Jardine deal opens U.K. opportunity for Lithia

Lithia Motors's acquisition of Jardine Motors Group in the United Kingdom, similar in store count and revenue to its 2021 megadeal to buy Michigan's Suburban Collection, immediately gives the largest new-vehicle dealership group in the U.S. significant scale in an international market it long coveted.

The deal adds more than 40 new-vehicle dealerships in the U.K. to Lithia's portfolio, including stores selling luxury brands Aston Martin, Porsche, Mercedes-Benz and BMW. And by entering the U.K., Lithia gains direct exposure to the agency model of retail, in which dealers sell vehicles on behalf of some automakers, such as Mercedes, at factory-set prices.
The deal, which closed Wednesday, March 15, will add more than $2 billion to Lithia's annual revenue, Lithia CEO Bryan DeBoer said.

"And more importantly, it gives us a foundation to grow more in the United Kingdom over time, which is helping us drive toward our $50 billion [annual revenue] target for 2025," DeBoer told Automotive News.

Britain's Sky News, citing a source, reported the acquisition cost to be about £300 million to £400 million ($361.6 million to $482.1 million).

DeBoer said the deal was "more affordable than what we typically find ... in the United States," but he did not disclose the price. Lithia said it paid for the acquisition through existing balance sheet capacity.

Jardine Motors marks the latest big acquisition by Lithia. It ramped up its buying in 2020 as it aimed to quadruple revenue by 2025. In 2022, the company's revenue surged 24 percent to $28.23 billion.

The Jardine acquisition "is more of a strategy to start to plant seeds for future growth," DeBoer said. "Our main goals for revenue growth are domestically, in the United States."

Lithia had been in discussions with Pendragon, one of the largest retailers in the U.K., though the deal ultimately fell through last year. But during those discussions came a tip that Jardine Motors might sell.

Lithia joins publicly traded U.S. auto retail peers Penske Automotive Group Inc. and Group 1 Automotive Inc. with dealerships in the U.K.

Lithia's first international purchase, the August 2021 acquisition of Pfaff Automotive Partners in Canada, added more than $1 billion in annual revenue.

The Jardine bid aligns with Lithia's goal to focus on growth in English-speaking countries, DeBoer said. The company previously expressed interest in growing in Australia.

After the U.S., "the two largest English-speaking countries are the United Kingdom and Canada," DeBoer said. Lithia could be "fairly well-equipped to be able to springboard off of those."

Agency angle

Daniel Imbro, an analyst with Stephens Inc., said the Jardine Motors acquisition gives Lithia an opportunity to work with automakers and get familiar with the agency model.

"This should give them some expertise operating under that system that could better position them in the U.S. if it ever were to come over here," Imbro said.

DeBoer said exposure to the agency model adds a secondary benefit: getting early insights into how manufacturers and dealers can work together "to benefit the consumer."

"We as an organization believe that a more seamless customer process and more transparent process is better," DeBoer said.

"I think the goal of an agency model is to do that. It's just who takes what responsibility in that. I think with a few manufacturers now turning to agency in the United Kingdom and Western Europe, it would be good to be able to see how that occurs."

Lithia's Driveway platform, which allows customers to buy, sell and trade cars online, and GreenCars, an online resource and marketplace for new and used zero-emission vehicles, may expand in the U.K. at some point, DeBoer said.

"That's usually our strategy," DeBoer said. But "we went into Canada, what, about two years ago now, and we're only doing light work with GreenCars and no real work with Driveway yet. However, in the United Kingdom, there is different branding hopes of the manufacturer partners and we may end up deciding to do something."

Jardine Motors is Europe's 23rd-largest dealership group by annual revenue, according to Automotive News Europe's 2022 Guide to Europe's Biggest Dealers. The transaction also included Jardine Select used-car stores.
Lithia, of Medford, Oregon, last year outsold AutoNation Inc. to become the largest auto retailer in the U.S., with sales of 271,596 new vehicles. Lithia's figures encompass a small but undisclosed number of vehicles sold in Canada, including those from a Harley-Davidson store, as well as RVs.

As with previous Lithia acquisitions, key leadership is staying in place. Jardine Motors CEO Neil Williamson will retain that role and become a regional president of Lithia and Driveway. DeBoer said Lithia had been looking for a good management team more than anything and that Williamson, who's been with Jardine for about 10 years, brings that desired U.K. market expertise.

Growth mindset

David Whiston, an analyst with Morningstar, said it made sense that the two parties found each other and worked out a deal given that DeBoer said Jardine Motors' parent company, conglomerate Jardine Matheson Holdings, was looking to divest, but Williamson wanted to grow.

"You can't really think of a better growth-oriented auto dealer than them," Whiston said of Lithia.

Whiston pointed to Jardine Motors' size and portfolio of luxury brands as likely reasons Lithia became a suitor.

"It'll be interesting to see how Lithia does with this over time," Whiston said. "Can they be as successful in the U.K. as they've been in the U.S.? And then how many more deals will they do in the U.K. over time? I imagine they will be looking to do more. Maybe not immediately, but maybe by either late '23 or '24 they will be."

Whiston expects Lithia to continue buying dealerships in the U.S.

DeBoer reiterated plans for additional U.S. acquisitions. "We believe that this will be a good year for domestic growth as well at Lithia ... and hopefully we'll have further announcements later in the year," DeBoer said.