Lithia's aim: Aggressive growth again

Lithia Motors Inc. has a bold, long-term goal: It wants to more than triple its combined U.S. new- and used-vehicle market share by revenue — a move that could make it No. 1 in auto retail.

The proclamation for significant growth from the nation's third-largest new-vehicle retailer comes while some in the industry see traditional auto dealers under pressure to survive long term in light of disruptive threats ranging from online competitors to electric and autonomous vehicles.

If Lithia were to reach the goal, which would give it about 5 percent of U.S. vehicle-sales revenue, it could leapfrog Penske Automotive Group and AutoNation Inc., the country's two biggest auto retailers.

Lithia CEO Bryan DeBoer told Automotive News last week following its release of higher fourth-quarter net income that there is no timeline for the target. He called it an inspirational, long-term vision for the company and discussed it during a call with analysts.

The company has some traction. Since 2013, Lithia has nearly tripled new-vehicle sales, and its revenue has jumped from $4 billion to $12.7 billion.

Now, with just 1.3 percent of revenue from new- and used-vehicle sales from a 1.5 percent share of combined vehicle sales, DeBoer said organic growth, dealership purchases and digital initiatives could get the company to that 5 percent objective.

"Our existing base of business can add maybe a half a [percentage point] from our existing base," DeBoer said. "I believe that acquisitions could possibly double that. And I believe there's an exponential effect in digital solutions that can leverage our inventory people and our network to possibly have another doubling effect."

In 2019, Lithia's new-vehicle sales slipped 2.2 percent to 180,532 — its first annual decline in a decade — while used-vehicle sales jumped 13 percent to 170,423.

In total, its combined new and used sales grew 4.5 percent to 350,955. AutoNation, the nation's top new-vehicle retailer, last year sold a combined 528,715 vehicles and had just over 2 percent of the combined vehicle market.

Lithia plans in the coming year to expand its digital retailing and omnichannel tools by rolling out additional online capabilities in more markets. Lithia has had success with several online buying options for consumers through pilots at its Pittsburgh-area stores. It recently launched a "sell-from-home" feature to buy used vehicles at one of the stores in its Baierl division.

And last year, Lithia acquired nine stores, which are expected to generate more than $825 million in annual revenues, or 6 percent more volume. DeBoer described last year's acquisitions as "light," and he told analysts that Lithia's pipeline is "pretty packed."

The company has more than a $1 billion in liquidity, and Lithia intends to be active in what DeBoer described in a statement as a "robust acquisition market in 2020."

"We have numerous agreements that are under contract that will be hopefully closing in the coming quarters," DeBoer said.
Last fall, Lithia indicated its plans to expand in the Southeast after it entered Florida, purchasing two Honda dealerships and a Toyota store in the Tampa market from Williams Automotive Group.

With 187 dealerships, Lithia has grown substantially over the past half decade, acquiring several large platforms such as 27 dealerships with the 2014 purchase of DCH Auto Group.

DeBoer said dealership purchases could come in the Southeast, such as near Tampa in Florida and in Georgia. He also noted Lithia would look to add outlets both where it already has locations and in new markets.

Bank of America Merrill Lynch analyst John Murphy, during a call last week with analysts, asked DeBoer if framework agreements — those between manufacturers and certain dealership companies that limit the number of franchises they can operate — would impede Lithia's growth plans.

"You've set out sort of long-term goals that are big … and you've been hitting those, so we have to take everything you're saying very seriously," Murphy said. "But the 5 percent market share nationally in the new-vehicle market does sound a bit high."

DeBoer said Lithia typically buys strong, underperforming stores that it improves, and that play has helped bring value to manufacturer partners.
"Our current framework agreements in their entirety allow us to get considerably beyond 5 percent," he told analysts. "So as long as our performance stays at the levels that we're currently at and we're able to bring value and improvements, then there shouldn't be framework limitations like others may or may not have."
Morningstar Inc. analyst David Whiston said while 5 percent market share is far down the road, it's possible for Lithia to reach.
"You can get there because the whole dealership space is consolidating," he said, adding that Lithia would need to be even more aggressive with store purchases.

And Whiston said Lithia's moves at the end of 2019 to amend and extend its credit line and raise $400 million may indicate the retailer has some large deals coming.
"Either they're looking to make a lot of small or medium deals, or they're getting ready to do a big one, a really big one," he said.

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.