Lithia acquires high-volume Honda store

Lithia Motors Inc. this month bought a high-volume Honda store in New Jersey from a troubled dealership group, building on Lithia's platform of stores in the market.

The acquisition of Hamilton Honda in Hamilton Township, which included real estate, expands Lithia's presence in New Jersey and near eastern Pennsylvania and adds one of the nation's highest-volume Honda stores to its portfolio.

Moving into New Jersey has been profitable for Lithia, according to analysts, and has added more than a billion dollars in annual revenue.

Lithia, the third-largest dealership group in the country with 183 stores nationally, now has 16 dealerships in New Jersey. Lithia entered New Jersey in 2014, when it bought DCH Auto Group, which was headquartered in the state. DCH's stores in New Jersey, New York and California added $2.3 billion in annualized revenue to Lithia. In March 2018, Lithia acquired six locations from the Prestige Family of Fine Cars in Bergen County, N.J., adding an estimated $900 million in annual revenue.

Hamilton Honda, a 65,000-square-foot dealership with 42 service bays, opened in 2009. Last year, the dealership generated $160 million in revenue and was ranked No. 23 nationally in sales among Honda stores and No. 8 in the New York metro market. Lithia bought the store for an undisclosed amount from auto industry veteran Michael Saporito and former NFL linebacker Jessie Armstead, who are principals in a dealership group that last year was sued by two captive finance companies alleging the group defaulted on millions of dollars in floorplan loans.

Rick Nelson, managing director at Stephens Inc., said the acquisition is in line with Lithia's growth strategy. "It's a fixer-upper, and that's what they do. They acquire stores where they're underperforming and have an opportunity to improve the performance," Nelson said.

While Hamilton Honda was profitable, Lithia seeks to grow the dealership's margins by augmenting its used-vehicle volume and service-and-parts business. Lithia CEO Bryan DeBoer called it "the dominant" Honda store in central New Jersey.

"The store operated fairly well," DeBoer told Automotive News. "The main things are the costs that you have when you're a smaller group are higher than what we have. So we'll be able to find some fairly good cost improvements."

Last year, Saporito and Armstead, along with a partner in other stores, Antonio Pierce, were sued by Nissan Motor Acceptance Corp. and Hyundai Capital America for allegedly selling hundreds of vehicles at five dealerships in Michigan and Pennsylvania but failing to repay floorplan loans. That's known as being out of trust. The lenders also filed mortgage foreclosure lawsuits against the group involving three stores in Hazle Township, Pa.

Lithia is aware of the lawsuits, DeBoer said, and is largely unconcerned about the group's other debts, which weren't part of the deal.

"We knew that the mother ship of all their stores was this store. So it's the one that allowed them to grow," he said. "So we weren't super concerned about those financial conditions, and we worked with their lenders and themselves to clear all the debt."

Saporito will continue to operate the store, DeBoer said.

That move puzzles at least one buy-sell expert. Retaining a previous owner in light of ongoing legal troubles with other stores is unusual, particularly in acquisitions involving public dealership groups, said Mark Johnson, president of MD Johnson Inc. near Seattle.

"I have never seen a dealer buy a dealership and keep the operator in the store if they're out of trust with other stores," Johnson said. "My typical clients probably would find that politically incorrect."

Saporito and Armstead could not be reached for comment. Their group, which a year ago had eight dealerships, is believed to still be operating Hazleton Honda in Hazle Township, Pa., and Englewood Cliffs Cadillac in Englewood Cliffs, N.J. DeBoer said Lithia is not interested in buying those stores.

Saporito and Armstead have been awarded an open Honda point in Grapevine, Texas. The dealer license application remains pending, a spokesman for the Texas Department of Motor Vehicles said last week.
Lithia, of Medford, Ore., ranks No. 3 on Automotive News' list of the top 150 dealership groups based in the U.S., with retail sales of 184,601 new vehicles in 2018.