LITHIA MOTORS INC

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Certain statements under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” and elsewhere in this Form 10-Q constitute forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Generally, you can identify forward-looking statements by terms such as “project,” “outlook,” “target,” “may,” “will,” “would,” “should,” “seek,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “likely,” “goal,” “strategy,” “future,” “maintain,” and “continue” or the negative of these terms or other comparable terms. Examples of forward-looking statements in this Form 10-Q include, among others, statements we make regarding:

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Certain statements under the sections entitled “Management’s Discussion and Analysis of Financial Condition and

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•Future market conditions, including anticipated car and other sales levels and the supply of inventory

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•Future market conditions, including anticipated car and other sales levels and gross profit levels and the supply

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•The growth, expansion, make-up and success of our network, including our finding accretive acquisitions that meet our target valuations and acquiring additional stores

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•The growth, expansion, make-up and success of our network, including our finding accretive acquisitions that

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•The growth and performance of our Driveway e-commerce home solution and DFC, their synergies and other impacts on our business and our ability to meet Driveway and DFC-related targets

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•The growth and performance of our Driveway e-commerce home solution and DFC, their synergies and other

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•The impact of sustainable vehicles and other market and regulatory changes on our business

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•The impact of sustainable vehicles and other market andregulatory changes on our business, including

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•Expected operating results, such as improved store performance, continued improvement of SG&A as a percentage of gross profit and any projections

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•Expected operating results, such as improved store performance, continued improvement of SG&A as a

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•Our anticipated financial condition and liquidity, including from our cash and the future availability of our credit facilities, unfinanced real estate and other financing sources

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•Our anticipated financial condition and liquidity, including from our cash and the future availability of our credit

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•Our programs and initiatives for employee recruitment, training, and retention

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•Our programs and initiatives for team member recruitment, training, and retention

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•Our strategies and targets for customer retention, growth, market position, operations, financial results and risk management

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•Our strategies and targets for customer retention, growth, market position, operations, financial results and risk

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The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our actual results to materially differ from the results expressed or implied by these statements. Certain important factors that could cause actual results to differ from our expectations are discussed in the Risk Factors section of our 2023 Annual Report on Form 10-K, as supplemented and amended from time to time in Quarterly Reports on Form 10-Q and our other filings with the SEC.

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The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties, and

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By their nature, forward-looking statements involve risks and uncertainties because they relate to events that depend on circumstances that may or may not occur in the future. You should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. We assume no obligation to update or revise any forward-looking statement.

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By their nature, forward-looking statements involve risks and uncertainties because they relate to events that

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Lithia and Driveway (NYSE: LAD) is one of the largest global automotive retailers providing an array of products and services throughout the vehicle ownership lifecycle. Simple, convenient and transparent experiences are offered through our comprehensive network of physical locations, e-commerce platforms, captive finance solutions, fleet management offerings, and other synergistic adjacencies. We have delivered consistent profitable growth in a massive and unconsolidated industry. Our highly diversified and competitively differentiated design provides us the flexibility and scale to pursue our vision to modernize personal transportation solutions wherever, whenever and however consumers desire. As of September 30, 2024, we operated 467 locations representing 52 brands in the U.S., the U.K., and Canada.

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Lithia and Driveway (NYSE: LAD) is the largest global automotive retailer providing an array of products and

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We offer a wide array of products and services fulfilling the entire vehicle ownership lifecycle including new and used vehicles, financing and insurance products and automotive repair and maintenance aftersales. We strive for diversification in our products, services, brands and geographic locations to reduce dependence on any one manufacturer, reduce susceptibility to changing consumer preferences, manage market risk and maintain profitability. Our diversification, along with our operating structure, provides a resilient and nimble business model.

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We offer a wide array of products and services fulfilling the entire vehicle ownership lifecycle including new and

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We seek to provide customers with a seamless, blended online and physical retail experience, broad selection and access to specialized expertise and knowledge. Our comprehensive network enables us to provide convenient touch points for customers and provides services throughout the vehicle life cycle. We seek to increase market share and optimize profitability by focusing on the consumer experience and applying proprietary performance measurement systems fueled by data science. Our Driveway and GreenCars brands complement our in-store experiences in the U.S. and provide convenient, simple and transparent platforms that serve as our e-commerce home solutions and allow us to deliver differentiated, proprietary digital experiences. Enhancing our business, our captive auto financing division allows us to provide financing solutions for customers and diversify our business model with adjacent products.

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We seek to provide customers with a seamless, blended online and physical retail experience, broad selection, and

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Our long-term strategy to create value for our customers, employees and shareholders includes the following elements:

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Our long-term strategy to create value for our customers, team members and shareholders includes the following

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In response to evolving consumer preferences, we invest in modernization that supports and expands our core business. These digital strategies combine our experienced, knowledgeable workforce with our owned inventory and physical network of stores, enabling us to be agile and adapt to consumer preferences and market specific conditions. Additionally, we systematically explore transformative adjacencies, which are identified to be synergistic and complementary to our existing business, such as our captive auto finance division and our fleet funding and management division.

