Lithia Motors Inc. expects its DCH Auto Group division to acquire more stores in a major coastal market in the next few months.
“We have a good handful of deals that are percolating in both L.A.- and New York-area markets and we look forward to reporting our first deal on the DCH side in the coming months,” said Lithia CEO Bryan DeBoer during a call with analysts today.
The auto retailer is also ready to do another deal that would be close in size to its acquisition of DCH in 2014.
“We’re definitely thinking about it and always talking to all of our peers to set the foundation of something like that,” DeBoer told Automotive News. “We have the money to do it. We have $308 million to buy a $1.5 to $3 billion in revenue deal. We have good bank and capital support from our partners. It’s a possibility in the future, we’ve already done it, but it’s about finding the right partner.”
His comments came as the company reported strong second-quarter results today. Its profit and revenue soared, largely because of its acquisition of DCH along with improving new- and used-vehicle sales volumes.
Lithia’s net income surged 34 percent to $51.2 million in the second quarter from a year earlier, as revenue climbed 63 percent to $2 billion.
Lithia, of Medford, Ore., owns 130 dealerships after its acquisition of DCH’s 27 stores in October 2014. Previously, DeBoer had said DCH was contributing $75 million a quarter in gross profit to Lithia’s operations, or about a third of the company’s gross profit.
The integration of DCH is ahead of schedule, DeBoer said. He had expected it to take two years, but said it’s nearly complete now.
But at some DCH stores, costs remain high in relation to profits, at least as compared to DCH’s peer group, said CFO Chris Holzshu.
“There are still opportunities to reduce costs slowly without sacrificing customer service,” Holzshu said during the call. “We don’t want to cut costs and see deterioration in overall profit dollars.”
DeBoer said Lithia wants DCH to run its own operations and grow at a steady pace, while controlling costs. Therefore any acquisition on the DCH side would likely be a group no larger than three stores in size for the next year, he said. Anything larger, he added, would require Lithia’s corporate officers to manage the integration of the acquisition.
Lithia ended the quarter with $23 million in cash and total potential liquidity of $308 million, it said.
Lithia ranks No. 8 on the Automotive News list of the top 150 dealership groups in the U.S., with retail sales of 91,192 new vehicles in 2014.