Lithia Motors (LAD) 8-K Lithia Motors Reports Record Revenues for the 3Q 2006; Earnings from Continuing Operations of $0.60 Per Share

LITHIA MOTORS REPORTS RECORD REVENUES FOR THE 3Q 2006; EARNINGS FROM CONTINUING OPERATIONS OF $0.60 PER SHARE

MEDFORD, OREGON, OCTOBER 31, 2006 (1:05 p.m. Pacific Time) –Lithia Motors, Inc. (NYSE: LAD) today announced that third quarter 2006 sales increased 3% to $880.4 million as compared to $858.9 million in the same period last year. New vehicle sales increased 1%, used vehicle sales increased 6%, finance/insurance sales increased 5% and parts/service sales increased 12%.

Third quarter 2006 net income from continuing operations was $12.8 million as compared to $18.1 million in the third quarter of 2005. Diluted earnings per share from continuing operations, including the $0.03 effect of accounting for equity compensation under FAS123(R), were $0.60.

Third quarter 2006 earnings per share from continuing operations, excluding the effect of accounting for equity compensation under FAS123(R), were $0.63 as compared to $0.85 in the same period last year.

Sid DeBoer, Lithia’s Chairman and CEO, commented, “Recently Lithia reached a milestone of 100 stores over a period of 10 years as a public company. We are excited about this achievement, although we are only just beginning to realize some of the growth and operating opportunities that lay ahead of us.”

“Our third quarter revenues were up 3% compared to last year’s third quarter. Although this is due to acquisitions, it is still noteworthy considering the very difficult comparison with the third quarter of last year where we saw exceptionally strong sales driven by effective employee pricing. Incentives were not as effective in the third quarter this year.”

“While total revenues were up, third quarter earnings were down year over year due to a combination of factors; high inventory levels and higher interest rates impacted our bottom line by approximately 12 cents per share for the quarter. This excludes inventories from acquisitions over the prior year. We also experienced increased costs resulting from company-wide operational initiatives in the quarter. We estimate expenses for all these new initiatives to be in the range of seven to eight cents per share for the full-year 2006. Additionally, for most of September, we were unable to sell the majority of our Dodge RAM light duty pickups, one of our core products, due to a “sell hold” from the manufacturer that is related to a safety restraint system in these vehicles.”

“Total same store sales declined 3.5% against a backdrop of 9.1% growth in the third quarter of last year. New vehicle inventories remained above historical average levels at the end of September, but are down $230 million sequentially from the second quarter. We expect them to continue to decline by year-end. Fuel costs have declined recently

and that should benefit consumer sentiment and help increase truck sales. Interest rates have risen steadily for the last two years and with interest rates currently steady, floorplan interest costs should stop increasing in the year ahead,” concluded Mr. DeBoer.

For the nine-month period ending September 30, 2006, total sales increased 9% to $2.48 billion from $2.27 billion in the same period last year. New vehicle sales increased 10%, used vehicle sales increased 9%, finance/insurance sales increased 12%, and parts/service sales increased 12%.

For the first nine months, Lithia’s net income from continuing operations was $35.1 million as compared to $41.7 million in the first nine months of 2005. Diluted earnings per share from continuing operations, including the $0.09 effect of accounting for equity compensation under FAS123(R), were $1.65.

For the first nine months of 2006 earnings per share from continuing operations, excluding the affect of accounting for equity compensation under FAS123(R), were $1.74 as compared to $1.98 in the same period last year.

Jeffrey B. DeBoer, Senior Vice President and CFO added, “In the past four months we have completed four acquisitions: a Chrysler store in Ukiah, California; two stores in Grand Forks, North Dakota with a combination of import and domestic brands; and more recently, BMW and Porsche stores in Seaside, California and BMW and Mercedes Benz stores in Des Moines, Iowa. These more recent acquisitions have provided a good demonstration of our continuing brand diversification efforts. Year to date we have completed acquisitions with approximately $390 million in annualized revenues, and we plan on continuing our normal acquisition pace in 2007.”

