10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from  to

Commission file number: 001-14733

LITHIA MOTORS, INC.

(Exact name of registrant as specified in its charter)

Oregon	93-0572810
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
150 N. Bartlett Street, Medford, Oregon	97501
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code: 541-776-6401

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [X]   No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  [X]   No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ]     Accelerated filer [X]   Non-accelerated filer [  ] (Do not check if a smaller reporting company)    Smaller reporting company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes [  ]  No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class A common stock without par value	22,977,404
Class B common stock without par value	2,690,027
(Class)	(Outstanding at April 26, 2013)

LITHIA MOTORS, INC.

FORM 10-Q

INDEX

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited) – March 31, 2013 and December 31, 2012	2
	Consolidated Statements of Operations (Unaudited) – Three Months Ended March 31, 2013 and 2012	3
	Consolidated Statements of Comprehensive Income (Unaudited) – Three Months Ended March 31, 2013 and 2012	4
	Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31, 2013 and 2012	5
	Condensed Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	30
Signatures		31

1

LITHIA MOTORS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

(Unaudited)

	March 31, 2013			December 31, 2012
Assets
Current Assets:
Cash and cash equivalents	$	15,006		$	42,839
Accounts receivable, net of allowance for doubtful accounts of $141 and $336		134,109			133,149
Inventories, net		714,121			723,326
Deferred income taxes		3,079			3,832
Other current assets		11,729			17,484
Assets held for sale		12,996			12,579
Total Current Assets		891,040			933,209
Property and equipment, net of accumulated depreciation of $98,328 and $97,883		427,935			425,086
Goodwill		32,047			32,047
Franchise value		62,429			62,429
Deferred income taxes		20,704			17,123
Other non-current assets		25,548			22,808
Total Assets	$	1,459,703		$	1,492,702
Liabilities and Stockholders' Equity
Current Liabilities:
Floor plan notes payable	$	15,545		$	13,454
Floor plan notes payable: non-trade		567,981			568,130
Current maturities of long-term debt		7,483			8,182
Trade payables		41,339			41,589
Accrued liabilities		87,787			81,602
Liabilities related to assets held for sale		8,662			8,347
Total Current Liabilities		728,797			721,304
Long-term debt, less current maturities		222,249			286,876
Deferred revenue		35,252			33,589
Other long-term liabilities		25,602			22,832
Total Liabilities		1,011,900			1,064,601
Stockholders' Equity:
Preferred stock - no par value; authorized 15,000 shares; none outstanding		-			-
Class A common stock - no par value; authorized 100,000 shares; issued and outstanding 22,950 and 22,916		263,253			268,801
Class B common stock - no par value; authorized 25,000 shares; issued and outstanding 2,693 and 2,762		335			343
Additional paid-in capital		15,096			12,399
Accumulated other comprehensive loss		(2,109	)		(2,615	)
Retained earnings		171,228			149,173
Total Stockholders' Equity		447,803			428,101
Total Liabilities and Stockholders' Equity	$	1,459,703		$	1,492,702

See accompanying notes to consolidated financial statement

2

LITHIA MOTORS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Revenues:
New vehicle	$	493,441		$	392,946
Used vehicle retail		239,228			190,619
Used vehicle wholesale		39,506			33,357
Finance and insurance		31,663			24,876
Service, body and parts		90,440			83,544
Fleet and other		8,802			12,904
Total revenues		903,080			738,246
Cost of sales:
New vehicle		458,794			362,694
Used vehicle retail		204,255			162,342
Used vehicle wholesale		38,532			32,960
Service, body and parts		46,661			43,409
Fleet and other		8,400			12,507
Total cost of sales		756,642			613,912
Gross profit		146,438			124,334
Asset impairments		-			115
Selling, general and administrative		101,131			88,439
Depreciation and amortization		4,721			4,138
Operating income		40,586			31,642
Floor plan interest expense		(3,449	)		(2,902	)
Other interest expense		(2,361	)		(2,727	)
Other income, net		801			498
Income from continuing operations before income taxes		35,577			26,511
Income tax provision		(13,695	)		(9,877	)
Income from continuing operations, net of income tax		21,882			16,634
Income from discontinued operations, net of income tax		173			162
Net income	$	22,055		$	16,796
Basic income per share from continuing operations	$	0.85		$	0.64
Basic income per share from discontinued operations		0.01			0.01
Basic net income per share	$	0.86		$	0.65
Shares used in basic per share calculations		25,626			25,986
Diluted income per share from continuing operations	$	0.84		$	0.63
Diluted income per share from discontinued operations		0.01			-
Diluted net income per share	$	0.85		$	0.63
Shares used in diluted per share calculations		26,054			26,478

See accompanying notes to consolidated financial statement

3

LITHIA MOTORS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2013		2012
Net income	$	22,055	$	16,796
Other comprehensive income, net of tax:
Gain on cash flow hedges, net of tax expense of $315 and $265		506		426
Comprehensive income	$	22,561	$	17,222

See accompanying notes to consolidated financial statement

4

LITHIA MOTORS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Cash flows from operating activities:
Net income	$	22,055		$	16,796
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Asset impairments		-			115
Depreciation and amortization		4,721			4,138
Depreciation and amortization within discontinued operations		-			61
Stock-based compensation		1,140			576
Gain on disposal of other assets		(19	)		(988	)
Deferred income taxes		(206	)		(870	)
Excess tax benefit from share-based payment arrangements		(2,937	)		(749	)
(Increase) decrease (net of acquisitions and dispositions):
Trade receivables, net		(960	)		(11,633	)
Inventories		7,890			(62,113	)
Other current assets		5,757			5,292
Other non-current assets		(424	)		2,778
Increase (decrease) (net of acquisitions and dispositions):
Floor plan notes payable		2,257			(3,324	)
Trade payables		(410	)		1,549
Accrued liabilities		6,188			5,105
Other long-term liabilities and deferred revenue		4,705			2,280
Net cash provided by (used in) operating activities		49,757			(40,987	)
Cash flows from investing activities:
Principal payments received on notes receivable		319			25
Capital expenditures		(6,585	)		(8,459	)
Proceeds from sales of assets		440			1,009
Payments for life insurance policies		(2,641	)		(1,968	)
Proceeds from sales of stores		-			2,901
Net cash used in investing activities		(8,467	)		(6,492	)
Cash flows from financing activities:
Borrowings on floor plan notes payable: non-trade		953			39,401
Borrowings on lines of credit		118,000			5,000
Repayments on lines of credit		(156,303	)		(12,000	)
Principal payments on long-term debt, scheduled		(2,003	)		(2,028	)
Principal payments on long-term debt and capital leases, other		(25,770	)		-
Proceeds from issuance of long-term debt		-			8,069
Proceeds from issuance of common stock		966			869
Repurchase of common stock		(7,903	)		(2,653	)
Excess tax benefit from share-based payment arrangements		2,937			749
Dividends paid		-			(1,814	)
Net cash provided by (used in) financing activities		(69,123	)		35,593
Decrease in cash and cash equivalents		(27,833	)		(11,886	)
Cash and cash equivalents at beginning of year		42,839			20,851
Cash and cash equivalents at end of year	$	15,006		$	8,965
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	5,837		$	5,794
Cash paid (refunded) during the period for income taxes, net		(964	)		2,122
Supplemental schedule of non-cash activities:
Floor plan debt paid in connection with store disposals		-			6,712

See accompanying notes to consolidated financial statement

5

LITHIA MOTORS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Interim Financial Statements

Basis of Presentation

These condensed Consolidated Financial Statements contain unaudited information as of March 31, 2013 and for the three-month periods ended March 31, 2013 and 2012. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our 2012 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2012 is derived from our 2012 Annual Report on Form 10-K. The interim condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our 2012 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements to maintain consistency and comparability between periods presented.

These reclassifications had no impact on previously reported net income.

Note 2. Accounts Receivable

Accounts receivable consisted of the following (in thousands):

	March 31, 2013			December 31, 2012
Contracts in transit	$	68,066		$	65,597
Trade receivables		27,682			25,885
Vehicle receivables		18,525			21,298
Manufacturer receivables		24,398			25,658
		138,671			138,438
Less: Allowance		(141	)		(336	)
Less: Long-term portion of trade receivables		(4,421	)		(4,953	)
Total accounts receivable, net	$	134,109		$	133,149

The long-term portion of trade receivables was included as a component of other non-current assets in the Consolidated Balance Sheets.

Note 3. Inventories

The components of inventory consisted of the following (in thousands):

	March 31, 2013		December 31, 2012
New vehicles	$	551,820	$	563,275
Used vehicles		132,616		130,529
Parts and accessories		29,685		29,522
Total inventories	$	714,121	$	723,326

6

Note 4. Goodwill

The changes in the carrying amounts of goodwill are as follows (in thousands):

	Goodwill
Balance as of December, 31, 2011, gross	$	318,224
Accumulated impairment loss		(299,266	)
Balance as of December 31, 2011, net		18,958
Additions through acquisitions		13,710
Goodwill allocated to dispositions		(621	)
Balance as of December 31, 2012, net		32,047
Additions through acquisitions		-
Goodwill allocated to dispositions		-
Balance as of March 31, 2013, net	$	32,047

Note 5. Commitments and Contingencies

Litigation

We are party to numerous legal proceedings arising in the normal course of our business. Although we do not anticipate that the resolution of legal proceedings arising in the normal course of business or the proceedings described below will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty.

Alaska Consumer Protection Act Claims

In December 2006, a suit was filed against us (Jackie Neese, et al vs. Lithia Chrysler Jeep of Anchorage, Inc, et al, Case No. 3AN-06-13341 CI), and in April, 2007, a second case (Jackie Neese, et al vs. Lithia Chrysler Jeep of Anchorage, Inc, et al, Case No. 3AN-06-4815 CI), in the Superior Court for the State of Alaska, Third Judicial District at Anchorage. These suits are now consolidated. In the suits, plaintiffs alleged that we, through our Alaska dealerships, engaged in three practices that purportedly violate Alaska consumer protection laws: (i) charging customers dealer fees and costs (including document preparation fees) not disclosed in the advertised price, (ii) failing to disclose the acquisition, mechanical and accident history of used vehicles or whether the vehicles were originally manufactured for sale in a foreign country, and (iii) engaging in deception, misrepresentation and fraud by providing to customers financing from third parties without disclosing that we receive a fee or discount for placing that loan (a “dealer reserve”). The suit seeks statutory damages of $500 for each violation or three times plaintiff’s actual damages, whichever is greater, and attorney fees and costs. The plaintiffs sought class action certification. Before and during the pendency of these suits, we engaged in settlement discussions with the State of Alaska through its Office of Attorney General with respect to the first two practices enumerated above. As a result of those discussions, we entered into a Consent Judgment subject to court approval and permitted potential class members to “opt-out” of the proposed settlement. Counsel for the plaintiffs attempted to intervene and, after various motions, hearings and an appeal to the state Court of Appeals, the Consent Judgment became final.   

Plaintiffs then filed a motion in November 2010 seeking certification of a class (i) for the 339 customers who “opted-out” of the state settlement, (ii) for those customers who did not qualify for recovery under the Consent Judgment but were allegedly eligible for recovery under the plaintiffs’ broader interpretation of the applicable statutes, and (iii) for those customers who arranged their vehicle financing through us, on the basis that the state’s suit against our dealerships did not address the dealer reserve claim. On June 14, 2011, the Trial Court granted plaintiffs’ motion to certify a class without addressing either the merits of the claims or the size of the classes. Discovery in this case is ongoing. We intend to defend the claims vigorously.

7

Note 6. Stockholders’ Equity

Reclassification From Accumulated Other Comprehensive Income (Loss)

The reclassification from accumulated other comprehensive income is as follows (in thousands):

	Three Months Ended March 31, 2013			Affected Line Item in the Consolidated Statements of Operations
Loss on cash flow hedges	$	(307	)	Floor plan interest expense
Taxes		117		Income tax provision
Loss on cash flow hedges, net	$	(190	)

See Note 9 for more details regarding our derivative contracts.

Share Repurchases

In August 2011, our Board of Directors authorized the repurchase of up to 2,000,000 shares of our Class A common stock.On July 20, 2012, our Board of Directors authorized the repurchase of 1,000,000 additional shares of our Class A common stock. We repurchased 127,900 shares of our Class A common stock during the first quarter of 2013 at an average price of $40.76 per share, for a total of $5.2 million. Through March 31, 2013, we have repurchased 1,273,047 shares and 1,726,953 shares remained available for repurchase. This authority to repurchase shares does not have an expiration date and we may continue to repurchase shares from time to time as conditions warrant.

In addition, 59,721 shares subject to equity awards were repurchased during the first quarter of 2013 at an average price of $45.04, for a total of $2.7 million, related to tax withholdings associated with the exercise of stock options or the vesting of restricted stock units.

Note 7. Deferred Compensation and Long-term Incentive Plan

We offer a deferred compensation and long-term incentive plan (the “LTIP”) to provide certain employees the ability to accumulate assets for retirement on a tax deferred basis. We may make discretionary contributions to the LTIP. Discretionary contributions vest between one and seven years based on the employee’s age and position. Additionally, a participant may defer a portion of his or her compensation and receive the deferred amount upon certain events, including termination or retirement.

In March 2013, we made a discretionary contribution of $2.0 million to the Plan. Participants will receive a guaranteed return of 5.25% in 2013. We recognized compensation expense related to the Plan of $0.3 million for the three months ended March 31, 2013 and 2012. As of March 31, 2013 and December 31, 2012, the balance due to participants was $4.4 million and $3.6 million, respectively, and was included as a component of other long-term liabilities in the Consolidated Balance Sheets.

Note 8. Fair Value Measurements

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:

· Level 1 – quoted prices in active markets for identical securities;

· Level 2 – other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment spreads and credit risk; and

· Level 3 – significant unobservable inputs, including our own assumptions in determining fair value.

The inputs or methodology used for valuing financial assets and liabilities are not necessarily an indication of the risk associated with investing in them.

8

We use the income approach to determine the fair value of our interest rate swaps using observable Level 2 market expectations at each measurement date and an income approach to convert estimated future cash flows to a single present value amount (discounted) assuming that participants are motivated, but not compelled, to transact. Level 2 inputs for the swap valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for fair value measurements. Key inputs, including the cash rates for very short term borrowings, futures rates for up to two years and LIBOR swap rates beyond the derivative maturity are used to predict future reset rates to discount those future cash flows to present value at the measurement date.

Inputs are collected from Bloomberg on the last market day of the period. The same method is used to determine the rate used to discount the future cash flows. The valuation of the interest rate swaps also takes into consideration our own, as well as the counterparty’s, risk of non-performance under the contract.

There were no changes to our valuation techniques during the three-month period ended March 31, 2013.

Assets and Liabilities Measured at Fair Value

Following are the disclosures related to our assets and (liabilities) that are measured at fair value (in thousands):

Fair Value at March 31, 2013	Level 1		Level 2			Level 3
Measured on a recurring basis:
Derivative contracts, net	$	-	$	(3,919	)	$	-

Fair Value at December 31, 2012	Level 1		Level 2			Level 3
Measured on a recurring basis:
Derivative contracts, net	$	-	$	(4,679	)	$	-

See Note 9 for more details regarding our derivative contracts.

Fair Value Disclosures for Financial Assets and Liabilities

We determined the carrying value of cash equivalents, accounts receivable, trade payables, accrued liabilities and short-term borrowings approximate their fair values because of the short term nature and current market rates of these instruments.  We believe the carrying value of our variable rate debt approximates fair value.

We have fixed rate debt and calculate the estimated fair value of our fixed rate debt using a discounted cash flow method. Using estimated current interest rates based on a similar risk profile and duration (Level 2), the fixed cash flows are discounted and summed to compute the fair value of the debt. As of March 31, 2013, this debt had maturity dates between November 2016 and May 2031. A summary of the aggregate carrying values and fair values of our long-term fixed interest rate debt is as follows (in thousands):

	March 31,  2013		December 31, 2012
Carrying value	$	132,567	$	130,469
Fair value		134,883		134,688

Note 9. Derivative Financial Instruments

We enter into interest rate swaps to fix a portion of our interest expense. We do not enter into derivative instruments for any purpose other than to manage interest rate exposure to fluctuations in the one-month LIBOR benchmark. That is, we do not engage in interest rate speculation using derivative instruments.

9

Typically, we designate all interest rate swaps as cash flow hedges and, accordingly, we record the change in fair value for the effective portion of these interest rate swaps in comprehensive income rather than net income until the underlying hedged transaction affects net income. If a swap is no longer designated as a cash flow hedge and the forecasted transaction remains probable or reasonably possible of occurring, the gain or loss recorded in accumulated other comprehensive loss is recognized in income as the forecasted transaction occurs. If the forecasted transaction is probable of not occurring, the gain or loss recorded in accumulated other comprehensive loss is recognized in income immediately.

At March 31, 2013 and December 31, 2012, the net fair value of all of our agreements totaled a liability of $3.9 million and $4.7 million, respectively, which was recorded on our Consolidated Balance Sheets as a component of accrued liabilities and other long-term liabilities. The estimated amount that we expect to reclassify as earnings within the next twelve months is $1.3 million at March 31, 2013.

As of March 31, 2013, we had outstanding the following interest rate swaps with U.S. Bank Dealer Commercial Services:

· $50 million interest rate swap at a fixed rate of 3.495% per annum, matures April 30, 2013; and

· $25 million interest rate swap at a fixed rate of 5.587% per annum, matures June 15, 2016.

We receive interest on all of the interest rate swaps at the one-month LIBOR rate. The one-month LIBOR rate at March 31, 2013 was 0.20% per annum, as reported in the Wall Street Journal.

At March 31, 2013 and December 31, 2012, the fair value of our derivative instruments was included in our Consolidated Balance Sheets as follows (in thousands):

Balance Sheet Information	Fair Value of Liability Derivatives
	Location in Balance Sheet	March 31, 2013
Derivatives Designated as Hedging Instruments
Interest Rate Swap Contracts	Accrued liabilities	$	1,351
	Other long-term liabilities		2,568
		$	3,919

Balance Sheet Information	Fair Value of Liability Derivatives
	Location in Balance Sheet	December 31, 2012
Derivatives Designated as Hedging Instruments
Interest Rate Swap Contracts	Accrued liabilities	$	1,839
	Other long-term liabilities		2,840
		$	4,679

10

The effect of derivative instruments on our Consolidated Statements of Operations for the three-month periods ended March 31, 2013 and 2012 was as follows (in thousands):

Derivatives in Cash Flow Hedging Relationships	Amount of Gain Recognized in Accumulated OCI (Effective Portion)		Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Three Months Ended March 31, 2013
Interest Rate Swap Contracts	$	514	Floor plan interest expense	$	(307	)	Floor plan interest expense	$	(594	)
Three Months Ended March 31, 2012
Interest Rate Swap Contracts	$	283	Floor plan interest expense	$	(408	)	Floor plan interest expense	$	(654	)

See also Note 8.

Note 10. Discontinued Operations

We classify a store as discontinued operations if the location has been sold, we have ceased operations at that location or the store meets the criteria required by U.S. generally accepted accounting standards:

· our management team, possessing the necessary authority, commits to a plan to sell the store;

· the store is available for immediate sale in its present condition;

· an active program to locate buyers and other actions that are required to sell the store are initiated;

· a market for the store exists and we believe its sale is likely within one year;

· active marketing of the store commences at a price that is reasonable in relation to the estimated fair market value; and

· our management team believes it is unlikely changes will be made to the plan or the plan to dispose of the store will be withdrawn.

We reclassify the store’s operations to discontinued operations in our Consolidated Statements of Operations, on a comparable basis for all periods presented, provided we do not expect to have any significant continuing involvement in the store’s operations after its disposal.