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in transformative adjacencies that are synergistic and complementary to our existing business, such as our captive

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Our performance-based culture is geared toward an incentive-based compensation structure for a majority of our personnel. We develop pay plans that are measured based upon various factors such as customer satisfaction, profitability and individual performance metrics. These plans serve to reward team members for creating customer loyalty, achieving store potential, developing high-performing talent, meeting and exceeding manufacturer requirements and living our core values.

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Our performance-based culture is geared toward an incentive-based compensation structure for a majority of our

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We have centralized many administrative functions to drive efficiencies and streamline store-level operations. The reduction of administrative functions at our stores allows our local managers to focus on customer-facing opportunities to increase revenues and gross profit. Our operations are supported by regional and corporate management, as well as dedicated training and personnel development programs which allow us to share best practices across our network and develop management talent.

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We centralize many administrative functions to drive efficiencies and streamline store-level operations. These

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Our acquisition growth strategy has been successful both financially and culturally. Our disciplined approach focuses on acquiring new vehicle franchises, which operate in markets ranging from mid-sized regional markets to metropolitan markets. Acquisition of these businesses increases our proximity to consumers throughout North America and the U.K. While we target annual after tax return of more than 15% for our acquisitions, we have averaged over a 25% return by the third year of ownership due to a disciplined approach focusing on accretive, cash flow positive targets at reasonable valuations. In addition to being financially accretive, acquisitions aim to drive network growth that improves our ability to serve customers through vast selection, greater density and access to customers and ability to leverage national branding and advertising.

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disciplined approach focuses on acquiring new vehicle franchises, which operate in markets ranging from mid-sized

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As we focus on expanding our physical network of stores, one of the criteria we evaluate is a valuation multiple between 3x to 6x of investment in intangibles to estimated annualized adjusted EBITDA, with various factors including location, ability to expand our network and talent considered in determining value. We also target an investment in intangibles as a percentage of annualized revenues in the range of 15% to 30%.

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As we focus on expanding our physical network of stores, one of the criteria we evaluate is a valuation multiple

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We regularly optimize and balance our network through strategic divestitures to ensure continued high performance. We believe our disciplined approach provides us with attractive acquisition opportunities and expanded coast-to-coast coverage.

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We regularly optimize and balance our network through strategic divestitures to ensure continued high performance.

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We manage our liquidity and available cash to support our long-term plan focused on growth through acquisitions and investments in our existing business, technology and adjacencies that expand and diversify our business model. In the current market of elevated acquisition pricing, we have adjusted our free cash flow deployment strategy. Under current conditions, including recent trends in our stock price, we may consider repurchases as a more attractive use of funds than acquisitions. Our current free cash flow deployment strategy has shifted to an allocation of 50% to 60% investment in acquisitions, 25% investment in capital expenditures, innovation, and diversification and 15% to 25% in shareholder return in the form of dividends and share repurchases. During the first nine months of 2024, we utilized $271.9 million for capital expenditures investing in our existing business and paid $42.4 million in dividends and $273.2 million in share repurchases. As of September 30, 2024, we had available liquidity of approximately $1.1 billion, which was comprised of $209.8 million in unrestricted cash, $53.9 million in marketable securities, and $863.2 million availability on our credit facilities. In addition, our unfinanced real estate could provide additional liquidity of approximately $353.0 million.

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We manage our liquidity and available cash to support our long-term plan focused on growth through acquisitions

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We experienced growth of revenue in 2024 compared to 2023, primarily driven by increases in volume related to acquisitions. Total gross profit grew in 2024 compared to 2023, primarily driven by acquisition growth and supported by same store increases in aftersales. New and used vehicle retail gross profit declined compared to 2023 due to continued normalization of margins. Net income decline was primarily driven by this margin normalization, increased interest expense, and increased SG&A as a percentage of gross profit.

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We experienced growth of revenue in 2025 compared to 2024, primarily driven by increases in volume related to

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1 Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail.

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1 Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for

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We believe that same store comparisons are an important indicator of our financial performance. Same store measures demonstrate our ability to grow revenues in our existing locations. As a result, same store measures have been integrated into the discussion below.

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measures demonstrate our ability to grow revenues in our existing locations. As a result, same store measures have

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Same store measures reflect results for stores that were operating in each comparison period and only include the months when operations occurred in both periods. For example, a store acquired in August 2023 would be included in same store operating data beginning in September 2024, after its first complete comparable month of operation. The third quarter operating results for the same store comparisons would include results for that store in only the month of September for both comparable periods.

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Same store measures reflect results for stores that were operating in each comparison period and only include the

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1 Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail.

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1 Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for

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We believe that our new vehicle retail sales create incremental profit opportunities through certain manufacturer incentive programs, arranging of third-party financing, vehicle service and insurance contracts, future resale of used vehicles acquired through trade-in, and aftersales. Our leaders in each market continue to adapt to changing conditions, respond to customer needs and manage inventory availability and selection.

