Lithia Motors Announces Preliminary Results for Fourth Quarter 2007

MEDFORD, Ore.--Lithia Motors, Inc. today announced that preliminary fourth quarter 2007 loss from continuing operations was $3.6 million as compared to earnings of $6.7 million in the fourth quarter of 2006. Loss per share from continuing operations was $0.18 as compared to diluted earnings of $0.33 in the fourth quarter of 2006. After discontinued operations, preliminary loss per share was $0.26.

For the full year of 2007, preliminary diluted earnings per share from continuing operations are $1.24, down approximately 35% from 2006. After discontinued operations, preliminary diluted earnings per share for the full year are $1.04.

Included in the loss for the quarter from continuing operations is an approximate six cents loss per share resulting from a non-cash charge of $1.77 million attributable to franchise impairments at three of our stores which handle Ford, Chevrolet and Hyundai brands.

The Company cautioned that these reported results are preliminary pending completion of the annual audit by its independent auditing firm.

Sid DeBoer, Lithia’s Chairman and CEO stated that, “The Company is completing a review of potential reporting irregularities associated with retail sales at certain store locations and until the review and analysis is finalized, the Company’s financial statements and the audit can not be completed. While we do not expect the completion of the review to result in a material additional charge to income, no assurances can be given. Our final audited results will be included in our Form 10-K filing.”

Mr. DeBoer further commented, “Recessionary market conditions accelerated in the fourth quarter for Lithia. Since we sell a large-ticket consumer discretionary product that must be financed, we felt the impact. Most of our regional markets were more impacted than the rest of the nation – particularly in Nevada, California, Oregon and Colorado. Customer visit counts at most of our stores were measurably lower than anticipated.

“Our change to a new way of serving our customers is a cultural change that is also having an impact on our short-term results. These changes are critical to our long-term success as a national provider of automobiles & related services. They markedly improve our customers’ experiences and will reduce our operating costs as we take out complexity in all the ways we deal with our customers.

“We are pleased about the results we are experiencing from our three L2 Auto stores. Financial results from the fourth quarter 2007 were in-line with expectations. January and February traffic and sales are better than expected at our two recently opened stores in Texas, and we anticipate that L2 Auto will meet or exceed its profitability targets in 2008.

“We are focused on continued top line growth through acquisitions and the growth of L2 Auto. We expect improvements in operations from our many cost reduction activities – both those we are making as a result of the recession and those of a more structural nature. As we centralize more office operations, enhance customer processes and L2 Auto strategies gain traction, we expect to see tangible improvements.

“As we have previously stated and continue to say, we have steadfast confidence in our future. We are building a business model that we expect to generate annual earnings per share above $3.00 in 2011 assuming a healthy macro-economic environment,” concluded Mr. Sid DeBoer.

Jeff DeBoer, Senior Vice President and CFO, added, “We have provided first quarter and full year EPS guidance for 2008 as shown below. Due to the economic conditions expected to continue into the first half of the year, we expect the bulk of the earnings to occur in the second half of the year. Our improved business model should also reflect positive margin improvements as the year progresses.

“Our guidance is based on income from continuing operations, and fifteen to twenty cents of development expenses associated with L2 Auto. Any acquisitions or dispositions will affect this guidance, as they are not included. Our guidance is integral to and predicated upon a number of 2008 assumptions, most of which are outside of our control. Some of the assumptions are listed below,” concluded Mr. Jeff DeBoer.

2008 Key Earnings Guidance Assumptions:
Sales				$3.2 billion - $3.3 billion
Same Store Sales Decline				3.0% - 5.0%
Gross Margin				16.5% - 16.6%
SG&A as % of sales				13.1% - 13.4%
SG&A as % of Gross				78.9% - 81.2%
Operating Margin				2.4% - 2.7%
Flooring Interest Expense				0.7% - 0.8%
Other Interest Expense				0.6% - 0.7%
Tax Rate				39.5% - 40.5%
Net Margin				0.7% - 0.9%
Earnings per Share from Continuing Operations:
Guidance		Guidance
Q1 2008		FY 2008
$(0.05) - $(0.10)		$1.00 - $1.30

Conference Call Information

Lithia Motors will be providing more detailed information on the results for the fourth quarter 2007 in its earnings release and conference call scheduled for today, February 20, 2008 at 2:00 p.m. PT and 5:00 p.m. ET. The call can be accessed live by calling 973-582-2717; Conference ID #: 30769691. To listen LIVE on our website or for REPLAY: Log-on to www.Lithia.com – Go to Investor Relations – and click on the Conference Call Icon.