As of March 31, 2013, one of our stores continues to meet the criteria for classification of its assets and related liabilities as held for sale and its associated operating results are classified as discontinued operations.

Actual flooring interest expense for the store classified as discontinued operations is directly related to the store’s new vehicles. Interest expense related to our used vehicle inventory financing and revolving line of credit is allocated based on the working capital level of the store.

11

Certain financial information related to discontinued operations was as follows (in thousands):

	Three Months Ended March 31,
	2013			2012
Revenue	$	8,800		$	20,647
Gain from discontinued operations	$	284		$	257
Income tax expense		(111	)		(95	)
Income from discontinued operations, net of income tax expense	$	173		$	162

Assets held for sale included the following (in thousands):

	March 31, 2013		December 31, 2012
Inventories	$	9,828	$	9,412
Property, plant and equipment		1,103		1,102
Intangible assets		2,065		2,065
	$	12,996	$	12,579

Liabilities related to assets held for sale included the following (in thousands):

	March 31, 2013		December 31, 2012
Floor plan notes payable	$	8,662	$	8,347

Note 11. Net Income Per Share of Class A and Class B Common Stock

We compute net income per share of Class A and Class B common stock using the two-class method. Under this method, basic net income per share is computed using the weighted average number of common shares outstanding during the period excluding unvested common shares subject to repurchase or cancellation. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and unvested restricted shares subject to repurchase or cancellation. The dilutive effect of outstanding stock options and other grants is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net income per share of Class B common stock does not assume the conversion of those shares.

Except with respect to voting and transfer rights, the rights of the holders of our Class A and Class B common stock are identical. Our Articles of Incorporation require that the Class A and Class B common stock share equally in any dividends, liquidation proceeds or other distribution with respect to our common stock and the Articles of Incorporation can only be amended by a vote of the shareholders. Additionally, Oregon law provides that amendments to our Articles of Incorporation, which would have the effect of adversely altering the rights, powers or preferences of a given class of stock, must be approved by the class of stock adversely affected by the proposed amendment. As a result, the undistributed earnings for each year are allocated based on the participation rights of the Class A and Class B common shares as if the earnings for the year had been distributed. Because the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis.

12

Following is a reconciliation of the income from continuing operations and weighted average shares used for our basic earnings per share (“EPS”) and diluted EPS for the three-month periods ended March 31, 2013 and 2012 (in thousands, except per share amounts):

Three Months Ended March 31,	2013				2012
Basic EPS from Continuing Operations	Class A		Class B		Class A			Class B
Numerator:
Income from continuing operations applicable to common stockholders	$	19,525	$	2,357	$	14,235		$	2,399
Distributed income applicable to common stockholders		-		-		(1,552	)		(262	)
Basic undistributed income from continuing operations applicable to common stockholders	$	19,525	$	2,357	$	12,683		$	2,137
Denominator:
Weighted average number of shares outstanding used to calculate basic income per share		22,866		2,760		22,238			3,748
Basic income per share from continuing operations applicable to common stockholders	$	0.85	$	0.85	$	0.64		$	0.64
Basic distributed income per share from continuing operations applicable to common stockholders		-		-		(0.07	)		(0.07	)
Basic undistributed income per share from continuing operations applicable to common stockholders	$	0.85	$	0.85	$	0.57		$	0.57

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Three Months Ended March 31,	2013					2012
Diluted EPS from Continuing Operations	Class A		Class B			Class A			Class B
Numerator:
Distributed income applicable to common stockholders	$	-	$	-		$	1,552		$	262
Reallocation of distributed income as a result of conversion of dilutive stock options		-		-			5			(5	)
Reallocation of distributed income due to conversion of Class B to Class A common shares outstanding		-		-			257			-
Diluted distributed income applicable to common stockholders	$	-	$	-		$	1,814		$	257
Undistributed income from continuing operations applicable to common stockholders	$	19,525	$	2,357		$	12,683		$	2,137
Reallocation of undistributed income as a result of conversion of dilutive stock options		39		(39	)		39			(39	)
Reallocation of undistributed income due to conversion of Class B to Class A		2,318		-			2,098			-
Diluted undistributed income from continuing operations applicable to common stockholders	$	21,882	$	2,318		$	14,820		$	2,098
Denominator:
Weighted average number of shares outstanding used to calculate basic income per share from continuing operations		22,866		2,760			22,238			3,748
Weighted average number of shares from stock options		428		-			492			-
Conversion of Class B to Class A common shares outstanding		2,760		-			3,748			-
Weighted average number of shares outstanding used to calculate diluted income per share from continuing operations		26,054		2,760			26,478			3,748
Diluted income per share from continuing operations applicable to common stockholders	$	0.84	$	0.84		$	0.63		$	0.63
Diluted distributed income per share from continuing operations applicable to common stockholders		-		-			(0.07	)		(0.07	)
Diluted undistributed income per share from continuing operations applicable to common stockholders	$	0.84	$	0.84		$	0.56		$	0.56

Three Months Ended March 31,	2013				2012
Diluted EPS	Class A		Class B		Class A		Class B
Antidilutive Securities
Shares issuable pursuant to stock options not included since they were antidilutive		20		-		90		-

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Note 12. Subsequent Events

On April 22, 2013, our Board of Directors approved a dividend of $0.13 per share on our Class A and Class B Common stock related to our first quarter 2013 financial results. The dividend will total approximately $3.3 million and will be paid on May 24, 2013 to shareholders of record on May 10, 2013.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements and Risk Factors

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 Private Securities Litigation Reform Act of 1995. Generally, you can identify forward-looking statements by terms such as “project,” “target,” “may,” “will,” “should,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” and “continue” or the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. Important factors that could cause actual results to differ from our expectations are discussed in Part II - Other Information, Item 1A. in this Form 10-Q and in the Risk Factors section of our 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 Securities and Exchange Commission.

While we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. 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.

Overview

We are a leading operator of automotive franchises and a retailer of new and used vehicles and services. As of April 26, 2013, we offered 27 brands of new vehicles and all brands of used vehicles in 88 stores in the United States and online at Lithia.com. We sell new and used cars and replacement parts; provide vehicle maintenance, warranty, paint and repair services; and arrange related financing, service contracts, vehicle protection products and credit insurance.

Our mission statement is: “Driven by our employees and preferred by our customers, Lithia is the leading automotive retailer in each of our markets.” We offer our customers personal, convenient, flexible hometown service combined with the large company advantages of selection, competitive pricing, broad access to financing, consistent service, competence and guarantees. We strive for diversification in our products, services, brands and geographic locations to insulate us from market risk and to maintain profitability. We have developed a centralized support structure to reduce store level administrative functions. This allows store personnel to focus on providing a positive customer experience. With our management information systems and centrally-performed administrative functions in Medford, Oregon, we seek to gain economies of scale from our dealership network.

Results of Continuing Operations

For the three months ended March 31, 2013 and 2012, we reported income from continuing operations, net of tax, of $21.9 million, or $0.84 per diluted share, and $16.6 million, or $0.63 per diluted share, respectively.

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Discontinued Operations

Results for stores sold, closed or held for sale, qualifying for reclassification under the applicable accounting guidance, are presented as discontinued operations for all periods in our Consolidated Statements of Operations. As a result, our results from continuing operations are presented on a comparable basis.

The income from discontinued operations, net of tax for the three months ended March 31, 2013 and 2012 totaled $173,000 and $162,000, respectively. See Note 10 of the Condensed Notes to Consolidated Financial Statements for additional information.

Key Performance Metrics

Key performance metrics for revenue and gross profit were as follows for the three months ended March 31, 2013 and 2012 (dollars in thousands):

Three months ended March 31, 2013	Revenues		Percent of Total Revenues			Gross Profit		Gross Profit Margin			Percent of Total Gross Profit
New vehicle	$	493,441		54.6	%	$	34,647		7.0	%		23.7	%
Used vehicle retail		239,228		26.5			34,973		14.6			23.9
Used vehicle wholesale		39,506		4.4			974		2.5			0.6
Finance and insurance(1)		31,663		3.5			31,663		100.0			21.6
Service, body and parts		90,440		10.0			43,779		48.4			29.9
Fleet and other		8,802		1.0			402		4.6			0.3
	$	903,080		100.0	%	$	146,438		16.2	%		100.0	%

Three months ended March 31, 2012	Revenues		Percent of Total Revenues			Gross Profit		Gross Profit Margin			Percent of Total Gross Profit
New vehicle	$	392,946		53.2	%	$	30,252		7.7	%		24.3	%
Used vehicle retail		190,619		25.8			28,277		14.8			22.8
Used vehicle wholesale		33,357		4.5			397		1.2			0.3
Finance and insurance(1)		24,876		3.4			24,876		100.0			20.0
Service, body and parts		83,544		11.3			40,135		48.0			32.3
Fleet and other		12,904		1.8			397		3.1			0.3
	$	738,246		100.0	%	$	124,334		16.8	%		100.0	%

(1) Commissions reported net of anticipated cancellations.

Same Store Operating Data

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

A same store metric represents stores that were operating during the three-month period ended March 31, 2013, and only includes the months when operations occur in both comparable periods. For example, a store acquired in February 2012 would be included in same store operating data beginning in March 2013, after its first full complete comparable month of operation, and operating results for same store comparisons would include only the period of March for both comparable periods.

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New Vehicle Revenues

	Three Months Ended March 31,
(Dollars in thousands, except per unit amounts)	2013		2012		Increase		% Increase
Reported
Revenue	$	493,441	$	392,946	$	100,495		25.6	%
Retail units sold		14,720		12,138		2,582		21.3
Average selling price per retail unit	$	33,522	$	32,373	$	1,149		3.5
Same store
Revenue	$	474,019	$	388,466	$	85,553		22.0	%
Retail units sold		14,151		12,004		2,147		17.9
Average selling price per retail unit	$	33,497	$	32,361	$	1,136		3.5

New vehicle sales in the first quarter of 2013 improved compared to the first quarter of 2012 primarily due to volume growth as same store sales volume increased 17.9% in the three-month period ended March 31, 2013 compared to the same period in 2012.

The number of new vehicles sold in the U.S. during the first three months of 2013 grew approximately 6.4% over 2012. Growth in our domestic, import and luxury brand sales has outpaced the growth experienced nationally. Our domestic brand same store sales grew 23.3% for the three-month period ended March 31, 2013 compared to the same period in 2012. Same store sales for import brands and luxury brands grew 22.1% and 17.0%, respectively, for the three-month period ended March 31, 2013 compared to the same period in 2012. We continue to increase our share of overall new vehicle sales within our markets. Additionally, certain of our markets have seen an increase in local market sales volumes exceeding the national average.

Used Vehicle Retail Revenues

	Three Months Ended March 31,
(Dollars in thousands, except per unit amounts)	2013		2012		Increase		% Increase
Reported
Retail revenue	$	239,228	$	190,619	$	48,609		25.5	%
Retail units sold		13,661		11,207		2,454		21.9
Average selling price per retail unit	$	17,512	$	17,009	$	503		3.0
Same store
Retail revenue	$	227,748	$	187,500	$	40,248		21.5	%
Retail units sold		13,050		11,015		2,035		18.5
Average selling price per retail unit	$	17,452	$	17,022	$	430		2.5

Used vehicle retail sales are a strategic focus for organic growth. Our strategy is to offer three categories of used vehicles: manufacturer certified pre-owned used vehicles; core vehicles, late model vehicles with lower-mileage; and value autos, vehicles with over 80,000 miles.

During the three-month period ended March 31, 2013, sales increased in all three categories of used vehicles compared to the same period of 2012.

· Same store unit sales for manufacturer certified pre-owned used vehicles increased 32.4%. This category has higher average selling prices, but experiences a lower gross margin than the other categories.

· Same store unit sales for the late model, lower mileage vehicle category increased 9.6%. We believe this area provides an opportunity for organic growth. Our focus is on improving our results in this category as it has lagged the other two categories.

· Same store unit sales for the value auto category increased 28.4%. Value auto vehicles have lower average selling prices, but experience a higher gross margin than our other used vehicle categories. Additionally, value autos provide an organic opportunity to convert vehicles acquired via trade-in to retail used vehicle sales.

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Our retail used to new vehicle sales ratio was 0.9:1 for the three-month periods ended March 31, 2013 and 2012. On average, each of our stores currently sells approximately 52 retail used vehicle units per month and we target increasing average sales to 75 units per month.

Used Vehicle Wholesale Revenues

	Three Months Ended March 31,				Increase			% Increase
(Dollars in thousands, except per unit amounts)	2013		2012		(Decrease)			(Decrease)
Reported
Wholesale revenue	$	39,506	$	33,357	$	6,149			18.4	%
Wholesale units sold		5,324		4,481		843			18.8
Average selling price per wholesale unit	$	7,420	$	7,444	$	(24	)		(0.3	)
Same store
Wholesale revenue	$	36,436	$	32,743	$	3,693			11.3	%
Wholesale units sold		4,990		4,387		603			13.7
Average selling price per wholesale unit	$	7,302	$	7,464	$	(162	)		(2.2	)

Wholesale transactions are vehicles we have purchased from customers or vehicles we have attempted to sell via retail that we elect to dispose of due to inventory age or other factors. Wholesale vehicles are typically sold at or near inventory cost and do not comprise a meaningful component of our gross profit.

Finance and Insurance

	Three Months Ended March 31,						%
(Dollars in thousands, except per unit amounts)	2013		2012		Increase		Increase
Reported
Revenue	$	31,663	$	24,876	$	6,787		27.3	%
Average finance and insurance per retail unit	$	1,116	$	1,066	$	50		4.7	%
Same store
Revenue	$	29,978	$	23,969	$	6,009		25.1	%
Average finance and insurance per retail unit	$	1,102	$	1,041	$	61		5.9	%

The increase in finance and insurance sales was driven by increased vehicle sales volume in the three-month period ended March 31, 2013 compared to the same period of 2012. The availability of consumer credit continues to expand with lenders increasing the loan-to-value amount available to most customers. Additionally, we increased our penetration rate on arranging financing for our customers. As a result, our average revenue per unit increased. The shift in credit availability allowed us to sell additional or more comprehensive products, while remaining within a loan-to-value framework acceptable to our retail customer lenders.

Penetration rates were as follows:

	Three Months Ended March 31,
	2013			2012
Finance and insurance		77	%		75	%
Service contracts		41			41
Lifetime lube, oil and filter		35			37

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Service, Body and Parts Revenue

	Three Months Ended March 31,
(Dollars in thousands)	2013		2012		Increase		Increase
Reported
Customer pay	$	49,317	$	45,949	$	3,368		7.3	%
Warranty		14,341		12,895		1,446		11.2
Wholesale parts		17,350		16,271		1,079		6.6
Body shop		9,432		8,429		1,003		11.9
Total service, body and parts	$	90,440	$	83,544	$	6,896		8.3	%
Same store
Customer pay	$	47,596	$	45,183	$	2,413		5.3	%
Warranty		13,799		12,625		1,174		9.3
Wholesale parts		16,920		16,134		786		4.9
Body shop		9,432		8,424		1,008		12.0
Total service, body and parts	$	87,747	$	82,366	$	5,381		6.5	%

Our service, body and parts business continued to grow as we maintained our focus on retaining customers by offering competitively-priced routine maintenance and increased marketing efforts. Our same store customer pay business increased 5.3% in the three-month period ended March 31, 2013 compared to the same period in 2012.

In the first three months of 2013 compared to the same period of 2012, same store warranty sales increased 9.3%. Domestic brand warranty work increased 1.5%, import warranty work increased 18.0% and luxury warranty work increased 13.4%. This positive trend reflects the increasing new vehicle sales levels experienced each year since a low in 2009.

We continued to grow our wholesale parts and body shop sales in 2013, which represented 30.0% and 29.8% of our same store service, body and parts revenue mix in the first three months of 2013 and 2012, respectively, and grew 7.3% in the first quarter of 2013 compared to the first quarter of 2012. These categories allow for incremental organic growth. Because both wholesale parts and body shop margins are lower than service work, we expect gross margins may modestly decline as these areas of the business comprise a larger portion of the total.

Gross Profit

Gross profit increased $22.1 million in the three-month period ended March 31, 2013 compared to the same period in 2012 due to increased revenues, partially offset by declines in our overall gross profit margin.

Our gross profit margin by business line was as follows:

	Three Months Ended March 31,						Basis Point Change*
	2013			2012
New vehicle		7.0	%		7.7	%		(70	) bp
Used vehicle retail		14.6			14.8			(20	)
Used vehicle wholesale		2.5			1.2			130
Finance and insurance		100.0			100.0			-
Service, body and parts		48.4			48.0			40
Fleet and other		4.6			3.1			150
Overall		16.2	%		16.8	%		(60	)

* One basis point is equal to 1/100th of one percent.

Our overall gross profit margin decreased 60 basis points in the first quarter of 2013 compared to the same period of 2012. New vehicle margins decreased due to higher gross margins in the first quarter of 2012 as new vehicle supply had been limited due to the earthquake and tsunami in Japan. Additionally, in the first quarter of 2013, we continued to see gross margins decline as average selling prices increased faster than the average gross profit earned. Used vehicle retail margins decreased slightly in the first quarter of 2013 primarily due to a shift in mix of vehicles sold because value autos have a higher gross margin while certified pre-owned vehicles have a lower gross margin. Both categories of used vehicles experienced strong growth in the first three months of 2013, essentially offsetting each other. Service, body and parts margins increased compared to the prior year. This increase is due to the sales growth of our customer pay, warranty and body shop revenues outpacing the increase in our wholesale parts business, which experiences a lower gross margin. We believe our “single-point” strategy of maintaining franchise exclusivity within the markets we serve protects profitability and supports higher overall margin levels.

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Asset Impairment Charges

In the first three months of 2012, we recorded an impairment charge of $0.1 million associated with a long-lived asset for which the expected future use had changed.

Selling, General and Administrative Expense (“SG&A”)

SG&A includes salaries and related personnel expenses, advertising (net of manufacturer cooperative advertising credits), rent, facility costs, and other general corporate expenses.

	Three Months Ended March 31,				Increase			% Increase
(Dollars in thousands)	2013		2012		(Decrease)			(Decrease)
Personnel	$	67,133	$	58,520	$	8,613			14.7	%
Advertising		8,902		6,264		2,638			42.1
Rent		3,729		3,830		(101	)		(2.6	)
Facility costs		6,670		6,017		653			10.9
Other		14,697		13,808		889			6.4
Total SG&A	$	101,131	$	88,439	$	12,692			14.4	%

	Three Months Ended March 31,						Increase
As a % of gross profit	2013			2012			(Decrease)
Personnel		45.8	%		47.1	%	(130) bps
Advertising		6.1			5.0			110
Rent		2.5			3.1			(60	)
Facility costs		4.6			4.8			(20	)
Other		10.1			11.1			(100	)
Total SG&A		69.1	%		71.1	%	(200) bps

SG&A expense increased $12.7 million in the three-month period ended March 31, 2013 compared to the same period in 2012. This increase was primarily driven by increased variable costs associated with improved sales and an increase in advertising as we focused on gaining market share. These increases in costs were offset by a continued focus to reduce or maintain fixed costs and effectively manage variable costs.

SG&A as a percentage of gross profit was 69.1% compared to 71.1%, respectively, for the three months ended March 31, 2013 and 2012. As sales volume increases and we gain leverage in our cost structure, we anticipate maintaining SG&A as a percentage of gross profit in the high 60% range.

We also measure the leverage of our cost structure by evaluating throughput, which is the incremental percentage of gross profit retained after deducting SG&A expense.

