DETROIT -- Lithia Motors Inc. is investigating its stores to see whether car sales were improperly reported to manufacturers to gain more incentive money.
Lithia, the nations eighth-largest public dealership group, delayed filing its annual report with the Securities and Exchange Commission because of the investigation. The investigations findings could affect Lithias preliminary financial results reported on Feb. 20, but the company does not expect this to happen, Lithia said in a filing Tuesday, March 18, with the SEC.
Lithia said a special legal counsel, the companys internal auditing committee and an independent external accounting firm on March 17, began looking at sales data from a number of Lithia stores to see whether any questionable practices have taken place.
The team also is interviewing employees and examining manufacturer audits and company e-mail traffic to find any irregularities, according to the SEC filing.
Before the external inquiry, audits of two stores resulted in $107,400 in incentive chargebacks to their manufacturers. A third store looked at its books internally, and paid $51,100 in incentives back to its manufacturer as well. The manufacturers were not identified in the SEC filing.
This prompted the investigation, which to date has not uncovered any additional significant incentive chargebacks or any evidence that senior management officials encouraged or knew about any improper practices, Lithia said in its SEC filing.
The investigation remains ongoing for the Medford, Ore., dealership group, which owns 110 dealerships in the western United States.
A separate internal review, prompted by the audit committees investigation, found a small number of cases where car sales were reported on Lithias books before the customer signed on the dotted line. The review hasnt pinned down the impact of these findings, but Lithia says theyre limited to a small percentage of transactions.
Potential reporting irregularities
Signs of trouble at the auto retail chain began to surface in February when Lithia reported a $5.1 million fourth quarter 2007 net loss its first quarterly loss since going public in 1996.
Lithia also acknowledged some potential reporting irregularities at the three dealerships that eventually repaid more than $150,000 to manufacturers. The company also fired Don Jones Jr., its senior vice president of retail operations, in late February.
Automotive News reported on March 3 that the bad news had some industry analysts scratching their heads.
Whats really going on there? Wachovia analyst Richard Kwas wrote in a Feb. 21 research report on Lithia. The substantial loss was a big surprise.
Sheldon Sandler, managing partner at Bel Air Partners LLC, an investment firm specializing in auto retail, told Automotive News that the sales probe has to be embarrassing for Lithia.
Donna Harris contributed to this report