New mega-dealer: Oregon's Lithia buys N.J.'s DCH

Lithia Motors, an Oregon-based dealership chain, is buying New Jersey-based DCH Auto Group, creating the fifth-biggest dealership chain in the United States, with locations on both coasts.

Lithia said it will pay $340 million cash and $22.5 million in Lithia stock to acquire DCH. The combined operation should generate $7 billion a year in revenue, Lithia calculates.

The announcement by Lithia Sunday revived what seemed like a played-out trend to create bigger and bigger dealer chains, such as Florida-based AutoNation, the country's biggest dealer chain with about 260 stores in 15 states. Since 2013, all have used the common AutoNation brand.

It's run by Mike Jackson, former head of Mercedes-Benz operations in the U.S. It was created by H. Wayne Huizenga and his Republic Industries waste management company.

While combining under a single corporate owner goes against the make-up of many dealers -- fiercely independent by nature -- it provides stability missing from the auto business, a shaky foundation that was underscored in the recession when car sales were so few that dealerships went out of business.

Such big dealer combines have the power to edge up car pricing by reducing competition, critics fear. But the big chains also can standardize and upgrade service and sales processes, and can spend more on improving their stores than individual dealership owners could, big-chain backers say.

Because of how many vehicles the big chains sell, automakers listen more carefully to their ideas and complaints. That sometimes galls smaller dealers, when it results in promotions and incentives that favor big over small dealerships. Those include stair-step rebates to dealers, increasing as each sales threshold is passed.

Automakers claim to tailor such programs to take dealership size into account, but individual dealers say they simply don't have the sales volumes to make the most of those kinds of incentives.

Lithia's announcement says, "The combined organization will be able to leverage best-in-class execution around customer satisfaction, sales volume and cost control."

The move comes as the U.S. auto business is booming. Sales of new cars and trucks have zoomed as buyers begin to feel financially secure again, and in some cases have to replace junkers that they nursed through the lean times of the recession.

Lithia operates 101 stores in the western U.S., mainly in smaller communities. DCH by contrast is metro market-oriented and runs 14 stores in Southern California, 13 in New Jersey and New York.

Lithia sells mainly Detroit models; DCH sells import brands. Unlike AutoNation's combining of all sites under one brand name, DCH and Lithia stores will continue to operate under their respective names, the agreement says.

Lithia CEO Bryan DeBoer said in announcing the acquisition: "For the past several years, we have been seeking a strategic partner to help us to enter the Eastern United States. The DCH organization is an ideal fit with our existing team. We share similar strategic goals and core values, and have complementary strengths."