	Three Months Ended March 31,									% of Change in
(Dollars in thousands)	2013			2012			Change			Gross Profit
Gross profit	$	146,438		$	124,334		$	22,104			100.0	%
SG&A expense		(101,131	)		(88,439	)		(12,692	)		(57.4	)
Throughput contribution							$	9,412			42.6	%

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	Three Months Ended March 31,									% of Change in
(Dollars in thousands)	2012			2011			Change			Gross Profit
Gross profit	$	124,334		$	99,659		$	24,675			100.0	%
SG&A expense		(88,439	)		(75,294	)		(13,145	)		(53.3	)
Throughput contribution							$	11,530			46.7	%

Throughput contributions for newly opened or acquired stores are on a ”first dollar” basis for the first twelve months of operations. We acquired four stores and opened three new stores since the first quarter of 2012 and, adjusting for these locations, our throughput contribution on a same store basis was estimated at 49.2% for the three-month period ended March 31, 2013 compared to the same period of 2012. We continue to target a same store throughput contribution of approximately 50%.

Depreciation and Amortization

Depreciation and amortization is comprised of depreciation expense related to buildings, significant remodels or betterments, furniture, tools, equipment and signage and amortization of certain intangible assets, including customer lists and non-compete agreements.

	Three Months Ended March 31,						%
(Dollars in thousands)	2013		2012		Increase		Increase
Depreciation and amortization	$	4,721	$	4,138	$	583		14.1	%

Depreciation and amortization for the three months ended March 31, 2013 increased compared to the same period of 2012 as we continue to invest in improvements of our store facilities and replacement of equipment, increasing the amount of depreciable assets and amortizable expenses. In the full year of 2012 and in the first quarter of 2013, we had capital expenditures of $64.6 million and $6.6 million, respectively.

Operating Income

Operating income in the three-month period ended March 31, 2013 was 4.5% of revenue compared to 4.3% of revenue in the comparable period of 2012. This improvement in operating margin is a result of continued cost control as we leverage our cost structure in an environment of improving sales.

Floor Plan Interest Expense and Floor Plan Assistance

Floor plan interest expense increased $0.5 million in the three-month period ended March 31, 2013 compared to the same period of 2012. Changes in the average outstanding balances on our floor plan facilities increased the expense $1.3 million and changes in the interest rate on our floor plan facility decreased the expense $0.6 million. Our interest rate swaps further decreased the expense $0.2 million.

Floor plan assistance is provided by manufacturers to support store financing of new vehicle inventory. Under accounting standards, floor plan assistance is recorded as a component of new vehicle gross profit when the specific vehicle is sold. However, because manufacturers provide this assistance to offset inventory carrying costs, we believe a comparison of floor plan interest expense to floor plan assistance is a useful measure of the efficiency of our new vehicle sales relative to stocking levels.

The following tables detail the carrying costs for new vehicles and include new vehicle floor plan interest net of floor plan assistance earned.

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	Three Months Ended March 31,								%
(Dollars in thousands)	2013			2012			Change		Change
Floor plan interest expense (new vehicles)	$	3,449		$	2,902		$	547		18.8	%
Floor plan assistance (included as an offset to cost of sales)		(4,411	)		(3,643	)		768		21.1
Net new vehicle carrying costs	$	(962	)	$	(741	)	$	221		29.8	%

Other Interest Expense

Other interest expense includes interest on debt incurred related to acquisitions, real estate mortgages and our used vehicle inventory financing facility and our revolving line of credit.

	Three Months Ended March 31,									%
(Dollars in thousands)	2013			2012			Decrease			Decrease
Mortgage interest	$	1,986		$	2,220		$	(234	)		(10.5	)%
Other interest		396			601			(205	)		(34.1	)
Capitalized interest		(21	)		(94	)		(73	)		(77.7	)
Total other interest expense	$	2,361		$	2,727		$	(366	)		(13.4	)%

Other interest expense decreased $0.4 million in the first quarter of 2013 compared to the same period of 2012. In the full year of 2012 and first quarter of 2013, we had net mortgage reductions of $1.5 million and $27.8 million, respectively, which contributed to the decrease. In addition, we refinanced mortgages at lower interest rates which lowered interest expense. Other interest expense also decreased due to lower volumes of borrowing on our credit facility.

Other Income, Net

Other income, net primarily includes interest income and the gains related to an equity investment. Other income, net was $0.8 million and $0.5 million for the three-month periods ended March 31, 2013 and 2012, respectively.

Income Tax Expense

Our effective income tax rate was 38.5% for the three-month period ended March 31, 2013 compared to 37.3% in the comparable period of 2012. For the full year of 2013, we anticipate our income tax rate will be approximately 39.1%.

Non-GAAP Reconciliations

We believe each of the non-GAAP financial measures below improves the transparency of our disclosures, provides a meaningful presentation of our results from core business operations because they exclude adjustments for items not related to our ongoing core business operations and other non-cash adjustments, and improves the period-to-period comparability of our results from the core business operations. Our management uses these measures in conjunction with GAAP financial measures to assess our business, including our compliance with covenants in our credit facility and in communications with our Board of Directors concerning financial performance. These measures should not be considered an alternative to GAAP measures.

We did not have any non-GAAP adjustments for the three months ended March 31, 2013.

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The following table reconciles certain reported non-GAAP measures to the most comparable GAAP measures from our Consolidated Statements of Operations (dollars in thousands, except per share amounts) for the three months ended March 31, 2012:

	Three Months Ended March 31, 2012
	As reported			Asset impairment and disposal gain			Equity investment			Tax attribute			Adjusted
Asset impairments	$	115		$	(115	)	$	-		$	-		$	-
Selling, general and administrative	$	88,439		$	739		$	-		$	-		$	89,178
Operating income	$	31,642		$	(624	)	$	-		$	-		$	31,018
Other income, net	$	498		$	-		$	(244	)	$	-		$	254
Income from continuing operations before income taxes	$	26,511		$	(624	)	$	(244	)	$	-		$	25,643
Income tax provision		(9,877	)		244			95			(493	)		(10,031	)
Income from continuing operations, net of income tax	$	16,634		$	(380	)	$	(149	)	$	(493	)	$	15,612
Diluted income per share from continuing operations	$	0.63		$	(0.01	)	$	(0.01	)	$	(0.02	)	$	0.59
Diluted share count		26,478

Liquidity and Capital Resources

We manage our liquidity and capital resources to fund future capital expenditures, working capital requirements and contractual obligations. Additionally, we use capital resources to fund cash dividend payments, share repurchases and acquisitions.

Available Sources

We have relied primarily on cash flows from operations, borrowings under our credit agreements, financing of real estate and the proceeds from equity and debt offerings to finance operations and expansion. Based on these factors and our normal operational cash flow, we believe we have sufficient availability to accommodate both our short- and long-term capital needs.

Below is a summary and discussion of our available funds (in thousands):

	As of March 31,		As of December 31,		Increase			% Increase
	2013		2012		(Decrease)			(Decrease)
Cash and cash equivalents	$	15,006	$	42,839	$	(27,833	)		(65.0	)%
Available credit on the credit facility		151,332		120,536		30,796			25.5
Total available funds	$	166,338	$	163,375	$	2,963			1.8	%

Historically, we have raised capital through the sale of assets, sale of stores, issuance of stock and the issuance of debt. We may strategically use excess cash to reduce the amount of debt outstanding when appropriate. During the three months ended March 31, 2013, we strategically utilized excess cash to pay down $25.8 million of outstanding mortgage debt.

We have the ability to raise funds through the financing of owned real estate. As of March 31, 2013, we had a book value of $148.8 million in unfinanced owned real estate. Assuming we can obtain financing on 75% of this value, we estimate we could have obtained additional funds of approximately $111.6 million at March 31, 2013; however, no assurances can be provided that the appraised value of this property will match or exceed its book value or that this capital source will be available on terms acceptable to us.

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In addition, we have an effective shelf registration statement with the SEC that allows us to offer for sale, from time to time and as the capital markets permit, up to $100 million in various forms of debt or equity securities. We have no immediate plans to access such funds, and no assurances can be provided this capital source will be available on terms acceptable to us.

In addition to the above sources of liquidity, potential sources include the placement of subordinated debentures or loans, additional store sales or additional other asset sales. We will evaluate all of these options and may select one or more of them depending on overall capital needs and the availability and cost of capital, although no assurances can be provided that these capital sources will be available in sufficient amounts or with terms acceptable to us.

Summary of Outstanding Balances on Credit Facilities and Long-Term Debt

Below is a summary of our outstanding balances on credit facilities and long-term debt (in thousands):

	Outstanding as of March 31, 2013		Remaining Available as of March 31, 2013
New vehicle floor plan commitment	$	567,981	$	-	(1),(4)
Floor plan notes payable		15,545		-	(4)
Used vehicle inventory financing facility		61,051		9,751	(3)
Revolving line of credit		-		141,581	(2),(3)
Real estate mortgages		165,169		-
Other debt		3,512		-
Liabilities associated with assets held for sale		8,662		-	(4)
Total debt	$	821,920	$	151,332

(1) We have a $575 million new vehicle floor plan commitment as part of our credit facility.

(2) Available credit is based on the borrowing base amount effective as of March 31, 2013. This amount is reduced by $3.4 million for outstanding letters of credit.

(3) The amount available on the credit facility is limited based on a borrowing base calculation and fluctuates monthly.

(4) As of March 31, 2013, an additional $7.0 million of floor plan notes payable outstanding on our new vehicle floor plan commitment and $1.7 million of floor plan notes payable on vehicles designated as service loaners were recorded as liabilities related to assets held for sale.

Credit Facility

We have an $800 million credit facility with a syndicate of 10 financial institutions, including four manufacturer-affiliated finance companies. This financing commitment is comprised of $575 million in new vehicle inventory floor plan financing, $80 million in used vehicle inventory financing and $145 million on a revolving line of credit for general corporate purposes, including acquisitions and working capital. All borrowings from, and repayments to, our syndicated lending group are presented in the Consolidated Statements of Cash Flows as financing activities.

The new vehicle floor plan financing commitment is collateralized by our new vehicle inventory. Our used vehicle inventory financing facility is collateralized by our used vehicle inventory that is less than 180 days old. Our revolving line of credit is secured by our outstanding receivables related to vehicle sales, other eligible receivables, parts and accessories and equipment. If the outstanding principal balance on our new vehicle inventory floor plan facility, plus requests on any day, exceeds 95% of the loan commitment, a portion of the revolving loan commitment must be reserved. The reserve amount is equal to the lesser of $15.0 million or the maximum revolving loan commitment less the outstanding balance on the loan less outstanding letters of credit. The reserve amount will decrease the revolving loan availability and may be used to repay the new vehicle floor plan balance.

The interest rate on the credit facility varies based on the type of debt with the rate ranging from the one-month LIBOR plus 1.5% to the one-month LIBOR plus 2.0%. Our financial covenants related to this credit facility include maintaining a current ratio of not less than 1.20x, a fixed charge coverage ratio of not less than 1.20x, a leverage ratio of not more than 5.0x and funded debt of not more than $375 million.

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New Vehicle Floor Plan Lines

We finance substantially all of our new vehicles through the new vehicle floor plan commitment component of our credit facility. We also have additional floor plan agreements with manufacturer-affiliated finance companies for vehicles that are designated for use as service loaners. Borrowings from, and repayments to, manufacturer-affiliated finance companies are classified as operating activities on the Consolidated Statements of Cash Flows.

The annual interest rate associated with our new vehicle floor plan commitment, excluding the effects of our interest rate swaps, was 1.7% at March 31, 2013.

Real Estate Mortgages and Other Debt

We have mortgages associated with our owned real estate. Interest rates related to this debt ranged from 1.8% to 5.9% at March 31, 2013. The mortgages are payable in various installments through May 2031. As of March 31, 2013, we had fixed interest rates on 78% of our outstanding mortgages.

Our other debt includes various notes, capital leases and obligations assumed as a result of acquisitions and other agreements and had interest rates that ranged from 2.0% to 9.0% at March 31, 2013. This debt, which totaled $3.5 million at March 31, 2013, is due in various installments through May 2019.

Debt Covenants

Under the terms of our credit facility and other debt agreements, we are subject to financial covenants and restrictive covenants that limit or restrict our incurring additional indebtedness, making investments, selling or acquiring assets and granting security interests in our assets.

Under our credit facility, we are required to maintain the ratios detailed in the following table:

Debt Covenant Ratio	Requirement	As of March 31, 2013
Current ratio	Not less than 1.20 to 1	1.42 to 1
Fixed charge coverage ratio	Not less than 1.20 to 1	2.57 to 1
Leverage ratio	Not more than 5.00 to 1	1.70 to 1
Funded debt restriction	Not to exceed $375 million	$168.7 million

We expect to remain in compliance with the financial and restrictive covenants in our credit facility and other debt agreements. However, no assurances can be provided that we will continue to remain in compliance with the financial and restrictive covenants.

If we do not meet the financial and restrictive covenants and are unable to remediate or cure the condition or obtain a waiver from our lenders, a breach would give rise to remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed. We also would trigger cross-defaults under other debt agreements.

Inventories

We calculate days supply of inventory based on current inventory levels, excluding in-transit vehicles, and a 30-day historical cost of sales level. As of March 31, 2013, our new vehicle days supply was 71, or ten days higher than our days supply as of March 31, 2012. The increase in our current new vehicle inventory levels is partly related to increasing the inventory of certain truck models prior to manufacturer-planned platform changes, when production is halted and additional vehicles are not available for several months. Our days supply of used vehicles was 46 days as of March 31, 2013, or two days lower than our days supply level as of March 31, 2012. We have continued to focus on managing our mix and maintaining an appropriate level of used vehicle inventory.

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Capital Expenditures

Capital expenditures were $6.6 million and $8.5 million for the three months ended March 31, 2013 and 2012, respectively. We anticipate approximately $55 million in capital expenditures for 2013. This amount is associated with image improvements, purchases of store facilities, purchases of previously leased facilities and replacement of equipment.

Many manufacturers provide assistance in the form of additional vehicle incentives if facilities meet image standards and requirements. We believe it is an attractive time to invest in facility upgrades and remodels that will generate additional manufacturer incentive payments. Also, tax laws allowing accelerated deductions for capital expenditures reduce the overall investment needed and encourage accelerated project timelines.

If we undertake a significant capital commitment in the future, we expect to pay for the commitment out of existing cash balances, construction financing and borrowings on our credit facility. Upon completion of the projects, we would anticipate securing long-term financing and general borrowings from third party lenders for 70% to 90% of the amounts expended, although no assurances can be provided that these financings will be available to us in sufficient amounts or on terms acceptable to us.

Dividends

Management evaluates performance and makes a recommendation to the Board of Directors on dividend payments on a quarterly basis. A dividend payment was paid in December 2012 in lieu of the dividend typically declared and paid in March of the following year. Accordingly, we did not pay dividends on our Class A and Class B common stock during the first quarter of 2013.

Our Board of Directors approved a dividend of $0.13 per share on our Class A and Class B common stock related to our first quarter 2013 financial results. The dividend will total approximately $3.3 million and will be paid on May 24, 2013 to shareholders of record on May 10, 2013.

Common Stock Repurchases

In August 2011, our Board of Directors authorized the repurchase of up to 2,000,000 shares of our Class A common stock. On July 20, 2012, our Board of Directors authorized the repurchase of 1,000,000 additional shares of our Class A common stock. We repurchased 127,900 shares of our Class A common stock during the first quarter of 2013 at an average price of $40.76 per share, for a total of $5.2 million. Through March 31, 2013, we have repurchased 1,273,047 shares and 1,726,953 shares remained available for repurchase. This authority to repurchase shares does not have an expiration date and we may continue to repurchase shares from time to time as conditions warrant.

In addition, 59,721 shares were repurchased during the first quarter of 2013 at an average price of $45.04, for a total of $2.7 million, related to the payment of taxes associated with the exercise of stock options or the vesting of restricted stock units.

Critical Accounting Policies and Use of Estimates

There have been no material changes in our critical accounting policies and use of estimates as described in our 2012 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 22, 2013. 

Seasonality and Quarterly Fluctuations

Historically, our sales have been lower in the first and fourth quarters of each year due to consumer purchasing patterns during the holiday season, inclement weather in certain of our markets and the reduced number of business days during the holiday season. As a result, financial performance is expected to be lower during the first and fourth quarters than during the second and third quarters of each fiscal year. We believe that interest rates, levels of consumer debt, consumer confidence and manufacturer sales incentives, as well as general economic conditions, also contribute to fluctuations in sales and operating results.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks or risk management policies since the filing of our 2012 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on February 22, 2013.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

Except as disclosed in Note 5 of the Condensed Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q, there have been no new proceedings or material changes to previously disclosed proceedings in our Annual Report on Form 10-K for the year ended December 31, 2012. The information in this Form 10-Q should be read in conjunction with the legal proceedings disclosed in that report, which was filed with the Securities and Exchange Commission on February 22, 2013.

Item 1A.  Risk Factors

Except for the risk factor set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012. The information below should be read in conjunction with the risk factors and information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on February 22, 2013.

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Government regulations and compliance costs may adversely affect our business, and the failure to comply could have a material adverse effect on our results of operations.

We are, and expect to continue to be, subject to a wide range of federal, state and local laws and regulations, including local licensing requirements. These laws regulate the conduct of our business, including:

· motor vehicle and retail installment sales practices;

· leasing;

· sales of finance, insurance and vehicle protection products;

· consumer credit;

· deceptive trade practices;

· consumer protection;

· consumer privacy;

· money laundering;

· advertising;

· land use and zoning;

· health and safety; and

· employment practices.

In every state in which we operate, we must obtain certain licenses issued by state authorities to operate our businesses, including dealer, sales, finance and insurance-related licenses. State laws also regulate our advertising, operating, financing, employment and sales practices. Other laws and regulations include state franchise laws and regulations and other extensive laws and regulations applicable to new and used automobile dealers. In some states, some of our practices must be approved by regulatory agencies which have broad discretion. The enactment of new laws and regulations that materially impair or restrict our sales, finance and insurance or other operations could have a material adverse effect on our business, results of operations, financial condition, cash flows and prospects.

Our financing activities are subject to federal truth-in-lending, consumer leasing and equal credit opportunity laws and regulations, as well as state and local motor vehicle finance laws, installment finance laws, insurance laws, usury laws and other installment sales laws and regulations. Some states regulate finance, documentation and administrative fees that may be charged in connection with vehicle sales. Claims arising out of actual or alleged violations of law may be asserted against us or our dealerships by individuals or governmental entities and may expose us to significant damages or other penalties, including revocation or suspension of our licenses to conduct dealership operations and fines. In recent years, private plaintiffs and state attorneys general in the United States have increased their scrutiny of advertising, sales, and finance and insurance activities in the sale and leasing of motor vehicles. These activities have led many lenders to limit the amounts that may be charged to customers as fee income for these activities. If these or similar activities were to significantly restrict our ability to generate revenue from arranging financing for our customers, we could be adversely affected.

The Dodd-Frank Wall Street Reform and Consumer Protection Act established the Consumer Financial Protection Bureau (CFPB), which has broad regulatory powers. Although the CFPB may not exercise its authority over an automotive dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both, the Dodd-Frank Act and future regulatory actions by this bureau could lead to additional, indirect regulation of automotive dealers through its regulation of automotive finance companies and other financial institutions, and it could affect our arrangements with lending sources.

