Lithia Motors Inc. is expanding its reach into the dealership buy-sell market with a program aimed at buying a majority stake, but not 100 percent, in dealerships.
Lithia has partnered with the Automotive Minority Dealer Academy to find minorities who want to own dealerships but lack the capital. The academy will provide funding to promising candidates, who can take advantage of Lithia's infrastructure.
"Typically, our partners would be 5 to 20 percent owners initially," Lithia CEO Bryan DeBoer told Automotive News. "We would own the rest — 80 to 95 percent — until such time they choose to expand their ownership," which might be five, 10 or 15 years later. "It's a short-, long-term and midterm investment strategy." The program is run by Shau-wai Lam, the former chairman of DCH Auto Group, which Lithia bought in 2014. Lithia has not done any deals through the program yet, but it has identified about 15 qualified candidate partners outside Lithia. The potential partners could pursue open points or a dealership that's for sale, DeBoer said.
The minority candidate cannot buy a stake in an existing Lithia-owned store.
With Lithia's backing, the partners have more purchasing power and access to Lithia's infrastructure. But Lithia benefits, too. For example, Lithia can attain open points awarded by automakers to minority candidates.
"You're really utilizing that person's history and performance with a certain manufacturer to be able to acquire an open point," DeBoer said.
Lithia also would earn money as the store's profits grow, DeBoer said.
"We would be rewarded with whatever percentage of our ownership, as the store grows," DeBoer said. Meanwhile, the partner may choose to "continue on a 20 percent ownership and buy a second, a third store or a fourth store," he said.
Lithia expects its partners to use the same investment criteria it uses when it buys a dealership.
"It's a pretty high-hurdle rate as to what we expect out of our returns. So it's not going to grow super fast," DeBoer said. Lithia buys "strong assets that don't perform at their potential. Most people want to buy stores that are already operating well; they're not wanting to spend the time to nurture and grow a strong asset."