"Our guidance for the full-year 2006 and 2007 is included in the table below. For the full-year 2007 we are giving guidance for a flat year as a number of key items are material to the year ahead. Company health and benefit plan costs will be increasing, negatively impacting earnings by 10 to 12 cents per share. We will also continue with our special operational projects and initiatives which include: Office Automation; Lithia’s Store Management System; Human Development Systems and our Assured Used Vehicle Program. Long-term we expect these projects to reduce the company’s SG&A expense and allow the stores to focus more on customers which will help drive long-term sales growth. We also expect that in the coming year, our domestic product mix will continue to negatively impact earnings, however, we believe that the restructurings now underway at the domestic manufacturers along with changes in mix and product improvements will help us in the future.”

“We are excited about the start up of our first independent used vehicle retail outlets in 2007. Start up costs for this initiative will impact earnings by approximately 10 cents per share. Once established, we expect that each independent used vehicle store will reach monthly operational profitability within 12 months of opening,” concluded Jeffrey B. DeBoer.

		Guidance		Guidance
Earnings per Share		FY 2006		FY 2007
From Continuing Operations:	$	1.95 - $1.99	$	1.90 - $2.10

The company currently has a 1,000,000 share repurchase program in place. Prior to the beginning of 2006, 60,231 shares had been purchased. In the past few months the company purchased 196,600 shares, leaving 743,169 shares still available for repurchase under the program.

Conference Call Information

Lithia Motors will be providing more detailed information on the results for the third quarter 2006 in its conference call scheduled for 2 p.m. PT today. The call can be accessed live by calling 973-633-1010. To listen to a live webcast or hear a replay, log-on to:www.lithia.com– go toInvestor Relations– and click on theLive Webcast icon.

About Lithia

Lithia Motors, Inc. is a Fortune 700 and Russell 2000 Company. Lithia sells 26 brands of new vehicles at 102 stores which are located in 42 markets within 15 states. Internet sales are centralized atwww.Lithia.com. Lithia also sells used vehicles; arranges finance, warranty, and credit insurance contracts; and provides vehicle parts, maintenance, and repair services at all of its locations. Lithia retailed 103,333 new and used vehicles and had $2.9 billion in total revenue in 2005.

Forward Looking Statements

This press release includes forward looking statements within the meaning of the “Safe-Harbor” provisions of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. These statements are necessarily subject to risk and uncertainty and actual results could differ materially due to certain risk factors, including without limitation economic conditions, acquisition risk factors and others set forth from time to time in the company’s filings with the SEC. Specific risks in this press release include items which impact earnings, anticipated revenues of recently acquired and projected new store acquisitions, anticipated profitability of independent used vehicle stores and projected full-year 2006 and 2007 earnings per share guidance.

Additional Information

For additional information on Lithia Motors, contact the Investor Relations Department: (541) 776-6591 or log-on to:www.lithia.com– go toInvestor Relations

LITHIA MOTORS, INC.
(In Thousands except per share and unit data)
Unaudited		Three Months Ended
	September 30,					$Increase		% Increase
		2006		2005		(Decrease)		(Decrease)
New Vehicle Sales		$515,059		$510,541		$4,518		0.9	%
Used Vehicle Sales		239,387		226,518		12,869		5.7
Finance & Insurance		33,982		32,462		1,520		4.7
Service, Body & Parts Sales		90,108		80,786		9,322		11.5
Fleet & Other Revenues		1,836		8,548		(6,712	)	(78.5	)
Total Revenues		880,372		858,855		21,517		2.5
Cost of Sales		733,116		717,591		15,525		2.2
Gross Profit		147,256		141,264		5,992		4.2
SG&A Expense		109,122		98,588		10,534		10.7
Depreciation/Amortization		4,411		3,624		787		21.7
Income from Operations		33,723		39,052		(5,329	)	(13.6	)
Flooring Interest Expense		(10,027	)	(5,534	)	4,493		81.2
Other Interest Expense		(3,819	)	(3,037	)	782		25.7
Other Income, net		188		186		2		1.1
Income from continuing operations
before income taxes		20,065		30,667		(10,602	)	(34.6	)
Income Tax Expense		(7,289	)	(12,551	)	(5,262	)	(41.9	)
Income Tax Rate		36.3	%	40.9	%
Income from continuing ops.		12,776		18,116		(5,340	)	(29.5	)
Income (Loss) from discontinued
operations, net of income taxes		(81	)	(484	)	(403	)	(83.3	)
Net Income		$12,695		$17,632		($4,937	)	(28.0	)%
Diluted Net Income per share:
Continuing Operations		$0.63		$0.85		$(0.22	)	(25.9	)%
Effects of FAS123(R)		(0.03	)	-
Diluted Net Income per share
after effect of FAS123(R):		$0.60		$0.85		(0.25	)	(29.4	)%
Discontinued Operations		-		(0.02	)
Net Income per share		$0.60		$0.83		(0.23	)	(27.7	)%
Diluted Shares Outstanding		22,128		21,882		246		1.1	%
						Increase		Increase
Unit Sales:		2006		2005		(Decrease)		(Decrease)
New Vehicle		18,829		18,682		147		0.8	%
Used – Retail Vehicle		11,925		12,057		(132	)	(1.1	)
Used - Wholesale		7,686		7,091		595		8.4
Total Units Sold		38,440		37,830		610		1.6