In March 2013, the CFPB issued a bulletin suggesting that auto dealers who arrange credit through outside parties may be participating in a credit decision such that they are subject to the Equal Credit Opportunity Act, including its anti-discrimination provisions. In particular, the CFPB highlighted that the payment to a dealer of the excess of the interest rate the dealer negotiates with the customer over the rate at which the lender is willing to provide financing may encourage pricing disparities on the basis of race, national origin, or potentially other prohibited bases. This bulletin may affect the willingness of outsider lenders to continue these lending practices, and heightened focus on these arrangements may affect our relationships and agreements, including our indemnification obligations, with lenders, which could adversely affect our business.

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Our operations are also subject to the National Traffic and Motor Vehicle Safety Act, the Magnusson-Moss Warranty Act, Federal Motor Vehicle Safety Standards promulgated by the United States Department of Transportation and various state motor vehicle regulatory agencies. The imported automobiles we purchase are subject to U.S. customs duties and, in the ordinary course of our business, we may, from time to time, be subject to claims for duties, penalties, liquidated damages or other charges.

If we or any of our employees at any individual dealership violate or are alleged to violate laws and regulations applicable to them or protecting consumers generally, we could be subject to individual claims or consumer class actions, administrative, civil or criminal investigations or actions and adverse publicity. Such actions could expose us to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties, including suspension or revocation of our licenses and franchises to conduct dealership operations.

Likewise, employees and former employees are protected by a variety of employment-related laws and regulations relating to, among other things, wages and discrimination. Allegations of a violation could subject us to individual claims or consumer class actions, administrative investigations or adverse publicity. Such actions could expose us to substantial monetary damages and legal defense costs, injunctive relief and civil fines and penalties, and damage our reputation and sales.

Environmental laws and regulations govern, among other things, discharges into the air and water, storage of petroleum substances and chemicals, the handling and disposal of wastes and remediation of contamination arising from spills and releases. In addition, we may also have liability in connection with materials that were sent to third-party recycling, treatment and/or disposal facilities under federal and state statutes. These federal and state statutes impose liability for investigation and remediation of contamination without regard to fault or the legality of the conduct that contributed to the contamination. Similar to many of our competitors, we have incurred and expect to continue to incur capital and operating expenditures and other costs in complying with such federal and state statutes. In addition, we may be subject to broad liabilities arising out of contamination at our currently and formerly owned or operated facilities, at locations to which hazardous substances were transported from such facilities, and at such locations related to entities formerly affiliated with us. Although for some such potential liabilities we believe we are entitled to indemnification from other entities, we cannot assure you that such entities will view their obligations as we do or will be able or willing to satisfy them. Failure to comply with applicable laws and regulations, or significant additional expenditures required to maintain compliance therewith, may have a material adverse effect on our business, results of operations, financial condition, cash flows and prospects.

A significant judgment against us, the loss of a significant license or permit or the imposition of a significant fine could have a material adverse effect on our business, financial condition and future prospects. We further expect that, from time to time, new laws and regulations, particularly in the labor, employment, environmental and consumer protection areas will be enacted, and compliance with such laws, or penalties for failure to comply, could significantly increase our costs.

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

We repurchased the following shares of our Class A common stock during the first quarter of 2013:

	Total number of shares purchased			Average price paid per share		Total number of shares purchased as part of publicly announced plan(1)		Maximum number of shares that may yet be purchased under the plans
January 1 to January 31		-		$	-		-		1,854,853
February 1 to February 28		127,900			40.76		127,900		1,726,953
March 1 to March 31		59,721	(2)		45.04		-		1,726,953
Total		187,621			42.12		127,900		1,726,953

(1) In August 2011, our Board of Directors authorized the repurchase of up to 2,000,000 shares of our Class A common stock and on July 20, 2012, our Board of Directors authorized the repurchase of 1,000,000 additional shares of our Class A common stock. Through March 31, 2013, we have repurchased 1,273,047 shares at an average price of $24.18 per share. This authority to repurchase shares does not have an expiration date nor a maximum aggregate dollar amount for repurchases.

(2) These share repurchases relate to the payment of taxes associated with the exercise of stock options or the vesting of restricted stock units.

Item 6.  Exhibits

The following exhibits are filed herewith and this list is intended to constitute the exhibit index:

3.1	Restated Articles of Incorporation of Lithia Motors, Inc., as amended May 13, 1999 (incorporated by reference to exhibit 3.1 to our Form 10-K for the year ended December 31, 1999).
3.2	Amended and Restated Bylaws of Lithia Motors, Inc. (Corrected) (incorporated by reference to exhibit 3.2 to our Form 10-K for the year ended December 31, 2008).
10.1*	Form of Restricted Stock Unit Agreement (Performance and Time Vesting)
10.2*	Form of Restricted Stock Unit Agreement (Long Term Performance Vesting)
10.3*	Form of Restricted Stock Unit Agreement (Time Vesting) (for mid-level executives)
10.4*	Form of Restricted Stock Unit Agreement (Time Vesting) (for non-employee directors)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:   April 26, 2013	LITHIA MOTORS, INC.
	By:	/s/ Christopher S. Holzshu
	Christopher S. Holzshu
	Senior Vice President,
	Chief Financial Officer and Secretary
	(Principal Financial Officer)

By:	/s/ John F. North III
John F. North III
Vice President and
Corporate Controller
(Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

LITHIA MOTORS, INC.

RESTRICTED STOCK UNIT AGREEMENT

(Performance and Time Vesting)

This Restricted Stock Unit Agreement (“Agreement”) is entered into pursuant to the Amended and Restated 2003 Stock Incentive Plan (the “Plan”) as adopted by the Board of Directors and Shareholders of Lithia Motors, Inc., an Oregoncorporation (the “Company”) and as amended from time to time.  Unless otherwise defined herein, capitalized terms in this Agreement have the meanings as defined in the Plan. Any inconsistency between this Agreement and the terms and conditions of the Plan will be resolved in accordance with the Plan. Compensation paid pursuant to this Agreement is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986 (the “Code”).

“Recipient”
Number of Restricted Stock Units (“RSUs”)
“Date of Grant”	February 1, 2013

1.           GRANT OF RESTRICTED STOCK UNIT AWARD

1.1           The Grant.  The Company hereby awards to Recipient and Recipient accepts the award of RSUs specified above on the terms and conditions set forth in this Agreement and the Plan (the “Award”).  Each RSU represents the right to receive one share of Class A Common Stock of the Company (a “Share”) on an applicable Settlement Date (as defined in Section 1.3 of this Agreement), subject to the terms of this Agreement and the Plan.

1.2           Forfeiture; Vesting; Clawback.  The RSUs are subject to forfeiture in accordance with the performance criteria specified in Section 1.2(a) of this Agreement. Any RSUs not forfeited will vest according to the schedule set forth in Section 1.2(b) of this Agreement.  The RSUs, the Shares issued upon vesting of the RSUs and any proceeds received upon the sale of the Shares are subject to recovery by the Company as specified in Section 1.2(c) of this Agreement.

(a)           Forfeiture.

(i)           The RSUs are subject to forfeiture based on the Company’s 2013 Proforma earnings per share (the “2013 Proforma EPS”). The number of RSUs that will be forfeited is determined according to the highest earnings per share threshold set forth on the table below (each, an “EPS Threshold”) that the 2013 Proforma EPS meets or exceeds.  The table below specifies the applicable percentage of RSUs that will be retained (the “Earned RSUs”), subject to adjustment as provided in Section 1.2(a)(ii), at the specified EPS Threshold. When the Committee certifies the number of Earned RSUs as provided in Section 1.2(a)(iii), all RSUs that are not Earned RSUs are forfeited.

EPS Threshold	Percentage of Earned RSUs
$  3.53 (highest)	100%
$  3.45	90%
$  3.37	80%
$  3.29	70%
$  3.21	60%
$  3.13	50%
$  3.05	40%
$  0.01	30%
$  0.00 or negative earnings per share (lowest)	0%

(ii)           If the 2013 Proforma EPS is at least $3.05 and falls between the EPS Thresholds specified in the table above, the percentage of Earned RSUs will be determined on a pro-rata basis and the number of Earned RSUs will be rounded to the nearest whole RSU.  If the 2013 Proforma EPS is positive but less than $3.05, the percentage of Earned RSUs will not exceed 30%.

Example 1:  If the 2013 Proforma EPS is $3.27, the percentage of Earned RSUs would be 60% plus an additional percentage calculated as follows:  (a) the amount by which 2013 Proforma EPS exceeds the highest applicable EPS Threshold multiplied by (b) a fraction, (i) the numerator of which is 10% and the (ii) denominator of which is the difference between the highest applicable EPS Threshold and the next-highest EPS Threshold that was exceeded (in this example, $3.29 - $3.21 = $0.08):

$0.06 (10%/$0.08) = 7.5%

The resulting percentage of Earned RSUs correlating to an EPS of $3.27 would be 67.5%.  If the Award were 1,000 RSUs, the number of Earned RSUs would be 67.5% of 1,000, or 675 RSUs. The number of forfeited RSUs would be 1,000 minus 675, or 325. The Earned RSUs would be subject to the vesting according to the schedule specified in Section 1.2(b) of this Agreement.

(iii)           The 2013 Proforma EPS will be calculated by deducting from the Company’s consolidated earnings per share (as set forth in the audited consolidated statement of income for the Company and its subsidiaries for the year) the following, in each case related to non-operational transactions or disposal activities:

i.          gains or losses on the sale of real estate or stores;

ii.          asset impairments;

iii.         income tax adjustments.

As soon as practicable, the Director of Internal Audit of the Company shall calculate the 2013 Proforma EPS, and shall submit those calculations to the Committee.  At or prior to the regularly scheduled meeting of the Committee held in the first fiscal quarter of 2014, the Committee shall certify in writing (which may consist of approved minutes of the meeting) the 2013 Proforma EPS and the number of Earned RSUs.  Unless otherwise required under this Agreement, no Shares or other amounts shall be delivered or paid unless the Committee certifies the 2013 Proforma EPS and the number of Earned RSUs.

(b)           Vesting.  Any Earned RSUs shall vest subject to the continued employment of Recipient with the Company or any Subsidiary through the vesting dates set forth in the table below (each, a “Vesting Date”).  The number of Shares to which Recipient is entitled on each Vesting Date shall be rounded up to the nearest whole Share (except for the last Vesting Date, on which all remaining RSUs shall vest).

2

Vesting Date	Vesting of Award
February 1, 2014	25%
February 1, 2015	25%
February 1, 2016	25%
February 1, 2017	25%

Example 2:  If there are 675 Earned RSUs as described in Example 1, above, they would vest and entitle Recipient to receive Shares as follows.
	Vesting Date	Vesting of Award	Shares
	February 1, 2014	25%	169
	February 1, 2015	25%	169
	February 1, 2016	25%	169
	February 1, 2017	25%	168

(c)           Clawback.  If the Company’s financial statements are restated at any time within three years after the Committee certifies the number of Earned RSUs under Section 1.2(a)(iii) of this Agreement, the 2013 Proforma EPS shall be recalculated (the resulting number, the “Recalculated 2013 Proforma EPS”) based on the restated financial statements. If, based on the Company’s restated financial statements, the Recalculated 2013 Proforma EPS is less than the 2013 Proforma EPS that the Committee previously certified, (i) any Earned RSUs subject to vesting shall be adjusted to reflect the number of RSUs that would have been Earned RSUs based on the Recalculated 2013 Proforma EPS and (ii) Recipient shall repay to the Company a number of Shares calculated by subtracting the number of Shares Recipient should have received based on the Recalculated 2013 Proforma EPS from the number of Shares Recipient received under this Award (the “Excess Shares”) and any dividend paid on the Excess Shares (the “Excess Dividends”).  If any Excess Shares are sold by Recipient before the Company’s demand for repayment (including any Shares withheld for taxes under Section 4 of this Agreement), Recipient shall repay to the Company 100% of the proceeds of such sale or sales.  The Committee may, in its sole discretion, reduce the amount to be repaid by Recipient to take into account the tax consequences of such repayment for Recipient.

If any portion of the Excess Shares and Excess Dividends was deferred under the RSU Deferral Plan effective January 1, 2012 (the “Deferral Plan”), that portion shall be recovered by canceling the amounts so deferred under the Deferral Plan and any dividends or other earnings credited under the Deferral Plan with respect to such cancelled amounts.  The Company may seek direct repayment from Recipient of any Excess Shares, Excess Dividends and proceeds not so recovered and may, to the extent permitted by applicable law, offset such amounts against any compensation or other amounts owed by the Company to Recipient.  In particular, such amounts may be recovered by offset against the after-tax proceeds of deferred compensation payouts under the Company’s Deferred Compensation Plan, the Company’s Supplemental Executive Retirement Plan at the times such deferred compensation payouts occur under the terms of those plans.  Amounts that remain unpaid for more than 60 days after demand by the Company shall accrue interest at the rate used from time to time for crediting interest under the Deferred Compensation Plan.

1.3           Settlement of Earned RSUs.  There is no obligation for the Company to make payments or distributions with respect to RSUs except for the distribution of Shares with respect to Earned RSUs after the applicable Vesting Date. The Company’s issuance of one Share for each vested Earned RSU (“Settlement”) may be subject to such conditions, restrictions and contingencies as the Committee shall determine.  The Company agrees not to exercise its right under the Plan to settle Earned RSUs in any medium other than Shares.  Unless receipt of the Shares is validly deferred pursuant to the RSU Deferral Plan effective January 1, 2012, Earned RSUs shall be settled as soon as practicable after the  applicable Vesting Date (each date of Settlement, a “Settlement Date”), but in no event later than March 15 of the calendar year following the calendar year in which the Vesting Date occurs.  Notwithstanding the foregoing, the payment dates set forth in this Section 1.3 have been specified for the purpose of complying with the short-term deferral exception under Code Section 409A, and to the extent payments are made during the periods permitted under Code Section 409A (including applicable periods before or after the specified payment dates set forth in this Section 1.3), the Company shall be deemed to have satisfied its obligations under the Plan and shall be deemed not to be in breach of its payment obligations hereunder.

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1.4           Termination of Recipient’s Employment.

(a)           Voluntary or Involuntary Termination.  Except as otherwise provided in this Section 1.4, if Recipient’s employment with the Company or any Subsidiary terminates as a result of a voluntary or involuntary termination, all outstanding unvested RSUs (whether or not determined to be Earned RSUs) shall immediately be forfeited.

(b)           Death.  If Recipient’s employment with the Company or any Subsidiary terminates as a result of Recipient’s death, Recipient shall become vested in a prorated number of Earned RSUs.  The prorated portion of the Earned RSUs that is vested as of Recipient’s death shall be the total number of Earned RSUs multiplied by a fraction, the numerator of which shall be the number of full months elapsed from the Date of Grant through the date of Recipient’s death, and the denominator of which shall be 48.  The Vesting Date for additional RSU vesting under this Section 1.4(b) shall be the date of Recipient’s death.

(c)           Disability.  If Recipient becomes Disabled while employed by the Company or a Subsidiary, Earned RSUs shall continue to vest as scheduled in Section 1.2 of this Agreement for so long as Recipient remains Disabled.  If Recipient dies after having become Disabled, Section 1.4(b) of this Agreement shall apply.

(d)           Qualified Retirement.  If Recipient terminates employment due to a Qualified Retirement, Recipient shall become vested in a prorated number of Earned RSUs.  A “Qualified Retirement” means the  Recipient voluntarily terminates employment on or after Recipient attains age 65 and has at least four complete years of employment with the Company or a Subsidiary.  The prorated portion of the Earned RSUs that is vested as of Recipient’s Qualified Retirement  shall be the total number of Earned RSUs multiplied by a fraction, the numerator of which shall be the number of full months elapsed from the Date of Grant through the date of Recipient’s Qualified Retirement, and the denominator of which shall be 48.

Notwithstanding anything in this Agreement to the contrary, in no event will any Settlement occur prior to the applicable Vesting Date.

1.5           Effect of Leaves of Absence on RSU Vesting. Notwithstanding anything in this Agreement to the contrary:

(a)           No RSUs will vest while Recipient is on an unpaid leave of absence; and

(b)           The vesting schedule in Section 1.2(b) of this Agreement shall automatically be extended by the duration of any unpaid leave of absence in excess of 90 days.

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2.           REPRESENTATIONS AND COVENANTS OF RECIPIENT

2.1           No Representations by or on Behalf of the Company.  Recipient is not relying on any representation, warranty or statement made by the Company or any agent, employee or officer, director, shareholder or other controlling person of the Company regarding the RSUs or this Agreement.

2.2           Tax Considerations.  The Company has advised Recipient to seek Recipient’s own tax and financial advice with regard to the federal and state tax considerations resulting from Recipient’s receipt of the Award and Recipient’s receipt of the Shares upon Settlement of the vested portion of the Award.  Recipient understands that the Company, to the extent required by law, will report to appropriate taxing authorities the payment to Recipient of compensation income upon the Settlement of RSUs under the Award and Recipient shall be solely responsible for the payment of all federal and state taxes resulting from such Settlement.

2.3           Agreement to Enter into Lock-Up Agreement with an Underwriter.  Recipient understands and agrees that whenever the Company undertakes a firmly underwritten public offering of its securities, Recipient will, if requested to do so by the managing underwriter in such offering, enter into an agreement not to sell or dispose of any securities of the Company owned or controlled by Recipient, including any the RSUs, provided that such restriction will not extend beyond 12 months from the effective date of the registration statement filed in connection with such offering.

3.           GENERAL RESTRICTIONS OF TRANSFERS OF UNVESTED RSUS

3.1           No Transfers of Unvested RSUs.  Except for a transfer upon Recipient’s death, Recipient agrees for himself or herself, his or her executors, administrators and other successors in interest that none of the RSUs, nor any interest therein, may be voluntarily or involuntarily sold, transferred, assigned, donated, pledged, hypothecated or otherwise disposed of, gratuitously or for consideration prior to their vesting in accordance with this Agreement.

3.2           Award Adjustments.  The number of RSUs granted under this Award shall, at the discretion of the Committee, be subject to adjustment under the Plan in the event the outstanding shares of Common Stock are hereafter increased, decreased, changed into or exchanged for a different number or kind of shares of Common Stock or for other securities of the Company or of another corporation, by reason of any reorganization, merger, consolidation, reclassification, stock split up, combination of shares of Common Stock, or dividend payable in shares of Common Stock or other securities of the Company.  If Recipient receives any additional RSUs pursuant to the Plan, such additional (or other) RSUs shall be deemed granted hereunder and shall be subject to the same restrictions and obligations on the RSUs as originally granted as imposed by this Agreement.

3.3           Invalid Transfers.  Any disposition of the RSUs other than in strict compliance with the provisions of this Agreement shall be void.

4.           PAYMENT OF TAX WITHHOLDING AMOUNTS.  To the extent the Company is responsible for withholding income taxes, upon the vesting of the Award Recipient must pay to the Company or make adequate provision for the payment of all Tax Withholding.  It is expected that the Award will vest under Section 1.2 of this Agreement during a period in which trading is not permitted under the Company’s insider trading policy.  To satisfy the Tax Withholding requirement, Recipient irrevocably elects to settle the Tax Withholding obligation by the Company withholding a number of Shares otherwise deliverable upon vesting having a market value sufficient to satisfy the statutory minimum tax withholding of Recipient.  If the Company later determines that additional Tax Withholding was or has become required beyond any amount paid or provided for by Recipient, Recipient will pay such additional amount to the Company immediately upon demand by the Company.  If Recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to Recipient.

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5.           MISCELLANEOUS PROVISIONS

5.1           Amendment and Modification.  Except as otherwise provided by the Plan, this Agreement may be amended, modified and supplemented only by written agreement of all of the parties hereto.

5.2           Assignment.  This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by Recipient without the prior written consent of the Company.

