Lithia Motors, Inc. · NYSE:LAD
Lithia Motors — Investor Presentation (November 2007)
56 slides from Lithia Motors's investor presentation, Nov 19, 2007
Slide 1: Lithia 2007
SLUTHIA 2007
Slide 2: Before we begin...
Before we begin... .. the Company wants you to know that this presentation includes forward looking statements. 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, a
Slide 3: The Beginning... "Since 1946"
The Beginning... “Since 1946” “Lithia” - Named after Lithia springs in Ashland, Oregon LITHIA Motopy CHRYSLER + pLynoy
Slide 4: Lithia - The Industry Operator States, Markets, Store Locations
Lithia - The Industry Operator 15 States, 46 Markets, 108 Store Locations SI.P.O. in Dec. 1996 —5 Stores &$3.2Bn revenues in 2006 S The 7th largest U.S. auto retailer — by retail sales §20% 10-YR E.P.S. CAGR S Target 15% long-term Earnings Per Share Growth Quarterly Dividend $0.14
Slide 5: Industry Dynamics
Industry Dynar
Slide 6: Huge and Fragmented Industry
Huge and Fragmented Industry Nearly $1 Trillion Market Highly Fragmented Sector Finance & % of Sales +4 499 | Public Insurance Dealer groups Groups 7% Service & Parts New Vehicle Used Vehicle All Other Dealers Source: Automotive News Data Center 2005
Slide 7: Stable Profitability
Stable Profitability S Manufacturer incentives §50%+ variable costs Multiple brands Diversified profit sources 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% (2.0)% (4.09% (6.0)% (8.0)% (10.0)% Historical Pre-Tax Margins Updated through 2006 Auto Retailers me & © © & @ &8= 9, %, %0, 7%, %. 2 %O 79 HY SG D> GS Sourc
Slide 8: Underlying Sector Dynamics
Underlying Sector Dynamics S Unique Franchise Relationships Tremendous manufacturer support S Protected trade areas S Counter-cyclical business lines; Gross margins historically improve in a downturn Involved in 100% of the product cycle S Sale and trade-in of new/used vehicles S Repair/Service of n
Slide 9: Current Environment
Current Environment Slower economy and softer car sales S Higher gas prices — slowing housing market Sales mix shift to smaller models; more balance mix of imports Fixed cost pressures Daimler-Chrysler ownership and restructuring Change in the way we retail automobiles Lithia’s culture is being reen
Slide 10: Lithia's Operations
Slide 11: Management is Flexible & Ready
Management is Flexible & Ready Sinventory Discipline SCost Reduction Actions in Travel, Advertising and Compensation SAdjustments to Acquisition Strategy SDivestitures of Domestic Metro Stores Committed to Dividend and Authorized for Share Repurchases Rolling out and refining L2 Model for today and
Slide 12: The Lithia Business Model
The Lithia Business Model " Platform building instead of buying SCommon Computer System - Intranet Centralized in Medford, OR SCommon practices in all stores SStandardized asset management tools Fully Integrated Sales Systems Specialized operational support teams SHuman Development Strategies Market
Slide 13: Macro Economies of Scale
Macro Economies of Scale SLargest Dealer Group — AutoNation - highest margins STop Management spread over a large base SMajor Supplier Contracts SPayroll & Accounting Services SLower Rates for Floorplan Financing Advertising Expense SInsurance
Slide 14: Sector Operating Margins
Sector Operating Margins FY 2006 45% 40% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% BAN GLAD OGPI GSAH DABG OPAG I Source: Company Press Releases :
Slide 15: Operating Income/Margins
Operating Income/Margins 120 100 15% CAGR $119.2 2001 2002 2003 2004 2005 G@ Operating Income $114.8 2006 AA 3.2% 3.2% 3.1% 2001 2002 2003 2004 2005 2006 Operating Margin
Slide 16: Business Lines: Sales & Gross Profits %
Business Lines: Sales & Gross Profits % 58% 60% 50% 40% 30% 20% 10% 0% <a New Veh. Used Veh. SB&P F&l O Sales H Gross Profits
Slide 17: Gross Margins — FY 2006
Gross Margins — FY 2006 « 100% 100.00% 5 80.00% | S/B/P: 48.5% 60.00% | 40.00% + 20.00% | <ciiia 0.00% + New Used Parts Body Service F&l Retail Retail Shop
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Slide 19: New Vehicles — Current Initiatives
New Vehicles — Current Initiatives Centralized Inventory Control Process Initiative S New Vehicle inventories ordered centrally S Store personnel will spend time on retailing Assured New Vehicle - Drives New Vehicle Sales S Many units to choose from at that price S Options the customer wants at an a