About Lithia

Lithia Motors, Inc. is a Fortune 700 and Russell 2000 Company. Lithia sells 28 brands of new and all brands of used vehicles at 110 stores which are located in 46 markets within 15 states. Internet sales are centralized at www.Lithia.com, or through the recently launched www.L2Auto.com. Lithia also sells used vehicles; arranges finance, warranty, and credit insurance contracts; and provides vehicle parts, maintenance, and repair services at all of its locations. Lithia retailed 105,323 new and used vehicles and had $3.23 billion in total revenue in 2007. Lithia is publicly traded and is available on the web at www.Lithia.com.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of the “Safe-Harbor” provisions of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. These statements are necessarily subject to risk and uncertainty and actual results could differ materially due to certain risk factors including, without limitation, economic conditions, acquisition risk factors and others set forth from time to time in the company’s filings with the SEC. Forward-looking statements are based on certain assumptions and analyses made by the company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. We make forward-looking statements in this press release about the company’s projected earnings per share for 2007 and 2008 through 2011; timing of future earnings; value of certain assets; success of cost-saving initiatives and the company’s new business model; timing of anticipated benefits from capital commitments, business strategies; future capital expenditures; market growth and the retail sales environment; and other statements that are not statements of historical fact. Specific risks in this press release include (i) the completion of the 2007 audit and the ongoing internal investigation, (ii) the accuracy of the company’s predictions related to the 2008 retail sales environment and the Company’s ability to successfully adjust to those conditions and achieve the earnings per share projected, and (iii) the amount and timing of L2 Auto losses.

Additional Information

For additional information on Lithia Motors, contact the Investor Relations Department: 541-618-5770 or log-on to: www.lithia.com – go to Investor Relations

Lithia Motors, Inc.
(In Thousands except per share and unit data)
Preliminary		Three Months Ended						%
		December 31,				Increase		Increase
		2007		2006		(Decrease)		(Decrease)
New vehicle sales		$404,845		$412,220		$(7,375)		(1.8)	%
Used vehicle sales		180,584		182,254		(1,670)		(0.9)
Finance and insurance		24,063		25,957		(1,894)		(7.3)
Service, body and parts sales		95,291		86,986		8,305		9.5
Fleet and other revenues		1,041		1,563		(522)		(33.4)
Total revenues		705,824		708,980		(3,156)		(0.4)
Cost of sales		589,011		587,031		1,980		0.3
Gross Profit		116,813		121,949		(5,136)		(4.2)
Selling, general and administrative expense		105,050		95,148		9,902		10.4
Depreciation and amortization		5,733		4,446		1,287		28.9
Operating income		6,030		22,355		(16,325)		(73.0)
Floorplan interest expense		(6,809)		(7,738)		(929)		(12.0)
Other interest expense		(5,376)		(4,427)		949		21.4
Other income, net		318		191		127		66.5
Loss from continuing operations before income taxes		(5,837)		10,381		(16,218)		NM
Income tax expense		(2,238)		3,688		(5,926)		NM
Income Tax Rate		38.3%		35.5%
Income (loss) from continuing operations		(3,599)		6,693		(10,292)		NM
Discontinued Operations:
Loss from operations, net of income tax		(416)		(610)		194		(31.8)
Loss from disposal activities net of income tax		(1,088)		(554)		(534)		96.4
Net income (loss)		$(5,103)		$5,529		$(10,632)		NM
Diluted net income (loss) per share:
Continuing operations		$(0.18)		$0.33		$(0.51)		NM
Discontinued operations:
Loss from operations, net of income tax		$(0.02)		$(0.03)
Loss on disposal activities, net of income tax		$(0.06)		$(0.03)
Net income (loss) per share		$(0.26)		$0.27		$(0.53)		NM
Diluted shares outstanding		19,597(A)		22,041		(2,444)		(11.1)	%
(A) Excludes shares issuable upon conversion of the convertible debt as well as common stock equivalents, as their effect on EPS would be antidilutive.
NM – Not Meaningful