5.3           Governing Law.  To the extent not preempted by federal law, this Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the internal laws of the State of Oregon applicable to the construction and enforcement of contracts wholly executed in Oregon by residents of Oregon and wholly performed in Oregon.  Any action or proceeding brought by any party hereto shall be brought only in a state or federal court of competent jurisdiction located in the County of Multnomah in the State of Oregon and all parties hereto hereby submit to the in personal jurisdiction of such court for purposes of any such action or procedure.

5.4           Arbitration.  The parties agree to submit any dispute arising under this Agreement to final, binding, private arbitration in Portland, Oregon.  This includes not only disputes about the meaning or performance of the Agreement, but disputes about its negotiation, drafting, or execution.  The dispute will be determined by a single arbitrator in accordance with the then-existing rules of arbitration procedure of Multnomah County, Oregon Circuit Court, except that there shall be no right of de novo review in Circuit Court and the arbitrator may charge his or her standard arbitration fees rather than the fees prescribed in the Multnomah County Circuit Court arbitration procedures.  The proceeding will be commenced by the filing of a civil complaint in Multnomah County Circuit Court and a simultaneous request for transfer to arbitration. The parties expressly agree that they may choose an arbitrator who is not on the list provided by the Multnomah County Circuit Court Arbitration Department, but if they are unable to agree upon the single arbitrator within ten days of receipt of the Arbitration Department list, they will ask the Arbitration Department to make the selection for them.  The arbitrator will have full authority to determine all issues, including arbitrability, to award any remedy, including permanent injunctive relief, and to determine any request for costs and expenses in accordance with Section 5.5 of this Agreement.  The arbitrator’s award may be reduced to final judgment in Multnomah County Circuit Court.  The complaining party shall bear the arbitration expenses and may seek their recovery if it prevails.  Notwithstanding any other provision of this Agreement, an aggrieved party may seek a temporary restraining order or preliminary injunction in Multnomah County Circuit Court to preserve the status quo during the arbitration proceeding.

5.5           Attorney Fees.  If any suit, action, or proceeding is instituted in connection with any controversy arising out of this Agreement or the enforcement of any right hereunder, the prevailing party will be entitled to recover, in addition to costs, such sums as the court or arbitrator may adjudge reasonable as attorney fees, including fees on any appeal.

5.6           Headings.  The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not constitute a part hereof.

5.7           Entire Agreement.  This Agreement and the Plan embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein and supersedes all prior written or oral communications or agreements all of which are merged herein.  There are no restrictions, promises, warranties, covenants, or undertakings, other than those expressly set forth or referred to herein.

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5.8           No Waiver.  No waiver of any provision of this Agreement or any rights or obligations of any party hereunder shall be effective, except pursuant to a written instrument signed by the party or parties waiving compliance, and any such waiver shall be effective only in the specific instance and for the specific purpose stated in such writing.

5.9           Severability of Provisions.  In the event that any provision hereof is found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable according to its terms.

5.10           Incorporation by Reference, Etc.  The provisions of the Plan are hereby incorporated herein by reference.  Except as otherwise set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan.  The Committee shall have the final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be final, binding and conclusive upon Recipient and his or her legal representative in respect to any questions arising under the Plan or this Agreement.

5.11           Notices.  All notices or other communications pursuant to this Agreement shall be in writing and shall be deemed duly given if delivered personally or by courier service, or if mailed by certified mail, return receipt requested, prepaid and addressed to the Company executive offices to the attention of the Corporate Secretary, or if to Recipient, to the address maintained by the personnel department, or such other address as such party shall have furnished to the other party in writing.

5.12           Acceptance of Agreement. Unless Recipient notifies the Corporate Secretary in writing within 14 days after the Date of Grant that Recipient does not wish to accept this Agreement, Recipient will be deemed to have accepted this Agreement and will be bound by the terms of this Agreement and the Plan.

5.13           No Right of Employment.  Nothing contained in the Plan or this Agreement shall be construed as giving Recipient any right to be retained, in any position, as an employee of the Company or any Subsidiary.

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Recipient and the Company have executed this Agreement effective as of the Grant Date.

RECIPIENT
                                                                                  

Signature

Type or Print Name:                               

Social Security Number:      

COMPANY                                                           LITHIA MOTORS, INC.

By: 

      Chris Holzshu, CFO

* Please take the time to read and understand this Agreement in its entirety.  If you have any specific questions or do not fully understand any of the provisions, please contact Chris Holzshu in writing within 10 days of receipt of this Agreement.

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EX-10.2

Exhibit 10.2

LITHIA MOTORS, INC.

RESTRICTED STOCK UNIT AGREEMENT

(Long Term Performance Vesting)

This Restricted Stock Unit Agreement (“Agreement”) is entered into pursuant to the Amended and Restated 2003 Stock Incentive Plan (the “Plan”) as adopted by the Board of Directors and Shareholders of Lithia Motors, Inc., an Oregoncorporation (the “Company”) and as amended from time to time.  Unless otherwise defined herein, capitalized terms defined in this Agreement shall have the meanings as defined in the Plan. Any inconsistency between this Agreement and the terms and conditions of the Plan will be resolved in accordance with the Plan. Compensation paid pursuant to this Agreement is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986 (the “Code”).

“Recipient”
Number of Restricted Stock Units (“RSUs”)
“Date of Grant”	February 1, 2013

1.           GRANT OF RESTRICTED STOCK UNIT AWARD

1.1           The Grant.  The Company hereby awards to Recipient and Recipient accepts the award of RSUs specified above on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan (the “Award”).  Each RSU represents the right to receive one share of Class A Common Stock of the Company (a “Share”) on an applicable Settlement Date (as defined in Section 1.4 of this Agreement), subject to the terms of this Agreement and the Plan.

1.2           Forfeiture; Vesting.

(a)           Forfeiture.  The RSUs are subject to forfeiture in accordance with the performance criteria specified in Section 1.2(b) of this Agreement. On the date that is the sixth anniversary of the Date of Grant, any RSUs that are not vested are forfeited.

(b)           Vesting.  Subject to the continued employment of Recipient with the Company or any Subsidiary, a percentage of the RSUs shall vest, and no longer be subject to forfeiture, on February 1 of the year following the fiscal year in which the Company’s Pro Forma EPS (as defined in Section 1.2(c)) for the fiscal year meets or exceeds the performance thresholds (each an “EPS Threshold”) outlined in the following table.

EPS Threshold	Corresponding Vesting Percentage
$  4.00	33%
$  5.00	33%
$  6.00	34%

The number of RSUs that vest at any given time shall be rounded to the nearest whole RSU, except that if EPS meets or exceeds $6.00, all unvested RSUs shall vest. If more than one EPS Threshold is met or exceeded that was not met or exceeded previously, the corresponding vesting percentages for each EPS Threshold met or exceeded may be added together. Notwithstanding anything to the contrary, once the EPS meets or exceeds any particular EPS Threshold and RSUs are vested accordingly, no additional RSUs may vest in connection with EPS meeting or exceeding that particular EPS Threshold again.

Example 1:  For fiscal year 2013, the $4.00 EPS Threshold was not met or exceeded. For fiscal year 2014, the Company’s Pro Forma EPS is $5.00. Because $5.00 is equal to the $5.00 EPS Threshold and greater than the $4.00 EPS Threshold, and because the $4.00 EPS Threshold was not previously met or exceeded, 66% (the corresponding vesting percentages for the $4.00 EPS Threshold and the $5.00 EPS Threshold, added together) of the RSUs vest effective February 1, 2015. If the Award were 1,000 RSUs, then 660 RSUs would vest effective February 1, 2015.

 Example 2:  For fiscal year 2013, the Company’s Pro Forma EPS is $4.50. Because $4.50 is higher than the $4.00 EPS Threshold, 33% of the RSUs vest effective February 1, 2014. If the Award were 1,000 RSUs, then 330 RSUs would vest on February 1, 2014. For fiscal year 2014, the Company’s earnings per share again is $4.50. While $4.50 is higher than the $4.00 EPS Threshold, 33% of the RSUs already vested because the Company’s earnings per share exceeded the $4.00 EPS Threshold for fiscal year 2013. Therefore, no additional RSUs vest effective February 1, 2015. For fiscal year 2015, the Company’s Pro Forma EPS is $6.00. Because EPS met or exceeded $6.00, all remaining RSUs, or 670 RSUs, vest effective February 1, 2016.

(c)           Calculation of Pro Forma EPS.  “Pro Forma EPS” means the Company’s diluted income (loss) per share from continuing operations, as set forth in the audited consolidated statement of income for the Company and its subsidiaries for the fiscal year, minus the following items, which in each case relate to non-operational transactions or disposal activities:

i.             asset impairment and disposal gain;

ii.           gains or losses on the sale of real estate or stores;

iii.          gains or losses on equity investment;

iv.           related income tax adjustments.

As soon as practicable after each fiscal year, the Director of Internal Audit of the Company shall calculate the Pro Forma EPS, and shall submit those calculations to the Committee.  At or prior to the regularly scheduled meeting of the Committee held in the first fiscal quarter, the Committee shall certify in writing (which may consist of approved minutes of the meeting) the Pro Forma EPS attained for the prior fiscal year. No Shares or other amounts shall be delivered or paid unless the Committee certifies the Pro Forma EPS.

1.3           Clawback. If the Company’s financial statements are restated within three years after it is determined that any EPS Threshold has been met or exceeded, the EPS for the applicable period shall be recalculated (the resulting number, the “Recalculated EPS”) based on the Company’s restated financial statements. If the Recalculated EPS is less than the EPS calculated before the Company’s financial statements were restated, Recipient shall repay to the Company the number of Shares calculated by subtracting the number of Shares Recipient would have received based on the Recalculated EPS from the number of Shares Recipient received (the “Excess Shares”) and any dividend paid on the Excess Shares (the “Excess Dividends”).  If any Excess Shares are sold by Recipient before the Company’s demand for repayment (including any Shares withheld for taxes under Section 4 of this Agreement), Recipient shall repay to the Company 100% of the proceeds of such sale or sales.  The Committee may, in its sole discretion, reduce the amount to be repaid by Recipient to take into account the tax consequences of such repayment for Recipient.

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If any portion of the Excess Shares and Excess Dividends was deferred under the RSU Deferral Plan effective January 1, 2012 (the “Deferral Plan”), that portion shall be recovered by canceling the amounts so deferred under the Deferral Plan and any dividends or other earnings credited under the Deferral Plan with respect to such cancelled amounts.  The Company may seek direct repayment from Recipient of any Excess Shares, Excess Dividends and proceeds not so recovered and may, to the extent permitted by applicable law, offset such amounts against any compensation or other amounts owed by the Company to Recipient.  In particular, such amounts may be recovered by offset against the after-tax proceeds of deferred compensation payouts under the Company’s Deferred Compensation Plan, the Company’s Supplemental Executive Retirement Plan at the times such deferred compensation payouts occur under the terms of those plans.  Amounts that remain unpaid for more than 60 days after demand by the Company shall accrue interest at the rate used from time to time for crediting interest under the Deferred Compensation Plan.

1.4           Settlement of RSUs.  There is no obligation for the Company to make payments or distributions with respect to RSUs except for the distribution of Shares with respect to vested RSUs. The issuance of one Share for each vested RSU (the “Settlement”) may be subject to such conditions, restrictions and contingencies as the Committee shall determine.  The Company agrees not to exercise its right under the Plan to settle the RSUs in any medium other than Shares.  Unless receipt of the Shares is validly deferred pursuant to the RSU Deferral Plan effective January 1, 2012, RSUs shall be settled as soon as practicable after they have vested (each date of Settlement, a “Settlement Date”), but in no event later than March 15 of the calendar year following the calendar year in which the RSUs vested.  Notwithstanding the foregoing, the payment dates set forth in this Section 1.4 have been specified for the purpose of complying with the short-term deferral exception under Code Section 409A, and to the extent payments are made during the periods permitted under Code Section 409A (including applicable periods before or after the specified payment dates set forth in this Section 1.4), the Company shall be deemed to have satisfied its obligations under the Plan and shall be deemed not to be in breach of its payment obligations hereunder.

1.5           Termination of Recipient’s Employment; Extended Leave of Absence.  If Recipient’s employment is terminated for any reason, including a voluntary or involuntary termination, or upon Recipient’s death, Disability or retirement, any unvested RSUs will be forfeited.  If Recipient is on unpaid leave for more than six months, any unvested RSUs will be forfeited.

2.           REPRESENTATIONS AND COVENANTS OF RECIPIENT

2.1           No Representations by or on Behalf of the Company.  Recipient is not relying on any representation, warranty or statement made by the Company or any agent, employee or officer, director, shareholder or other controlling person of the Company regarding the RSUs or this Agreement.

2.2           Tax Considerations.  The Company has advised Recipient to seek Recipient’s own tax and financial advice with regard to the federal and state tax considerations resulting from Recipient’s receipt of the Award and Recipient’s receipt of the Shares upon Settlement of the vested portion of the Award.  Recipient understands that the Company, to the extent required by law, will report to appropriate taxing authorities the payment to Recipient of compensation income upon the Settlement of RSUs under the Award and Recipient shall be solely responsible for the payment of all federal and state taxes resulting from such Settlement.

2.3           Agreement to Enter into Lock-Up Agreement with an Underwriter.  Recipient understands and agrees that whenever the Company undertakes a firmly underwritten public offering of its securities, Recipient will, if requested to do so by the managing underwriter in such offering, enter into an agreement not to sell or dispose of any securities of the Company owned or controlled by Recipient, including any the RSUs, provided that such restriction will not extend beyond 12 months from the effective date of the registration statement filed in connection with such offering.

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3.           GENERAL RESTRICTIONS OF TRANSFERS OF UNVESTED RSUS

3.1           No Transfers of Unvested RSUs.  Recipient agrees for himself or herself, his or her executors, administrators and other successors in interest that none of the RSUs, nor any interest therein, may be voluntarily or involuntarily sold, transferred, assigned, donated, pledged, hypothecated or otherwise disposed of, gratuitously or for consideration prior to their vesting in accordance with this Agreement.

3.2           Award Adjustments.  The number of RSUs granted under this Award shall, at the discretion of the Committee, be subject to adjustment under the Plan in the event the outstanding shares of Common Stock are hereafter increased, decreased, changed into or exchanged for a different number or kind of shares of Common Stock or for other securities of the Company or of another corporation, by reason of any reorganization, merger, consolidation, reclassification, stock split up, combination of shares of Common Stock, or dividend payable in shares of Common Stock or other securities of the Company.  If Recipient receives any additional RSUs pursuant to the Plan, such additional (or other) RSUs shall be deemed  granted hereunder and shall be subject to the same restrictions and obligations on the RSUs as originally granted as imposed by this Agreement.

3.3           Invalid Transfers.  Any disposition of the RSUs other than in strict compliance with the provisions of this Agreement shall be void.

4.           PAYMENT OF TAX WITHHOLDING AMOUNTS.To the extent the Company is responsible for withholding income taxes, upon the vesting of the Award Recipient must pay to the Company or make adequate provision for the payment of all Tax Withholding.  It is expected that the Award will vest under Section 1.2 of this Agreement during a period in which trading is not permitted under the Company’s insider trading policy.  To satisfy the Tax Withholding requirement, Recipient irrevocably elects to settle the Tax Withholding obligation by the Company withholding a number of Shares otherwise deliverable upon vesting having a market value sufficient to satisfy the statutory minimum tax withholding of Recipient.  If the Company later determines that additional Tax Withholding was or has become required beyond any amount paid or provided for by Recipient, Recipient will pay such additional amount to the Company immediately upon demand by the Company.  If Recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to Recipient.

5.           MISCELLANEOUS PROVISIONS

5.1           Amendment and Modification.  Except as otherwise provided by the Plan, this Agreement may be amended, modified and supplemented only by written agreement of all of the parties hereto.

5.2           Assignment.  This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by Recipient without the prior written consent of the Company.

5.3           Governing Law.  To the extent not preempted by federal law, this Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the internal laws of the State of Oregon applicable to the construction and enforcement of contracts wholly executed in Oregon by residents of Oregon and wholly performed in Oregon.  Any action or proceeding brought by any party hereto shall be brought only in a state or federal court of competent jurisdiction located in the County of Multnomah in the State of Oregon and all parties hereto hereby submit to the in personal jurisdiction of such court for purposes of any such action or procedure.

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5.4           Arbitration.  The parties agree to submit any dispute arising under this Agreement to final, binding, private arbitration in Portland, Oregon.  This includes not only disputes about the meaning or performance of the Agreement, but disputes about its negotiation, drafting, or execution.  The dispute will be determined by a single arbitrator in accordance with the then-existing rules of arbitration procedure of Multnomah County, Oregon Circuit Court, except that there shall be no right of de novo review in Circuit Court and the arbitrator may charge his or her standard arbitration fees rather than the fees prescribed in the Multnomah County Circuit Court arbitration procedures.  The proceeding will be commenced by the filing of a civil complaint in Multnomah County Circuit Court and a simultaneous request for transfer to arbitration. The parties expressly agree that they may choose an arbitrator who is not on the list provided by the Multnomah County Circuit Court Arbitration Department, but if they are unable to agree upon the single arbitrator within ten days of receipt of the Arbitration Department list, they will ask the Arbitration Department to make the selection for them.  The arbitrator will have full authority to determine all issues, including arbitrability, to award any remedy, including permanent injunctive relief, and to determine any request for costs and expenses in accordance with Section 5.5 of this Agreement.  The arbitrator’s award may be reduced to final judgment in Multnomah County Circuit Court.  The complaining party shall bear the arbitration expenses and may seek their recovery if it prevails.  Notwithstanding any other provision of this Agreement, an aggrieved party may seek a temporary restraining order or preliminary injunction in Multnomah County Circuit Court to preserve the status quo during the arbitration proceeding.

5.5           Attorney Fees.  If any suit, action, or proceeding is instituted in connection with any controversy arising out of this Agreement or the enforcement of any right hereunder, the prevailing party will be entitled to recover, in addition to costs, such sums as the court or arbitrator may adjudge reasonable as attorney fees, including fees on any appeal.

5.6           Headings.  The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not constitute a part hereof.

5.7           Entire Agreement.  This Agreement and the Plan embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein and supersedes all prior written or oral communications or agreements all of which are merged herein.  There are no restrictions, promises, warranties, covenants, or undertakings, other than those expressly set forth or referred to herein.

5.8           No Waiver.  No waiver of any provision of this Agreement or any rights or obligations of any party hereunder shall be effective, except pursuant to a written instrument signed by the party or parties waiving compliance, and any such waiver shall be effective only in the specific instance and for the specific purpose stated in such writing.

5.9           Severability of Provisions.  In the event that any provision hereof is found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable according to its terms.

5.10           Incorporation by Reference, Etc.  The provisions of the Plan are hereby incorporated herein by reference.  Except as otherwise set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan.  The Committee shall have the final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be final, binding and conclusive upon Recipient and his or her legal representative in respect to any questions arising under the Plan or this Agreement.

5

5.11           Notices.  All notices or other communications pursuant to this Agreement shall be in writing and shall be deemed duly given if delivered personally or by courier service, or if mailed by certified mail, return receipt requested, prepaid and addressed to the Company executive offices to the attention of the Corporate Secretary, or if to Recipient, to the address maintained by the personnel department, or such other address as such party shall have furnished to the other party in writing.

5.12           Acceptance of Agreement. Unless Recipient notifies the Corporate Secretary in writing within 14 days after the Date of Grant that Recipient does not wish to accept this Agreement, Recipient will be deemed to have accepted this Agreement and will be bound by the terms of this Agreement and the Plan.

