PROMISSORY NOTE
                             LEASEHOLD IMPROVEMENTS

$695,800.00                                                      AUGUST 8, 1997

     FOR VALUE RECEIVED, I, We, the undersigned Lithia Motors, Inc., (Borrower)
promise to pay to Sun Valley Ford, Inc., (Lender) the sum of $695,800.00
together with interest thereon at the rate of 9 percent per annum payable as
follows:

     On September 8, 1997 and at regular monthly intervals thereafter on the
same day of each month thereafter for 59 months, payments shall be due and
payable in the amount of $8,814.51 and one final payment for the entire unpaid
balance with accrued interest shall be paid on August 8, 2002.

     Borrower shall have the right at any time to prepay all or any portion of
the unpaid balance without penalty or premium.  Any prepayment shall be applied
against the last maturing installments of principal then due (with the principal
balance being reduced accordingly), and shall not excuse Borrower from making
the regular installment payments subsequently due until the principal balance
has been paid in full.

     If Borrower fails to pay any amount of principal or interest due pursuant
to this note within ten (10) days after the date when due, and if Lender
notifies Borrower in writing of that default and Borrower fails to cure that
default within ten (10) days after receipt of that written notice from Lender,
then Lender shall have the right, at any time prior to the moment when Borrower
cures that default, to declare (and thereby cause) the entire unpaid balance of
the this note to be immediately due and payable.

     This Promissory Note is secured by Lender's leaseholds as defined in the
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS as executed by the Lender on
April 2 and 3, 1997 and by the Borrower on April 2, 1997.

     All payments shall be made payable to the Borrower or _____________________
and shall be mailed to the following address:

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LITHIA MOTORS, INC. (BORROWER)


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Raymond B. Gray, Executive Vice President


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                Lender's approval:                          Lender's approval:



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Sun Valley Ford, Inc.                             Sun Valley Ford, Inc.