Slide 20: New Vehicles
New Vehicles 2,300 9.1% Ae. 2,200 a 9) 7.8% 2,100 qi 7.6% 7.7% 2,000 1,900 1,800 1,700 1,600 1,500 0, 2001 2002 2003 2004 2005 2006 2.0% , , , , , ’ 2001 2002 2003 2004 2005 2006 @ Gross Profit Per Unit ~4+- New Vehicle Margin
Slide 21: New Vehicle Unit Mix
New Vehicle Unit Mix ad Subaru BMW Working to improve Nissan 2% 4% vwiAudi our sales mix with more \ 3% Other | !mport and Luxury brands Hyundai id ay 4 3% — Toe elie 5% Chrysler/Dodgef y Ford Jeep 39% 6% ——_ Toyota 14% General Motors (Chevy, Saturn, Cadillac & Hummer) 16%
Slide 22: Assured Advantages
21 ASSURED RONAN AGES
Slide 23: Retail Used Vehicles
Retail Used Vehicles 2,500 $2,423 $2,426 2,000 1,500 1,000 500 2001 2002 2003 2004 2005 2006 @ Gross Profit Per Unit 22 15.6% 44.4% an 13.2% 14.9% PQ 13.8% 12.5% 2001 2002 2003 2004 2005 2006 —«- Used Vehicle Margin
Slide 24: Wholesale Used Vehicles
Wholesale Used Vehicles * Wholesale Gross Profit Per Unit SRegionalized Wholesale $700 Auctions of unwanted trades $150 Wholesale profits for 3 1/2 $199 years beginning in3Q 2003 — g50 NGoal is to break even and $0 sell more used cars at retail 55 -$100 -$121 1 ————_——_—___—__= 2001 2002 2003 2004 2
Slide 25: Sector Used Vehicle Margins
Sector Used Vehicle Margins ” 14.0% 12.0% | 10.0% | 8.0% 6.0% 4.0% 2.0% 4 0.0%~ GLAD OGPI GABG DAN OSAH O PAG
Slide 26: Used Vehicles - Advantages
Used Vehicles - Advantages * SHigher gross margins than new SIn control of own product mix and supply chain — unlike new vehicle sales S More controllable than new in recessions S Unlimited Growth Potential (L2)
Slide 27: Lithia Used Vehicles
Lithia Used Vehicles ad SAssured Used Vehicle Initiative SLow Assured Drive it Now Pricing 3-day, 500 mile return policy S60 day, 3,000 mile warranty SNo Dealer Doc. Fees EVehicle History Guaranteed
Slide 28: L2 Used Vehicle Operation
27 L2 Used Vehicle Operation SUnlimited Growth Potential SWe can open in any market SDon’t need manufacturer approval SNo goodwill - only start up costs &First store began operating August 1* of 2007 in Loveland, CO SAdditional sites in Amarillo and Lubbock, Texas will open December 2007.
Slide 29: Lithia & L2 Used Vehicles — Current Initiatives
Lithia & L2 Used Vehicles — Current Initiatives SFirst Look Technology SThe right car for the right market at the right time... Slmproved inventory and price management Stocking by local or regional market demand Optimal inventory placement between stores Slmproved valuation support »Update: Roll-ou
Slide 30: Finance & Insurance
29 inance & Insuranc
Slide 31: Maximizing the F&I Opportunity
Maximizing the F&l Opportunity ‘a Non-Recourse Business F&l Penetration F&l per Vehicle ($) $1,116 90% Sector Leader 1,100 Sector Leader ’ Target $438 2007 YTD NADA Avg.
Slide 32: Finance & Insurance
Finance & Insurance " S Automatic Sale: without significant expense = Financing, Lifetime Oil, Service Contracts, Other 95% of the customers finance S Lithia penetration rate 77% (FY 2006) Fixed pricing and uniform practices S Competitive financing - good for the customer
Slide 33: Parts/Service & Body Shop
Slide 34: Stable and Less-cyclical
Stable and Less-cyclical Parts/Service & Body Shop 38 Absorbs significant amount of dealership fixed costs Exclusive manufacturer warranty and service contracts Variable pricing structure Lifetime oil contracts — 39% of all sales customers Same-Store Customer Pay +7% 48.5% Gross margins (FY 2006) Pa
Slide 35: Improvements in Gross Margin
Improvements in Gross Margin ” 48.5% 50.0% 48.1% 48.0% 47.2% 47.8% 44.8% 44.9% 45.0% 40.0% 35.0% 30.0% 1999 2000 2001 2002 2003 2004 + 2005 + «—«-2006 Parts & Service Gross Margin
Slide 36: General Dealership Initiatives
Se“ teres ea ral Dealership Initiatives Ee al cpt tare eormtan,retement an eaten, act Quick Sopenere, plneing tools and resources. cade - Employee Stock Purchase Plan shock, View your secur formation.
Slide 37: Initiatives for 2006/2007
Initiatives for 2006/2007 6 sCustomer Centric Sales Process SInteractive PC’s tied to DMS Eliminates the need for paperwork SAutomated deployment of LSMS Sindustry leading truth-in lending disclosure process >Update: Completed in March ‘07
Slide 38: Initiatives for 2006/2007 cont...