5.13           No Right of Employment.  Nothing contained in the Plan or this Agreement shall be construed as giving Recipient any right to be retained, in any position, as an employee of the Company or any Subsidiary.

6

Recipient and the Company have executed this Agreement effective as of the Grant Date.

RECIPIENT
                                                                                  

Signature

Type or Print Name:                               

Social Security Number:      

COMPANY                                                           LITHIA MOTORS, INC.

By: 

      Chris Holzshu, CFO

* Please take the time to read and understand this Agreement in its entirety.  If you have any specific questions or do not fully understand any of the provisions, please contact Chris Holzshu in writing within 10 days of receipt of this Agreement.

7

EX-10.3

Exhibit 10.3

(for non-executives)

LITHIA MOTORS, INC.

RESTRICTED STOCK UNIT AGREEMENT

(Time Vesting)

This Restricted Stock Unit Agreement (“Agreement”) is entered into pursuant to the Amended and Restated 2003 Stock Incentive Plan (the “Plan”) as adopted by the Board of Directors and Shareholders of Lithia Motors, Inc., an Oregoncorporation (the “Company”) and as amended from time to time.  Unless otherwise defined herein, capitalized terms defined in this Agreement have the meanings as defined in the Plan. Any inconsistency between this Agreement and the terms and conditions of the Plan will be resolved in accordance with the Plan.

“Recipient”
Number of Restricted Stock Units (“RSUs”)
“Date of Grant”	February 1, 2013

1.            GRANT OF RESTRICTED STOCK UNIT AWARD

1.1           The Grant.  The Company hereby awards to Recipient and Recipient accepts the award of RSUs specified above on the terms and conditions set forth in this Agreement and the Plan (the “Award”).  Each RSU represents the right to receive one share of Class A Common Stock of the Company (a “Share”) on an applicable Settlement Date (as defined in Section 1.3 of this Agreement), subject to the terms of this Agreement and the Plan.

1.2           Vesting.  Subject to the continued employment of Recipient with the Company or any Subsidiary, 25 percent of the RSUs (rounded to the nearest whole RSU) shall vest on each of the second and third anniversaries of the Date of Grant, and all remaining RSUs shall vest on the fourth anniversary of the Date of Grant (each such date, a “Vesting Date”).  The foregoing vesting schedule is illustrated by the following table:

Anniversary Date	Vesting of Award	Vested RSUs
February 1, 2015	25%	___
February 1, 2016	25%	___
February 1, 2017	All remaining unvested RSUs	___

1.3           Settlement of RSUs.  There is no obligation for the Company to make payments or distributions with respect to RSUs except for the distribution of Shares with respect to vested RSUs after the applicable Vesting Date. The Company’s issuance of one Share for each vested RSU (the “Settlement”) may be subject to such conditions, restrictions and contingencies as the Committee shall determine.  The Company agrees not to exercise its right under the Plan to settle the RSU in any medium other than Shares.  Unless receipt of the Shares is validly deferred pursuant to the RSU Deferral Plan effective January 1, 2012, RSUs shall be settled as soon as practicable after the applicable Vesting Date (each date of Settlement, a “Settlement Date”), but in no event later than March 15 of the calendar year following the calendar year in which the Vesting Date occurs.  Notwithstanding the foregoing, the payment dates set forth in this Section 1.3 have been specified for the purpose of complying with the short-term deferral exception under Section 409A of the Internal Revenue Code of 1986, and to the extent payments are made during the periods permitted under Section 409A (including applicable periods before or after the specified payment dates set forth in this Section 1.3), the Company shall be deemed to have satisfied its obligations under the Plan and shall be deemed not to be in breach of its payment obligations hereunder.

(for non-executives)

1.4           Termination of Recipient’s Employment.

(a)           Voluntary or Involuntary Termination.  Except as otherwise provided in this Section 1.4, if Recipient’s employment with the Company or any Subsidiary terminates as a result of a voluntary or involuntary termination, all outstanding unvested RSUs shall immediately be forfeited.

(b)           Death.  If Recipient’s employment with the Company or any Subsidiary terminates as a result of Recipient’s death, Recipient shall become vested in a prorated number of RSUs. The prorated portion of the RSUs that is vested as of Recipient’s death shall be the total number of RSUs multiplied by a fraction, the numerator of which shall be the number of full months elapsed from the Date of Grant through the date of Recipient’s death, and the denominator of which shall be 48.  The Vesting Date for additional RSU vesting under this Section 1.4(b) shall be the date of Recipient’s death.

(c)           Disability.  If Recipient becomes Disabled while employed by the Company or a Subsidiary, RSUs shall continue to vest as scheduled in Section 1.2 of this Agreement for so long as Recipient remains Disabled.  If Recipient dies after having become Disabled, Section 1.4(b) of this Agreement shall apply.

(d)           Qualified Retirement.  If Recipient terminates employment due to a Qualified Retirement, Recipient shall become vested in a prorated number of RSUs.  A “Qualified Retirement” means Recipient voluntarily terminates employment on or after Recipient attains age 65 and has at least four complete years of employment with the Company or a Subsidiary.  The prorated portion of the RSUs that is vested as of Recipient’s Qualified Retirement shall be the total number of RSUs multiplied by a fraction, the numerator of which shall be the number of full months elapsed from the Date of Grant through the date of Recipient’s Qualified Retirement, and the denominator of which shall be 48.

Notwithstanding anything in this Agreement to the contrary, in no event will any Settlement occur prior to the applicable Vesting Date.

1.5           Effect of Leaves of Absence on RSU Vesting. Notwithstanding anything in this Agreement to the contrary:

(a) No RSUs will vest while Recipient is on an unpaid leave of absence; and

(b) The vesting schedule in Section 1.2 of this Agreement shall automatically be extended by the duration of any unpaid leave of absence in excess of 90 days.

2.           REPRESENTATIONS AND COVENANTS OF RECIPIENT

2.1           No Representations by or on Behalf of the Company.  Recipient is not relying on any representation, warranty or statement made by the Company or any agent, employee or officer, director, shareholder or other controlling person of the Company regarding the RSUs or this Agreement.

2

(for non-executives)

2.2           Tax Considerations.  The Company has advised Recipient to seek Recipient’s own tax and financial advice with regard to the federal and state tax considerations resulting from Recipient’s receipt of the Award and Recipient’s receipt of the Shares upon Settlement of the vested portion of the Award.  Recipient understands that the Company, to the extent required by law, will report to appropriate taxing authorities the payment to Recipient of compensation income upon the Settlement of RSUs under the Award and Recipient shall be solely responsible for the payment of all federal and state taxes resulting from such Settlement.

2.3           Agreement to Enter into Lock-Up Agreement with an Underwriter.  Recipient understands and agrees that whenever the Company undertakes a firmly underwritten public offering of its securities, Recipient will, if requested to do so by the managing underwriter in such offering, enter into an agreement not to sell or dispose of any securities of the Company owned or controlled by Recipient, including any the RSUs, provided that such restriction will not extend beyond 12 months from the effective date of the registration statement filed in connection with such offering.

3.           GENERAL RESTRICTIONS OF TRANSFERS OF UNVESTED RSUS

3.1           No Transfers of Unvested RSUs.  Except for a transfer upon Recipient’s death, Recipient agrees for himself or herself, his or her executors, administrators and other successors in interest that none of the RSUs, nor any interest therein, may be voluntarily or involuntarily sold, transferred, assigned, donated, pledged, hypothecated or otherwise disposed of, gratuitously or for consideration prior to their vesting in accordance with this Agreement.

3.2           Award Adjustments.  The number of RSUs granted under this Award shall, at the discretion of the Committee, be subject to adjustment under the Plan in the event the outstanding shares of Common Stock are hereafter increased, decreased, changed into or exchanged for a different number or kind of shares of Common Stock or for other securities of the Company or of another corporation, by reason of any reorganization, merger, consolidation, reclassification, stock split up, combination of shares of Common Stock, or dividend payable in shares of Common Stock or other securities of the Company.  If Recipient receives any additional RSUs pursuant to the Plan, such additional (or other) RSUs shall be deemed  granted hereunder and shall be subject to the same restrictions and obligations on the RSUs as originally granted as imposed by this Agreement.

3.3           Invalid Transfers.  Any disposition of the RSUs other than in strict compliance with the provisions of this Agreement shall be void.

4.           PAYMENT OF TAX WITHHOLDING AMOUNTS.  To the extent the Company is responsible for withholding income taxes, upon the vesting of the Award Recipient must pay to the Company or make adequate provision for the payment of all Tax Withholding.  It is expected that the Award will vest under Section 1.2 of this Agreement during a period in which trading is not permitted under the Company’s insider trading policy. To satisfy the Tax Withholding requirement, Recipient irrevocably elects to settle the Tax Withholding obligation by the Company withholding a number of Shares otherwise deliverable upon vesting having a market value sufficient to satisfy the statutory minimum tax withholding of Recipient. If the Company later determines that additional Tax Withholding was or has become required beyond any amount paid or provided for by Recipient, Recipient will pay such additional amount to the Company immediately upon demand by the Company.  If Recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to Recipient.

5.           MISCELLANEOUS PROVISIONS

5.1           Amendment and Modification.  Except as otherwise provided by the Plan, this Agreement may be amended, modified and supplemented only by written agreement of all of the parties hereto.

3

(for non-executives)

   

5.2           Assignment.  This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by Recipient without the prior written consent of the Company.

5.3           Governing Law.  To the extent not preempted by federal law, this Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the internal laws of the State of Oregon applicable to the construction and enforcement of contracts wholly executed in Oregon by residents of Oregon and wholly performed in Oregon.  Any action or proceeding brought by any party hereto shall be brought only in a state or federal court of competent jurisdiction located in the County of Multnomah in the State of Oregon and all parties hereto hereby submit to the in personal jurisdiction of such court for purposes of any such action or procedure.

5.4           Arbitration.  The parties agree to submit any dispute arising under this Agreement to final, binding, private arbitration in Portland, Oregon.  This includes not only disputes about the meaning or performance of the Agreement, but disputes about its negotiation, drafting, or execution.  The dispute will be determined by a single arbitrator in accordance with the then-existing rules of arbitration procedure of Multnomah County, Oregon Circuit Court, except that there shall be no right of de novo review in Circuit Court and the arbitrator may charge his or her standard arbitration fees rather than the fees prescribed in the Multnomah County Circuit Court arbitration procedures.  The proceeding will be commenced by the filing of a civil complaint in Multnomah County Circuit Court and a simultaneous request for transfer to arbitration. The parties expressly agree that they may choose an arbitrator who is not on the list provided by the Multnomah County Circuit Court Arbitration Department, but if they are unable to agree upon the single arbitrator within ten days of receipt of the Arbitration Department list, they will ask the Arbitration Department to make the selection for them.  The arbitrator will have full authority to determine all issues, including arbitrability, to award any remedy, including permanent injunctive relief, and to determine any request for costs and expenses in accordance with Section 5.5 of this Agreement.  The arbitrator’s award may be reduced to final judgment in Multnomah County Circuit Court.  The complaining party shall bear the arbitration expenses and may seek their recovery if it prevails.  Notwithstanding any other provision of this Agreement, an aggrieved party may seek a temporary restraining order or preliminary injunction in Multnomah County Circuit Court to preserve the status quo during the arbitration proceeding.

5.5           Attorney Fees.  If any suit, action, or proceeding is instituted in connection with any controversy arising out of this Agreement or the enforcement of any right hereunder, the prevailing party will be entitled to recover, in addition to costs, such sums as the court or arbitrator may adjudge reasonable as attorney fees, including fees on any appeal.

5.6           Headings.  The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not constitute a part hereof.

5.7           Entire Agreement.  This Agreement and the Plan embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein and supersedes all prior written or oral communications or agreements all of which are merged herein.  There are no restrictions, promises, warranties, covenants, or undertakings, other than those expressly set forth or referred to herein.

5.8           No Waiver.  No waiver of any provision of this Agreement or any rights or obligations of any party hereunder shall be effective, except pursuant to a written instrument signed by the party or parties waiving compliance, and any such waiver shall be effective only in the specific instance and for the specific purpose stated in such writing.

4

(for non-executives)

5.9           Severability of Provisions.  In the event that any provision hereof is found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable according to its terms.

5.10         Incorporation by Reference, Etc.  The provisions of the Plan are hereby incorporated herein by reference.  Except as otherwise set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan.  The Committee shall have the final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be final, binding and conclusive upon Recipient and his or her legal representative in respect to any questions arising under the Plan or this Agreement.

5.11         Notices.  All notices or other communications pursuant to this Agreement shall be in writing and shall be deemed duly given if delivered personally or by courier service, or if mailed by certified mail, return receipt requested, prepaid and addressed to the Company executive offices to the attention of the Corporate Secretary, or if to Recipient, to the address maintained by the personnel department, or such other address as such party shall have furnished to the other party in writing.

5.12         Acceptance of Agreement. Unless Recipient notifies the Corporate Secretary in writing within 14 days after the Date of Grant that Recipient does not wish to accept this Agreement, Recipient will be deemed to have accepted this Agreement and will be bound by the terms of this Agreement and the Plan.

5.13         No Right of Employment.  Nothing contained in the Plan or this Agreement shall be construed as giving Recipient any right to be retained, in any position, as an employee of the Company or any Subsidiary.

5

(for non-executives)

Recipient and the Company have executed this Agreement effective as of the Grant Date.

RECIPIENT
	Signature
	Type or Print Name:
	Social Security Number:
COMPANY	LITHIA MOTORS, INC.
	By:
		Chris Holzshu, CFO

* Please take the time to read and understand this Agreement in its entirety.  If you have any specific questions or do not fully understand any of the provisions, please contact Chris Holzshu in writing within 10 days of receipt of this Agreement.

6

EX-10.4

Exhibit 10.4

(for non-employee directors)

LITHIA MOTORS, INC.

RESTRICTED STOCK UNIT AGREEMENT

(Time Vesting)

This Restricted Stock Unit Agreement (“Agreement”) is entered into pursuant to the Amended and Restated 2003 Stock Incentive Plan (the “Plan”) as adopted by the Board of Directors and Shareholders of Lithia Motors, Inc., an Oregoncorporation (the “Company”) and as amended from time to time.  Unless otherwise defined herein, capitalized terms defined in this Agreement have the meanings as defined in the Plan. Any inconsistency between this Agreement and the terms and conditions of the Plan will be resolved in accordance with the Plan.

“Recipient”
Number of Restricted Stock Units (“RSUs”)
“Date of Grant”	April 26, 2013

1.           GRANT OF RESTRICTED STOCK UNIT AWARD

1.1           The Grant.  The Company hereby awards to Recipient and Recipient accepts the award of RSUs specified above on the terms and conditions set forth in this Agreement and the Plan (the “Award”).  Each RSU represents the right to receive one share of Class A Common Stock of the Company (a “Share”) on an applicable Settlement Date (as defined in Section 1.3 of this Agreement), subject to the terms of this Agreement and the Plan.

1.2           Vesting.  Subject to Recipient’s continued service to the Company as a Director, the RSUs shall vest 25% on the first business day of the month following each regularly scheduled quarterly in-person Board of Directors meeting, commencing with the April 26, 2013 meeting, as provided in the following table:

Vesting Date	Vesting of Award	Vested RSUs
May 1, 2013	25%	___
August 1, 2013	25%	___
November 1, 2013	25%	___
March 1, 2013	25%	___

Notwithstanding anything herein to the contrary, the Award shall vest in full in the event Recipient remains in service with the Company as a Director on the date of a Corporate Transaction.

1.3           Settlement of RSUs.  There is no obligation for the Company to make payments or distributions with respect to RSUs except for the distribution of Shares with respect to vested RSUs after the applicable Vesting Date. The Company’s issuance of one Share for each vested RSU (the “Settlement”) may be subject to such conditions, restrictions and contingencies as the Committee shall determine.  The Company agrees not to exercise its right under the Plan to settle the RSU in any medium other than Shares.  Unless receipt of the Shares is validly deferred pursuant to the RSU Deferral Plan effective January 1, 2012, RSUs shall be settled as soon as practicable after the applicable Vesting Date (each date of Settlement, a “Settlement Date”), but in no event later than March 15 of the calendar year following the calendar year in which the Vesting Date occurs.  Notwithstanding the foregoing, the payment dates set forth in this Section 1.3 have been specified for the purpose of complying with the short-term deferral exception under Section 409A of the Internal Revenue Code of 1986, and to the extent payments are made during the periods permitted under Section 409A (including applicable periods before or after the specified payment dates set forth in this Section 1.3), the Company shall be deemed to have satisfied its obligations under the Plan and shall be deemed not to be in breach of its payment obligations hereunder.

(for non-employee directors)

1.4           Termination of Recipient’s Service as a Director.

(a)           Forfeiture.  In general, unless Recipient’s service to the Company as a Director is terminated prior to death or Disability, the unvested RSUs shall be forfeited upon the termination of such service unless, in the sole discretion of the Committee, the Committee elects to accelerate Award vesting in whole or in part.  If as a result of such acceleration Recipient becomes partially vested in his or her RSUs, the number of vested RSUs shall be rounded up to the next whole RSU.

(b)           Death or Disability.  If Recipient’s service to the Company as a Director terminates as a result of Recipient’s death or Disability, Recipient shall become fully vested in the entire Award.

Notwithstanding anything in this Agreement to the contrary, in no event will any Settlement occur prior to the applicable Vesting Date.

2.           REPRESENTATIONS AND COVENANTS OF RECIPIENT

2.1           No Representations by or on Behalf of the Company.  Recipient is not relying on any representation, warranty or statement made by the Company or any agent, employee or officer, director, shareholder or other controlling person of the Company regarding the RSUs or this Agreement.

2.2           Tax Considerations.  The Company has advised Recipient to seek Recipient’s own tax and financial advice with regard to the federal and state tax considerations resulting from Recipient’s receipt of the Award and Recipient’s receipt of the Shares upon Settlement of the vested portion of the Award.  Recipient understands that the Company, to the extent required by law, will report to appropriate taxing authorities the payment to Recipient of compensation income upon the Settlement of RSUs under the Award and Recipient shall be solely responsible for the payment of all federal and state taxes resulting from such Settlement.

2.3           Agreement to Enter into Lock-Up Agreement with an Underwriter.  Recipient understands and agrees that whenever the Company undertakes a firmly underwritten public offering of its securities, Recipient will, if requested to do so by the managing underwriter in such offering, enter into an agreement not to sell or dispose of any securities of the Company owned or controlled by Recipient, including any the RSUs, provided that such restriction will not extend beyond 12 months from the effective date of the registration statement filed in connection with such offering.

3.           GENERAL RESTRICTIONS OF TRANSFERS OF UNVESTED RSUS

3.1           No Transfers of Unvested RSUs.  Except for a transfer upon Recipient’s death, Recipient agrees for himself or herself, his or her executors, administrators and other successors in interest that none of the RSUs, nor any interest therein, may be voluntarily or involuntarily sold, transferred, assigned, donated, pledged, hypothecated or otherwise disposed of, gratuitously or for consideration prior to their vesting in accordance with this Agreement.

2

(for non-employee directors)

3.2           Award Adjustments.  The number of RSUs granted under this Award shall, at the discretion of the Committee, be subject to adjustment under the Plan in the event the outstanding shares of Common Stock are hereafter increased, decreased, changed into or exchanged for a different number or kind of shares of Common Stock or for other securities of the Company or of another corporation, by reason of any reorganization, merger, consolidation, reclassification, stock split up, combination of shares of Common Stock, or dividend payable in shares of Common Stock or other securities of the Company.  If Recipient receives any additional RSUs pursuant to the Plan, such additional (or other) RSUs shall be deemed  granted hereunder and shall be subject to the same restrictions and obligations on the RSUs as originally granted as imposed by this Agreement.

