The Oregon-based company said it’s going to cut 10 to 15 underperforming stores out of its 110 total stores. Lithia also plans to:
Trim personnel and restructure management duties within stores.
Consolidate regional offices and increase the proportion of smaller cars in its inventory.
Delay spending on its new L2 chain of stand-alone used-car stores.
Lithia planned to become a national chain with at least 350 dealerships by 2014. The company launched a stand-alone used-vehicle chain last year because the venture offered unfettered growth potential.
“Growth is a religion with us,” CEO Sid DeBoer told Automotive News in 2006.
The company lost money for the first time since going public in the fourth quarter of 2007. In the first quarter of this year, Lithia lost $1.9 million on $699.3 million in sales, compared with a profit of $7.2 million during the same quarter in 2007.
Lithia said it expects the restructuring plan to be complete within 90 days. In a statement, the dealership group said it will release more details on the plan when it announces second-quarter earnings July 29.
“As the economic environment has worsened, we have taken a comprehensive look at our business and determined how it can be right-sized to achieve our profit margin and growth objectives for the long term,” DeBoer said in a statement.
Lithia ranks No. 8 on the Automotive News list of the top 125 dealership groups in the United States, based on new-vehicle sales. Lithia sold 63,607 new vehicles in 2007.
The company’s shares were down this morning, but rallied during the afternoon to close up 1.9 percent at $6.96 a share.
PRESS RELEASE: Lithia Motors Announces Major Restructuring PlanMEDFORD, Ore.--(BUSINESS WIRE)--Lithia Motors, Inc. (NYSE:LAD - News), today announced its planned actions to address the short and long-term conditions that are impacting the auto retail industry and the company.
“As the economic environment has worsened, we have taken a comprehensive look at our business and determined how it can be right-sized to achieve our profit margin and growth objectives for the long term,” said Sid DeBoer, CEO and Chairman of Lithia Motors.
The Company noted that although falling consumer confidence, declining home values, tightening credit markets, and domestic auto manufacturers losing market share are all adversely impacting vehicle sales, the driving force is the accelerated rise in gasoline and diesel prices. Oil prices have doubled in the past year, and have increased six-fold since 2002.
The company is accelerating its cost cuts because of the reduced sales volume. In addition to the $6 million annualized cuts announced at the end of April on our first quarter conference call, the Company’s plans include further cost reductions that are expected to result in additional savings of $1 million per month for a total of $18 million annualized. This cost cutting plan is partially implemented and should be completed within the next ninety days.
Cost cutting measures include:
* Restructuring store management personnel and duties
* Reducing headcount across the company
* Reducing all corporate level expenses where possible
* Further centralizing offices by region
In addition to the $18 million annualized savings above, the following restructuring actions will help to preserve capital and improve profitability:
* Reducing domestic exposure within our business units by divesting 10 – 15 underperforming stores
* Deferring all uncommitted capital expenditures
* Selling all unnecessary property and assets including aircraft and excess land
* Financing all unfinanced real estate
* Postponing acquisitions until prices drop further
* Significantly adjusting pricing on all inventories to match current demand
* Adjusting inventory mix to meet consumers shift in preference for smaller, more fuel-efficient new and used vehicles
* Deferring investment in new L2 Auto stores
Details on the additional savings and other financial impact of the above noted restructuring plans will be announced by the second quarter earnings release and conference call on July 29th.
Mr. DeBoer added, “After improving sequentially to near break-even in the first quarter, we are continuing to improve in the second quarter. April sales volume came in a little below plan but May is tracking in line with our internal projections. With the cost cuts partially in place and the positive trend in May, we are hoping that June comes in ahead of projections.”