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We believe that our new vehicle retail sales create incremental profit opportunities through certain manufacturer

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Same store new vehicle gross profit per unit decreased 27.2%, driven by a decrease in new vehicle gross profit margins of 250 bps. Total same store new vehicle gross profit per unit, which includes the finance and insurance revenue generated from the sales of new vehicles, decreased $1,261 to $5,385.

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Same store new vehicle retail gross profit per unit decreased 12.0%, driven by a decrease in new vehicle retail

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Same store new vehicle retail gross profit per unit decreased 27.9%, driven by a decrease in new vehicle retail gross profit margins of 270 bps. Total same store new vehicle retail gross profit per unit, which includes the finance and insurance revenue generated from the sales of new retail vehicles, decreased $1,375 to $5,565.

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and insurance revenue generated from the sales of new retail vehicles, decreased $412 to $5,168.

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Used vehicle retail sales are a strategic focus for organic growth. We offer three categories of used vehicles: manufacturer certified pre-owned (CPO) vehicles; core vehicles, or late-model vehicles with lower mileage; and value autos, or vehicles with over 80,000 miles. We continue to focus on procuring vehicles across the full spectrum of the addressable used vehicle market to provide customers with a wide selection meeting all levels of affordability, driving increased used vehicle unit volumes. Our used vehicle operations provide an opportunity to generate sales to customers unable or unwilling to purchase a new vehicle, sell brands other than the store’s new vehicle franchise(s) and increase sales from finance and insurance and aftersales.

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Used vehicle retail sales are a strategic focus for organic growth. We offer three categories of used vehicles:

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Used vehicle retail revenue for the nine months ended September 30, 2024 increased 18.2% compared to the same period of 2023 driven by acquisition activity. On a same store basis, used vehicle retail sales decreased 9.1% due to a decrease in average selling prices of 5.0% and a decrease in unit volume of 4.3%. Total same store used vehicle retail gross profit per unit, which includes the finance and insurance revenue generated from the sales of used retail vehicles, decreased $244 to $3,929.

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period of 2024 driven by acquisition activity. On a same store basis, used vehicle retail sales decreased 0.9% due to

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We believe that arranging vehicle financing is an important part of our ability to sell vehicles, and we attempt to arrange financing for every vehicle we sell. We also offer related products such as extended warranties, insurance contracts and vehicle and theft protection which drive continued engagement with the consumer throughout the ownership lifecycle.

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We believe that arranging vehicle financing is an important part of our ability to sell vehicles, and we attempt to

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driven by a decline in service contract penetration rates. On a same store basis, our finance and insurance revenue per retail unit decreased $74 to $2,020.

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decline in service contract penetration rates. On a same store basis, our finance and insurance revenue per retail

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We provide automotive repair and maintenance services for customers for the new vehicle brands sold by our stores, as well as service and repairs for most other makes and models. These aftersales services are an integral part of our customer retention and the largest contributor to our overall profitability. Earnings from aftersales continue to prove to be more resilient during economic downturns, when owners tend to repair their existing vehicles rather than buy new vehicles. We believe the increased number of units in operation will continue to benefit our aftersales revenue in the coming years as more late-model vehicles age, necessitating repairs and maintenance.

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We provide automotive repair and maintenance services for customers for the new vehicle brands sold by our

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Our aftersales revenue increased 20.9% in the nine months ended September 30, 2024 compared to the same period of 2023, driven by acquisitions, as well as an increase in same store warranty and customer pay revenues. Same store customer pay revenues was the largest contribution to our aftersales revenue at $1.3 billion.

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2024, driven by acquisitions, as well as an increase in same store warranty revenues. Same store warranty

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Same store aftersales gross profit increased 6.3%. This increase was primarily due to increased volumes of customer pay and warranty transactions. Overall same store aftersales gross margins increased 70 bps, primarily as a result of increased customer pay gross margin of 80 bps.

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Same store aftersales gross profit increased 7.5%. This increase was primarily due to increased volumes of

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In the U.S., Financing Operations is a captive lender, originating loans only from our stores and Driveway. In Canada, Financing Operations originates loans and leases from both our Canadian stores and third-party dealerships. In the U.K., Financing Operations is related to our fleet funding and management division. These product offerings add diversity to the business model and provide an opportunity to capture additional profits, cash flows, and sales while managing our reliance on third-party finance sources.

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In the United States, Financing Operations is a captive lender, originating loans only from our stores and Driveway.

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Financing Operations income reflects the interest and fee income generated by the portfolio of auto loan and finance lease receivables, plus the lease income generated by our net investment in operating leases, less the interest expense associated with the debt utilized to fund the lending, including internal capital, a provision for estimated loan and lease losses, depreciation on vehicles leased via operating leases, and directly-related expenses.

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Financing Operations income reflects the interest and fee income generated by the portfolio of auto loan and

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3 The credit scores represent FICO scores and reflect only receivables with obligors that have a FICO score at the time of application. For receivables with co-borrowers, the FICO score is the primary borrower’s. FICO scores are not a significant factor in our proprietary credit model, which relies on information from credit bureaus and other application information.

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3 The credit scores represent FICO scores and reflect only receivables with obligors that have a FICO score at the time of