		Three Months Ended												%
Lithia Motors, Inc. (Continuing Operations)		December 31,								Increase				Increase
Preliminary		2007				2006				(Decrease)				(Decrease)
Unit Sales:
New vehicle		13,558				14,302				(744)				(5.2)		%
Used - retail vehicle		8,341				8,869				(528)				(6.0)
Used - wholesale		5,483				5,821				(338)				(5.8)
Total Units Sold		27,382				28,992				(1,610)				(5.6)
Average Selling Price:
New vehicle		$29,860				$28,823				$1,037				3.6		%
Used - retail vehicle		$17,335				$16,445				$890				5.4
Used - wholesale		$6,564				$6,254				$310				5.0
Key Financial Data:
Gross Profit Margin		16.5		%		17.2		%		-70		bps
SG&A as a % of Gross Profit		89.9		%		78.0		%		+1,190		bps
Operating Margin		0.9		%		3.2		%		-230		bps
Pre-Tax Margin		(0.8)		%		1.5		%		-230		bps
Gross Margin/Profit Data:
New vehicle retail		7.2		%		7.8		%		-60		bps
Used vehicle retail		13.4		%		14.6		%		-120		bps
Used vehicle wholesale		0.3		%		1.4		%		-110		bps
Service, body & parts		46.0		%		47.8		%		-180		bps
Finance & insurance		100.0		%		100.0		%		0		bps
New retail gross profit/unit		$2,138				$2,250				$(112)
Used retail gross profit/unit		$2,320				$2,406				$(86)
Used wholesale gross profit/unit		$16				$90				$(74)
Finance & insurance/retail unit		$1,099				$1,120				$(21)
Revenue Mix:
New vehicles		57.4		%		58.1		%
Used retail vehicles		20.5		%		20.6		%
Used wholesale vehicles		5.1		%		5.1		%
Finance and insurance, net		3.4		%		3.7		%
Service, body and parts		13.5		%		12.3		%
Fleet and other		0.1		%		0.2		%
New Vehicle Unit Sales Brand Mix:
Chrysler Brands		37.9		%		40.3		%
General Motors & Saturn		16.9		%		17.3		%
Toyota		13.6		%		13.1		%
Honda		7.4		%		5.1		%
Ford		4.9		%		6.7		%
BMW		4.4		%		3.8		%
Hyundai		3.8		%		3.6		%
Nissan		3.5		%		3.1		%
Volkswagen, Audi		2.6		%		1.6		%
Subaru		2.4		%		3.3		%
Mercedes		1.4		%		0.9		%
Other		1.2		%		1.2		%
		Three Months Ended												%
Lithia Motors, Inc. (Continuing Operations)		December 31,								Increase				Increase
Preliminary		2007				2006				(Decrease)				(Decrease)
Same Store Unit Sales:
New Vehicle		12,944				14,259				(1,315)				(9.2)		%
Used - Retail Vehicle		7,782				8,844				(1,062)				(12.0)
Used - Wholesale		5,178				5,815				(637)				(11.0)
Total Units Sold		25,904				28,918				(3,014)				(10.4)
Same Store Average Selling Price:
New Vehicle		$29,713				$28,823				$890				3.1		%
Used - Retail Vehicle		$17,265				$16,441				$824				5.0
Used - Wholesale		$6,586				$6,257				$329				5.3
Same Store Revenue:
New Vehicle Retail Sales		(6.4)		%		7.2		%
Used Vehicle Retail Sales		(7.6)		%		(8.4)		%
Used Wholesale Sales		(6.3)		%		8.6		%
Total Vehicle Sales (excluding Fleet)		(6.7)		%		2.9		%
Finance & Insurance Sales		(11.7)		%		3.7		%
Service, Body and Parts Sales		2.8		%		3.0		%
Total Sales (excluding Fleet)		(5.7)		%		2.9		%
Total Gross Profit (excluding Fleet)		(10.0)		%		(1.2)		%
Same Store Average Gross Profit Data:
New Retail Gross Profit/Unit		$2,127				$2,253				$(126)				(5.6)		%
Used Retail Gross Profit/Unit		$2,210				$2,348				$(138)				(5.9)
Used Wholesale Gross Profit/Unit		$15				$90				$(75)				(83.3)
Same Store Total Sales Geographic Mix:
Texas		23.6		%		20.0		%
Oregon		14.3		%		15.3		%
California		12.0		%		13.5		%
Washington		11.8		%		11.0		%
Alaska		7.3		%		7.2		%
Montana		6.6		%		5.7		%
Colorado		6.3		%		7.1		%
Idaho		5.3		%		5.8		%
Nevada		3.8		%		5.3		%
Nebraska		2.6		%		2.8		%
South Dakota		1.9		%		2.1		%
New Mexico		1.3		%		1.1		%
Iowa		1.6		%		1.0		%
Wisconsin		0.6		%		0.6		%
North Dakota		1.0		%		1.5		%