3.3           Invalid Transfers.  Any disposition of the RSUs other than in strict compliance with the provisions of this Agreement shall be void.

4.            PAYMENT OF TAX WITHHOLDING AMOUNTS.  To the extent the Company is responsible for withholding income taxes, upon the vesting of the Award Recipient must pay to the Company or make adequate provision for the payment of all Tax Withholding.  It is expected that the Award will vest under Section 1.2 of this Agreement during a period in which trading is not permitted under the Company’s insider trading policy. To satisfy the Tax Withholding requirement, Recipient irrevocably elects to settle the Tax Withholding obligation by the Company withholding a number of Shares otherwise deliverable upon vesting having a market value sufficient to satisfy the statutory minimum tax withholding of Recipient. If the Company later determines that additional Tax Withholding was or has become required beyond any amount paid or provided for by Recipient, Recipient will pay such additional amount to the Company immediately upon demand by the Company.  If Recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to Recipient.

5.           MISCELLANEOUS PROVISIONS

5.1Amendment and Modification.  Except as otherwise provided by the Plan, this Agreement may be amended, modified and supplemented only by written agreement of all of the parties hereto.

5.2           Assignment.  This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by Recipient without the prior written consent of the Company.

5.3           Governing Law.  To the extent not preempted by federal law, this Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the internal laws of the State of Oregon applicable to the construction and enforcement of contracts wholly executed in Oregon by residents of Oregon and wholly performed in Oregon.  Any action or proceeding brought by any party hereto shall be brought only in a state or federal court of competent jurisdiction located in the County of Multnomah in the State of Oregon and all parties hereto hereby submit to the in personal jurisdiction of such court for purposes of any such action or procedure.

3

(for non-employee directors)

5.4           Arbitration.  The parties agree to submit any dispute arising under this Agreement to final, binding, private arbitration in Portland, Oregon.  This includes not only disputes about the meaning or performance of the Agreement, but disputes about its negotiation, drafting, or execution.  The dispute will be determined by a single arbitrator in accordance with the then-existing rules of arbitration procedure of Multnomah County, Oregon Circuit Court, except that there shall be no right of de novo review in Circuit Court and the arbitrator may charge his or her standard arbitration fees rather than the fees prescribed in the Multnomah County Circuit Court arbitration procedures.  The proceeding will be commenced by the filing of a civil complaint in Multnomah County Circuit Court and a simultaneous request for transfer to arbitration. The parties expressly agree that they may choose an arbitrator who is not on the list provided by the Multnomah County Circuit Court Arbitration Department, but if they are unable to agree upon the single arbitrator within ten days of receipt of the Arbitration Department list, they will ask the Arbitration Department to make the selection for them.  The arbitrator will have full authority to determine all issues, including arbitrability, to award any remedy, including permanent injunctive relief, and to determine any request for costs and expenses in accordance with Section 5.5 of this Agreement.  The arbitrator’s award may be reduced to final judgment in Multnomah County Circuit Court.  The complaining party shall bear the arbitration expenses and may seek their recovery if it prevails.  Notwithstanding any other provision of this Agreement, an aggrieved party may seek a temporary restraining order or preliminary injunction in Multnomah County Circuit Court to preserve the status quo during the arbitration proceeding.

5.5           Attorney Fees.  If any suit, action, or proceeding is instituted in connection with any controversy arising out of this Agreement or the enforcement of any right hereunder, the prevailing party will be entitled to recover, in addition to costs, such sums as the court or arbitrator may adjudge reasonable as attorney fees, including fees on any appeal.

5.6           Headings.  The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not constitute a part hereof.

5.7           Entire Agreement.  This Agreement and the Plan embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein and supersedes all prior written or oral communications or agreements all of which are merged herein.  There are no restrictions, promises, warranties, covenants, or undertakings, other than those expressly set forth or referred to herein.

5.8           No Waiver.  No waiver of any provision of this Agreement or any rights or obligations of any party hereunder shall be effective, except pursuant to a written instrument signed by the party or parties waiving compliance, and any such waiver shall be effective only in the specific instance and for the specific purpose stated in such writing.

5.9           Severability of Provisions.  In the event that any provision hereof is found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable according to its terms.

5.10         Incorporation by Reference, Etc.  The provisions of the Plan are hereby incorporated herein by reference.  Except as otherwise set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan.  The Committee shall have the final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be final, binding and conclusive upon Recipient and his or her legal representative in respect to any questions arising under the Plan or this Agreement.

5.11         Notices.  All notices or other communications pursuant to this Agreement shall be in writing and shall be deemed duly given if delivered personally or by courier service, or if mailed by certified mail, return receipt requested, prepaid and addressed to the Company executive offices to the attention of the Corporate Secretary, or if to Recipient, to the address maintained by the personnel department, or such other address as such party shall have furnished to the other party in writing.

5.12         Acceptance of Agreement. Unless Recipient notifies the Corporate Secretary in writing within 14 days after the Date of Grant that Recipient does not wish to accept this Agreement, Recipient will be deemed to have accepted this Agreement and will be bound by the terms of this Agreement and the Plan.

4

(for non-employee directors)

5.13           No Right of Continued Service.  Nothing contained in the Plan or this Agreement shall be construed as giving Recipient any right to be retained as a Director of the Company or in any other capacity.

5

(for non-employee directors)

Recipient and the Company have executed this Agreement effective as of the Grant Date.

RECIPIENT
	Signature
	Type or Print Name:
	Social Security Number:
COMPANY	LITHIA MOTORS, INC.
	By:
		Chris Holzshu, CFO

* Please take the time to read and understand this Agreement in its entirety.  If you have any specific questions or do not fully understand any of the provisions, please contact Chris Holzshu in writing within 10 days of receipt of this Agreement.

6

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

RULE 13a-14(a) OR RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

I, Bryan B. DeBoer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Lithia Motors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 26, 2013

/s/ Bryan B. DeBoer

Bryan B. DeBoer

President and Chief Executive Officer

Lithia Motors, Inc.

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

RULE 13a-14(a) OR RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

I, Christopher S. Holzshu, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Lithia Motors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 26, 2013

/s/ Christopher S. Holzshu

Christopher S. Holzshu

Senior Vice President, Chief Financial Officer and Secretary

Lithia Motors, Inc.

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)

OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Lithia Motors, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bryan B. DeBoer, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

          (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Bryan B. DeBoer

Bryan B. DeBoer

President and Chief Executive Officer

Lithia Motors, Inc.

April 26, 2013

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)

OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Lithia Motors, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher S. Holzshu, Senior Vice President, Chief Financial Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

          (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Christopher S. Holzshu

Christopher S. Holzshu

Senior Vice President,

Chief Financial Officer and Secretary

Lithia Motors, Inc.

April 26, 2013

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Note 9 - Derivative Financial Instruments (Detail) - Fair Value of Derivative Instruments in Consolidated Balance Sheets (Designated as Hedging Instrument [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Interest rate swap contracts	$ 3,919	$ 4,679
Accrued Liabilities [Member]
Interest rate swap contracts	1,351	1,839
Other Long-term Liabilities [Member]
Interest rate swap contracts	$ 2,568	$ 2,840

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Note 6 - Stockholders' Equity (Detail) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended	20 Months Ended
	Mar. 31, 2013	Mar. 31, 2013	Jul. 31, 2012	Aug. 31, 2011
Treasury Stock Acquired, Average Cost Per Share (in Dollars per share)	$ 45.04
Stock Repurchased During Period, Value (in Dollars)	$ 2.7
Shares Paid for Tax Withholding for Share Based Compensation	59,721
Common Class A [Member]
Stock Repurchase Program, Number of Shares Authorized to be Repurchased			1,000,000	2,000,000
Stock Repurchased During Period, Shares	127,900	1,273,047
Treasury Stock Acquired, Average Cost Per Share (in Dollars per share)	$ 40.76
Stock Repurchased During Period, Value (in Dollars)	$ 5.2
Stock Repurchase Program, Remaining Number of Shares Authorized to be Repurchased	1,726,953	1,726,953

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Note 8 - Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]

Fair Value at March 31, 2013	Level 1		Level 2			Level 3
Measured on a recurring basis:
Derivative contracts, net	$	-	$	(3,919	)	$	-

Fair Value at December 31, 2012	Level 1		Level 2			Level 3
Measured on a recurring basis:
Derivative contracts, net	$	-	$	(4,679	)	$	-

Schedule of Carrying Values and Estimated Fair Values of Debt Instruments [Table Text Block]

	March 31,  2013		December 31, 2012
Carrying value	$	132,567	$	130,469
Fair value		134,883		134,688

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Note 10 - Discontinued Operations (Detail) - Assets and Related Liabilities Held for Sale (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Assets held for sale	$ 12,996	$ 12,579
Floor plan notes payable	8,662	8,347
Inventory [Member]
Assets held for sale	9,828	9,412
Property, Plant and Equipment [Member]
Assets held for sale	1,103	1,102
Intangible Assets [Member]
Assets held for sale	$ 2,065	$ 2,065

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Note 8 - Fair Value Measurements (Detail) - Long-term Fixed Interest Rate Debt (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Carrying value	$ 132,567	$ 130,469
Fair value	$ 134,883	$ 134,688

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Note 2 - Accounts Receivable

3 Months Ended

Mar. 31, 2013

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 2. Accounts Receivable

Accounts receivable consisted of the following (in thousands):

	March 31, 2013			December 31, 2012
Contracts in transit	$	68,066		$	65,597
Trade receivables		27,682			25,885
Vehicle receivables		18,525			21,298
Manufacturer receivables		24,398			25,658
		138,671			138,438
Less: Allowance		(141	)		(336	)
Less: Long-term portion of trade receivables		(4,421	)		(4,953	)
Total accounts receivable, net	$	134,109		$	133,149

The long-term portion of trade receivables was included as a component of other non-current assets in the Consolidated Balance Sheets.

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Note 11 - Net Income Per Share of Class A and Class B Common Stock (Detail) - Earnings Per Share Reconciliation (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Numerator:
Income from continuing operations applicable to common stockholders	$ 21,882	$ 16,634
Denominator:
Weighted average number of shares outstanding used to calculate basic income per share (in Shares)	25,626	25,986
Weighted average number of shares outstanding used to calculate diluted income per share from continuing operations (in Shares)	26,054	26,478
Basic income per share from continuing operations applicable to common stockholders (in Dollars per share)	$ 0.85	$ 0.64
Diluted income per share from continuing operations applicable to common stockholders (in Dollars per share)	$ 0.84	$ 0.63
Basic [Member] | Common Class A [Member]
Numerator:
Distributed income applicable to common stockholders		(1,552)
Numerator:
Distributed income applicable to common stockholders		1,552
Basic [Member] | Common Class B [Member]
Numerator:
Distributed income applicable to common stockholders		(262)
Numerator:
Distributed income applicable to common stockholders		262
Distributed [Member] | Common Class A [Member]
Numerator:
Reallocation of income as a result of conversion of dilutive stock options		5
Reallocation of income due to conversion of Class B to Class A		257
Distributed [Member] | Common Class B [Member]
Numerator:
Reallocation of income as a result of conversion of dilutive stock options		(5)
Diluted [Member] | Common Class A [Member]
Numerator:
Distributed income applicable to common stockholders		(1,814)
Numerator:
Distributed income applicable to common stockholders		1,814
Diluted [Member] | Common Class B [Member]
Numerator:
Distributed income applicable to common stockholders		(257)
Numerator:
Distributed income applicable to common stockholders		257
Undistributed [Member] | Common Class A [Member]
Numerator:
Reallocation of income as a result of conversion of dilutive stock options	39	39
Reallocation of income due to conversion of Class B to Class A	2,318	2,098
Undistributed [Member] | Common Class B [Member]
Numerator:
Reallocation of income as a result of conversion of dilutive stock options	(39)	(39)
Stock Options [Member] | Common Class A [Member]
Antidilutive Securities
Shares issuable pursuant to stock options not included since they were antidilutive (in Shares)	20	90
Common Class A [Member]
Numerator:
Income from continuing operations applicable to common stockholders	19,525	14,235
Undistributed income from continuing operations applicable to common stockholders	19,525	12,683
Denominator:
Weighted average number of shares outstanding used to calculate basic income per share (in Shares)	22,866	22,238
Weighted average number of shares from stock options (in Shares)	428	492
Conversion of Class B to Class A common shares outstanding (in Shares)	2,760	3,748
Weighted average number of shares outstanding used to calculate diluted income per share from continuing operations (in Shares)	26,054	26,478
Basic income per share from continuing operations applicable to common stockholders (in Dollars per share)	$ 0.85	$ 0.64
Basic distributed income per share from continuing operations applicable to common stockholders (in Dollars per share)		$ (0.07)
Basic undistributed income per share from continuing operations applicable to common stockholders (in Dollars per share)	$ 0.85	$ 0.57
Diluted income per share from continuing operations applicable to common stockholders (in Dollars per share)	$ 0.84	$ 0.63
Diluted distributed income per share from continuing operations applicable to common stockholders (in Dollars per share)		$ (0.07)
Diluted undistributed income per share from continuing operations applicable to common stockholders (in Dollars per share)	$ 0.84	$ 0.56
Numerator:
Diluted undistributed income from continuing operations applicable to common stockholders	21,882	14,820
Common Class B [Member]
Numerator:
Income from continuing operations applicable to common stockholders	2,357	2,399
Undistributed income from continuing operations applicable to common stockholders	2,357	2,137
Denominator:
Weighted average number of shares outstanding used to calculate basic income per share (in Shares)	2,760	3,748
Weighted average number of shares outstanding used to calculate diluted income per share from continuing operations (in Shares)	2,760	3,748
Basic income per share from continuing operations applicable to common stockholders (in Dollars per share)	$ 0.85	$ 0.64
Basic distributed income per share from continuing operations applicable to common stockholders (in Dollars per share)		$ (0.07)
Basic undistributed income per share from continuing operations applicable to common stockholders (in Dollars per share)	$ 0.85	$ 0.57
Diluted income per share from continuing operations applicable to common stockholders (in Dollars per share)	$ 0.84	$ 0.63
Diluted distributed income per share from continuing operations applicable to common stockholders (in Dollars per share)		$ (0.07)
Diluted undistributed income per share from continuing operations applicable to common stockholders (in Dollars per share)	$ 0.84	$ 0.56
Numerator:
Diluted undistributed income from continuing operations applicable to common stockholders	$ 2,318	$ 2,098

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Note 2 - Accounts Receivable (Detail) - Accounts Receivable (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Receivables, gross	$ 138,671	$ 138,438
Less: Allowance	(141)	(336)
Less: Long-term portion of trade receivables	(4,421)	(4,953)
Total accounts receivable, net	134,109	133,149
Contracts in Transit [Member]
Receivables, gross	68,066	65,597
Trade Accounts Receivable [Member]
Receivables, gross	27,682	25,885
Vehicle Receivables [Member]
Receivables, gross	18,525	21,298
Manufacturer Receivables [Member]
Receivables, gross	$ 24,398	$ 25,658

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Note 11 - Net Income Per Share of Class A and Class B Common Stock (Tables)

3 Months Ended

Mar. 31, 2013

Schedule of Earnings Per Share Reconciliation [Table Text Block]

Three Months Ended March 31,	2013				2012
Basic EPS from Continuing Operations	Class A		Class B		Class A			Class B
Numerator:
Income from continuing operations applicable to common stockholders	$	19,525	$	2,357	$	14,235		$	2,399
Distributed income applicable to common stockholders		-		-		(1,552	)		(262	)
Basic undistributed income from continuing operations applicable to common stockholders	$	19,525	$	2,357	$	12,683		$	2,137
Denominator:
Weighted average number of shares outstanding used to calculate basic income per share		22,866		2,760		22,238			3,748
Basic income per share from continuing operations applicable to common stockholders	$	0.85	$	0.85	$	0.64		$	0.64
Basic distributed income per share from continuing operations applicable to common stockholders		-		-		(0.07	)		(0.07	)
Basic undistributed income per share from continuing operations applicable to common stockholders	$	0.85	$	0.85	$	0.57		$	0.57

Three Months Ended March 31,	2013					2012
Diluted EPS from Continuing Operations	Class A		Class B			Class A			Class B
Numerator:
Distributed income applicable to common stockholders	$	-	$	-		$	1,552		$	262
Reallocation of distributed income as a result of conversion of dilutive stock options		-		-			5			(5	)
Reallocation of distributed income due to conversion of Class B to Class A common shares outstanding		-		-			257			-
Diluted distributed income applicable to common stockholders	$	-	$	-		$	1,814		$	257
Undistributed income from continuing operations applicable to common stockholders	$	19,525	$	2,357		$	12,683		$	2,137
Reallocation of undistributed income as a result of conversion of dilutive stock options		39		(39	)		39			(39	)
Reallocation of undistributed income due to conversion of Class B to Class A		2,318		-			2,098			-
Diluted undistributed income from continuing operations applicable to common stockholders	$	21,882	$	2,318		$	14,820		$	2,098
Denominator:
Weighted average number of shares outstanding used to calculate basic income per share from continuing operations		22,866		2,760			22,238			3,748
Weighted average number of shares from stock options		428		-			492			-
Conversion of Class B to Class A common shares outstanding		2,760		-			3,748			-
Weighted average number of shares outstanding used to calculate diluted income per share from continuing operations		26,054		2,760			26,478			3,748
Diluted income per share from continuing operations applicable to common stockholders	$	0.84	$	0.84		$	0.63		$	0.63
Diluted distributed income per share from continuing operations applicable to common stockholders		-		-			(0.07	)		(0.07	)
Diluted undistributed income per share from continuing operations applicable to common stockholders	$	0.84	$	0.84		$	0.56		$	0.56

Three Months Ended March 31,	2013				2012
Diluted EPS	Class A		Class B		Class A		Class B
Antidilutive Securities
Shares issuable pursuant to stock options not included since they were antidilutive		20		-		90		-

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Note 12 - Subsequent Events (Detail) (Subsequent Event [Member], USD $) In Millions, except Per Share data, unless otherwise specified	1 Months Ended
	Apr. 30, 2013
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared (in Dollars per share)	$ 0.13
Dividends, Common Stock, Cash	$ 3.3

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Note 3 - Inventories (Detail) - Inventories (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Inventories, net	$ 714,121	$ 723,326
New Vehicle [Member]
Inventories, net	551,820	563,275
Used Vehicle [Member]
Inventories, net	132,616	130,529
Parts and Accessories [Member]
Inventories, net	$ 29,685	$ 29,522

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Note 4 - Goodwill (Detail) - Goodwill (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Balance as of December, 31, 2011, gross		$ 318,224
Accumulated impairment loss		(299,266)
Goodwill balance, net	32,047	18,958
Additions through acquisitions	0	13,710
Goodwill allocation to dispositions	0	(621)
Goodwill balance, net	$ 32,047	$ 32,047

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Note 1 - Interim Financial Statements

3 Months Ended

Mar. 31, 2013

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note 1. Interim Financial Statements

Basis of Presentation

These condensed Consolidated Financial Statements contain unaudited information as of March 31, 2013 and for the three-month periods ended March 31, 2013 and 2012. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our 2012 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2012 is derived from our 2012 Annual Report on Form 10-K. The interim condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our 2012 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements to maintain consistency and comparability between periods presented.

These reclassifications had no impact on previously reported net income.

