Lithia Motors, Inc. (LAD)

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LITHIA Motors, Inc

Q1 2010 Earning Call

April 27, 2010 5:00 pm ET

Executives

John North - Corporate Controller

Sid DeBoer - Chairman and CEO

Dick Heimann - Vice Chairman

Bryan DeBoer - President and COO

Jeff DeBoer - SVP and CFO

Analysts

Rick Nelson - Stephens Inc

John Murphy - Banc of America/Merrill Lynch

Presentation

Operator

At this time, I would like to welcome everyone to the Lithia Motors First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

I would now like to turn the call over to Mr. John North, Corporate Controller. Mr. North, you may begin your conference.

John North

Good afternoon to everyone. Welcome to Lithia Motors first quarter 2010 earnings conference call. Before we begin, the company wants you to know that this conference call includes forward-looking statements. These statements are necessarily subject to risk and uncertainty, actual results could differ materially due to certain risk factors that are outlined in the company’s filing with the SEC.

During this call, we may discuss certain non-GAAP items including adjusted income from continuing operations, adjusted earnings per share continuing operation and adjusted cash flows from operations. We believe this non-GAAP disclosure improves the comparability of our financial results from period to period and is useful in understanding our financial performance. The full reconciliation of these non-GAAP items is provided in the financial tables of today’s press release. We have also posted an updated investor presentation today on our website that incorporates our first quarter results.

Presenting the call today are Sid DeBoer, Chairman of the Board and CEO; Dick Heimann, Vice Chairman, Bryan DeBoer, President and Chief Operating Officer and Jeff DeBoer, our Chief Financial Officer. At the end of their remarks, we will open the call to questions.

It's now my pleasure to turn the call over to Lithia's CEO, Sid DeBoer.

Sid DeBoer

Good afternoon, everyone. Today, we're pleased to report our first quarter adjusted income from continuing operations of $0.09 per share compared to an adjusted loss of $0.01 per share a year, an improvement of $0.10 and $0.03 above the high end of the guidance we provided in February. Thanks to a great March.

After a somewhat sluggish start to the quarter, March results were way above our expectations as consumers who had been on the sidelines returned to the market. we attribute this to the significant incentives offered in the month as well as a general improvement in consumer sentiment and a continued execution of our plan.

While unemployment remains high, we believe that consumers have started to return to the new vehicle market and that credit constraints, which accounted for some of the low sales volume in '09 have been reduced.

Even as we work to improve our diversification, issues with Fiat and Chrysler have continued to improve. As many of you have seen, Chrysler updated its five-year plan and released better than expected financial results earlier this month.

In this plan, Fiat expanded division for its global auto manufacturing and leveraging itself with new infrastructure and dealership networks that existed previously under Chrysler. We are strong supporters of this plan and believe that Fiat had taken strong initial steps to improve their situation.

As we discussed on our last call, for the first half of 2010, year-over-year sales comparisons won't paint an accurate picture of the success of the Chrysler. The old company had some unnatural actions in the first half of last year that artificially inflated sales is to avoid and actually ultimately that even though they want you bankruptcy they were unable to avoided even using those artificially inflated sales incentives. The current vehicle sales levels although down when compared to the prior year have shown sequential improvement month-over-month.

Looking ahead we are eagerly anticipating the launch of their all new Grand Cherokee in May. With this introduction Chrysler is well on it's away towards the objective of refreshing 75% of its product line of this year. Sixteen vehicles in 2010 will be all new or substantially refreshed. Looking to the future Chrysler will continue to emphasis new models and improve fuel efficiency expecting to achieve a 25% improvement by 2014 on its fleet.

Moving on to the Toyota recall. We saw small increase in our Service, Body and Parts Warranty work as a result of the recall. However, the biggest impact came through the impressive sales incentives Toyota responded with in March. Our Toyota unit sales were up 42% in March and 11% for the quarter. New vehicle sales also benefited from other manufacturers competing with us they're offering higher incentives to keep pace.

Another way we are focused on is property held for future development or currently vacant. That’s an area we need to continue to work on. As a bit of background we purchased bare land in certain markets prior to the recession in anticipation of expansion and have facilities that we elected to close or were selected for termination through the domestic manufacturer restructuring in '09. We believe that the actually carrying cost of these properties and affiliated cost related to them is in the range of $0.12 to $0.15 a year in lost earnings.

One of the first priorities then for our capital earmarks is for acquisitions to convert these assets into operations. We are actively managing this challenge and believe we will continue to make progress on this area throughout 2010 either through the sale of assets or the addition of new car franchises in those stores.

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