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Car Lots Sold

Keyes Trades nine dealerships, sign of larger consolidation in the industry.

Keyes Motors Inc. has sold nine of its dealerships, including five along Van Nuys Boulevard.

But Howard Tenenbaum, vice president at the company insisted he and his business partner Howard Keyes will stay in the car business.

"We are not retiring, we are just diversifying," Tenenbaum told the Business Journal in an interview.

Included in the transaction are Keyes Toyota, Keyes European (Mercedes-Benz), Keyes Lexus, Keyes Audi and Keyes Hyundai, all on Van Nuys Boulevard in Sherman Oaks and Van Nuys; Lexus of Valencia and Audi Valencia in the Santa Clarita Valley; Mission Hills Hyundai; and Bell Road Toyota, located in Phoenix.

Lithia Motors Inc., a publicly traded auto group in Medford, Ore. bought the nine dealerships for an undisclosed price. The dealerships will not change names as Lithia also acquired the Keyes moniker. "Keyes on Van Nuys" is the tagline in the long-running advertising campaign for the dealerships.

Tenenbaum would not say how much he and Keyes received for the stores.

"It's a public company so they will have to report that at some point," he said. "I believe it was the largest transaction they have done."

In a statement, Lithia said it paid for the San Fernando Valley region auto stores using capital recently raised in concurrent equity and debt offerings that closed in early October.

Dealership division
There will be little confusion with the dealerships that Keyes and Tenenbaum kept as most do not carry the Keyes name. The pair still own five dealerships, including one in Nevada.

"It is Porsche Woodland hills, Honda Woodland Hills and our stuff in Las Vegas does not carry the Keyes name - Centennial Toyota," Tenenbaum said.

They are also keeping the Keyes Honda and Keyes Chevrolet stores - both on Van Nuys boulevard - but have time to change the names, Tenenbaum said.

The Porsche dealership was a recent pickup by Keyes and Tenenbaum and has the potential of being one of the premier Porsche stores in the country, he added.

The reason behind the sale was that it was just time for Keyes and Tenenbaum to divest themselves of the dealerships.

"We felt the synergy was right and at some point it made sense for both of us to do this," Tenenbaum continued. "We feel they (Lithia) were the best stewards of our business that we built. All of our employees stayed with them."

Erin Kerrigan, founder and managing director of Kerrigan Advisors, a firm near Lake Tahoe, Nev., who represented and advised Keyes and Tenenbaum in the sale, said the deal came about quickly.

Part of what attracted Lithia to the Valley dealerships was Keyes' reputation not only as a top employer but as a business that gives back to the community, Kerrigan said in an interview with the business journal.

"They have done so much for the Valley and the number of philanthropies they are involved in," she added. "That is a testament to Howard Keyes and Howard Tenenbaum and who they are not only as business leaders but also as people who care a great deal about their employees and their customers."

In a statement, Keyes said he was grateful for the decades of support the dealer has received from the markets where it has done business.

"We are confident that we are leaving our dealerships in the hands of a company that will not only continue our legacy of customer service, but will also extend that legacy's reach though digital innovation, and provide our employees with great opportunities for career advancement," Keyes said in the statement.

Keyes Automotive, which was started by Howard Keyes' father, Jerry in 1950 in Van Nuys, ranked No. 4 on the Business Journal's 2019 private companies list based on revenue from the prior year. In 2018, the company had more than $2 billion in sales.

The combined nine dealerships represent $1.4 billion in sales, according to Kerrigan.

For Lithia, the acquisition rounds out the company's presence in Southern California, the largest car market in the country, while also entering Phoenix, Lithia's sixth top 10 market in the United States, the company said in a statement.

Lithia Chief Executive Bryan DeBoer said that the acquisition will add about 800 employees and expand the company's reach.

"Growing our network with new vehicle locations increases our competitive advantage to procure used vehicle inventory and provides the ability to complete in-home and in-network solutions to our customers throughout their entire vehicle ownership lifecycle," DeBoer said in a statement.

In the greater Valley region, Lithia also owns Audi Calabasas and DCH Subaru and DCH Ford, both in Thousand Oaks.

Retail consolidation
David Stokols, chief executive of AMCI Global, an automotive marketing consulting firm in Gardena, said that the retail side of the automotive industry is undergoing enormous changes and that deals like the one between Keyes Automotive and Lithia are not unusual.

"It is getting harder and harder for a small dealership or even a small group to compete with the bigger ones," Stokols said. "The trend is definitely the bigger ones are swallowing the smaller ones."

The financial necessities and the pandemic disruption is pushing car retailers to question their business model and decide if it's time to stay in the business or get out and cash out instead, he added.

"Those are obviously very personal decisions made by a family or a group or a board," Stokols continued.

Once businesses began to reopen after the spring shutdown due to the coronavirus pandemic, the buy/sell market for auto dealerships became very active, Kerrigan said.

Kerrigan anticipates seeing a record fourth quarter in terms of dealership transactions as the demand for those businesses reaches a level she has not seen before.

That environment made Lithia extremely interested in purchasing the Keyes dealerships, she said.

"They saw in Keyes an opportunity to make a significant acquisition as the market continues to rebound quite nicely and profits follow very nicely," Kerrigan added.

As for Keyes and Tenenbaum hanging on to some of the dealerships, it makes sense for them to do so, Stokols said.

They are keeping the strongest brands that bring in more profit per unit than other brands might get, Stokols added.

"I am sure that was part of the consideration to keep the ones that are the cash cows and take less investment (money) to get into the new auto retailing future," Stokols said.

For those retailers who stay in the car business, the disruption has focused their attention on their portfolio to see which brands they trust, he added.

"The stronger brands have been really good to the retailers and have performed for them for a long time, like a Toyota, like a Honda, like a Porsche. It is easy to say those are winners," Stokols said.

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