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Somewhere, possibly in a computer on the second floor of Lithia Motors Inc.'s Medford, OR, headquarters, is a list of 2,000 dealerships the company's Chairman and CEO Sidney DeBoer would like to acquire.
Although the group is one of six dealer groups to be publicly traded — it was one of the first to go public — DeBoer occasionally will refer to it as one of “the little guys.”
Compared with the other public groups, and a couple of private dealer groups, Lithia is, in a sense, one of the “little guys.”
It generated $3.2 billion in revenue in 2006, far less than AutoNation Inc.'s $18 billion or United Auto Group's $11 billion, but still good enough to place eighth on the Ward's Megadealer 100 list, the nation's longest-running ranking of the top 100 dealer groups in the country by total revenue (see p. 24-27 for the entire ranking).
If DeBoer has his way, the firm could become the largest dealer group in the country within 10 years and, perhaps, the most influential, significantly changing how cars are bought and sold.
DeBoer does not talk about being the biggest, but he does want Lithia to be the best automotive retailer in the country.
Several bold and forward thinking initiatives are underway, including the launch this summer of L2, a used-vehicle strategy that imitates in many ways CarMax, a company that owns several used-car superstores throughout the country.
DeBoer says his dealer group should have approximately 325 new-car dealerships in the next seven years, up from 108 now. He expects revenue to grow at about a 15% rate over the next 10 years. Much of that will come from acquisitions.
He has tempered his projections on future size recently, though. This time last year, DeBoer predicted the company would own 350 stores by 2014, but now says, “325 is more realistic.”
DeBoer is not given to wild predictions, although, he does like to establish challenging goals for his company and then push hard to get there.
A framed copy of a 1991 newspaper article hanging in the group's headquarters shows DeBoer boldly saying the firm would go public in a few years — long before public dealer groups became a reality.
In 1996, the group went public with five dealerships trading at $11 per share. In late April, Lithia was trading at just over $28 per share.
He predicted then Lithia would have 100 stores in 10 years. DeBoer was off by a few — it had 104 dealerships with 187 franchises within 10 years.
The largest dealer group today, AutoNation, owns 257 dealerships. The next largest, UAG, operates 172 stores. Don't be surprised if Lithia catches both of them, if not in the revenue department, then at least in the number of dealerships owned.
Both companies have dialed back their acquisition strategies in recent years, having focused on buying large stores in large markets. Those opportunities are not as plentiful as they were 10 years ago.
There is room to add dealerships, but the opportunities are limited. Framework agreements with auto makers restrict the number of stores one retailer can own.
Meanwhile, several of the higher-end luxury dealerships other public retailers own command premium prices today, making them less attractive buys.
Lithia, though, has lots of room to grow. It significantly is under-represented in the luxury and import segments.
Lithia always has focused on buying under-performing dealerships — or stores not reaching their full potential, as DeBoer prefers to say — and then turning them around, looking for approximately 15% return on the investment.
That strategy likely will continue. Although, DeBoer says the firm is adjusting to build a more balanced portfolio.
It has added several import brands the last two years, including six dealerships Iowa this year.
The heavy domestic portfolio — with an over-reliance on Chrysler-branded stores, could hurt the company moving forward, especially if DaimlerChrysler AG sells Chrysler. “We think it is 50-50 that it gets sold,” DeBoer says.
While driving in Medford to show the location of a new auto mall Lithia is building, DeBoer admits he gambled on Chrysler.
“We thought with Daimler behind it, Chrysler would become like Toyota,” he explains. He agrees with other dealers who think the only reason Daimler wants to sell is because it is afraid of damaging the Mercedes brand.
DeBoer points to Toyota's example to show, in his opinion, the silliness of that fear. “Toyota builds Lexuses on Toyota platforms,” he says. “And the Lexus brand isn't damaged.”
Despite the uncertainty, Lithia will continue to buy Chrysler and Dodge dealerships if they fit the acquisition model.
To achieve DeBoer's aggressive growth plan, Lithia will have to expand into other markets. The company, in 46 markets today, is targeting 164 markets west of the Mississippi and another 102 areas east of the Mississippi.
“We've identified the dealerships we want to buy,” DeBoer says. “And we solicit them.”
Typically, the dealers Lithia approaches are in markets selling 4,000 to 8,000 vehicles a year and are average operators looking to retire but have no real succession plans. The plan calls for Lithia to control 30% to 40% of each market it is in. Having more market share means “we're competing against ourselves,” DeBoer says.
But he would like to be the only dealer selling a brand in a single market. He mentions the idea often and has pitched it to the auto makers, but nobody has agreed yet. “All we need to do is convince an OEM to partner with us and try it,” he says.
DeBoer, though, realizes it is a tough sell. Ford Motor Co. and General Motors Corp. flirted with the idea at the beginning of the decade when they tried buying stores in single markets, but “they gave up too soon,” DeBoer argues — at least, on the idea of having single dealers in single markets.
