Lithia deal means Pfaff will expand ‘very quickly’

Pfaff Automotive Partners is poised for growth in Canada following the sale of a majority stake to U.S. powerhouse Lithia Motors Inc., according to the Toronto-based luxury group’s CEO and a mergers and acquisitions specialist.

Chris Pfaff said along with the influx of cash comes access to Lithia’s management systems and, eventually, its Driveway omnichannel sales platform. Omnichannel refers to a selling system designed to provide a seamless transition from tire-kicking to purchasing for potential customers, whether they start their journey online or in person.

“We’re going to grow very quickly here in Canada,” Pfaff said in an Automotive News Canada podcast.

“I’d say that putting these two companies together is one plus one equals three. It’s really, really strong.”

Pfaff Automotive operates 16 luxury dealerships across Canada, a variety of leasing and financing outlets as well as a motorsports team, a HarleyDavidson dealership and a marine equipment restailer.

Medford, Ore.-based Lithia boasts a market capitalization of US $11.5 billion (Cdn $14.36 billion) and operates 275 dealerships. It is the second-largest group in the United States, according to sibling publication Automotive News.

The partnership, said Pfaff, gives “us the strength to do further acquisitions. We’re looking for more opportunities, and we’re looking for good people to be part of that as well.”

Investments in future technology, such as data capture, will be “huge ... so I think that we’re a lot stronger going forward for growth.”

A KEY TO ENTER CANADA

Samir Akhavan, managing partner at Toronto-based buy-sell company Templeton Marsh, said the deal positions both companies for expansion in this country.

“Now that Pfaff is part of Lithia, it’s probably easier for Lithia to look at other dealer groups. Pfaff has much closer relationships with most of those dealer groups and is able to more quickly assess an opportunity and say, ‘Let’s get after it.’”

Akhavan said he also expects the Lithia purchase to be an “aha moment, a catalyst” for other dealership groups looking either to expand or sell their businesses.

“The Pfaff-Lithia deal has got a lot more people thinking seriously about what they want to do down the road. They’re thinking, ‘We have had record years, it’s the top of the market. Do I want to work another 10 years or get out now?’”

Akhavan estimates there are about 10 or more dealership groups in Canada with 20 or more stores, and he expects those groups to grow, primarily by acquiring existing dealerships. Smaller, regional groups might also seek to stretch outside their current footprint by purchasing dealerships in neighbouring provinces.

SIX-YEAR COURTSHIP

Pfaff said Lithia CEO Bryan DeBoer first kicked the tires about six years ago, but talks got serious last September. Pfaff would not disclose the purchase price or the size of the stake Lithia assumes. He did say that Pfaff owns a minority stake.

Aside from growth and increased efficiency due to adopting some Lithia management practices, there will be few visible changes, said Pfaff. “Even the branding of Pfaff remains the same. I’m still running the platform, what we have and what we had before in Canada ... the management is still the same,” he said. “I would say we’ve got some very sophisticated support back in Medford, Ore., in terms of what they do with technology and management reporting.”

Not included in the sale were Mercedes-Benz Kitchener-Waterloo and Pfaff HarleyDavidson. Pfaff would not say why.

“They may go into [the deal] at some point, who knows? But I really can’t comment on that.”

Officials for Mercedes-Benz Canada said in a statement it does “not comment on dealer network transactions.”

Also not included in the deal is Pfaff Motorsports, which has been racking up podium finishes at the International Motor Sports Association with its distinctive plaid Porsche GT3 R as well as competing in Vintage Auto Racing Association of Canada (VARAC) with its H.J. Pfaff Audi historic race team.

ONLINE OPPORTUNITY

Pfaff said he’s excited about the prospects for Lithia’s Driveway sales platform, saying that Canadian consumers “are not really taking the full journey online in terms of purchasing a car, but they are certainly taking part of the steps towards it.

“But I do think as time moves on, it’s going to become more and more where people will be comfortable with that.”

Pfaff Automotive began in 1964 when Hans J. Pfaff was awarded a Volkswagen franchise, which opened in Newmarket, Ont. Today, the company’s brands include Porsche, Pagani, McLaren, Mercedes-Benz, Audi, Subaru and BMW.

The company’s position in the luxury and ultraluxury market is one facet of the deal that makes the partnership with Lithia strong, Pfaff said.

“I would say that the mainline domestic and Japanese business, they know for sure better than I do, where maybe in the higher end, exotic and luxury, we’ve got a lot of experience there. So I think there’s a really great complement there.”