Lithia Motors, Inc. · NYSE:LAD
Lithia Motors — Investor Presentation (April 2006)
63 slides from Lithia Motors's investor presentation, Apr 5, 2006
Slide 1: Lithia
LITHIA arch 2006
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 mic conditions, acqui
Slide 3: The Beginning... Since 1946
The Beginning... “Since 1946” ‘Lithia’ — Named after Lithia springs in Ashland, Oregon LITHIA Mowry CHRYSLER + PLynoy
Slide 4: Lithia - The Industry Operator States, Markets, Store Locations
Lithia - The Industry Operator 12 States, 37 Markets, 93 Store Locations »I.P.O. in Dec. 1996 - 5 Stores »$2.9Bn revenues in 2005 »The 8th largest U.S. auto retailer » 20% E.P.S. CAGR » Target 15% long-term E.P.S. growth SLITHIA
Slide 5: Earnings Per Share Growth — Improving Steadily
Earnings Per Share Growth — Improving Steadily 2.75 2.50 2.25 2.00 1.75 Mee 1.50 oa 11.25 3YR - 13% CAGR 1.00 : r T 0.75 AYR - 13% CAGR 0.50 - | a | 0.25 5YR - 9% CAGR 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 *Excludes convertible notes & stock options 4 LITHIA
Slide 6: Industry Leading Management Team
Industry Leading Management Team Years with Automotive Name Position Lithia Experience Sid DeBoer Chairman and CEO 42 42 (Board of Directors) MLL. Dick Heimann _— President of Corporate Affairs 36 39 (Board of Directors) Bryan DeBoer President and CoO 17 17 nt and CFO 9 9 25 31 17 22 SLITHIA
Slide 7: Percent Share of Revenue by State
Percent Share of Revenue by State Balanced Regional Revenue
Slide 8: Internally Driven Growth Potential
Internally Driven Growth Potential Free Cash Flow & Same Store Sales Internally-Funded Acquisition Growth (Free Ca 10% 5% Total Inte: Potential: SLITHIA
Slide 9: Quarterly Dividend for 4Q 2005
Quarterly Dividend for 4Q 2005 > $0.12 Quarterly Dividend (50% increase) >» Payable March 6 to shareholders of record February 20 > Now advantageous from a tax perspective » First in our sector to offer a dividend LT/Debt to Cap. Ratio - oring, real estate) wth plans SLITHIA
Slide 10: Dynamics
Dynamics SLITHIA
Slide 11: Huge and Fragmented Industry
Huge and Fragmented Industry Nearly $1 Trillion Market Highly Fragmented Sector Finance & % of Sales +. 499 | Public Insurance Dealer groups Groups 7% Service & Vehicle All Other Dealers Center 2004 10 SLITHIA
Slide 12: Stable Profitability
Stable Profitability Updated through 2005 > Manufacturer incentives Ee = 80% }----#\---—--—---,4--------- >50%+ variable costs 6.0% 4.0% |}—---$------\---}------+4----- 2.0% - > Multiple brands 0.0% Auto Retailers > Diversified profit sources (2.0)% (4.0)% (6.0)% | Historical Pre-Tax Margins (8.0)%
Slide 13: Industry Leading Profitability
Industry Leading Profitability >» Pretax Margins 1.6% - NADA Industry Avg. 2.9% - Lithia FY 2005 | Pre-Tax Margins NADA Industry Avg. 1998 1999 2000 2001 2002 2003 2004 2005 12 SLITHIA
Slide 14: Strong Underlying Sector Dynamics
Strong Underlying Sector Dynamics >» Unique Franchise Relationships » Tremendous manufacturer support >» Protected trade areas » Counter-cyclical business lines; Gross margins historically improve in a downturn luct cycle sed vehicles ed vehicles v/used vehicles 8 SLITHIA
Slide 15: SLITHIA
SLITHIA
Slide 16: Operating Income/Margins