When Lithia first enters a new market, it often is portrayed as the big, bad corporate WalMart. “We have ways to counteract that,” DeBoer says. Once Lithia acquires a dealership, it often ends up giving significantly more money to local charities than did the previous owners, quickly dispelling the corporate image.
Aggressive acquisitions are just one part of DeBoer's vision. A linchpin of the firm's future is its used-vehicle initiative, L2.
Essentially, L2 is a series of used-vehicle superstores Lithia will begin opening later this year. The first one, in the Loveland, CO, auto mall (see Oct. 2006 Young Guy, Big Plans) will open this summer.
The concept, says DeBoer, is when a customer buys a car in the showroom or online, it will be the same process. In other words, customers will have to use the Internet to buy a car from L2 — whether they use the Internet on kiosks or on computers on a salesperson's desk in a L2 showroom, or at home or work.
It is a customer-centric approach that significantly should reduce the time customers spend in the dealership.
Lithia spent five years studying and developing the concept — at considerable expense, says DeBoer. “This was not done lightly,” he says.
DeBoer likes it because it provides unlimited growth potential unencumbered by manufacturer approval — a fact of life that kills many plans before the ink dries on the proverbial napkin.
Today's franchise system is one reason new-car sales are not customer friendly, DeBoer says. L2 may help change that, especially if the process works and can be translated to Lithia's new-car dealerships.
L2 will “invigorate L1” (the new-car dealerships), DeBoer says. “A company has to continually reinvent itself to keep growing and the best way to do that is often with a start up division.”
The goal is to create a completely paperless transaction for the car sale. Others have talked about it, but Lithia may be the first to actually do it.
Lithia sometimes is far ahead of the other public groups. For example, Lithia was the first large group to consolidate its dealer-management systems with one vendor.
Now the Asbury Automotive Group is the only public dealer group not consolidated or in the process, although, it may announce a decision by the end of the year to go with one vendor.
That decision, made approximately five years ago may be the one thing putting Lithia in a position to handle significant growth in the next few years.
Lithia is in the process of consolidating and centralizing many of the business operations in the dealership, such as accounting, human resources, inventory ordering and management and even trade appraisals. Streamlining the back-office functions ultimately will reduce significant overhead and make the acquisition process much simpler.
Sometime next year Lithia will begin doing all of the used-car appraisals at its Medford headquarters, using a system it is developing with FirstLook.
Using large screen monitors and computers, vehicle appraisals should take no longer than four to five minutes. DeBoer admits this will be a change in the culture. Used vehicles that come in on trade will be the property of Lithia, not the dealership taking it in.
DeBoer credits Automatic Data Processing Inc.'s Dealer Services Div. with building the technology that ties all of the systems together making his vision possible. Although it has taken longer than he would have preferred, DeBoer often refers to ADP as a “great partner.”
Other initiatives include assured vehicle pricing for its franchise dealerships used-vehicles sales, which offers a 60-day/3,000 mile warranty. If anything on the car breaks, Lithia fixes it at no cost to the customer.
The customer also can return the vehicle and exit the deal at no cost within three days or 500 miles of purchase. If a trade in is involved, Lithia does nothing with the trade for three days and will return it to the customer, no questions asked.
A similar plan is in the works for new car sales also.
DeBoer is putting the pieces in place. If his plans are successful, he just may become the guru of automotive retailing for the 21st century.
In Aftermath of Tragedy, Lithia Began with 1 Store and Money Borrowed from Mom
Spend any amount of time with Sidney DeBoer, and it is likely you can recount the story of how Lithia Motors transformed itself from a one-franchise store in the quiet town of Ashland, OR from 1946 to 1970 into a firm whose shares are traded on Wall Street and is one of the top dealer groups in the country.
DeBoer's father started the dealership in 1946. He died in 1968 when hit by a car walking across the street to his “office,” the local coffee shop.
The younger DeBoer, with $3,000 to his name, borrowed money from his mother to buy the dealership. One of his first acts was to fire the lone salesperson in the store. The first month, DeBoer sold 35 vehicles by himself.
Still, it took many years before the company began growing. DeBoer moved the dealership to Medford, OR, and slowly added stores. By 1996, Lithia had five dealerships and went public. Since then, 103 dealerships have been added to the stable.
The original management team when the firm went public is still in place. Other than DeBoer and Vice Chairman Dick Heinman, the average age of the executive team is in the low fifties, a fact DeBoer says positions the firm for a strong future.
Watch DeBoer interact with his employees and it quickly is evident he has a keen and rare ability for discerning the strengths and weaknesses of his staff without being overly critical of shortcomings. He accepts them as a fact of life and works to put people into positions they can succeed in.
As he gets older, DeBoer is taking himself more and more out of the daily operational details and is focusing on setting the vision and the agenda for the next 10 years. He has three sons in the business who are part of the executive team.
DeBoer says one of the toughest things he has to grapple with is the knowledge that, if he doesn't show up, nothing bad is going to happen. “My goal is to find meaningful things to do,” he says.
One area keeping him busy is the building of a brand new 10-story headquarters in downtown Medford along with a 120-acre auto mall near the airport.
— Cliff Banks
