75c54997103701ddd85addf882153200cf83233f46c5cf3223b6944bc1ac5d2e

40778a4139d76110630fcee9b5b4ecf850ea4aa011bac11b9ed3dac983c65081

d6b0cb4a044e49a5aa1ece29ead4459ef914d5ec133950eefece6060da374161

Lithia and Driveway (NYSE: LAD) is a leading global automotive retailer that operates a network of physical locations and e-commerce platforms to serve customers throughout the vehicle ownership lifecycle. The company sells new and used vehicles, provides financing and insurance solutions, and offers repair and maintenance services. With operations spanning the U.S., U.K., and Canada, LAD represents 52 automotive brands and focuses on delivering a seamless, modernized retail experience.  **[0001023128-24-000119_lad-20240930.htm:21]** **[0001023128-24-000104_lad-20240630.htm:19]** **[0001023128-24-000064_lad-20240331.htm:18]** 

1. **Vehicle Operations** - Offers a wide range of new and used vehicles, as well as services like automotive repair, maintenance, and fleet management.  **[0001023128-24-000119_lad-20240930.htm:21]** **[0001023128-24-000104_lad-20240630.htm:19]** **[0001023128-24-000064_lad-20240331.htm:18]**   
   - **New Vehicle Sales** - Provides a diverse selection of vehicles from global carmakers.  
   - **Used Vehicle Sales** - Offers pre-owned vehicles to meet varying customer needs.  
   - **Repair and Maintenance Services** - Delivers comprehensive automotive care to support the entire vehicle ownership lifecycle.  
   - **Fleet Management** - Manages vehicle fleets for businesses and organizations.  **[0001023128-24-000119_lad-20240930.htm:21]** **[0001023128-24-000104_lad-20240630.htm:19]** **[0001023128-24-000064_lad-20240331.htm:18]** 

2. **Financing Operations** - Provides financing and insurance products through its captive finance division, Driveway Finance Corporation (DFC), enhancing customer access to loans, leases, and protection plans.  **[0001023128-24-000064_lad-20240331.htm:18]** **[0001023128-23-000148_lad-20230930.htm:19]** **[0001023128-23-000090_lad-20230331.htm:16]** 

3. **E-commerce Platforms** - Operates proprietary digital platforms, including Driveway and GreenCars, to offer a seamless online and physical retail experience for vehicle purchases and related services.  **[0001023128-24-000119_lad-20240930.htm:21]** **[0001023128-24-000104_lad-20240630.htm:19]** **[0001023128-24-000064_lad-20240331.htm:18]**

3f621a652bf1db0694130af82062c969dcfd6ae72b62fa7cb2df607438331b11

| Name                  | Position                                   | Start Date           | Short Bio                                                                                                                                                                                                                     |
|-----------------------|-------------------------------------------|----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Bryan B. DeBoer       | President and CEO                         | 2012                 | Joined LAD in **1989**, progressing through roles like Finance Manager, General Manager, and COO before becoming CEO in **2012**.  **[0001140361-24-012693_ny20010163x2_def14a.htm:9]** **[0001140361-23-010722_ny20006314x1_def14a.htm:10]**                                               |
| Christopher S. Holzshu| Executive Vice President                  | 2003                 | Joined LAD in **2003** after KPMG LLP. Held roles as CFO and CHRO before becoming COO in **2019**.  **[0001140361-24-012693_ny20010163x2_def14a.htm:12]** **[0001140361-23-010722_ny20006314x1_def14a.htm:12]**                                        |
| Tina H. Miller        | Senior Vice President and CFO             | August 2019          | Joined LAD in **2005**, promoted to Corporate Controller in **2015**, VP in **2018**, and CFO in **2019**.  **[0001140361-24-012693_ny20010163x2_def14a.htm:13]** **[0001140361-24-012693_ny20010163x2_def14a.htm:28]**                                |
| Scott A. Hillier      | Senior Vice President of Operations       | 2008                 | Joined LAD in **1986**, promoted to VP of HR in **2003**, and SVP of Operations in **2008**.  **[0001140361-24-012693_ny20010163x2_def14a.htm:13]** **[0001140361-23-010722_ny20006314x1_def14a.htm:13]** **[0001140361-22-009094_ny20001720x1_def14a.htm:12]**                                           |
| George N. Hines       | Senior Vice President and CITO            | July 2019            | Joined LAD in **2019** after leadership roles at Massage Envy and Viad Corp. Brings global experience and expertise in innovation.  **[0001140361-24-012693_ny20010163x2_def14a.htm:13]** **[0001140361-23-010722_ny20006314x1_def14a.htm:13]** **[0001140361-22-009094_ny20001720x1_def14a.htm:12]**    |
| Adam Chamberlain      | Executive Vice President and COO          | August 1, 2024 (expected) | Joined LAD in **2022** as CCO and Regional President. Promoted to COO effective **August 1, 2024**.  **[0001023128-24-000093_a20240801exx99pressrelease.htm:0]** **[0001023128-24-000093_lad-20240801.htm:1]**                                       |
| Gary Glandon          | Senior Vice President and CPO             | February 2021        | Joined LAD in **2021** with over 30 years of HR experience. Focuses on talent development and culture.  **[0001140361-23-010722_ny20006314x1_def14a.htm:13]** **[0001023128-24-000075_a2024q211-k.htm:7]**                                    |
| David G. Stork        | Senior Vice President and CAO             | 2021                 | Joined LAD as CLO in **2018**, promoted to CAO in **2021**. Previously held legal and compliance roles at JELD-WEN and Krause Gentle.  **[0001140361-24-012693_ny20010163x2_def14a.htm:13]** **[0001140361-23-010722_ny20006314x1_def14a.htm:13]** **[0001140361-22-009094_ny20001720x1_def14a.htm:12]** |
| Dianna du Preez       | Chief Customer Officer                    | 2023                 | Joined LAD in **2023** as VP of Driveway Operations. Previously VP of Customer Service at Mercedes-Benz USA with 30+ years of experience.  **[0001023128-24-000093_a20240801exx99pressrelease.htm:0]**  |
| Cassandra McKinney    | Board Member (Audit and Compensation Committees) | July 1, 2024 (expected) | Joined LAD's Board in **2024**, overseeing Audit and Compensation Committees. EVP at Comerica Bank with 30+ years in banking.  **[0001023128-24-000081_lad-20240626.htm:1]**              |

