Lithia Motors Inc. ALAD

Morningstar Rating

Stock Research and Analysis

by David Whiston, CPA, CFE

Lithia Motors' management steered the company out of distress following a terrible 2008. Although we like management's strategy, Lithia's future may depend on the success of the Fiat-Chrysler deal.

Buying a car is usually not a pleasant experience, Read more

Bulls Say

By managing inventory to a 50/50 domestic/import mix from 60/40, Lithia will lessen its dependence on Detroit automakers and ease some concentration risk.

Manufacturers grant a limited number of franchise rights in a given geography, providing dealers with some protection against would-be competitors.

Dealers can obtain low-cost secured financing from manufacturers to help fund the cost of acquiring expensive vehicle inventories. This financing is 100% secured.

If Fiat does eventually make Chrysler better, Lithia would benefit, as Chrysler makes up more than 30% of new-vehicle unit sales. Read more

Bears Say

Lithia could need additional capital to fund expansion, and its small size limits borrowing capacity relative to larger competitors. In addition, Lithia could face increased competition for acquisitions if it expands outside core markets or if competitors move into the Pacific Northwest.

About 30% of Lithia's total revenue comes from the sale of Chrysler, General Motors, and Ford F models. We think these brands will continue to lose market share to fast-growing Asian competitors.

There is much uncertainty as to when improvement will come to the auto industry and what level of sales is "normal."

If gas prices ever go back to mid-2008 levels, Lithia could suffer greatly, since its customers tend to favor pickups and sport-utility vehicles. Read more

Strategy

Lithia seeks to be the preferred provider of cars and trucks in North America by being the industry leader in customer satisfaction. The long-term strategy is to expand via acquisitions and new store Read more

Management

Sid DeBoer has been chairman, CEO, and corporate secretary since 1968. His sons also serve as Lithia executives: Jeffrey DeBoer is senior vice president and CFO, and Bryan DeBoer is president and COO. The rest of the management team consists of executives Read more

Profile

Lithia Motors is a retailer of new and used vehicles and related services. The company offers 27 brands of vehicles at 88 stores primarily throughout the Western United Read more

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