Lithia growth plan means filling gaps

In its quest to blanket the U.S. with dealerships, Lithia Motors is not ruling out acquiring large private — or public — dealership groups.

Lithia, the third-largest public dealership group in the U.S., is on track to absorb more than $7 billion in annualized revenues through dealership acquisitions this year, doubling what it acquired in 2020.

The company's ultimate plan is to buy enough retailing real estate to deliver Lithia vehicles within any 100-mile radius in the country. The growth would, among other benefits, lower logistical expenses for Lithia and open a pipeline of used-vehicle inventory. To achieve that goal, Lithia will need to think big. And it is.

On a call with investors last week, CEO Bryan DeBoer said the retailer has been eyeing three large groups that "would round out our network almost at full capacity fairly quickly."

"I really wish that our peers would feel the same way and would see the value in us joining forces," DeBoer said, though he added such an acquisition would be "aspirational" and is not accounted for in the company's five-year plan.

Since Lithia rolled out its goal in July to reach $50 billion in revenue by 2025, the group has acquired dealerships representing $3.3 billion in annual revenue. DeBoer said last week Lithia currently has $3 billion in planned acquisitions under contract that have yet to close.So far, the Medford, Ore., com- pany, which generated $13.1 billion in revenues last year, has achieved its desired density only in its Northwest U.S. backyard. The Midwest and Southeast remain largely devoid of Lithia stores. Lithia has only one or two stores, for example, in the Southwest region, which means that to deliver a vehicle to a digital customer in that area, that car may have to travel nearly 500 miles.

On Jan. 31, reports surfaced that Lithia plans to acquire southeast Michigan's Suburban Collection, one of the nation's largest privately owned dealership groups. Suburban ranked as the No. 18 dealership group in the U.S. based on new-vehicle sales in 2019, when it generated $2.7 billion in revenue, according to data compiled by Automotive News.

Lithia executives declined to comment on the reported Suburban deal.

Tyson Jominy, vice president of data and analytics at J.D. Power, said Michigan has the highest lease penetration market in the country, largely thanks to automaker employee incentives extended to family and friends.

"You're going to get a large influx of these lightly used new models coming back," he said. "For Lithia, who is looking to do a lot of used-vehicle acquisition, this is going to be a great pipeline to their entire operation."

An influx of off-lease vehicles would help lower the average age of Lithia's used-vehicle inventory, which currently sits at 4 years.

A dense dealership footprint is integral to Lithia's strategy with Driveway, an omnichannel retailing solution it touts as a way for customers to never set foot in a traditional dealership again. Omnichannel refers to technology and processes aimed at providing a seamless buying experience to consumers whether they shop online, in store or both.

Because the tool will be rolled out to all Lithia regions, it's important to Lithia to have physical locations to support those sales. Logistical expenses in shipping cars cause an undue cost burden on stores and customers. Lithia is chasing a dealership network scale that would provide "massive" advantages over digital and used-only competitors, DeBoer said.

"We need more density," he said. "We need more selection to make sure that we have the offerings to consumers that are closer to them."