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Lithia Motors is taking on AutoNation to become top dealer in U.S.

Lithia Motors has quietly become America’s most valued new car retailer as it executes an audacious growth plan that the company expects will propel it past AutoNation to become the country’s top franchised dealership group.

The plan includes hitting adjusted earnings per share of $50 by 2025 as well as at least $50 billion in annual revenue by then. That would be more than double the size of any new U.S. dealership group to date.

“We believe this is the base case, and it’s something that we believe is achievable,” CEO Bryan DeBoer said in a phone interview. “We also have aspirational plans above that, that we’re all focused on internally.”

The Medford, Oregon-based company is already well on its way to exceeding its 2025 targets. Since announcing the plan a year ago, it has added $8 billion in expected annualized revenue — double its initial annual target. Lithia says it has $15 billion more in annualized revenue under contract.

Wall Street has taken notice. Lithia’s stock has skyrocketed 176% in the past two years, including a twofold increase to $358 a share since the five-year plan was announced. The stock topped $400 a share in March and April. By comparison, AutoNation is trading at about $116 a share, up 145% in the past two years and 121% in the past year.

A consolidation trend among franchised dealers and historic profits on vehicles due to low supplies caused by a global semiconductor chip shortage are helping to propel Lithia’s growth. It also recently launched an online car selling platform called Driveway to rival companies such as Carvana.

DeBoer, whose grandfather started the company in 1946 with one dealership, downplayed the importance of potentially becoming the top U.S. auto dealer. He characterized it as a byproduct of Lithia’s mission to become the first true national auto retailer with a store within 100 miles of every customer.

“We don’t look at it as a big feat. We look at it as an incremental process that happens to turn out really big,” DeBoer said. “We needed network density of 100 miles from 100% of the population in the United States to be able to deliver services to their home within about a two-hour time frame.”

That radius is designed to profitably offer in-home sales and services to customers as well as provide access for customers who want to come into dealerships, according to DeBoer. The company said its roughly 260 locations are within about 400 miles of every U.S. resident.

Acquisitions

Lithia vs. AutoNation

AutoNation Chief Customer Experience Officer Marc Cannon declined to directly comment on Lithia’s plans. In an email, he said AutoNation has “a robust pipeline” and continues “to look for those that fit well with strategy and culture. The AutoNation USA is a tremendous opportunity for growth and expansion into new markets.”

AutoNation continues to lead Lithia in size as well. It owns and operates more than 300 locations in the U.S. Its vehicle sales through the first half of the year were up 32% to 298,894, including 146,525 new vehicles. That compares with Lithia’s 260 locations. Its sales through the first half of the year were up 65% to 258,321, including 129,040 new vehicles.

AutoNation’s revenue last year was $20.4 billion compared with Lithia at $13.1 billion. Through the first half of this year, Lithia has closed that gap with $10.4 billion in revenue compared with AutoNation’s $12.9 billion.

“I think everyone’s recognized that there’s plenty of room for more consolidation,” Whiston said. “Lithia just decided to be way more aggressive about it because they thought they could and clearly they can.”

 Lithia is rated overweight with a mean price target by analysts of $468.58 a share, according to FactSet. That compares with AutoNation at a hold rating with a mean price target of $124.50 a share.

In a note to investors last month, Gordon Haskett Research Advisors analyst Don Bilson said: “Lithia’s fifty-dollar engine is purring.” He said while Lithia trades at a considerable premium to other dealers, it’s “not hard to imagine this being a $700 or $800 stock in a few years.”

Market caps for Lithia and AutoNation remain below used vehicle retailers such as CarMax at $22.3 billion and Carvana at $57 billion.

– CNBC’s Michael Bloom contributed to this report.

Read More: Lithia Motors is taking on AutoNation to become top dealer in U.S.

2021-08-05 08:19:53

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