In 1996, Lithia Motors Inc. became one of the first new-vehicle retailers to go public. In contrast to most other public dealership groups, Lithia started small, in out-of-the-way southern Oregon instead of the East Coast or the Sun Belt, and heavy on domestic brands instead of imports.
Sid DeBoer founded the company in 1968 and was CEO until May 2012. He was executive chairman from May 2012 through 2015, when he became chairman.
He said family succession was one reason that prompted him to look into public ownership. Son Bryan DeBoer, named COO in 2007, became CEO in May 2012.
Lithia, of Medford, Ore., ranks No. 5 on Automotive News' list of the top 150 dealership groups based in the U.S., with 2015 new-vehicle retail sales of 137,486 units.
Sid DeBoer, 73, spoke with Special Correspondent Jim Henry about the early days of public ownership.
Q: What inspired you to take Lithia public?
A: The idea of going public had been floated for years. In about 1987, there was a conference J.D. Power sponsored in Chicago about public equity for auto retailing. So I went. I got all excited about it.
What did you like?
There are a lot of things I heard that were relevant to things I was looking at: It could solve family [succession] issues. It could provide opportunities for young people working in the company. It had the potential to create a well-capitalized, professional -- and permanent -- company. So I said, "OK, we're going to do it."
I no sooner got back from the conference and there was a story in the Medford newspaper, the Mail Tribune, with the headline, "Sid DeBoer Says He's Taking His Company Public." It was nine years before that reality came about.
What had to happen before Lithia could go public?
We did the things necessary to do that. We did a long-term plan. We knew, compared with private equity, that with public equity you would grow and grow, much faster than with private equity, and that had to be planned for. Only you could [raise money] directly, instead of having to go to the bank and borrow. You have to make your reporting really good. You could have nothing in your results as a private company that a public company would have a hard time explaining.
How did the automakers react?
The manufacturers finally relinquished that sense of control they always wanted. In the early part of '96 the manufacturers -- who were always threatened that there would be too much power in the hands of a regional company -- finally softened. We laid out a plan where the shares I controlled would be in a family partnership, to have 10 votes each if we went public, to explain to the manufacturers that there was an actual person in control, because they're always worried that it could be sold to someone they would rather not have representing the brand -- and that's understandable.
But Lithia wasn't the first to go public.
Cross-Continent -- Bill Gilliland -- beat us to it. [Cross-Continent Auto Retailers, with six dealerships, was the first dealership group to go public, in September 1996. Cross-Continent was later acquired by the predecessor company of AutoNation.] He was like us: five or six small stores based in Amarillo, Texas. And so the rush started.
Then Marshall Cogan and Ezra Mager put together United Auto Group. That was a whole different league from us. We were only doing about $140 million in annual revenues, from six small stores in southern Oregon. [UAG, of New York, had revenues of $1.3 billion in 1996.]
Who were Lithia's advisers?
We were working with a firm [of investment advisers] in San Francisco. They sort of dropped us. They saw there was more money someplace else, I guess. It's a bad sign when they stop returning your calls. So I got on the phone with Maryann Keller, who I had known through meetings in Oregon. She was at Furman Selz, and she knew a lot about the car business. I got her to come out to Oregon and talk to us about taking us public.
I remember driving her back to the airport. We were all telling her how we would acquire underperforming stores and turn them around. She got it. She got the story. She doesn't say a lot, but she's a smart lady. Finally I asked her, "Are we going to do this or not?" And she said, "OK, we'll do it. Come to New York and I'll teach you what you need to do, and you can do a road show."
[Keller, now principal of consulting firm Maryann Keller & Associates, was a Lithia board member from 2005 to 2009.]
How did the road show go?
We started in November. In the meantime, UAG had been able to do an offer. By December, we had done our road show, spent over $1 million of our own money. We went to 22 cities and did 54 presentations. Myself and people from Furman Selz, they would travel with us. We didn't use first class, either; we used coach. We did 54 presentations in two weeks.
How did potential investors react?
People would tell us, "Five years from now, the Internet is going to replace you people. Retailing is all going to go direct. Why would you bother going public?" That was in December 1996.
What changed when you went public?
We began to grow, and we grew and grew. We learned a ton. The memories we have in this company! We learned a lot in the '07-'08 crisis, with GM and Chrysler going bankrupt and the banking system in America falling apart.
How did the crisis affect you?
We had an $85 million note due. No one would renew it, and we just plodded along, doing service and parts business, used cars. Our stock plummeted to, like, a buck and a half, and we plodded along. The management team we've got now, they put together a loan and came up with a plan to close some stores, sell some stores, bring in some new products, and we found a way to pay that $85 million. The U.S. National Bank of Oregon -- now it's U.S. Bank, but it used to be U.S. National Bank of Oregon and that's how I still think of them -- they were the one bank that stood by us. You don't forget that. We were able to pay that debt off, and Chrysler and GM got the loans, the bailout, to help them through their crisis.
How did Lithia survive?
We've always generated cash. We didn't lose money even in '08, although we had moments when we didn't hit earnings targets. But even when [industry] sales went from close to 18 million sales down to 10 million -- unprecedented -- [we survived] by buying and selling used cars, parts and service, buying underperforming stores, where we began. We're the only ones left with the original plan, the original owners, and we're a lot closer to $8 billion in revenue. That's a lot different from $140 million.
What's your takeaway?
America rewards people who make plans, who use their intelligence. The retail model out there is healthy as hell, so many, many good private operators continue to grow. No one's invented anything any better.