Initiatives for 2006/2007 cont... ad SOffice Automation & Centralization = Streamline back-office functions (AP/AR, others) SEverything that doesn’t touch the customer - centralized STechnology Driven >Update: AP/AR Completed, Ongoing Process SHuman Development Applicant Tracking Performance Managem
Slide 39: Assured New & Used Vehicle Programs
Assured New & Used Vehicle Programs ° SAssured New Vehicles Vehicles priced at aggressively competitive levels 3 Days/500 miles (no questions) return policy »Update: Completed in Alaska, Tri-Cities, bedding Reno, Colorado & Texas; All locations by Spring 2008. >Assured Used Vehicles & 160 point insp
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Slide 41: Industry Ripe for Acquisitions
Industry Ripe for Acquisitions S Exit strategy for retiring dealers with no clear succession plans S Increasing capital requirements and manufacturer pressures S Goal: To grow 10 - 15% a year in annualized revenues to existing revenue base. S With a weak economy we see greater acquisition opportunit
Slide 42: Our Opportunity
Our Opportunity 41 22,000 independent stores operated by 14,000 dealers 30% 25% 20% 15% 10% 5% 0% 2% | 7 Optimal Acquisition Target Zone 5% 26% 27% | 75% (16,500 stores) Below 1% Loss 0-1% Loss 0-1% 1-2% 2-3% NADA Pre-Tax Margins 11% | ] 34% Above A% [Souree: NADA (National Automobile Dealers Associ
Slide 43: Lithia's Differentiated Acquisition Approach
42 Lithia’s Differentiated Acquisition Approach S Focus on average operators with major brands S Unique market focus S Regional focus — Over 85% in dominant/exclusive markets S Select metro opportunities with luxury/import S Small market fill-ins of complimentary brands 8 20 to 40 percent of total m
Slide 44: Acting on the Opportunity
43 Acting on the Opportunity - 164 Target Markets West of the Mississippi & 102 East... - Currently in 46 markets
Slide 45: Disciplined Acquisition Profiling
Disciplined Acquisition Profiling “ SPay 2x - 5x trailing; 1 — 3.5x forward Pre- Tax for goodwill plus assets STarget 15% ROIC SExperienced M&A team SApply the Lithia business model SCash purchases
Slide 46: Build vs. Buy
Build vs. Buy “ 45.0% 5 40% 40.0% - is 36% 35.0% - 33% 30% 30.0% | 26% 25.0% | 5 20.0% | Wa 15.0% | 10.0% SAH AN PAG GPI ABG LAD Goodwill as % Total Assets
Slide 47: Disciplined Acquisition Strategy
Disciplined Acquisition Strategy Total Stores 100 80 60 40 20 46 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 3Q- 07
Slide 48: Year Revenue Growth Goal @ 12% Year
10 - Year Revenue Growth Goal @ 12% Year $ in Billions Revenues 13.0- 11.0 9.0- 7.0 5.0 3.0 0.14 0.920.71 1-14 47 $12 billion revenues by 2017 qe l8T 1.0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Slide 49: Financials
Slide 50: FULL-YEAR 2006 Summary
FULL-YEAR 2006 Summary “ FY 2006 vs. FY 2005 § Gross Profit Margins: §S SG&A as % GP: S Operating Margin: S Pre-Tax Margin: 17.0% vs. 17.2% (-20 bps) 75.5% vs. 72.7% (+280 bps) 3.6% vs. 4.2% (-60 bps) 2.1% vs. 3.2% (-110 bps) S Gross Profit New/Unit: - $102 S Gross Profit Used/Unit: + $3 S F&I per R
Slide 51: Third Quarter 2007 Summary
Third Quarter 2007 Summary ” 3Q 2007 vs. 3Q 2006 § Gross Profit Margins: §S SG&A as % GP: S Operating Margin: S Pre-Tax Margin: 16.8% vs. 16.6% (+20 bps) 74.2% vs. 73.7% (+50 bps) 3.7% vs. 3.9% (-20 bps) 2.2% vs. 2.0% (+20 bps) S Gross Profit New/Unit: S Gross Profit Used/Unit: S F&I per Retail Unit
Slide 52: Same-Store Sales Growth Rates
51 Same-Store Sales Growth Rates »68% Domestic New Vehicle Sales Mix in 2006 »Industry Domestic Sales down dramatically »We drove positive new vehicle sales in this environment
Slide 53: Continued Annual Revenue Growth
52 Continued Annual Revenue Growth $ in Millions 3,500; 3,250 3,000 2,750- 2,500- 2,250- 2,000- 4,750- 1,500- 4,250- 4,000- 750- 500 250-9143 o =_Z 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Revenues ($MM)
Slide 54: Net Income Growth
Net Income Growth ° $in Millions 60> 50 40 30 Net Income ($Millions) 20 10 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2001 to 2006 affected by hedge accounting/2006 affected by stock option accounting —<-
Slide 55: Conclusion
Conclusion
Slide 56: Lithia's Mission...
Lithia’s Mission... 55 TO BE THE PREFERRED PROVIDER OF CARS AND TRUCKS AND RELATED SERVICES IN NORTH AMERICA Vision Statement = what we are sitiving to be... ® Lithia envisions the future, develops and embraces a strategic plan, and ensures the success of the plan. @ We strive for strong, sustainabl
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