Operating Income/Margins 20% CAGR 90 Basis Point Gain 4.5% 120 au : 4.1% 4.0% ia $96.1 8% ty 3.5% . 3.2% 3.2% 3.1% $80.2 or fo 80 $70.9 put) 60 $58.2 2.5% 2.0% 40 1.5% ay 1.0% 0 0.5% 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 (Operating Income Gi Pre-Tax Margin 18 SLITHIA
Slide 17: The Original Lithia Business Model
The Original Lithia Business Model > Specialized operational support teams >» Common Computer System - Intranet “Centralized in Medford, OR » Fully Integrated Sales Systems » Common practices in all stores - uniform MIS - management tools stead of buying Micro economies of scale nt Strategies 18 SLI
Slide 18: Macro Economies of Scale
Macro Economies of Scale » Largest Dealer Group — AutoNation - highest margins » Top Management spread over a large base >» Major Supplier Contracts » Payroll & Accounting Services SLITHIA
Slide 19: Sector Operating Margins
Sector Operating Margins FY 2005 4.5% 4.0% | 3.5%] 3.0%} 2.5% 2.0% 1.5%] SAH DABG OUAG OGPI 18 SLITHIA
Slide 20: Business Lines: Sales & Gross Profits
Business Lines: Sales & Gross Profits % 65% 55% 45% 35% 25% 4 | 26% 114 | Veh. SB&P Gross Profits 419 F&l
Slide 21: Gross Margins - 2005
Gross Margins - 2005 100% 100.00% 5 80.00% 5 S/B/P: 48.7% 46.5% 60.00% 5 40.00% | 20.00% 5 0.00% New Used Parts Body Service F&l Retail Retail Shop FY 2005-Gross Margins 20 R LITH IA
Slide 22: SLITHIA
SLITHIA
Slide 23: New Vehicles - Increase Market Share
New Vehicles - Increase Market Share » Stores - 79% in exclusive markets or with dominant market position » Leverage manufacturers’ new vehicle incentives, rebates and advertising its in Operation drive profitable sales of other product uisition opportunities 2 SLITHIA
Slide 24: New Vehicle Gross Profit and Margins
New Vehicle Gross Profit and Margins rofit Per Unit 2,300 2,250 2,200 2,150 2,100 2,050 9.0% 9.0% $2,092 $2,247 $2,216 $2,195 — b2% pit —b| 12.00% 10.00% 4 | + 8.00% + 6.00% Gross Margin + 4.00% + 2.00% 2001 2002 Gross Profit -e— Gross Margi 23 2003 2004 0.00% 2005 SLITHIA
Slide 25: Promo Pricing — Drives New Vehicle Sales
Promo Pricing — Drives New Vehicle Sales » Low price on popular makes and models » Low price on a large selection of vehicles (not just 1!) » Options the customer wants at an affordable and competitive price pricing which includes rebates eeds up the sales process 2 SLITHIA
Slide 26: New Vehicle Unit Mix
New Vehicle Unit Mix Subaru BMW Honda 3% 2% VwiAudi 2y Fi a ’ Other Nissan 4% = i eycne: oo Chrysler/Dodge/ Jeep Ford 40% 8% ee ‘al Motors (Chevy, Saturn, Cadillac & Hummer) 19% 25 SLITHIA
Slide 27: Sector New Vehicle Margins
Sector New Vehicle Margins 7.3% SAH 7.2% AN 7.1% GPI 7.1% ABG LAD G@ SAH DAN OGPI CABG 26 SLITHIA
Slide 28: Vehicles
Vehicles a SLITHIA
Slide 29: Retail Used Vehicles
Retail Used Vehicles 2,500 2,000 1,500 1,000 $2,444 $1,773 $1,825 28 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% 12.5% 2001 2002 2003 2004 2005 -a- Used Vehicle Margin SLITHIA
Slide 30: Wholesale Used Vehicles
Wholesale Used Vehicles » Regionalized Wholesale Auctions of unwanted trades » Wholesale profits for 10 consecutive quarters beginning in 3Q 2003 29 Wholesale Gross Profit Per Unit $200 $150 $100 $50 $0 -$50 -$100 -$150 $167 $159 97 -$117 2001 2002 2003 2004 2005 SLITHIA
Slide 31: Used Vehicles - Lithia's Advantages