Lithia Motors, Inc.
(In Thousands except per share and unit data)
Preliminary		Twelve Months Ended						%
		December 31,				Increase		Increase
		2007		2006		(Decrease)		(Decrease)
New vehicle sales		$1,852,468		$1,773,132		$79,336		4.5		%
Used vehicle sales		864,422		823,991		40,431		4.9
Finance and insurance		119,551		116,506		3,045		2.6
Service, body and parts sales		383,380		331,564		51,816		15.6
Fleet and other revenues		5,380		5,344		36		0.7
Total revenues		3,225,201		3,050,537		174,664		5.7
Cost of sales		2,679,313		2,529,543		149,770		5.9
Gross Profit		545,888		520,994		24,894		4.8
Selling, general and administrative expense		432,210		392,574		39,636		10.1
Depreciation and amortization		20,882		16,498		4,384		26.6
Operating income		92,796		111,922		(19,126)		(17.1)
Floorplan interest expense		(30,879)		(32,957)		(2,078)		(6.3)
Other interest expense		(19,943)		(14,244)		5,699		40.0
Other income, net		787		956		(169)		(17.7)
Income from continuing operations before income taxes		42,761		65,677		(22,916)		(34.9)
Income tax expense		17,173		25,358		(8,185)		(32.3)
Income Tax Rate		40.2%		38.6%
Income from continuing operations		25,588		40,319		(14,731)		(36.5)		%
Discontinued Operations:
Loss from operations, net of income tax		(1,130)		(2,461)		1,331		(54.1)
Loss from disposal activities, net of income tax		(3,306)		(554)		(2,752)		496.8
Net income		$21,152		$37,304		(16,152)		(43.3)		%
Diluted net income per share:
Continuing operations		$1.24		$1.91		$(0.67)		(35.1)		%
Discontinued operations:
Loss from operations, net of income tax		$(0.05)		$(0.11)
Loss on disposal activities, net of income tax		$(0.15)		$(0.03)
Net income per share		$1.04		$1.77		$(0.73)		(41.2)
Diluted shares outstanding		22,082		22,102		(20)		(0.1)		%

