Penske bids throw wrench into Lithia deal for Pendragon

Just days ago, Lithia appeared well-positioned to complete a deal that would add an eye-popping $4.5 billion in annual revenue, getting it significantly closer to meeting its goal of $50 billion in annual revenue by the end of 2025.

Lithia’s proposed deal would double down on an international market, but what appears to be its crown jewel, Pinewood, may have the most meaning for the group long term.

DeBoer recalled that in 2015 through 2017, when Lithia was designing its 2025 plan, the auto retailer was thinking about businesses such as a captive finance company, vehicle fleet management and DMS software. Lithia refers to those businesses as horizontals.

But that period also called for entry into international markets and verticals, which Lithia describes as retail businesses structured much like automotive retail.

DeBoer said it likely would be two to three years until a Pinewood DMS arrived in North America, but he later added it would probably take three to five years to reach some scale.

These are “the final cornerstones that we needed for finalizing the [2025] plan,” DeBoer said in describing the Pendragon deal.

DeBoer said Lithia, now the largest seller of new vehicles in the U.S., over time intends to transition certain U.S. stores to a Pinewood DMS. But he also acknowledged the auto retailer’s relationship with industry giant CDK Global, which is its current DMS provider in the U.S.

“It does give us a pathway to DMS for Lithia, but our partnership with CDK is long and deep,” DeBoer said. “I used to be on the [CDK] national advisory board. We really care about CDK. We love them. We imagine that the transition of any or some portion of our stores someday will be done in collaboration with them, if we get to that point.”

Lithia said it spends about $100 million annually on its auto retail tech stack, including DMS.

CDK, in a statement to Automotive News, said it echoed DeBoer’s comments that the companies had a “long and deep” relationship.

“Lithia is one of several top dealership groups in the U.S. that leverage CDK’s depth and breadth of technology solutions to operate their business,” the company said in the statement. “We don’t expect any changes to our relationship any time soon, and long term, CDK’s open and integrated platform approach empowers our customers with the ability to use the tools that best fit their business needs while enabling seamless workflow integrations with CDK products.”

DeBoer said the Pendragon deal would fill almost half of the remaining network development, or acquisition, piece of the 2025 plan, which Lithia raised this year to $25 billion from $20 billion. If the deal closes, Lithia estimates its annualized revenue to be more than $38 billion.

The Pendragon deal is a fairly low-cost entry, DeBoer said, relative to revenue.

“The revenue that we’re getting from the auto stores is almost a bonus,” he said. “We were really excited to do the first two components, the [Pendragon Vehicle Management] and the software company, which was our major focus.”

Gail Kachadourian Howe, Mark Hollmer and Reuters contributed to this report.