In an early meeting between the companies, the management at Lithia Motors posed this question to the co-CEOs of Shift, an online automotive marketplace: “Since all this stuff is so good and it works so well, what’s preventing you from scaling this thing quicker?”
The answer Lithia got back “really opened our eyes up to the potential synergies between the two companies,” Lithia chief executive Bryan DeBoer said in a conference call with investment analysts last week.
“They said they lacked storage facilities, they lacked reconditioning facilities and they lacked capital — which are all three things that Lithia’s pretty darn good at and has the footprint already to be able to do that and the partners to be able to access capital fairly easily,” DeBoer said.
With a $54 million investment, Lithia, one of the six publicly traded dealer groups in the U.S. and the fourth largest auto retailer, is leading the $140 million round of Series D financing in Shift announced last week.
“I think when we look at $140 million of injection of capital, it's really there for one purpose. And that's to scale the organization as rapidly as they can,” DeBoer said in the call. “And I think their team has been poised for this and are really just sitting there with dry powder, ready to go.”
As to where, exactly, Shift goes next in terms of geographic expansion, that wasn’t specified.
But, when looking at the markets Shift is eyeing for expansion and comparing those to the markets in which Lithia operates, “there were about 30 to 40 matches,” where Lithia could quickly offer the storage and reconditioning services Shift needs, DeBoer said.
Spread out on a U.S. map, those market matches represent “more frown belt than smile belt,” DeBoer said.
Lithia has begun preliminary discussions with store managers in those markets about partnering with Shift in those markets. And while per Lithia’s entrepreneurial model, it would be up to the individual store managers as to whether they work with Shift, DeBoer anticipates they will likely would be on board.
He says service department facility utilization at Lithia dealerships is less than 50 percent, and storage capacity has “about 40-percent growth opportunity.”
So, it's a chance for those stores to drive additional business.
More details on funding
The $140 million total funding announced Thursday morning, which includes equity and debt, more than doubles Shift’s total financing of equity and debt, bringing it to $265 million.
Lithia and Shift are also forming a strategic partnership. DeBoer is joining Shift’s board of directors.
“We’re impressed with Shift’s technology platform and dynamic operational capabilities,” DeBoer said in a news release. “Like us, they are creating a digital marketplace and providing a retail experience wherever, whenever and however consumers desire.
“We are thrilled to have the opportunity to partner with a company that is a great cultural fit,” he said.
Shift co-CEO Toby Russell added: “Since our first meeting with the Lithia team, we were happy to discover we shared many of the same company values, including the desire to make car buying and selling more affordable, accessible and transparent.
“This collaboration gives us the resources we need to double-down on our technology investments and scale more quickly and efficiently,” Russell said. “As our company enters this new growth stage, we cannot think of a better partner to have by our side.”
Also participating in this round of funding were previous investors Alliance Ventures, BMW iVentures, DCM, DFJ, G2VP, Goldman Sachs Investment Partners, and Highland Capital.
“Consumers have learned that an integrated buying experience is a superior buying experience,” said DFJ Partner Emily Melton. “No industry or engagement modality is immune — including car purchasing. This strategic partnership with Lithia enables Shift to scale their innovative car-buying platform and expedite the transformation of the auto industry.”
Opportunities for the future
So where could the collaboration between Shift and Lithia go from here?
DeBoer addressed that during the call.
“The identification of several initial areas of operational collaboration are defined as milestones,” DeBoer said. “These will serve as guidance to accelerate Shift’s scale and profitability. Successfully achieving these milestones can provide Lithia additional ownership in Shift, accelerate growth and build stronger ties between our two companies.”
He added: “Ultimately, we see multiple options for our future growth together, including the potential to combine our organizations or to support Shift’s standalone pathway to an independent publicly traded company.”