Used Vehicles - Lithia’s Advantages > Higher gross margins than new » Centralized purchasing of late model vehicles » More stable than new in recessions le auctions of unwanted trades - 9 consecutive quarters plan for stand-alone used car pen a prototype by next spring 30 SLITHIA
Slide 32: First Look Technology
First Look Technology >The next step to standardization in the used vehicle business >The right car for the right market at the right time... “¢ Daily Price Management “¢ Stocking by local market demand entory at other Lithia stores. fehicle Manager will become a ally developed UVM at SLITHIA
Slide 33: Promo Pricing — Drives Used Vehicle Sales
Promo Pricing — Drives Used Vehicle Sales » $99 down delivers! »3 day return policy »60 day warranty »Vehicles grouped by price and payment level » Clear and understandable pricing which includes warranty speeds up the sales process ssues for salespeople and the 32 SLITHIA
Slide 34: Sector Used Vehicle Margins
Sector Used Vehicle Margins FY 2005 14.0% 12.0% | 10.0% | 8.0% 6.0% | OGPI CAN OABG BSAH OUAG 33 SLITHIA
Slide 35: Finance & Insurance
& Insurance a LITHIA
Slide 36: Maximizing the F&I Opportunity
Maximizing the F&I Opportunity Non-Recourse Business F&l Penetration F&l per Vehicle ($) 1,059 90% 4,100 $ Sector Leader Sector Leader 1,000; 80% Target 900 70% Target 800 700. 60% 600. 500- $438 300° Fy 2005 NADA Avg. 36 SLITHIA
Slide 37: Finance & Insurance
Finance & Insurance » Automatic Sale: without significant expense *Financing, Lifetime Oil, Service Contracts, Other >» 95% of the customers finance Lithia penetration rate 76% (FY 2005) Juired stores = efficiency m practices ood for the customer 36 SLITHIA
Slide 38: Service & Body Shop
e & Body Shop a7 SLITHIA
Slide 39: Parts/Service & Body Shop
Parts/Service & Body Shop » Absorbs significant amount of dealership fixed costs » Exclusive manufacturer warranty and service contracts » Variable pricing structure — 38% of all sales customers isis point gains in Gross Margin 38 SLITHIA
Slide 40: Improvements in Gross Margin
Improvements in Gross Margin > = 9 43.1% |48-7 48.0% |47.2% |?" # —l_-a 2002 2003 2004 2005 rice Gross Margin 39 SLITHIA
Slide 41: Since 1946 Driving America
Since 1946 DRIVING tee Sx AMERICA Search our Inventory Dealer Locator What's Hot ‘A Uihia store is near you. Search | _Cck on the inks below to see fora store n your area using the |_what is new at Lttia.com. We tiie betow bre always updating our sto to Solect Stato Keep you informed. Be sure to che
Slide 42: Development
Jevelopment a SLITHIA
Slide 43: Lithia — Unleashing the Power of People
Lithia — Unleashing the Power of People » Mission - Develop and grow our future employees <*Competitive Advantage in Industry «Key drivers to past, present, future growth AMP — Accelerated Management Programs >» Bench Strength Training Program “In-Store training program inagement roles lanagers 3s o
Slide 44: AMP — Continued
AMP — Continued » Senior Leadership Program «Designed for proven performers «Join Sr. Leaders with under performers for training and performance improvement. » Impact Manager Program «Designed to grow high potential employees : lerated promotions to the next level n nce in a short period of time. al
Slide 45: Strategy
Strategy SLITHIA
Slide 46: Industry Ripe for Acquisitions