24bbc1fe5f3bb6e996fa8fd38fda91250e8e1b280101cc215176813ea32a9a3c

8cb788a531e3d3a225f32531554079e77065f0dfc41f49735118acbcbbd8ec2b

1. Regarding the decrease in used vehicle units sold by **9.6%** year-over-year and the increase in days' supply to **68 days**, what specific actions are you taking to address inventory levels and improve used vehicle sales, and how confident are you in your ability to execute on these initiatives?  **[LAD_3403386_5]** ,  **[LAD_3403386_8]** 

2. New vehicle gross profit per unit declined sequentially by **$241** to **$3,188**; can you explain the factors behind this decline and whether you expect further pressure on new vehicle margins in the coming quarters?  **[LAD_3403386_19]** ,  **[LAD_3403386_5]** 

3. You have exceeded your initial **$150 million** cost-saving target by reaching **$200 million**, and anticipate another **$100 million** in savings; what gives you confidence in achieving additional savings without impacting operational efficiency, and could this aggressive cost-cutting affect your growth plans?  **[LAD_3403386_10]** ,  **[LAD_3403386_3]** 

4. Aftersales gross margins reached **56%**, above your long-term target of **51%-54%**; what is driving these higher margins, and how sustainable are they given the expected mix shift towards parts sales with new propulsion systems?  **[LAD_3403386_24]** ,  **[LAD_3403386_1]** 

5. With online monthly units flat quarter-over-quarter and a **40%** reduction in burn rate for Driveway and GreenCars, how do you plan to accelerate growth in your e-commerce channels, and are you concerned about increased competition from both offline and online used vehicle retailers?  **[LAD_3403386_26]** ,  **[LAD_3403386_27]** 

a18dc9955d095fb474c9bd18f15fc36295a53289493c0a5300c5894c5a02eb35

Here is a summary of the guidance provided by Lithia & Driveway (LAD) in their last four earnings calls, including the issued period, guided period, and exhaustive list of metrics:

---

### **Q3 2024 Earnings Call**
- **Issued Period**: Q3 2024  
- **Guided Period**: **Q4 2024** and **FY 2025**  
- **Guidance**:
  1. **Normalized Combined Vehicle GPU**: Expected to normalize to **$4,200 to $4,500**, including F&I.  **[LAD_3403386_1]** 
  2. **SG&A as a Percentage of Gross Profit**: Targeting the **mid-50% range**.  **[LAD_3403386_3]** 
  3. **Annual Acquisition Revenues**: Estimated at **$2 billion to $4 billion per year**.  **[LAD_3403386_3]** 
  4. **Share Buybacks**: **30% to 40% of free cash flows** to be allocated to share repurchases.  **[LAD_3403386_3]** 
  5. **DFC Profitability**: Expected to maintain consistent profitability, with **2024 as a turning point** and continued growth in 2025.  **[LAD_3403386_6]** 
  6. **Cost Savings**: Achieved **$200 million in annualized cost savings**, with potential for an additional **$100 million in 2025**.  **[LAD_3403386_5]** 
  7. **New Vehicle Inventory Reduction**: Targeting a reduction of **$540 million**.  **[LAD_3403386_5]** 
  8. **EPS Growth Target**: Aiming for **$2 of EPS for every $1 billion in revenue** in a normalized environment.  **[LAD_3403386_3]** 

---

### **Q2 2024 Earnings Call**
- **Issued Period**: Q2 2024  
- **Guided Period**: **Midterm (2-4 years)** and **Long-term (5-8 years)**  
- **Guidance**:
  1. **EPS Target**: **$2 in EPS per $1 billion in revenue**.  **[LAD_3395658_6]** 
  2. **Revenue Growth**: Acquired **$5.6 billion in annualized revenues** in 2024; future acquisitions expected to add **$4 billion per year**.  **[LAD_3395658_2]** 
  3. **Market Share**: Aiming for a **blended U.S. market share of 5%**, up from **1.1%**.  **[LAD_3395658_2]** 
  4. **Financing Operations**: Achieved profitability in Q2 and expected to continue consistent growth.  **[LAD_3395658_2]** 
  5. **SG&A as a Percentage of Gross Profit**: Targeting the **mid-50% range**.  **[LAD_3395658_2]** 
  6. **Capital Allocation**: Adjusted to balance acquisitions and share buybacks; repurchased **$202 million (2.9% of shares)** in Q2.  **[LAD_3395658_2]** 
  7. **EPS Growth**: On pace for nearly a **50% sequential increase in EPS**.  **[LAD_3395658_1]** 
  8. **Cost Savings**: A 60-day plan to achieve **$150 million in annualized SG&A cost savings**, with potential to double by year-end.  **[LAD_3395658_0]** 
  9. **Leverage**: Targeting leverage below **3x**, with net leverage at **2.3x**.  **[LAD_3395658_5]** 

