Lithia Motors, Inc.
Address:
360 East Jackson Avenue
Medford, Oregon 97501-5892
U.S.A.
Telephone: (541) 776-6591
Fax: (541) 858-3279
http://www.lithia.com
Statistics:
Public Company
Incorporated: 1946
Employees: 3,400
Sales: $ 24.3 million (2000)
Stock Exchanges: New York
Ticker Symbol: LAD
NAIC: 441110 New Only or New and Used Cars
Company Perspectives:
The mission of Lithia Automotive Group is to be the best provider of cars and trucks and related services in North America. Utilizing a common language, we believe in developing motivated people who are committed to our goals and mission. We are a team. As a team we come together to create and execute the best buying and owning experience that exceeds our customers' expectations while maintaining our integrity with our customers, our vendors, and with each other. We develop our people, procedures and financial plans today, with a focus on ensuring a successful and stable future. We are never satisfied with "good enough." By being committed to our jobs and constantly seeking to better ourselves, we will find our motivation. We are aggressive in our approach to our jobs, ensuring that each of our departments, stores, and areas are growing and improving to their full potential. We are always committed to each team member to see that they each excel in their respective jobs.
Key Dates:
1946: Walter DeBoer starts Lithia Motors.
1968: Sid DeBoer takes over the business after Walter dies.
1970: Lithia purchases the Dodge Center in Medford and closes its Ashland facility.
1996: Lithia Motors begins trading on NASDAQ.
1999: Lithia moves to the NYSE as LAD and opens Lithia.com.
Company History:
Lithia Motors, Inc. is one of the largest full-service new vehicle retailers in the United States with 56 stores and 114 franchises in California, Oregon, Washington, Nevada, Colorado, Idaho, South Dakota, and Alaska. Lithia sells 26 brands of new, domestic, and imported vehicles and all makes of used vehicles; it arranges finance, warranty, and credit insurance contracts and provides vehicle parts, maintenance, and repair services at all of its locations. Internet sales are centralized at Lithia.com, "America's Car & Truck Store." Since going public, Lithia has grown by purchasing underperforming family-owned dealerships in smaller cities.
The Early Years: 1946-68
Walter DeBoer started Lithia Motors as a single store on "The Plaza" in Ashland, Oregon, in 1946. The company, which took its name from nearby springs containing lithium, had five employees. During its first year in business, the sales staff sold 14 vehicles, totaling sales of fewer than $100,000. DeBoer continued to operate Lithia as a small family business for the next 24 years, bringing in less than $1 million in sales per year. His son, Sid DeBoer, the oldest child of DeBoer's six, joined Lithia in 1964 at the age of 21 to become its bookkeeper.
In 1968, Walter DeBoer was killed in a car-pedestrian accident, and Sid DeBoer assumed control of the small Chrysler-Dodge store. The small business sold 30 to 40 cars a month. That year, the younger DeBoer was issued a nonrenewable two-year franchise from Chrysler Corporation for the Ashland facility. In May 1970, Sid DeBoer purchased the Dodge Center in Medford and closed the Ashland business. At the same time, DeBoer convinced Dick Heimann to leave his position with Chrysler and become a partner at Lithia Motors.
First Steps Toward Growth: 1970-90
Together DeBoer and Heimann, the company's new operating officer, slowly turned the single store into a very large and successful chain of franchised auto retail stores. From 1970 to 1990, Lithia bought three dealerships encompassing five auto franchises and grew, in the process, to include five stores and 19 franchises in southern Oregon.
But by 1987, DeBoer began to sour on acquisitions. Each one took months to complete and involved assuming substantial, if manageable, debt. He began to look for other means of raising growth capital and, at last, made the unprecedented decision to take Lithia Motors public. It was not until December 18, 1996, however, that the company's $31 million NASDAQ offering finally occurred, and by then Lithia was the third auto dealership to go public. During the intervening nine years, big companies began to jockey for car franchise ownership with the traditional family-owned dealership.
Several trends drove the move away from small ownership: the maturation of the automotive industry and consequent tightening of profit margins; fewer dealers passing their business on to their children; and the automakers' desire to deal with fewer, stronger retail outlets. The growth of Internet buying services had begun to force dealers to compete on price with dealers in other cities. The big companies, which had the capacity to borrow money at lower interest rates than independent dealers, had the advantage in both purchasing cars from the manufacturers and in buying advertising in bulk at a discount. They thus moved in to purchase the many dealerships up for sale as thousands of owners neared retirement. Automotive manufacturers, however, did not yet trust public ownership of dealerships.
DeBoer and associates worked to develop a proven operating model that investors would trust and that some analysts credit with making Lithia the most successful public offering in the automotive sales field. This model consisted of four elements. First, DeBoer instituted public audits of Lithia Motors' books by Peat Marwick in preparation for its initial public offering. Second, he standardized Lithia's management information systems to be able to track sales, inventories, and profit performance on a daily basis. Third, DeBoer and Heimann held meetings with employees to craft a mission statement for the company as a whole and statements of purpose for each individual department--sales, parts, service, and administration--"missions for each that could integrate into the whole," according to DeBoer in a 1997 Oregon Business article. Fourth, Lithia instituted its "Priority You" marketing program, a customer pledge intended to simplify car buying.