LITHIA MOTORS, INC.
	Three Months Ended
	September 30,				$Increase	% Increase
Average Selling Price:	2006		2005		(Decrease)	(Decrease)
New Vehicle	$27,355		$27,328		$27	0.1	%
Used – Retail Vehicle	16,223		15,502		721	4.7
Used - Wholesale	5,976		5,586		390	7.0
Key Financial Data:
Gross Profit Margin	16.7	%	16.4	%
SG&A as a % of Gross Profit	74.1	%	69.8	%
Operating Margin	3.8	%	4.5	%
Pre-Tax Margin	2.3	%	3.6	%
Gross Margin/Profit Data	2006		2005
New Vehicle Retail	7.7	%	7.7	%
Used Vehicle Retail	14.5	%	15.8	%
Used Vehicle Wholesale	0.9	%	1.7	%
Service, Body & Parts	49.8	%	48.1	%
New Retail Gross Profit/Unit	$2,101		$2,112
Used Retail Gross Profit/Unit	$2,348		$2,448
Used Wholesale Gross Profit/Unit	$56		$93
Finance & Insurance/Retail Unit	$1,105		$1,056
Same Store Data	2006		2005
New Vehicle Retail Sales	(5.8	)%	9.3	%
Used Vehicle Sales (includes Wholesale)	(1.0)%		10.2	%
Total Vehicle Sales (excludes fleet)	(4.4	)%	9.6	%
Finance & Insurance Sales	(2.6	)%	8.5	%
Service, Body & Parts Sales	3.6	%	4.9	%
Total Sales (Excluding Fleet)	(3.5	)%	9.1	%
Total Gross Profit (Excluding Fleet)	(3.5	)%	7.0	%

LITHIA MOTORS, INC.
(In Thousands except per share and unit data)
Unaudited	Nine Months Ended
	September 30,				$Increase		% Increase
	2006		2005		(Decrease)		(Decrease)
New Vehicle Sales	$1,438,930		$1,308,535		$130,395		10.0	%
Used Vehicle Sales	679,374		624,609		54,765		8.8
Finance & Insurance	94,312		84,282		10,030		11.9
Service, Body & Parts Sales	258,317		230,468		27,849		12.1
Fleet & Other Revenues	4,105		20,716		(16,611	)	(80.2	)
Total Revenues	2,475,038		2,268,610		206,428		9.1
Cost of Sales	2,052,776		1,882,869		169,907		9.0
Gross Profit	422,262		385,741		36,521		9.5
SG&A Expense	317,375		281,043		36,332		12.9
Depreciation/Amortization	12,669		10,418		2,251		21.6
Income from Operations	92,218		94,280		(2,062	)	(2.2	)
Flooring Interest Expense	(25,573	)	(16,636	)	8,937		53.7
Other Interest Expense	(10,791	)	(8,878	)	1,913		21.5
Other Income, net	930		718		212		29.5
Income from continuing operations
before income taxes	56,784		69,484		(12,700	)	(18.3	)
Income Tax Expense	(21,662	)	(27,787	)	(6,125	)	(22.0	)
Income Tax Rate	38.1	%	40.0	%
Net Income from continuing ops.	35,122		41,697		(6,575	)	(15.8	)%
Income (Loss) from discontinued
operations, net of income taxes	(1,452	)	(1,400	)	52		3.7
Net Income	$33,670		$40,297		($6,627	)	(16.4	)%
Diluted Net Income per share:
Continuing Operations	$1.74		$1.98		$(0.24	)	(12.1	)%
Effects of FAS123(R)	(0.09	)	-
Diluted Net Income per share
after effect of FAS123(R):	$1.65		$1.98		(0.33	)	(16.7	)%
Discontinued Operations	(0.06	)	(0.07	)
Net Income per share	$1.59		$1.91		(0.32	)	(16.8	)%
Diluted Shares Outstanding	22,120		21,765		355		1.6	%
					Increase		Increase
Unit Sales:	2006		2005		(Decrease)		(Decrease)
New Vehicle	52,346		47,147		5,199		11.0	%
Used – Retail Vehicle	34,543		33,478		1,065		3.2
Used - Wholesale	19,537		18,338		1,199		6.5
Total Units Sold	106,426		98,963		7,463		7.5