---

### **Q1 2024 Earnings Call**
- **Issued Period**: Q1 2024  
- **Guided Period**: **N/A** (No specific period mentioned)  
- **Guidance**:
  1. **Acquisitions and Revenue Growth**: Future annual acquired revenues expected at **$2 billion to $4 billion**.  **[LAD_3380439_3]** 
  2. **EPS to Revenue Ratio**: Targeting **$2 in EPS per $1 billion in revenue**.  **[LAD_3380439_7]** **[LAD_3380439_1]** 
  3. **Market Share**: Aiming for a **5% blended U.S. market share**, up from **1.2%**.  **[LAD_3380439_4]** 
  4. **Financing Operations**: DFC expected to achieve consistent profitability in the latter half of **2024**.  **[LAD_3380439_4]** **[LAD_3380439_5]** 
  5. **SG&A as a Percentage of Gross Profit**: Long-term target in the **mid-50% range**.  **[LAD_3380439_3]** **[LAD_3380439_25]** 
  6. **Vehicle Gross Profit Normalization**: Combined GPUs expected to normalize between **$4,300 and $4,500 per unit**.  **[LAD_3380439_1]** 
  7. **Digital Transactions**: Grew to over **40,000 in Q1**, up **32% year-over-year**.  **[LAD_3380439_1]** 
  8. **U.K. Business Impact**: U.K. operations represent **18% of revenue mix** and **13% of gross profit mix**.  **[LAD_3380439_5]** 

---

### **Q4 2023 Earnings Call**
- **Issued Period**: Q4 2023  
- **Guided Period**: **N/A** (No specific period mentioned)  
- **Guidance**:
  1. **Revenue Growth and Market Share**:
     - Targeting a **5% blended U.S. market share**.  **[LAD_3373250_3]** 
     - Revised M&A targets to **$2 billion to $4 billion in annual acquired revenues**, aiming for mid-$40 billion revenue by 2025.  **[LAD_3373250_10]** 
  2. **Profitability Targets**:
     - Long-term target of **$2 in EPS per $1 billion in revenue**.  **[LAD_3373250_3]** 
     - SG&A as a percentage of gross profit to fall below **55% in store operations** and below **50%** with adjacencies.  **[LAD_3373250_3]** 
  3. **Same-Store Sales Growth**:
     - **Low to mid-single-digit growth** overall.  **[LAD_3373250_16]** 
     - **Mid- to high single-digit growth** for new vehicles; **flat year-over-year** for used vehicles.  **[LAD_3373250_16]** 
  4. **New and Used Vehicle GPU**:
     - New vehicle GPUs expected to normalize, declining by **$100 per month** in Q1 and Q2 2024, reaching normalized levels by year-end.  **[LAD_3373250_14]** 
     - Steady-state normalized GPU of **$4,500 per deal**.  **[LAD_3373250_14]** 
  5. **DFC Profitability**: Expected in the latter half of **2024**.  **[LAD_3373250_3]** 
  6. **Digital Transactions**: Grew **27% year-over-year** in Q4 2023.  **[LAD_3373250_2]** 
  7. **Sustainable Vehicle Sales**: Accounted for **16% of new vehicle sales**, up from 11% in the prior year.  **[LAD_3373250_2]** 
  8. **Capital Allocation**:
     - **65% of capital** toward acquisitions, **25% toward internal investments**, and **10% toward shareholder returns**.  **[LAD_3373250_7]** 
     - Repurchased **143,000 shares** at an average price of **$241 per share**.  **[LAD_3373250_7]** 
  9. **Pendragon Acquisition**: Adds over **$4 billion in revenue** and expands U.K. presence.  **[LAD_3373250_2]** 
  10. **Pinewood DMS Expansion**: Planned for North America in 2025.  **[LAD_3373250_2]** 

---

This table summarizes the issued and guided periods alongside the exhaustive guidance provided in each earnings call.

d89ad89cdab6e38e745a20f60c432c19c95f009fdbfb7b6e895349f9e7e8cff5

23794d91c53ae875c8e247d72561e35d9d06ee07c70c9e0dbcc977a6d161504a

| Program Details          | Program 1       |
|--------------------------|-----------------|
| Approval Date            | June 4, 2024  **[0001023128-24-000119_lad-20240930.htm:38]** **[0001023128-24-000119_lad-20240930.htm:47]** **[0001023128-24-000119_lad-20240930.htm:13]**  |
| End Date/Duration        | No expiration date  **[0001023128-24-000119_lad-20240930.htm:47]** **[0001023128-24-000119_lad-20240930.htm:13]**  |
| Total additional amount  | **$350 million**  **[0001023128-24-000119_lad-20240930.htm:38]** **[0001023128-24-000119_lad-20240930.htm:47]** **[0001023128-24-000119_lad-20240930.htm:13]**  |
| Remaining authorization amount | **$560.9 million** as of September 30, 2024  **[0001023128-24-000119_lad-20240930.htm:38]** **[0001023128-24-000119_lad-20240930.htm:47]** **[0001023128-24-000119_lad-20240930.htm:13]**  |
| Details                  | Part of capital allocation strategy to balance growth and returns for shareholders  **[LAD_3373250_7]**  |