Lithia also hired a new financial officer, Brian Neill, a former banker whose father was a Cadillac dealer, whose job was to spearhead the public offering. Neill, who joined the company in 1995 and spent his first six months on the job selling cars, ran the search for an underwriter and chose the San Francisco brokerage firm of Furman Selz.
While Neill drafted the prospectus to meet the requirements of both the brokers and the Securities Exchange Commission, DeBoer met with the major automakers, who had actively opposed most public offerings in the dealer sector, preferring to hold individuals rather than corporations accountable for the performance of their stores. DeBoer gained their acceptance of his plan by virtue of his reputation and by catering to their concerns, assuring them that he and not shareholders would control the fate of his company. To do so, he designed Lithia's initial public offering to feature two classes of stock. Of the first class, he offered 46 percent for public ownership; of the second, operating stock, DeBoer retained ownership of 92 percent.
Rapid Growth as a Public Company: 1996-2000
After a two-week, 22-city, 54-presentation road show to win over investors, and a last-minute decision to lower Lithia's initial share price, Lithia held its initial public offering, raising approximately $27 million, which it put toward paying down its debt with manufacturers and bankers and financing the purchase of more than ten dealerships in a matter of months. Most of these were in California, although subsequent acquisitions focused on the intermountain west. The company made a practice of clustering its franchises in areas with strong regional economies and "livable" cities. Many of the dealerships Lithia purchased had a history of underperforming and thus were available for less than top dollar. According to DeBoer in the 1997 Oregon Business article, his strategy for managing a successful public company was to "lower the real multiple in purchasing" car dealerships while relying upon his operating model and structure to boost underperformers' growth and profitability. At each newly incorporated dealership, the staff of each department sat down and hashed out the local meaning of Lithia's mission statements. They had to adopt Lithia's "Priority You" program, including its ten-minute credit check, 30-minute trade-in appraisal, 90-minute sales transaction, and 60-day or 3,000-mile used car warranty, and institute its management information systems before reopening as part of Lithia Motors.
From 1997 to 1999, Lithia increased its sales volume more than eight times and added 34 stores and numerous franchises to its fold. Still far behind the No. 1 ranked auto retailer in sheer number of transactions, Lithia sold 17,708 cars in 1998, compared with AutoNation's 286,179. Lithia reported impressive profits, however, of $6.0 million in 1997 on revenues of $319.9 million, up from profits of $2.6 million on revenues of $142.8 million. By 1998, both profits and revenues had just about doubled again, totaling $10.8 million and $714.7 million, respectively. In 1999, the company ranked first in the Seattle Times annual ranking of the Northwest's fastest growing publicly held companies. It also ranked as the tenth largest auto retailer in the country by the Automotive News Survey and was included in Fortune's list of the 1,000 largest companies in the nation.
Lithia moved to the New York Stock Exchange under the ticker symbol LAD in 1999 and opened Lithia.com, which it dubbed "America's Car & Truck Store." The site aimed to forge a relationship with consumers as opposed solely to facilitating an on-line purchase. The company's profits and revenues continued on their steeply upward trend, almost doubling again, with profits of $19.1 million and revenues of $12.4 billion. Lithia added 13 new dealerships in 1999 to bring its total to 41 dealerships in six states.
By the end of 2000, Lithia's operations included 52 stores, 111 franchises, and 26 brands in seven states: Oregon, California, Nevada, Washington, Colorado, Idaho, and South Dakota. Although new vehicle sales had begun to slow in 2000, its revenues that year increased by 33 percent to $1.66 billion and its net profits rose by 27 percent to $24.3 million. Fortune added the company to its Fortune 1000 list and ranked it first among America's most admired publicly traded automotive retailers. Whereas many of the publicly traded auto retailers forecast few to no acquisitions during the next couple of years, Lithia planned an aggressive growth plan, focusing on markets west of the Mississippi. In an industry ripe for consolidation because of its size and fragmented nature--the sector as a whole totaled $700 billion in new and used sales--Lithia continued to manifest impressive growth.
Principal Subsidiaries: Lithia Properties, LLC.
Principal Competitors: AutoNation USA; CarMax; Cross-Continent Auto Retailers; Prospect Motors; Republic Industries, Inc.; Sonic Automotive; United Auto Group, Inc.
Further Reading:
Bjorhus, Jennifer, "Medford, Oregon-Based Car Dealer's Earnings Hit High Speed," Oregonian, October 28, 1999.
Bradsher, Keith, "Car Dealerships Are Facing Consolidation and Change," New York Times, January 15, 1997, p. D1.
"Consolidator and Operator," WSCR.com, March 13-19, 2000.
Medina, Hildy, "Road Warrior," Forbes, November 30, 1998, p. 136.
Wojahn, Ellen, "An IPO Nine Years in the Making," Oregon Business, October 1997, p. 103.
Source: International Directory of Company Histories, Vol. 41. St. James Press, 2001.
