Lithia chairman's sacrifice helps drive surge in stock

In the months since CEO Bryan DeBoer announced his audacious five-year plan, Lithia Motors Inc. has become the most valuable franchised auto retail group in the market.

Over the past year, the company's share price more than tripled — Lithia is now valued at more than $10 billion — as it racked up record sales and profits fueled by rapid strategic acquisitions, digital expansion and strong core operations.

The stock also got a lift from an unusual sacrifice by company Chairman Sid DeBoer, the CEO's father. A pioneer in tapping public markets to fund expansion plans in the mid-1990s, he initially retained an iron grip on the company in part through a special class of shares bestowed with supervoting power. He owned 53 percent of the shares and controlled 92 percent of the vote.

Decades later, though, he did the unthinkable: He gave up his superpowers.

More than a year before the pandemic began, on Jan. 22, 2019, the senior DeBoer embarked on a seven-year schedule to convert his special Class B shares into common Class A stock. But then this February, he pulled the trigger on the rest of his holdings — more than four years early.

Lithia needed the Class B shares at first to protect against a potential hostile takeover, he said, because the company had been approached by larger rivals several times. But by this year, the special stock had done its job, he said.

"Once we were large enough, our strategy and history of execution spoke for itself, and I knew that we no longer needed the Class B shares," Sid DeBoer said in an emailed statement.

The move had the practical effect of making Lithia stock available to certain institutional investors that categorically exclude companies with significantly disparate voting rights.

It also sends a signal to the market about the company's commitment to stockholder satisfaction — truly outgrowing its roots as a family company.

"Now investors don't believe this is just a family business," said Alan Haig, president of buy-sell advisory firm Haig Partners in Fort Lauderdale, Fla. "This is a professionally run organization that's operating in the interests of all shareholders."

Institutions have become major holders of Lithia stock. As of March 31, Lithia said, Sid DeBoer owned about 1 percent of the common stock, and Bryan DeBoer had almost 1 percent, according to filings. By contrast, three big institutions — BlackRock, Vanguard Group and Abrams Capital Management — owned almost 30 percent among them.

Since Bryan DeBoer took the helm in 2012, Lithia's market capitalization has climbed much faster than that of its peers. Haig described those rivals as having been more conservative on acquisitions.

Lithia's rising stock has also helped pay for its growth. The company sold stock and debt in October, raising $1.33 billion that it then used for acquisitions.

Lithia's market capitalization more than tripled since the dealership group launched the five-year plan last July to $10.51 billion.

Comparatively, AutoNation Inc., the largest U.S. new-vehicle dealership group, has a market capitalization of $7.62 billion. Penske Automotive Group, the second-largest dealership group last year, was valued at $7.16 billion. Both of those groups' stocks have more than doubled in the past year while Lithia's more than tripled.

"Investors are eating up the Lithia strategy, the ramped acquisition pace, technology on top of the acquisitions," said equity analyst Rick Nelson with Stephens. "At the end of the day, it's all about execution."