381c7034dc06805d5e05ae754302d0cfe18f5b3da4bc49a73fe907957e973ef3

Vehicle Units Financed (Units)

Total Penetration Rate (%)

Weighted Average Contract Rate (%)

Weighted Average Credit Score

Weighted Average FE LTV (%)

Allowance for Loan Losses (% of Receivables)

Net Credit Losses ($ Million)

Annualized Net Credit Losses (% of Receivables)

Past Due Accounts (% of Receivables)

Average Recovery Rate (%)

Average Selling Price ($)

Average Gross Profit ($)

88a7a148a9a9a587c16869b22de042d1b5eebd0d95499e24cb0dd415744da8ad

Domestic

Import

Luxury

Corporate and Other

Total Revenue

9116c40663e49fab07e76a3c7bc79cf8a0caafc047b90592c5796a78d976b35c

- **Rising consumer delinquency rates** could negatively impact Lithia's financing arm, Driveway Finance Corporation (DFC). **Consumers are under some degree of stress, and delinquency rates have either got right to or slightly above pre-pandemic levels for 30-day delinquency**.  **[LAD_3373250_18]**  This could lead to higher loan losses and affect DFC's profitability.
- **Used car gross profits are significantly below historic levels**, putting pressure on overall profitability. **Used car gross is right now significantly below historic levels**, and the company is facing challenges in procuring core products, creating pressure on gross profit margins.  **[LAD_3373250_9]**  This pressure on margins is causing **SG&A growth to outpace gross profit growth**, leading to potential profitability concerns.
- **Declining gross profit per unit (GPU) in new vehicles** is expected to continue, further pressuring margins. The company **achieved about a $150 drop per month** in new GPU over the last quarter and expects a further **$100 drop per month over the next quarter or two**, normalizing by year-end.  **[LAD_3373250_19]**  This decline could negatively impact profitability in the near term.

6c1490fce7350b9749ff7eebc2a7ad5660910a718a49102405f66aff75844bf8

- **LAD anticipates growth in aftersales** due to the increasing complexity of vehicles, longer warranty periods, and their advantage in servicing with factory-trained technicians and specialty tools, leading to higher customer retention and **future same-store sales growth**.  **[LAD_3380439_14]**
- **By focusing on 9+ year old used vehicles**, which represent **63%** of used vehicle sales, LAD can turn inventory faster and achieve higher returns, maintaining profitability in used vehicle sales despite supply constraints.  **[LAD_3380439_19]**
- **Management is committed to improving market share, cost-cutting, maintaining margins, and enhancing customer experience** to increase customer loyalty and achieve their target of **$2 EPS per $1 billion of revenue**, utilizing assets like **Driveway and GreenCars**.  **[LAD_3380439_21]**

18eab886c2ba4bb3b9457247ffcf86be6dbec3e2a290905d5c01efd5c67b2675

- Lithia Motors has successfully implemented cost-saving measures exceeding their initial $150 million target, now realizing over **$200 million** in annualized SG&A cost savings.  **[LAD_3395658_9]**  This includes reductions in personnel, advertising, and corporate expenses, with expectations to potentially double these savings through inventory reductions by year-end.  **[LAD_3395658_9]**  These initiatives are expected to improve profitability starting in the third quarter.  **[LAD_3395658_9]**
- The company's financing operations have achieved profitability earlier than expected, reporting income of **$7.2 million** in Q2 compared to a loss last year.  **[LAD_3395658_15]**  At maturity, financing operations are projected to contribute an additional **$0.22 to $0.25 EPS per $1 billion in revenue**, enhancing the company's earnings growth trajectory.  **[LAD_3395658_15]**
- Lithia Motors demonstrated confidence in its valuation by repurchasing approximately **2.9% of outstanding shares**, totaling **$202 million** in Q2.  **[LAD_3395658_15]**  The CEO emphasized that the stock is trading at trough earnings and multiples, making share repurchases an attractive use of capital compared to higher-priced acquisitions.  **[LAD_3395658_15]**

e70e869de2807d3991ae460937515bde9fca386c01b478108bb0281410971c66

1. **Capital Allocation Shift**  
   **Q:** How will your capital allocation strategy change?  
   **A:** We are prioritizing share buybacks when acquisition valuations are high, as buying back our shares at **7x earnings** is more attractive than acquiring dealerships at **10x to 20x normalized earnings**. Consequently, we have revised our M&A targets post-Pendragon to **$2–$4 billion annually**, allocating **50%–70%** of capital to M&A and around **20%** to buybacks. We aim to maintain leverage below **3x**, providing flexibility for both M&A and buybacks.  **[LAD_3373250_12]** 

2. **SG&A to Gross Profit Outlook**  
   **Q:** How will SG&A expenses trend relative to gross profit?  
   **A:** We aim to achieve **55% SG&A to gross profit** operationally within our core businesses, including Driveway and Lithia stores. Many of our stores already operate at this level in normalized times. The current challenge is the significantly lower used car gross profits, which pressure the SG&A ratio. As used car margins normalize, we expect to improve our SG&A performance.  **[LAD_3373250_9]** ,  **[LAD_3373250_19]** 

