AutoNation's stock price has risen 72 percent this year to an all-time high. Lithia's stock price is up 33 percent in 2021 after roughly doubling in 2020.
Lithia, whose revenue and earnings per share reached second-quarter records as net income jumped nearly fourfold, acquired nearly 50 dealerships in the second quarter that are expected to generate annual revenue of $3.7 billion. The largest transaction was for Michigan's Suburban Collection, a huge 34-store deal that closed in April and is one of the largest-ever dealership acquisitions.
So far in 2021, Lithia has acquired dealerships expected to generate nearly $4.5 billion in annual revenue.
In July 2020, Lithia unveiled its five-year plan to reach $50 billion in annual revenue and $50 earnings per share. Part of that plan includes adding dealerships expected to generate $20 billion in annual revenue — and Lithia has already reached 40 percent of that, DeBoer said.
He added that Lithia has deals under contract to buy dealerships expected to generate an additional $2 billion in annual revenue. Those transactions are expected to close within 90 days and DeBoer said he expects another wave of deals to close by year-end.
The company also is looking at a "more than $15 billion pipeline of potential acquisitions that we believe are priced to meet our return thresholds," DeBoer said.
And DeBoer told Automotive News last week that if deals reach Lithia's return benchmarks, "we'll continue to buy at an accelerated pace."
Lithia has $3 billion in liquidity and could buy dealerships that would generate $12 billion in annual revenue.
DeBoer said Lithia doesn't "expect to return to the capital equity market, aside from a transformative acquisition."
He told analysts and investors last week that in that pipeline there are enough stores "appropriately priced" within its target range, aided somewhat by the risk of a capital gains tax rate increase that has sellers eager to see deals close by the end of the year.
Lithia, which also sold four dealerships in the quarter, now has 260 stores, ahead of AutoNation's 228 franchised dealerships. For the first six months of 2021, AutoNation's revenue was $12.9 billion and Lithia's $10.4 billion.
Stephens Inc. analyst Rick Nelson said his firm is predicting that Lithia may surpass AutoNation in annual revenue next year if it doesn't happen this year.
His firm estimates Lithia will bring in $22 billion in revenue in 2021, less than an estimated $25 billion for AutoNation. Next year Stephens has estimated that both will earn $26 billion in revenue, but Nelson said the firm hasn't baked Lithia's acquisition pipeline into those projections.
"Both companies are generating a lot of free cash flow and have taken different approaches to capital allocation," Nelson said.
AutoNation ranks No. 1 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 249,654 new vehicles in 2020. Lithia, of Medford, Ore., ranks No. 3 on the list, retailing 171,168 new vehicles in 2020. Its April acquisition of Suburban Collection makes Lithia the second-largest group going forward.