LITHIA MOTORS, INC.
		Nine Months Ended
		September 30,				$Increase		% Increase
Average Selling Price:		2006		2005		(Decrease)		(Decrease)
New Vehicle	$27,489			$27,754		($265	)	(1.0	)%
Used – Retail Vehicle	16,220			15,469		751		4.9
Used - Wholesale		6,095		5,821		274		4.7
Key Financial Data:
Gross Profit Margin		17.1	%	17.0	%
SG&A as a % of Gross Profit		75.2	%	72.9	%
Operating Margin		3.7	%	4.2	%
Pre-Tax Margin		2.3	%	3.1	%
Gross Margin/Profit Data		2006		2005
New Vehicle Retail		7.6	%	7.9	%
Used Vehicle Retail		15.2	%	15.7	%
Used Vehicle Wholesale		2.8	%	3.2	%
Service, Body & Parts		49.7	%	48.7	%
New Retail Gross Profit/Unit	$2,098			$2,193
Used Retail Gross Profit/Unit	$2,469			$2,430
Used Wholesale Gross Profit/Unit		$168		$188
Finance & Insurance/Retail Unit	$1,085			$1,045
Same Store Data		2006		2005
New Vehicle Retail Sales		3.1	%	3.3	%
Used Vehicle Sales (includes Wholesale)		2.7	%	4.2	%
Total Vehicle Sales (excludes fleet)		2.9	%	3.6	%
Finance & Insurance Sales		4.8	%	3.6	%
Service, Body & Parts Sales		5.4	%	2.3	%
Total Sales (Excluding Fleet)		3.3	%	3.5	%
Total Gross Profit (Excluding Fleet)		2.5	%	4.0	%

LITHIA MOTORS, INC.
Balance Sheet Highlights (Dollars in Thousands)
	September 30, 2006	December 31, 2005
	Unaudited
Cash & Cash Equivalents	$41,329	$48,566
Trade Receivables*	99,935	106,443
Inventory	652,071	606,047
Assets Held for Sale	-	27,411
Other Current Assets	13,971	15,781
Total Current Assets	807,306	804,248
Real Estate, net	293,904	255,372
Equipment & Leases, net	86,135	77,805
Goodwill, net	277,717	260,899
Other Assets	63,817	54,390
Total Assets	$1,528,879	$1,452,714
Floorplan Notes Payable	$537,557	$530,452
Liabilities held for sale	-	22,388
Other Current Liabilities	117,745	95,560
Total Current Liabilities	655,302	648,400
Used Vehicle Flooring	71,000	-
Real Estate Debt	161,195	154,046
Other Long-Term Debt	92,473	136,505
Other Liabilities	57,802	54,130
Total Liabilities	1,037,772	993,081
Shareholders’ Equity	491,107	459,633
Total Liabilities &
Shareholders’ Equity	$1,528,879	$1,452,714

* Includes contracts-in-transit of $49,181 and $52,453 at September 30, 2006 and December 31, 2005 respectively.

Other Balance Sheet Data (Dollars in Thousands except per share data)

Current Ratio	1.2	x	1.2	x
LT Debt/Total Cap.
(Excludes Used -Vehicle Flooring
and Real Estate)	16	%	23	%
Working Capital	$152,004		$155,848
Book Value per Basic Share	$25.20		$23.97