What Lithia Motors (LAD) Said on Its Q3 Earnings Call

Key Points

• Q3 revenue was just under $10 billion and adjusted EPS rose 9% to $10.34. Growth in used vehicles, aftersales and financing offset weaker new-vehicle sales, which fell 2.6% on a 2.7% unit decline.
• Used-vehicle and aftersales profitability strengthened. Used gross profit per unit increased 13% to $1,993, while aftersales gross profit rose 2.4% and margins expanded to 59.5%; management expects used-vehicle gross profit per unit to remain near $2,000 into 2027.
• Driveway Finance Corporation delivered significant growth, while Lithia continued shareholder returns and expansion. Finance operations income rose nearly 70%, managed receivables reached $5 billion, and Lithia repurchased $85 million of shares; the company also acquired four Memphis dealerships expected to add $250 million in annualized revenue.

Lithia Motors NYSE: LAD reported third-quarter revenue just below $10 billion and adjusted diluted earnings per share of $10.34, up 9% from a year earlier, as growth in used vehicles, aftersales and financing operations helped offset softer new-vehicle results.

Chairman and Chief Executive Officer Bryan DeBoer said same-store revenue declined 1.4% against a comparison period in which revenue rose nearly 8%. Total vehicle gross profit per unit was $3,958, down $63 year over year. Lithia’s used-vehicle gross profit increased 9.3%, while aftersales gross profit rose 2.4%.

Used Vehicles and Aftersales Offset New-Vehicle Pressure

New-vehicle revenue declined 2.6% as unit sales fell 2.7%. Import-brand units increased 0.8%, while domestic units fell 8.8% and luxury units declined 2.9%. DeBoer characterized the conditions as cyclical and said comparisons should ease in the fourth quarter.

Used-vehicle profitability was a key contributor. Used gross profit per unit increased 13%, or $234, year over year, to $1,993. DeBoer said profitability in the company’s core category of three- to eight-year-old vehicles increased 44%, supported by its dynamic AI pricing efforts.

During the question-and-answer session, DeBoer said Lithia expects used-vehicle gross profit per unit to remain around $2,000 as a baseline into 2027, though he noted that the used-vehicle market typically softens in the fourth quarter and could produce a sequential decline.

Aftersales margins expanded by 100 basis points to 59.5%, with the company reporting its eighth consecutive quarter of aftersales gross-profit growth. In North America, nearly one in four customers chose lifetime oil contracts, an increase of more than 200 basis points from the prior year, according to DeBoer.

Responding to questions on service demand, DeBoer said customer-pay revenue was flat, warranty revenue increased 6.1%, wholesale parts revenue fell 4.3%, and collision revenue declined 1.5%. Customer-pay gross profit was flat, while warranty gross profit rose 10%. He said warranty growth benefited partly from franchise-law changes in Florida, New Jersey and Virginia affecting technician compensation.

DFC Expands Originations and Managed Receivables

Driveway Finance Corporation, Lithia’s captive finance operation, generated $32 million in finance operations income, an increase of nearly 70% from a year earlier. Average managed receivables rose 22%, reaching $5 billion.

Chief Financial Officer Tina Miller said DFC originated $937 million during the quarter and recorded a 4.7% net interest margin, up 10 basis points year over year as funding costs improved with scale. North American penetration reached 18.3%, approaching the company’s target of 20% or more.

DFC’s average origination FICO score was 752 and front-end loan-to-value was 94.6%. Its allowance for loan losses stood at 2.8% of receivables, down from 3.1%.

Senior Vice President Chuck Lietz said the finance portfolio continued to perform well, with delinquency rates 20% better across the credit spectrum on both a year-over-year and sequential basis. He said DFC evaluates contracts individually on a risk-adjusted net-present-value basis as it balances potential funding-cost increases with supporting dealership sales.

Costs, AI Rollout and U.K. Performance

Adjusted selling, general and administrative expense was 68.5% of gross profit, unchanged from the second quarter. In North America, same-store SG&A was 65.7% of gross profit, improving 50 basis points sequentially.

Lithia continues to target global SG&A below 60% of gross profit. DeBoer said the rollout of Pinewood.AI across North American stores is expected to be completed by the end of 2028 and that cost benefits could trail the rollout by 12 to 24 months. He said roughly half of the projected 1,000-basis-point reduction to a sub-60% cost structure is expected to come from agentic AI, with the balance coming from volume improvement and operational changes at underperforming stores.

The company’s U.K. business posted gross-profit growth of 7%, led by a 13.6% increase in aftersales gross profit. New-vehicle unit sales rose 10.6% and new-vehicle gross profit increased 8.5%, aided by partnerships with Chinese manufacturers. Used retail units increased 4.6% and used-vehicle gross profit per unit rose 4.9%.

DeBoer said about half of the U.K.’s recent growth was attributable to Chinese brands, while the company also continued to grow luxury franchises including BMW, Porsche, Mercedes and Land Rover.

Cash Flow, Buybacks and Acquisitions

Adjusted EBITDA was $443.5 million, up 1.3% year over year. Adjusted cash flow from operations totaled $377 million for the quarter, a 12% increase from a year earlier, bringing the year-to-date total to $987 million after adjusting for a first-quarter floor-plan-related benefit.

Lithia repurchased 246,317 shares for $85 million during the quarter at an average price of $345 per share. The company said it has returned more than $627 million to shareholders through buybacks and dividends year to date, while its share count was 11% lower than a year ago.

Net leverage declined to 3.1 times from 3.2 times at the end of the second quarter. Miller said Lithia remains focused on returning below its long-term target of three times leverage while preserving flexibility for repurchases and acquisitions.

During the quarter, the company acquired four Gossett Hyundai and Kia stores in Memphis, Tennessee, which Lithia expects to contribute $250 million in annualized revenue. Year to date, Lithia has acquired $1.2 billion in annualized revenue and divested approximately $250 million of underperforming revenue.

About Lithia Motors (NYSE:LAD)

Lithia Motors, Inc is an automotive retailer headquartered in Medford, Oregon. Operating under the Lithia & Driveway name, the company sells new and used vehicles through a network of franchised dealerships and digital retail channels. Its dealerships represent a broad range of domestic, Asian and European automotive brands.

In addition to vehicle sales, Lithia provides related services including vehicle financing and insurance products, parts and maintenance, collision repair, and other after-sales support.

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