Industry Ripe for Acquisitions >» Exit strategy for retirement » No clear succession plans » Increasing capital requirement: “Average Dealer” 45 SLITHIA
Slide 47: Successful Acquisition Strategy
Successful Acquisition Strategy (Sin Millions) » Consistent Acquisition Growth $500 $455 > Goal: To grow 10 - 15% a year in annualized revenues to existing $400 revenue base. > With a soft economy we see $300 greater acquisition opportunities » Acquisition/Operation strategy is e200 manufacturer fri
Slide 48: Current Target Markets West of the Mississippi
70 Current Target Markets West of the Mississippi az “LITHIA
Slide 49: Our Differentiated Acquisition Approach
Our Differentiated Acquisition Approach » Focus on average operators with major brands » Unique market focus ** Regional focus - 79% in dominant/exclusive markets ** Select metro opportunities with luxury/import ** Average store size $32 million in revenues vestment in infrastructure enhancement on
Slide 50: Our Opportunity
Our Oppo 22,200 independent stores operated by 14,000 dealers 30% 25% 20% 15% 10% 5% 0% Source: NADA (National Automobile Dealers Association) rtunity Optimal Acquisition Target Zone 5% " “J Below 0-1% 1% Loss Loss 26% 2% 22% 0-1% 1-2% 2-3% NADA Pre-Tax Margins 49 75% (16,650 stores) 34% “LITHIA
Slide 51: Disciplined Acquisition Profiling
Disciplined Acquisition Profiling » Pay 2x - 5x trailing; 1 — 3.5x forward Pre-Tax for goodwill plus assets » Target minimum 15% ROIC » Accretive transactions SLITHIA
Slide 52: Build vs. Buy
Build vs. Buy 45.0% 40.0% 36% 34% 35.0% 30.0% ; % Total Assets 26% 18% ABG GPI LAD SLITHIA
Slide 53: Disciplined Acquisition Strategy
Disciplined Acquisition Strategy 100 90 80 70 60 50 000 2001 2002 2003 2004 2005 32 SLITHIA
Slide 54: 10-Year Revenue Growth @ 15%
10 - Year Revenue Growth @ 15% $ in Billions 13.0 350+ Stores 10 Bn 11.0 9.0 7.0 2006 2008 2010 2012 2014 33 SLITHIA
Slide 55: SLITHIA
SLITHIA
Slide 56: Pre-Tax Income
Pre-Tax Income 90 80 70 60 50 40 30; 20/| $52.8 25% CAGR $71.9 $59.2 55 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 100 basis point gain 2.9% 2001 2002 2003 2004 2005 —4- Pre-Tax Margin SLITHIA
Slide 57: FY 2005 Performance
FY 2005 Performance REVENUES +10% OPERATING PROFITS +24% NET PROFITS +18% SLITHIA
Slide 58: FY 2005 Summary — Net Income +18%
FY 2005 Summary — Net Income +18% 2005 vs. 2004 » Gross Profit Margins: 17.2% vs. 16.8% (+40 bps) » SG&A as % GP: 73.5% vs. 75.7% (-220 bps) >» Operating Margin: 41% vs. 3.6% (+50 bps) > Pre-Tax Margin: 2.9% vs. 2.7% (+20 bps) + $8 + $248 + $45 +1.8% +3.1% 57 SLITHIA
Slide 59: Same-Store Sales Growth Rates (8-Year)
Same-Store Sales Growth Rates (8-Year) New Retail +5.1% Parts & Service +2.0% SLITHIA
Slide 60: Strong Annual Revenue Growth
Strong Annual Revenue Growth $ in Millions $2,935 $2,746 $2,514 $1,555 ill 99 2000 2001 2002 2003 2004 2005 59 SLITHIA
Slide 61: Net Income Growth
Net Income Growth $ in Millions 99 2000 2001 2002 2003 2004 2005 60 SLITHIA
Slide 62: SLITHIA
SLITHIA
Slide 63: Lithia's Mission...
Lithia’s Mission... TO BE THE PREFERRED PROVIDER OF CARS AND TRUCKS AND RELATED SERVICES IN NORTH AMERICA Vision Statement — what we are striving to be... © Lithia envisions the future, develops and embraces a strategic plan, and ensures the success of the plan. © We strive for strong, sustainable a