3. **Gross Profit Normalization Timeline**  
   **Q:** When will new and used gross profits normalize?  
   **A:** We expect new vehicle gross profits to normalize by year-end, decreasing by about **$100 per month** over the next few quarters. Used vehicle margins are at historic lows due to intense inventory competition, but we anticipate a recovery beginning in the next few weeks as we enter the spring selling season.  **[LAD_3373250_14]** ,  **[LAD_3373250_15]** 

4. **Pinewood's Strategic Benefits**  
   **Q:** How does Pinewood benefit your business?  
   **A:** Implementing the Pinewood DMS allows us to save about **50% on our tech stack costs** while adding greater functionality. Pinewood enables us to integrate our multiple adjacencies and develop our ecosystem. This significant cost savings was a key reason why the Pendragon acquisition was strategically important to us.  **[LAD_3373250_8]** 

5. **Driveway Investment Reduction**  
   **Q:** What's the outlook on Driveway's investment?  
   **A:** Our Driveway burn rate decreased by **30%–35% year-over-year**, with another **30%–35% reduction** expected by year-end. Driveway is central to our ecosystem, aiming to offer **118 touchpoints** throughout the customer lifecycle. We are focused on reducing burn rates while enhancing customer engagement and functionality.  **[LAD_3373250_13]** 

6. **DFC Profitability Timeline**  
   **Q:** When will DFC become profitable?  
   **A:** Driven Finance Corp (DFC) is on track to achieve profitability later this year. With improved credit quality and strong portfolio performance, DFC is expected to contribute an additional **$0.20–$0.25 per share** at a normalized steady-state position with a **20% penetration rate**.  **[LAD_3373250_17]** 

13bb9587eb4dc0cd1382dcccc6fcc16d20b18372d36b993d36d1281cb94875ac

- **Lithia & Driveway has exceeded its cost reduction targets**, achieving **$200 million** in savings, surpassing the initial goal of **$150 million**. The organization now aims for **over $300 million** in total cost reductions, with further efficiencies expected in SG&A through productivity increases, marketing, vendor contracts, and **interest cost reductions**. This aggressive cost management enhances margins and profitability.  **[LAD_3403386_12]**
- **Significant progress in the e-commerce platforms** Driveway and GreenCars, with expenses reduced to optimal levels and burn rate down **40%** year-over-year. Customer satisfaction is high, with **almost 9 out of every 10 customers** giving a **5-star rating**. The company sees potential to **capture more market share**, leveraging the support of physical infrastructure and stores to scale the online sales channel. This indicates strong growth prospects in their digital initiatives.  **[LAD_3403386_26]**
- The **integration of Pendragon in the UK is progressing positively**, with operational efficiencies being realized. The team performed better than expected, and significant synergies are anticipated from network optimization, including the divestment or closure of **40 to 50 assets**, streamlining operations. Additionally, there has been an improvement in F&I, with per-unit performance increasing from **$824 to $903**, demonstrating potential for increased profitability in international operations.  **[LAD_3403386_21]**

769a000435e12f44cfcffacefe81bb9df7d0fc32803f6ee1e603ed6d21f2a9b5

1. **Gross Profit per Unit Decline**  
   **Q:** Why did new GPUs decline more than expected?  
   **A:** New Gross Profit per Unit (GPU) declined around **$150 per unit** in the quarter, more than anticipated, partly due to a **9% increase in imports**, which are typically lower-cost cars with lower margins. We believe GPUs are still about **$1,000 higher**, including Finance and Insurance (F&I), than where normalization will occur.  **[LAD_3380439_8]** 

2. **Operating Margin Outlook with Pendragon**  
   **Q:** How does Pendragon acquisition affect operating margins?  
   **A:** Operating margin expectations have been adjusted from over **7%** to over **5%**, with about half of the reduction due to the Pendragon acquisition diluting margins because of lower-margin UK operations. The rest is due to conservative estimates influenced by interest costs and potential share buybacks.  **[LAD_3380439_9]** 

3. **Wholesale Losses in Q1**  
   **Q:** What caused the high wholesale losses this quarter?  
   **A:** We incurred **$21 million in wholesale gross profit losses** in Q1, primarily due to an aggressive inventory clean-up in the U.S. during January to make room for fresher inventory. This action impacted profits but positions us better going forward.  **[LAD_3380439_16]** 

4. **F&I Trends and Leasing Impact**  
   **Q:** What's the outlook for F&I and impact of leasing?  
   **A:** F&I income was down **$124 per unit**, with new vehicle F&I down **$180 per unit**. Increased subvented leasing, which generates flat fees and fewer F&I opportunities, contributed to this decline. Finance incentives are still about **half of normal levels**, and cash buyer incentives are down **80%**, affecting profitability.  **[LAD_3380439_10]** **[LAD_3380439_12]** 

5. **Used Vehicle Supply Challenges**  
   **Q:** How are used vehicle sales affected by supply issues?  
   **A:** Despite fewer vehicles coming off lease, we're focusing on sourcing older vehicles over **9 years old**, which constitute **63%** of the used car market. These vehicles offer better returns due to faster turnover and lower investment. While supply challenges exist, our team's ability to source vehicles remains critical.  **[LAD_3380439_19]** 

