Lithia hits ‘No. 1 target' Canada in pending purchase

After half a decade scouting the nation to the north, U.S. megaretailer Lithia Motors Inc. is set to expand its empire into Canada with the purchase of an Ontario-based luxury dealership group.

The pending acquisition of Pfaff Automotive Partners fulfills a longtime goal of Lithia CEO Bryan DeBoer. It will make Lithia the second public dealership group operating in Canada, and it could prod other U.S. dealership groups to consider moves into the smaller but similar market.

DeBoer confirmed to Automotive News last week that the retailer has acquisitions of Canadian dealerships, among others, under contract and slated to close within the next 90 days. Those deals are expected to add $2 billion in annual revenue to Lithia, the second-largest dealership group in the U.S.

"Canada is our No. 1 target," DeBoer told analysts last week. "We've spent the last five years getting to know the dealer body there and have pretty good relationships with most of the large groups and believe that something is imminent in that country."

A dealership buy-sell adviser who is familiar with the deal identified the seller as Pfaff.

Employees at Lithia and Pfaff were informed within the past week that a deal was "imminent," said Farid Ahmad, CEO of Dealer Solutions Mergers and Acquisitions, a buy-sell advisory firm in Canada. Ahmad has squired Lithia executives around Canada the past five years as they sought potential acquisitions, and he has worked with the Pfaff group for more than 25 years. He said he was informed by Pfaff general managers about the deal.

"It's very exciting that Lithia is coming into the Canadian market," Ahmad said. "It might open the gateway for other large groups to consider" it.

Pfaff operates 16 dealerships across Canada representing the Subaru, Audi, Mercedes-Benz, McLaren and BMW brands, among others, according to its website. The luxury-heavy group also has a robust leasing portfolio, a Harley-Davidson dealership, a used-only store and a body shop, the website shows. It's not clear how many Pfaff stores are included in the pending deal with Lithia.

Representatives for both Pfaff and Lithia declined to comment.

While DeBoer declined to identify the Canadian group with which Lithia has a deal, he did say "it's a special partner to us and then someone we've known for almost half a decade, and [we] really look forward to being able to announce that in the coming months."

Lithia has been in talks with "most of the major groups" in Canada and will prioritize a partner that shares its focus on scaling digital retailing, DeBoer said.

Canadian expansion by U.S. public retailers has been tricky. Canadian automaker arms have historically opposed public ownership. AutoCanada, of Alberta, is currently the only public dealership group in the country.

But companies such as Ford Canada and General Motors Canada in recent years have reversed policies barring public ownership of dealerships.

DeBoer told Automotive News in 2018 that the retailer was looking to expand to Canada, saying that it "made sense" for maturing companies to expand internationally.

DeBoer last week said he expects Lithia's "acquisition cadence for the remainder of 2021 to remain strong as we build out our network within the United States and potentially internationally with the focus on English- speaking countries."

He told analysts that Lithia is interested in countries beyond the U.S. and Canada, mentioning the U.K. — where competitors Penske Automotive Group Inc. and Group 1 Automotive Inc. have dealerships — and Australia.

"Those are a little less relevant at today's date. Those are probably two to five years out, kind of where Canada was a few years ago. So nothing urgent," DeBoer said. "We really look at Canada as an extension of the United States. It has similar economic backgrounds; it has similar governmental regulation and so on. We feel very comfortable in that."

Lithia ranked No. 3 on Automotive News' most recent list of the top 150 dealership groups based in the U.S., with retail sales of 171,168 new vehicles in 2020. But its April acquisition of 34 stores from Michigan's Suburban Collection vaulted Lithia past Penske to become the country's second-largest dealership group.