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News that US dealer group Lithia has agreed to buy Pendragon’s UK auto retail and leasing operations represents the latest significant development in the UK car retailing landscape.
Lithia’s move, which follows on from their purchase of the 50 outlet Jardine business, and last week’s news that the Financial Conduct Authority had given the go-ahead for the takeover of Lookers by Global Auto Holdings, (a bidding vehicle for Canadian firm Alpha Auto Group) are just some of the latest foreign investment moves in UK vehicle retailing. These ‘mega’ moves sit alongside a continuing theme of sales/acquisitions across the UK market.
Consolidation in car retailing is happening at a pace. What is evident is that while some players see the challenges of change, such as emerging agency retailing models, the shift to EVs, falling aftersales revenues and increased regulation, others see the opportunity, one where scale is increasingly important. It is also becoming apparent that car retailing and the aligned support industries are becoming global enterprises, albeit with local nuances.
The Lithia purchase of Pendragon and what I suspect will be an inevitable integration in the UK with the Jardine business will, subject to OEM approval, further support a smaller overall footprint for car retailers in the UK. It is also part of a broader trend to redefine the established distribution chain to take cost and friction out of the car purchase/ownership experience.
With new car revenues controlled by OEMs in an agency model, aftersales income reduced because BEVs have fewer service, maintenance and repair requirements, F&I under increased regulatory scrutiny, and the pressure on costs and a ‘cost-out’ / value-in ethos feels inevitable. Agile retail players, thinking differently about the customer journey, can win in this changed landscape.
Lithia is one of the US’ largest motor retailers, Lithia Motors, and one of the fastest-growing companies in the Fortune 500 (#158 in 2022). Its vision is ‘to serve customers wherever, whenever and however they desire’, which clearly indicates its thinking. The acquisition of Pendragon has all the making of a great synergistic fit.
Pendragon combines retail and leasing capabilities, and the continuing association with its Pinewood DMS capability suggests it has some exciting pillars to deliver the type of customer journey and experience linked to leasing/subscription sales that have been forecast for much of the last decade. The potential for a new customer-centric model is in place, and I suspect we will see more similar moves emerging because scale will be crucial to reducing the high distribution costs for used cars that have long existed. Small marginal gains based on scalability can make a significant operating profit difference.
Graeme Nieman is interim group CEO at AutoProtect Group