6. **Restructuring and Headcount Cuts in UK**  
   **Q:** What's happening with UK headcount reductions?  
   **A:** We are conducting structured headcount reductions in the UK as part of our ongoing restructuring following the Pendragon acquisition. While specifics are still being determined, we're evaluating each location to improve performance and efficiency.  **[LAD_3380439_17]** **[LAD_3380439_20]** 

7. **Driveway Finance Profitability**  
   **Q:** When will Driveway Finance become profitable?  
   **A:** Driveway Finance Company (DFC) is on track to achieve profitability even at a loan book size of **$3.5 billion**. In March, DFC made over **$2 million**, marking significant progress toward sustained profitability after a four-year journey.  **[LAD_3380439_18]** 

8. **SG&A Targets Amid Pendragon Acquisition**  
   **Q:** Can SG&A remain at mid-50% after Pendragon deal?  
   **A:** Yes, we aim to maintain SG&A as a percentage of gross profit in the mid-50% range, even with the Pendragon addition. While the UK operates with higher SG&A due to structural differences, improvements in the U.S. operations and adjacencies will help us achieve this target.  **[LAD_3380439_25]** **[LAD_3380439_26]** 

9. **Internet Sales and Online Strategy**  
   **Q:** How is the online sales platform performing?  
   **A:** Online sales increased **8% sequentially** to **41,000 units**, with traffic reaching **12.3 million** visitors. We've reduced our marketing spend by **40%** and improved efficiency through automation, cutting the burn rate by **50%** year-over-year. Our focus on omnichannel strategies is driving growth in online transactions.  **[LAD_3380439_22]** 

10. **Parts and Service Growth Outlook**  
    **Q:** Can Parts and Service growth accelerate?  
    **A:** Despite a **3.2%** increase in Parts and Service being lower than expected, we see opportunities for growth. The aging vehicle fleet and increased vehicle complexity, including more electric and hybrid models, are expected to drive demand for our services.  **[LAD_3380439_14]** 

11. **Impact of Interest Rates on Customers**  
    **Q:** Do Fed rate cuts affect customer demand?  
    **A:** Small interest rate cuts, such as **25 or 50 basis points**, are unlikely to significantly impact customer demand. Our customers have adapted to higher average rates, with financing rates around **10%**, and their purchasing decisions are more influenced by overall economic confidence.  **[LAD_3380439_27]** 

12. **Capital Allocation and Debt Management**  
    **Q:** Will you pay down debt or focus on growth?  
    **A:** With leverage at just over **2x**, well below our covenant limit of **5.75x**, we have flexibility in our capital allocation. We plan to be strategic, balancing acquisitions, potential share buybacks given stock price levels, and debt repayment, depending on the best use of capital.  **[LAD_3380439_28]** 

c0dde7ce711826567453de3b13d5c5399ab822987e47bfae7de73c90e69b9371

1. **Cost-Cutting Exceeding Targets**  
   **Q:** Why did cost-cutting exceed targets, and is the additional $100M achievable?  
   **A:** The company surpassed its initial cost-cutting target of **$150 million**, achieving **$200 million** due to quick organizational response.  **[LAD_3403386_10]**  Management now sees potential for over **$300 million** in savings, with an additional **$100 million** next year.  **[LAD_3403386_10]**  About **25%** of the remaining savings will come from further SG&A reductions, and **75%** from interest cost savings on flooring.  **[LAD_3403386_10]** 

2. **SG&A Guidance and Margins**  
   **Q:** Will SG&A expenses decrease further in Q4, and how will margins be affected?  
   **A:** Most of the initial **$200 million** savings were realized in Q3, resulting in a **200 basis point** sequential drop in SG&A as a percentage of gross profit.  **[LAD_3403386_13]**  However, due to seasonality and snowbelt exposure, SG&A may increase slightly in Q4 and Q1, potentially ranging between **66.5% to 67.5%**.  **[LAD_3403386_13]** 

3. **Share Buybacks and Capital Allocation**  
   **Q:** Could share buybacks exceed the 30–40% cash flow target?  
   **A:** The company is open to reallocating more towards share buybacks if the share price remains depressed.  **[LAD_3403386_14]**  While they have already repurchased **3.6%** of outstanding shares, investing **$273 million** year-to-date  **[LAD_3403386_20]** , they see a greater likelihood in the short term to buy back more shares, potentially exceeding the **30–40%** target.  **[LAD_3403386_14]** 

4. **Impact of Stellantis Incentives**  
   **Q:** How are Stellantis incentives affecting sales and pricing?  
   **A:** Stellantis has been challenging, with sales down mid-single digits in September.  **[LAD_3403386_11]**  Incentives are short-term and tactical, impacting wholesale and retail dynamics.  **[LAD_3403386_11]**  Industry incentives increased from **6.4%** to **7.3%** of MSRP in Q3.  **[LAD_3403386_11]**  Despite this, ASPs are holding up reasonably, with sequential declines of **$700–$800** but still up overall.  **[LAD_3403386_12]** 

5. **Used Car GPU Outlook**  
   **Q:** What is the outlook for used car gross profit per unit?  
   **A:** The company's used GPU is about **$300** below pre-COVID levels.  **[LAD_3403386_16]**  As supply returns over the next couple of years, they expect a return to normalized GPUs, potentially increasing by a few hundred dollars.  **[LAD_3403386_16]**  They anticipate that their normalized used GPU should be a couple hundred dollars higher than current levels.  **[LAD_3403386_16]** 