Lithia Motors, Inc.		Twelve Months Ended												%
(Continuing Operations) Preliminary		December 31,								Increase				Increase
		2007				2006				(Decrease)				(Decrease)
Unit Sales:
New vehicle		63,607				63,960				(353)				(0.6)		%
Used - retail vehicle		41,716				41,808				(92)				(0.2)
Used - wholesale		25,534				24,213				1,321				5.5
Total Units Sold		130,857				129,981				876				0.7
Average Selling Price:
New vehicle		$29,124				$27,723				$1,401				5.1		%
Used - retail vehicle		$16,739				$16,175				$564				3.5
Used - wholesale		$6,506				$6,102				$404				6.6
Key Financial Data:
Gross Profit Margin		16.9		%		17.1		%		-20		bps
SG&A as a % of Gross Profit		79.2		%		75.4		%		+380		bps
Operating Margin		2.9		%		3.7		%		-80		bps
Pre-Tax Margin		1.3		%		2.2		%		-90		bps
Gross Margin/Profit Data
New vehicle retail		7.4		%		7.7		%		-30		bps
Used vehicle retail		14.8		%		15.3		%		-50		bps
Used vehicle wholesale		1.9		%		2.5		%		-60		bps
Service, body & parts		47.0		%		48.2		%		-120		bps
Finance & insurance		100.0		%		100.0		%		0		bps
New retail gross profit/unit		$2,167				$2,124				$43
Used retail gross profit/unit		$2,482				$2,473				$9
Used wholesale gross profit/unit		$122				$154				$(32)
Finance & insurance/retail unit		$1,135				$1,102				$33
Revenue Mix:
New vehicles		57.4		%		58.1		%
Used retail vehicles		21.7		%		22.2		%
Used wholesale vehicles		5.1		%		4.8		%
Finance and insurance, net		3.7		%		3.8		%
Service, body and parts		11.9		%		10.9		%
Fleet and other		0.2		%		0.2		%
New Vehicle Unit Sales Brand Mix:
Chrysler Brands		39.5		%		40.7		%
General Motors & Saturn		16.5		%		16.9		%
Toyota		13.5		%		12.7		%
Honda		6.7		%		5.3		%
Ford		5.7		%		7.4		%
BMW		3.8		%		2.4		%
Hyundai		3.8		%		4.2		%
Nissan		3.5		%		3.4		%
Volkswagen, Audi		2.2		%		1.7		%
Subaru		2.2		%		3.0		%
Mercedes		1.1		%		0.7		%
Other		1.5		%		1.6		%
Lithia Motors, Inc.		Twelve Months Ended												%
(Continuing Operations) Preliminary		December 31,								Increase				Increase
		2007				2006				(Decrease)				(Decrease)
Same Store Unit Sales:
New Vehicle		58,575				63,817				(5,242)				(8.2)		%
Used - Retail Vehicle		38,258				41,767				(3,509)				(8.4)
Used - Wholesale		23,488				24,214				(726)				(3.0)
Total Units Sold		120,321				129,798				(9,477)				(7.3)
Same Store Average Selling Price:
New Vehicle		$28,750				$27,720				$1,030				3.7		%
Used - Retail Vehicle		$16,558				$16,174				$384				2.4
Used - Wholesale		$6,503				$6,102				$401				6.6
Same Store Revenue:
New Vehicle Retail Sales		(4.8)		%		5.0		%
Used Vehicle Retail Sales		(6.2)		%		0.5		%
Used Wholesale Sales		3.4		%		8.3		%
Total Vehicle Sales (excluding Fleet)		(4.7)		%		4.0		%
Finance & Insurance Sales		(3.9)		%		5.4		%
Service, Body and Parts Sales		3.9		%		4.4		%
Total Sales (excluding Fleet)		(3.7)		%		4.1		%
Total Gross Profit (excluding Fleet)		(4.7)		%		1.7		%
Same Store Average Gross Profit Data:
New Retail Gross Profit/Unit		$2,137				$2,125				$12				0.6		%
Used Retail Gross Profit/Unit		$2,425				$2,434				$(9)				(0.4)
Used Wholesale Gross Profit/Unit		$118				$159				$(41)				(25.8)
Same Store Total Sales Geographic Mix:
Texas		22.3		%		18.9		%
Oregon		15.7		%		17.1		%
California		12.0		%		13.6		%
Washington		11.6		%		11.3		%
Alaska		7.2		%		7.4		%
Montana		6.8		%		6.0		%
Colorado		6.8		%		7.2		%
Idaho		6.0		%		6.4		%
Nevada		4.3		%		5.1		%
Nebraska		2.8		%		2.9		%
South Dakota		2.3		%		2.1		%
New Mexico		1.3		%		1.1		%
Iowa		0.4		%		0.3		%
Wisconsin		0.3		%		0.3		%
North Dakota		0.2		%		0.3		%

Balance Sheet Highlights (Dollars in Thousands)
Preliminary
		December 31, 2007		December 31, 2006
Cash & Cash Equivalents		$24,391		$26,600
Trade Receivables(a)		115,562		118,528
Inventory		595,289		603,306
Assets held for sale		23,807		15,485
Other Current Assets		20,317		15,721
Total Current Assets		779,366		779,640
Real Estate, net		363,391		327,890
Equipment & Leases, net		99,561		89,213
Goodwill, net		311,527		307,424
Other Assets		75,201		75,190
Total Assets		$1,629,046		$1,579,357
Floorplan Notes Payable		$452,581		$499,679
Liabilities held for sale		17,857		11,610
Other Current Liabilities		117,320		118,650
Total Current Liabilities		587,758		629,939
Used Vehicle Flooring		122,550		95,614
Real Estate Debt		179,160		155,890
Other Long-Term Debt		153,785		140,879
Other Liabilities		77,978		63,642
Total Liabilities		$1,121,231		$1,085,964
Shareholders' Equity		507,815		493,393
Total Liabilities & Shareholders' Equity		$1,629,046		$1,579,357
(a)Note: Includes contracts-in-transit of $54,224 and $56,211 for 2007 and 2006
Other Balance Sheet Date (Dollars in Thousands)
Current Ratio		1.3x		1.2x
LT Debt/Total Cap. (Excludes Real Estate)		35%		32%
Working Capital		$191,608		$149,701
Book Value per Basic Share		26.00		25.32