotive News.
"Our balance sheet doesn't get too stressed by this deal," he said in a separate conference call with analysts and reporters. He added: "We're not looking at this as adding loads of work" for Lithia's personnel, so they would still be able to evaluate other potential targets.
Once the deal closes, which is expected to be in the fourth quarter, there might be "a slight honeymoon period of 90 days or so" as Lithia absorbs DCH, but the acquisition team will then resume scouting deals, DeBoer said. "We look at this as an opportunity to deploy capital and be more discerning on what we choose," he said.
Lithia, of Medford, Ore., will pay about $340 million in cash and another $22.5 million in Lithia stock to acquire DCH, of South Amboy, N.J.