6. **Pendragon Acquisition Integration**  
   **Q:** Is there opportunity for efficiency gains with Pendragon acquisition?  
   **A:** Yes, similar opportunities exist.  **[LAD_3403386_21]**  They plan to divest, combine, or close **40 to 50** of the **160** acquired assets, with most completed by end of November.  **[LAD_3403386_21]**  F&I improvements were notable, with F&I per unit increasing from **$824** to **$903** in the quarter.  **[LAD_3403386_21]** 

7. **Inventory Strategy and Used Vehicles**  
   **Q:** What is the strategy to manage rising used inventory days' supply?  
   **A:** Sourcing core models remains challenging due to missing **10–12 million** vehicles from industry SAAR compared to pre-COVID.  **[LAD_3403386_8]**  They derive **54%** of inventory from trade-ins, maintaining a strong position.  **[LAD_3403386_8]**  Value auto segment grew **14.4%**, increasing to **16%** of mix.  **[LAD_3403386_8]** 

8. **Online Sales and Omnichannel Strategy**  
   **Q:** How is the online sales channel evolving amidst flat monthly units?  
   **A:** They have reduced advertising burn rates by **40%** while maintaining flat online sales.  **[LAD_3403386_26]**  Focus is on improving effectiveness within the funnel, with potential to scale when appropriate.  **[LAD_3403386_26]**  Positive customer feedback with almost **9 out of 10** customers giving a 5-star rating.  **[LAD_3403386_26]** 

9. **Aftersales Margin and BEV Impact**  
   **Q:** What's driving strong aftersales margins, and will they be sustainable?  
   **A:** Aftersales margins are currently at **56%**, above the long-term target of **51–54%**.  **[LAD_3403386_24]**  As the mix shifts towards parts with lower margins due to sustainable vehicles, margins may drop slightly.  **[LAD_3403386_24]**  However, overall same-store sales and gross profit should grow, with tailwinds expected for at least a decade.  **[LAD_3403386_24]** 

10. **Interest Rate Sensitivity**  
    **Q:** How will lower interest rates impact the business?  
    **A:** For every **100 basis points** reduction in interest rates, the company expects an EPS impact of approximately **$0.70**.  **[LAD_3403386_20]**  Lower rates will turn current headwinds into tailwinds, positively affecting various aspects like consumer financing and floorplan costs.  **[LAD_3403386_20]** 

11. **New Vehicle GPU Trends**  
    **Q:** What is the outlook for new vehicle gross profit per unit?  
    **A:** New vehicle GPU is expected to continue normalizing, with potential further declines of **$600** per unit.  **[LAD_3403386_25]**  Margins have been stabilizing, and the soft landing is positive.  **[LAD_3403386_18]**  The company believes they are currently **$400–$500** above normalized levels.  **[LAD_3403386_25]** 

12. **Recall Impact on Aftersales**  
    **Q:** How do recalls and stop-sales affect the business?  
    **A:** Recalls are positive, generating significant aftersales profitability.  **[LAD_3403386_17]**  Examples include full engine replacements for certain Korean and Japanese models, which will backlog work for months or years.  **[LAD_3403386_17]**  While vehicle sales are deferred, the aftersales business benefits substantially.  **[LAD_3403386_17]** 

fb19a9e5adf0482b81165a8a5193b8bc4dd9a24ff0bb9bde4be591aaa975e854

- **Accelerated decline in new vehicle gross profit per unit (GPU), falling faster than expected**, which could impact profitability. Bryan DeBoer noted that GPUs fell "a little bit more than what we really expected at the $100 a month."  **[LAD_3380439_8]**
- **Higher SG&A expenses due to the U.K. acquisition are impacting margins**, with U.K. vehicle GPUs being **45% lower than North American operations**, and **SG&A as a percentage of gross profit increasing to the mid- to high 60% range in the near term**.  **[LAD_3380439_6]**
- **Higher wholesale losses due to inventory adjustments**, with a **$21 million gross profit loss** in the first quarter, driven by efforts to clean up inventory, potentially pressuring margins further.  **[LAD_3380439_15]**

8a36cdd3490d74ec8277f676ea2285ad09fdd192fe8cae6491c9e9a5967ec3ab

- **Driveway Finance Corporation (DFC) is on track to achieve profitability later this year, which will contribute positively to Lithia & Driveway's earnings.**  **[LAD_3373250_18]**
- **The company is focusing on reducing SG&A expenses as a percentage of gross profit to below 55% in their operational businesses, aiming for below 50% through higher-margin adjacencies and operational improvements, which will enhance profitability.**  **[LAD_3373250_19]**
- **Lithia & Driveway remains committed to growth through acquisitions, targeting $2 billion to $4 billion in domestic U.S. automotive acquisitions annually, with several deals in the pipeline involving highly attractive franchises to drive future revenue and profitability growth.**  **[LAD_3373250_12]**

