MEDFORD, Ore. — Three years into Lithia Motors Inc.‘s audacious plan to reach $50 billion in revenue by the end of 2025, two things are clear.
One is that Lithia remains confident it can reach its goal, which will require an industrywide rebound and a continued torrid pace of acquisitions. The second is that the company aims to grow even further, both geographically and by entering new kinds of businesses — from motorcycles to agricultural equipment and from fleet management to consumer insurance.
“When we start to talk beyond 2025, there are numerous other adjacencies that are in our strategies and that we’ve piloted and are still developing,” Lithia CEO Bryan DeBoer told Automotive News last month at the company’s headquarters here.
The auto retailer, which helped usher in a new era of dealership consolidation with its 2021 purchase of Michigan’s Suburban Collection, has already become the nation’s largest retailer of new vehicles, having overtaken longtime No. 1 AutoNation in 2022.
Lithia’s stock remains below its 2021 peak, though it has gained more than 50 percent so far this year.
Its market capitalization trails only one U.S. auto retailer: Penske Automotive Group. Penske, with a market capitalization nearly $3.5 billion higher than Lithia’s $8.7 billion, has a portfolio largely comprising dealerships from European luxury and Asian brands. With commercial truck dealerships and an ownership stake in Penske Transportation Solutions, it is also diversified.
Still, Lithia’s revenue has soared as a result of its rapid acquisition growth, reaching $28.23 billion in 2022 — more than double 2019’s revenue of $12.67 billion.
DeBoer said Lithia’s run rate was a little over $30 billion in revenue following its March acquisition of Jardine Motors Group in the United Kingdom. After that, Lithia went on to acquire a majority of Priority Auto Group in Virginia and a Ford store near Atlanta last month. Following the Georgia acquisition, Lithia said it had acquired $3.5 billion in annual revenue this year and $17.5 billion since announcing its 2025 plan in July 2020.
To be sure, the group has also divested at least 30 dealerships since the plan was revealed. It sold three stores in June alone.
DeBoer told Automotive News that the auto retailer’s network development or acquisition target for its plan is now $25 billion in acquired revenue, up from $20 billion. As part of the updated 2025 plan, Driveway, Lithia’s online sales platform that launched in 2020, now has a $3 billion revenue target instead of $8 billion, he said. The cash burn rate for Driveway is high, DeBoer said, largely because of shipping costs.
Also this year, Lithia lowered the forecast for its captive finance company, Driveway Finance Corp., for the next three years. It expects a $40 million loss for the business in 2023.
Lithia said it plans to release its second-quarter earnings July 26.
Organic growth from its core business, along with acquisitions, digital retail and its captive finance unit were all seen as the main drivers of the plan when it launched. Lithia said its goals for 2025 assume a return to 17 million new light-vehicle sales annually in the U.S.
Amid a sometimes turbulent economic environment, Lithia has been nimble in pursuit of its goals, said Daniel Imbro, an analyst with Stephens Inc.
“I think their flexibility and commitment to kind of that long-term target through a changing backdrop is what’s allowed them to continue to execute, despite maybe the composition looking different than we thought it would,” Imbro told Automotive News. “They’ve talked about lower earnings for Driveway Finance but higher earnings from the core business. There’s been a change in maybe what the buckets are to get there. But I think they continue to execute pretty well on getting toward those targets.”
Lithia’s pulling back on its revenue target for Driveway is a reflection of how expensive the cost of capital is, Imbro added, while the auto retailer seems well ahead of its plan on the mergers and acquisitions side and has been able to find attractive deals.
Its 2025 plan is achievable but with two caveats, Imbro said.
“It will be very [merger and acquisition]-dependent, in my opinion,” he said. “And we would need to see OEM production really pick up the next couple years.”
Stephens’ estimate for Lithia’s revenue is $30.1 billion this year and $31.2 billion in 2024, but those figures do not include the Priority or Georgia acquisitions, Imbro noted.
For as much emphasis that Lithia puts on dealership mergers and acquisitions, the company has also been exploring new areas of business where it might have a competitive advantage.
Effectively, these fall into two categories. New verticals are retail businesses structured much like automotive, such as recreational, powersport and agriculture vehicles, plus heavy trucks. Horizontal opportunities — which DeBoer calls “adjacencies” — include fleet management, charging networks and internal IT.
Consumer insurance also seems top of mind for the Lithia chief.
“We definitely believe that consumer insurance is something that is savvy,” DeBoer said. “We have a few pilots going on in that, that are pretty far upstream. It’s really easy to activate online. A little harder to activate in the network.”
On an earnings call in October, DeBoer hinted at Lithia either buying or building a customer relationship management system or dealership management system.
The auto retailer has already expanded into two verticals. Lithia has a pair of motorcycle stores in Canada and in October, it entered the RV business with the purchase of a high-volume Airstream dealership group.
“That was kind of a different business line,” said Lithia COO Chris Holzshu of the Airstream purchase. “But we’re running effectively the same play there.”
DeBoer likened the Airstream purchase to planting seeds for the future.
“We’re building relationships with other mobility verticals,” he said. “We think the mobility verticals are all somewhat similar. So whether or not we’re in them by ’25 or ’29 or ’30, who knows, it just increases that [total addressable market] to take the pressure off [mergers and acquisitions] and expand the number of things that you can look at to find good businesses to invest in.”
At some point, the synergies across both the adjacencies and the verticals, including the finance and fleet management companies, will create the benefits for customers of a full transportation provider, DeBoer added.
David Whiston, an analyst with Morningstar in Chicago, said he thinks Lithia will continue to enter new verticals for quite awhile.
“I think the object here is to find out which new verticals work, which can scale and which work within the context of being a new- and used-vehicle retailer,” Whiston said.
Lithia entered Canada in 2021, its first international market, and this year the company broached another continent when it bought Jardine Motors. Both, DeBoer said, are about growth beyond 2025.
“It is a longer-term strategy for international,” he said. “Domestically, we have good runway, up to about $60 to $70 billion in revenue, if it was purely optimized.”
A fully saturated and optimized U.S. footprint would be around 500 stores, DeBoer said, noting that such a portfolio is also something for beyond 2025. Lithia, which now has 296 U.S. dealerships, is focused on growing in the Southeast, South Central and Upper Midwest regions, he added.
Mike Sims, president of buy-sell firm Pinnacle Mergers & Acquisitions in Frisco, Texas, said there is plenty of room to grow.
“We’re still, in the scheme of things, a very fragmented industry,” he said. “They’re not reaching all parts of the country yet, which they stated they will do and they are doing.”
Morningstar’s Whiston estimates that Lithia’s revenue will reach $31.3 billion this year while he said the consensus estimate from Refinitiv is $30.3 billion. The consensus estimate increases to $32.9 billion in 2024, he said.
“It’s certainly possible the street is not modeling them at $50 billion in 2025,” Whiston said. “Personally, I believe them. They tend to do what they say they’re going to do. And then usually overdeliver, in fact.”
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