AutoNation and Lithia poised for bold growth

While the immediate focus of AutoNation Inc. and Lithia Motors Inc. last week was their strong first-quarter earnings, both companies excitedly discussed robust growth plans for the coming years.

AutoNation, the country's largest new-vehicle retailer, is looking to grow on the franchised dealership side, including acquiring 11 stores in a deal expected to close this summer. It also is accelerating the rollout of used-vehicle-only AutoNation USA stores.

The company said it now hopes to add 125 or more AutoNation USA stores "coast to coast" by the end of 2026, up from five today. Last year, the auto retail giant said it wanted to grow AutoNation USA to more than 100 stores by 2030, including 50 by the end of 2025.

"That's just an expression of our confidence that we really have this combination figured out," CEO Mike Jackson told analysts last week during a call to discuss the retailer's soaring first-quarter net income.

The group of five AutoNation USA stores had an operating profit of more than $3 million in the first quarter, Jackson and CFO Joe Lower said.

AutoNation said it remains on schedule to open five USA stores this year and to add 12 stores in 2022. Each costs about $10 million to build, Lower said, so the company could invest $1.25 billion or more into AutoNation USA stores over the next five years.

While it grows in pre-owned, AutoNation also is keeping an eye on franchised dealership opportunities that will "complement" its footprint, Lower said. The Fort Lauderdale, Fla., retailer will buy its first franchised stores since 2018 when it closes on 11 dealerships and a collision center from Peacock Automotive Group of Hardeeville, S.C. Peacock Automotive will retain a Ford store in Maitland, Fla.

AutoNation expects to add $380 million in annual revenue with store acquisitions in the Hilton Head and Columbia areas of South Carolina and in Savannah, Ga.

AutoNation isn't the only public auto retailer looking for and buying stores.

Lithia Motors Inc. purchased Michigan's Suburban Collection this month, adding 34 dealerships and 56 franchises, in one of the industry's largest transactions in a decade. That purchase put Lithia, which has been on a dealership-buying spree, ahead of AutoNation in store count: 246 to AutoNation's 235 stores at year-end 2020, including five USA outlets.

If neither group buys or opens additional dealerships in the interim, they would be tied in store count following AutoNation's Peacock acquisition.

But Lithia, which reported record-breaking first-quarter revenue and earnings per share last week, is not planning to stop making acquisitions. While some of the publics are growing in standalone used-vehicle stores, Lithia's growth strategy is focused on purchasing franchised dealerships and scaling its digital retailing platform nationwide.

Lithia ranked No. 3 on Automotive News' latest list of the largest dealership groups based on 2020 new-vehicle sales. But the Suburban acquisition makes Lithia the second-largest group going forward.

Lithia CEO Bryan DeBoer reiterated on an investors call last week that the company's digital retailing initiatives and success rate with closing and integrating dealership acquisitions positions the public to be the leader in auto-retail consolidation.

Since last July, when Lithia unveiled its five-year plan to reach $50 billion in annual revenue and $50 earnings per share, the group has acquired dealerships expected to generate $6.5 billion in annual revenue, ahead of its pace to buy dealerships representing $4 billion in revenue on average in each of the five years.

Lithia has even more acquisitions on the horizon. It has letters of intent to buy dealerships that generate more than $3 billion in annual revenue and is negotiating deals representing an additional $15 billion in annual revenue.

In the first quarter, the company also saw increased adoption of its omnichannel e-commerce solution, Driveway. Omnichannel refers to offering a seamless buying experience to consumers whether they shop online, in-store or both.
Lithia expanded marketing efforts for Driveway beyond its initial Pittsburgh and Portland, Ore., markets to several new areas.

The platform already is helping Lithia sell vehicles outside its current markets and reach new customers. About 43 percent of the vehicles sold on Driveway are delivered "out of region" and include vehicle shipping costs. Lithia is on target to process 15,000 transactions through Driveway by year's end.

While the Medford, Ore., group's acquisition goals are ambitious, DeBoer said there's plenty of room at the buyer's table for others. "I don't believe this is a winner-take-all [situation], even though I believe that we're nicely positioned to get as much as we possibly can and really strive to that 5 percent of U.S. market share and beyond," DeBoer said.