c05f29b510a738f2f453a8fbe3a36aeab3ad306691f8499b0fa9b8a4476943d2

- **Declining Gross Profit per Unit (GPU):** The company acknowledges that current vehicle GPUs are elevated at **$4,700**, with an expectation that **$200 to $500** may come out in the future as market conditions normalize. This potential decline in GPUs could reduce overall profitability.  **[LAD_3395658_11]**
- **Delayed Realization of Cost Savings:** Management indicates that expected cost savings from the 60-day plan, totaling over **$200 million**, may not be fully realized until **2025**, suggesting that **SG&A expenses** will remain elevated in the near term and benefits may take longer than anticipated to materialize.  **[LAD_3395658_9]**
- **Challenges in Used Car Segment:** The **significant decline** in used car gross profit per unit is attributed to true market conditions without any one-time events, indicating potential challenges and reduced profitability in the used car market segment.  **[LAD_3395658_19]**

f2029220aa96d96b913fb2ffe59e2a75f3536bc027c0ead6c221e7e697e6dd2c

1. **EPS Growth and CDK Impact**  
   **Q:** Explain the nearly 50% sequential EPS increase.  
   **A:** Our EPS was affected by a **$1.10** loss due to the CDK event. Adding this back to the reported **$7.87** EPS brings us close to a 50% sequential increase from Q1 to Q2.  **[LAD_3395658_7]** 

2. **SG&A Cost Reductions and 60-Day Plan**  
   **Q:** How will SG&A trends look in Q3?  
   **A:** We anticipate SG&A to gross will be similar in Q3 as this quarter. We've realized over **$200 million** in cost savings from our 60-day plan as of July 1, with an additional **$100 million** expected mainly from inventory reductions by year-end.  **[LAD_3395658_9]** 

3. **Midterm Revenue and EPS Guidance**  
   **Q:** What's the timeline for reaching $40-50B sales?  
   **A:** We expect to achieve our midterm sales goal of **$40 to $50 billion** within **2 to 4 years**, potentially sooner. This aligns with our aim for **$1.20 to $1.30** EPS in that timeframe, supported by operational improvements and our 60-day plan.  **[LAD_3395658_8]** 

4. **Normalization of Gross Profit Margins**  
   **Q:** Will new car GPUs decrease further?  
   **A:** Our total vehicle GPU, including F&I, stands at **$4,700**, above pre-COVID levels of **$3,500 to $3,700**. We believe normalized levels are **$4,200 to $4,500**, so there might be a further **$200 to $500** reduction, but we may have reached the bottom.  **[LAD_3395658_11]** 

5. **Wheels Inc. Acquisition Synergies**  
   **Q:** How does fleet management tie into your business?  
   **A:** Partnering with Wheels Inc. offers synergies like selling new vehicles to fleets, accessing over **100,000** vehicles annually for resale, and boosting service and parts revenue through vehicle maintenance.  **[LAD_3395658_13]** 

6. **Share Buybacks and Capital Allocation**  
   **Q:** Will high-level buybacks continue?  
   **A:** We balance capital allocation between opportunistic share repurchases and M&A. With our stock trading at low valuations, repurchases are attractive, but M&A remains core. We anticipate **$2 to $4 billion** in acquisitions in the coming years.  **[LAD_3395658_15]** 

7. **Interest Rates Impact**  
   **Q:** How do rising rates affect you?  
   **A:** Higher rates impact consumer affordability and our variable debt. As rates potentially decrease, we'll benefit from lower interest expenses and improved consumer purchasing power. We're also targeting a **$1 billion** reduction in inventory, which could save **$100 million** in interest costs.  **[LAD_3395658_14]** 

8. **Used Car GPU Trends**  
   **Q:** Why did used car GPUs dip overall?  
   **A:** The overall dip in used car GPUs was due to market conditions, not one-time events. We see growth opportunities by increasing sales of value auto cars, which offer higher profits and quicker turnover.  **[LAD_3395658_19]** 

9. **Online Channels and Marketing ROI**  
   **Q:** Updates on Driveway and GreenCars performance?  
   **A:** Despite reducing marketing budgets by over **50%**, our top-of-funnel metrics remain steady. Customer satisfaction has improved from a **3.7** to **4.7** Google score year-to-date, positioning us to accelerate growth in these channels.  **[LAD_3395658_18]** 

10. **CDK Event Loss Recovery**  
    **Q:** Will you recover losses from the CDK event?  
    **A:** We have cyber insurance and are working with carriers, but no recoveries were recorded in Q2. A portion of the **$1.10** EPS impact may be recoverable, but likely less than **$0.10 to $0.20**.  **[LAD_3395658_12]** **[LAD_3395658_17]** 

82ad1a3653561a8fe80efdab765710f69e05cc7030cf46b19bd1aa3fcca9823a

- **Online monthly units for LAD's Driveway and GreenCars platforms were flat quarter-over-quarter**, indicating potential challenges in scaling their online sales channels. **Despite a 40% reduction in burn rate**, the company is still experiencing burn rates, implying these online businesses are not yet profitable.  **[LAD_3403386_26]**
- **Increased signs of delinquency and stress in the prime portfolio** within their financing operations may impact future profitability. The company acknowledges **seeing some signs of increase in delinquency and stress in the prime portfolio**.  **[LAD_3403386_9]**
- **Gross profit per unit (GPU) on new vehicles is declining sequentially**, and the company acknowledges that margins are normalizing. There is a reliance on manufacturer incentives to maintain margins, which may not increase as hoped.  **[LAD_3403386_18]**

6ba44fe01883008a471554cf5ffa27df2ab8727bcbddfaaa321d52bde9bf6b6f

Lithia Motors Inc (LAD)

Financials