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Note 5 - Commitments and Contingencies (Detail) (Per Violation [Member], USD $)	1 Months Ended
	Dec. 31, 2006
Per Violation [Member]
Loss Contingency, Damages Sought, Value	$ 500

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Note 9 - Derivative Financial Instruments (Detail) - Effect of Derivative Instruments on Consolidated Statements of Operations (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	$ (307)
Floor Plan Interest Expense [Member]
Amount of Gain/(Loss) Recognized in OCI (Effective Portion)	514	283
Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	(307)	(408)
Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	$ (594)	$ (654)

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Assets
Cash and cash equivalents	$ 15,006	$ 42,839
Accounts receivable, net of allowance for doubtful accounts of $141 and $336	134,109	133,149
Inventories, net	714,121	723,326
Deferred income taxes	3,079	3,832
Other current assets	11,729	17,484
Assets held for sale	12,996	12,579
Total Current Assets	891,040	933,209
Property and equipment, net of accumulated depreciation of $98,328 and $97,883	427,935	425,086
Goodwill	32,047	32,047
Franchise value	62,429	62,429
Deferred income taxes	20,704	17,123
Other non-current assets	25,548	22,808
Total Assets	1,459,703	1,492,702
Liabilities and Stockholders' Equity
Floor plan notes payable	15,545	13,454
Floor plan notes payable: non-trade	567,981	568,130
Current maturities of long-term debt	7,483	8,182
Trade payables	41,339	41,589
Accrued liabilities	87,787	81,602
Liabilities related to assets held for sale	8,662	8,347
Total Current Liabilities	728,797	721,304
Long-term debt, less current maturities	222,249	286,876
Deferred revenue	35,252	33,589
Other long-term liabilities	25,602	22,832
Total Liabilities	1,011,900	1,064,601
Additional paid-in capital	15,096	12,399
Accumulated other comprehensive loss	(2,109)	(2,615)
Retained earnings	171,228	149,173
Total Stockholders' Equity	447,803	428,101
Total Liabilities and Stockholders' Equity	1,459,703	1,492,702
Common Class A [Member]
Liabilities and Stockholders' Equity
Common stock, value issued	263,253	268,801
Common Class B [Member]
Liabilities and Stockholders' Equity
Common stock, value issued	$ 335	$ 343

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Consolidated Statements of Comprehensive Income (Unaudited) (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Gain (loss) on cash flow hedges, tax expense (benefit) (in Dollars)	$ 315	$ 265

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Note 7 - Deferred Compensation and Long-term Incentive Plans (Detail) (USD $) In Millions, unless otherwise specified	1 Months Ended	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Deferred Compensation Arrangement with Individual, Employer Contribution	$ 2.0
Guaranteed Return				5.25%
Deferred Compensation Arrangement with Individual, Compensation Expense		0.3	0.3
Deferred Compensation Liability, Classified, Noncurrent	$ 4.4	$ 4.4			$ 3.6
Minimum [Member]
Deferred Compensation Arrangement with Individual, Requisite Service Period	1 year	1 year
Maximum [Member]
Deferred Compensation Arrangement with Individual, Requisite Service Period	7 years	7 years

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Note 3 - Inventories (Tables)

3 Months Ended

Mar. 31, 2013

Schedule of Inventory, Current [Table Text Block]

	March 31, 2013		December 31, 2012
New vehicles	$	551,820	$	563,275
Used vehicles		132,616		130,529
Parts and accessories		29,685		29,522
Total inventories	$	714,121	$	723,326

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Note 8 - Fair Value Measurements (Detail) - Assets and Liabilities Measured at Fair Value (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Fair Value, Inputs, Level 1 [Member]
Derivative contracts, net	$ 0	$ 0
Fair Value, Inputs, Level 2 [Member]
Derivative contracts, net	(3,919)	(4,679)
Fair Value, Inputs, Level 3 [Member]
Derivative contracts, net	$ 0	$ 0

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Note 6 - Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2013

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

	Three Months Ended March 31, 2013			Affected Line Item in the Consolidated Statements of Operations
Loss on cash flow hedges	$	(307	)	Floor plan interest expense
Taxes		117		Income tax provision
Loss on cash flow hedges, net	$	(190	)

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities:
Net income	$ 22,055	$ 16,796
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Asset impairments		115
Stock-based compensation	1,140	576
Gain on disposal of other assets	(19)	(988)
Deferred income taxes	(206)	(870)
Excess tax benefit from share-based payment arrangements	(2,937)	(749)
(Increase) decrease (net of acquisitions and dispositions):
Trade receivables, net	(960)	(11,633)
Inventories	7,890	(62,113)
Other current assets	5,757	5,292
Other non-current assets	(424)	2,778
Increase (decrease) (net of acquisitions and dispositions):
Floor plan notes payable	2,257	(3,324)
Trade payables	(410)	1,549
Accrued liabilities	6,188	5,105
Other long-term liabilities and deferred revenue	4,705	2,280
Net cash provided by (used in) operating activities	49,757	(40,987)
Cash flows from investing activities:
Principal payments received on notes receivable	319	25
Capital expenditures	(6,585)	(8,459)
Proceeds from sales of assets	440	1,009
Payments for life insurance policies	(2,641)	(1,968)
Proceeds from sales of stores		2,901
Net cash used in investing activities	(8,467)	(6,492)
Cash flows from financing activities:
Borrowings on floor plan notes payable: non-trade	953	39,401
Borrowings on lines of credit	118,000	5,000
Repayments on lines of credit	(156,303)	(12,000)
Proceeds from issuance of long-term debt		8,069
Proceeds from issuance of common stock	966	869
Repurchase of common stock	(7,903)	(2,653)
Excess tax benefit from share-based payment arrangements	2,937	749
Dividends paid		(1,814)
Net cash provided by (used in) financing activities	(69,123)	35,593
Decrease in cash and cash equivalents	(27,833)	(11,886)
Cash and cash equivalents at beginning of year	42,839	20,851
Cash and cash equivalents at end of year	15,006	8,965
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	5,837	5,794
Cash paid (refunded) during the period for income taxes, net	(964)	2,122
Supplemental schedule of non-cash activities:
Floor plan debt paid in connection with store disposals		6,712
Scheduled Payments [Member]
Cash flows from financing activities:
Principal payments on long-term debt	(2,003)	(2,028)
Other Payments [Member]
Cash flows from financing activities:
Principal payments on long-term debt	(25,770)
Segment, Continuing Operations [Member]
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	4,721	4,138
Segment, Discontinued Operations [Member]
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		$ 61

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Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $) In Thousands, except Per Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Allowance for doubtful accounts (in Dollars)	$ 141	$ 336
Accumulated depreciation (in Dollars)	$ 98,328	$ 97,883
Preferred stock, par value (in Dollars per share) (in Dollars per share)	$ 0	$ 0
Preferred stock, shares authorized (in Shares)	15,000	15,000
Preferred stock, shares outstanding (in Shares)	0	0
Common Class A [Member]
Common stock, par value (in Dollars per share)	$ 0	$ 0
Common stock, shares authorized (in Shares)	100,000	100,000
Common stock, shares issued (in Shares)	22,950	22,916
Common stock, shares outstanding (in Shares)	22,950	22,916
Common Class B [Member]
Common stock, par value (in Dollars per share)	$ 0	$ 0
Common stock, shares authorized (in Shares)	25,000	25,000
Common stock, shares issued (in Shares)	2,693	2,762
Common stock, shares outstanding (in Shares)	2,693	2,762

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Note 10 - Discontinued Operations

3 Months Ended

Mar. 31, 2013

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Note 10. Discontinued Operations

We classify a store as discontinued operations if the location has been sold, we have ceased operations at that location or the store meets the criteria required by U.S. generally accepted accounting standards:

· our management team, possessing the necessary authority, commits to a plan to sell the store;

· the store is available for immediate sale in its present condition;

· an active program to locate buyers and other actions that are required to sell the store are initiated;

· a market for the store exists and we believe its sale is likely within one year;

· active marketing of the store commences at a price that is reasonable in relation to the estimated fair market value; and

· our management team believes it is unlikely changes will be made to the plan or the plan to dispose of the store will be withdrawn.

We reclassify the store’s operations to discontinued operations in our Consolidated Statements of Operations, on a comparable basis for all periods presented, provided we do not expect to have any significant continuing involvement in the store’s operations after its disposal.

As of March 31, 2013, one of our stores continues to meet the criteria for classification of its assets and related liabilities as held for sale and its associated operating results are classified as discontinued operations.

Actual flooring interest expense for the store classified as discontinued operations is directly related to the store’s new vehicles. Interest expense related to our used vehicle inventory financing and revolving line of credit is allocated based on the working capital level of the store.

Certain financial information related to discontinued operations was as follows (in thousands):

	Three Months Ended March 31,
	2013			2012
Revenue	$	8,800		$	20,647
Gain from discontinued operations	$	284		$	257
Income tax expense		(111	)		(95	)
Income from discontinued operations, net of income tax expense	$	173		$	162

Assets held for sale included the following (in thousands):

	March 31, 2013		December 31, 2012
Inventories	$	9,828	$	9,412
Property, plant and equipment		1,103		1,102
Intangible assets		2,065		2,065
	$	12,996	$	12,579

Liabilities related to assets held for sale included the following (in thousands):

	March 31, 2013		December 31, 2012
Floor plan notes payable	$	8,662	$	8,347

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Document And Entity Information	3 Months Ended
	Mar. 31, 2013	Apr. 26, 2013 Common Class A [Member]	Apr. 26, 2013 Common Class B [Member]
Entity Registrant Name	LITHIA MOTORS INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		22,977,404	2,690,027
Amendment Flag	false
Entity Central Index Key	0001023128
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Mar. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

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Note 11 - Net Income Per Share of Class A and Class B Common Stock

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Text Block]

Note 11. Net Income Per Share of Class A and Class B Common Stock

We compute net income per share of Class A and Class B common stock using the two-class method. Under this method, basic net income per share is computed using the weighted average number of common shares outstanding during the period excluding unvested common shares subject to repurchase or cancellation. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and unvested restricted shares subject to repurchase or cancellation. The dilutive effect of outstanding stock options and other grants is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net income per share of Class B common stock does not assume the conversion of those shares.

Except with respect to voting and transfer rights, the rights of the holders of our Class A and Class B common stock are identical. Our Articles of Incorporation require that the Class A and Class B common stock share equally in any dividends, liquidation proceeds or other distribution with respect to our common stock and the Articles of Incorporation can only be amended by a vote of the shareholders. Additionally, Oregon law provides that amendments to our Articles of Incorporation, which would have the effect of adversely altering the rights, powers or preferences of a given class of stock, must be approved by the class of stock adversely affected by the proposed amendment. As a result, the undistributed earnings for each year are allocated based on the participation rights of the Class A and Class B common shares as if the earnings for the year had been distributed. Because the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis.

Following is a reconciliation of the income from continuing operations and weighted average shares used for our basic earnings per share (“EPS”) and diluted EPS for the three-month periods ended March 31, 2013 and 2012 (in thousands, except per share amounts):

Three Months Ended March 31,	2013				2012
Basic EPS from Continuing Operations	Class A		Class B		Class A			Class B
Numerator:
Income from continuing operations applicable to common stockholders	$	19,525	$	2,357	$	14,235		$	2,399
Distributed income applicable to common stockholders		-		-		(1,552	)		(262	)
Basic undistributed income from continuing operations applicable to common stockholders	$	19,525	$	2,357	$	12,683		$	2,137
Denominator:
Weighted average number of shares outstanding used to calculate basic income per share		22,866		2,760		22,238			3,748
Basic income per share from continuing operations applicable to common stockholders	$	0.85	$	0.85	$	0.64		$	0.64
Basic distributed income per share from continuing operations applicable to common stockholders		-		-		(0.07	)		(0.07	)
Basic undistributed income per share from continuing operations applicable to common stockholders	$	0.85	$	0.85	$	0.57		$	0.57

Three Months Ended March 31,	2013					2012
Diluted EPS from Continuing Operations	Class A		Class B			Class A			Class B
Numerator:
Distributed income applicable to common stockholders	$	-	$	-		$	1,552		$	262
Reallocation of distributed income as a result of conversion of dilutive stock options		-		-			5			(5	)
Reallocation of distributed income due to conversion of Class B to Class A common shares outstanding		-		-			257			-
Diluted distributed income applicable to common stockholders	$	-	$	-		$	1,814		$	257
Undistributed income from continuing operations applicable to common stockholders	$	19,525	$	2,357		$	12,683		$	2,137
Reallocation of undistributed income as a result of conversion of dilutive stock options		39		(39	)		39			(39	)
Reallocation of undistributed income due to conversion of Class B to Class A		2,318		-			2,098			-
Diluted undistributed income from continuing operations applicable to common stockholders	$	21,882	$	2,318		$	14,820		$	2,098
Denominator:
Weighted average number of shares outstanding used to calculate basic income per share from continuing operations		22,866		2,760			22,238			3,748
Weighted average number of shares from stock options		428		-			492			-
Conversion of Class B to Class A common shares outstanding		2,760		-			3,748			-
Weighted average number of shares outstanding used to calculate diluted income per share from continuing operations		26,054		2,760			26,478			3,748
Diluted income per share from continuing operations applicable to common stockholders	$	0.84	$	0.84		$	0.63		$	0.63
Diluted distributed income per share from continuing operations applicable to common stockholders		-		-			(0.07	)		(0.07	)
Diluted undistributed income per share from continuing operations applicable to common stockholders	$	0.84	$	0.84		$	0.56		$	0.56

Three Months Ended March 31,	2013				2012
Diluted EPS	Class A		Class B		Class A		Class B
Antidilutive Securities
Shares issuable pursuant to stock options not included since they were antidilutive		20		-		90		-

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Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Sales revenue	$ 903,080	$ 738,246
Cost of revenue	756,642	613,912
Gross profit	146,438	124,334
Asset impairments		115
Selling, general and administrative	101,131	88,439
Operating income	40,586	31,642
Floor plan interest expense	(3,449)	(2,902)
Other interest expense	(2,361)	(2,727)
Other income, net	801	498
Income from continuing operations before income taxes	35,577	26,511
Income tax provision	(13,695)	(9,877)
Income from continuing operations, net of income tax	21,882	16,634
Income from discontinued operations, net of income tax	173	162
Net income	22,055	16,796
Basic income per share from continuing operations (in Dollars per share)	$ 0.85	$ 0.64
Basic income per share from discontinued operations (in Dollars per share)	$ 0.01	$ 0.01
Basic net income per share (in Dollars per share)	$ 0.86	$ 0.65
Shares used in basic per share calculations (in Shares)	25,626	25,986
Diluted income per share from continuing operations (in Dollars per share)	$ 0.84	$ 0.63
Diluted income per share from discontinued operations (in Dollars per share)	$ 0.01
Diluted net income per share (in Dollars per share)	$ 0.85	$ 0.63
Shares used in diluted per share calculations (in Shares)	26,054	26,478
New Vehicle [Member]
Sales revenue	493,441	392,946
Cost of revenue	458,794	362,694
Used Retail Vehicle [Member]
Sales revenue	239,228	190,619
Cost of revenue	204,255	162,342
Used Wholesale Vehicle [Member]
Sales revenue	39,506	33,357
Cost of revenue	38,532	32,960
Finance and Insurance [Member]
Sales revenue	31,663	24,876
Service, Body and Parts [Member]
Sales revenue	90,440	83,544
Cost of revenue	46,661	43,409
Fleet and Other [Member]
Sales revenue	8,802	12,904
Cost of revenue	8,400	12,507
Segment, Continuing Operations [Member]
Depreciation and amortization	$ 4,721	$ 4,138

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Note 5 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies Disclosure [Text Block]

Note 5. Commitments and Contingencies

Litigation

We are party to numerous legal proceedings arising in the normal course of our business. Although we do not anticipate that the resolution of legal proceedings arising in the normal course of business or the proceedings described below will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty.

Alaska Consumer Protection Act Claims

In December 2006, a suit was filed against us (Jackie Neese, et al vs. Lithia Chrysler Jeep of Anchorage, Inc, et al, Case No. 3AN-06-13341 CI), and in April, 2007, a second case (Jackie Neese, et al vs. Lithia Chrysler Jeep of Anchorage, Inc, et al, Case No. 3AN-06-4815 CI), in the Superior Court for the State of Alaska, Third Judicial District at Anchorage. These suits are now consolidated. In the suits, plaintiffs alleged that we, through our Alaska dealerships, engaged in three practices that purportedly violate Alaska consumer protection laws: (i) charging customers dealer fees and costs (including document preparation fees) not disclosed in the advertised price, (ii) failing to disclose the acquisition, mechanical and accident history of used vehicles or whether the vehicles were originally manufactured for sale in a foreign country, and (iii) engaging in deception, misrepresentation and fraud by providing to customers financing from third parties without disclosing that we receive a fee or discount for placing that loan (a “dealer reserve”). The suit seeks statutory damages of $500 for each violation or three times plaintiff’s actual damages, whichever is greater, and attorney fees and costs. The plaintiffs sought class action certification. Before and during the pendency of these suits, we engaged in settlement discussions with the State of Alaska through its Office of Attorney General with respect to the first two practices enumerated above. As a result of those discussions, we entered into a Consent Judgment subject to court approval and permitted potential class members to “opt-out” of the proposed settlement. Counsel for the plaintiffs attempted to intervene and, after various motions, hearings and an appeal to the state Court of Appeals, the Consent Judgment became final.   

Plaintiffs then filed a motion in November 2010 seeking certification of a class (i) for the 339 customers who “opted-out” of the state settlement, (ii) for those customers who did not qualify for recovery under the Consent Judgment but were allegedly eligible for recovery under the plaintiffs’ broader interpretation of the applicable statutes, and (iii) for those customers who arranged their vehicle financing through us, on the basis that the state’s suit against our dealerships did not address the dealer reserve claim. On June 14, 2011, the Trial Court granted plaintiffs’ motion to certify a class without addressing either the merits of the claims or the size of the classes. Discovery in this case is ongoing. We intend to defend the claims vigorously.

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Note 4 - Goodwill

3 Months Ended

Mar. 31, 2013

Goodwill Disclosure [Text Block]

Note 4. Goodwill

The changes in the carrying amounts of goodwill are as follows (in thousands):

	Goodwill
Balance as of December, 31, 2011, gross	$	318,224
Accumulated impairment loss		(299,266	)
Balance as of December 31, 2011, net		18,958
Additions through acquisitions		13,710
Goodwill allocated to dispositions		(621	)
Balance as of December 31, 2012, net		32,047
Additions through acquisitions		-
Goodwill allocated to dispositions		-
Balance as of March 31, 2013, net	$	32,047

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Note 4 - Goodwill (Tables)

3 Months Ended

Mar. 31, 2013

Schedule of Goodwill [Table Text Block]

	Goodwill
Balance as of December, 31, 2011, gross	$	318,224
Accumulated impairment loss		(299,266	)
Balance as of December 31, 2011, net		18,958
Additions through acquisitions		13,710
Goodwill allocated to dispositions		(621	)
Balance as of December 31, 2012, net		32,047
Additions through acquisitions		-
Goodwill allocated to dispositions		-
Balance as of March 31, 2013, net	$	32,047

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Note 12 - Subsequent Events

3 Months Ended

Mar. 31, 2013

Subsequent Events [Text Block]

Note 12. Subsequent Events

On April 22, 2013, our Board of Directors approved a dividend of $0.13 per share on our Class A and Class B Common stock related to our first quarter 2013 financial results. The dividend will total approximately $3.3 million and will be paid on May 24, 2013 to shareholders of record on May 10, 2013.

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Note 8 - Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Text Block]

Note 8. Fair Value Measurements

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:

· Level 1 – quoted prices in active markets for identical securities;

· Level 2 – other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment spreads and credit risk; and

· Level 3 – significant unobservable inputs, including our own assumptions in determining fair value.

The inputs or methodology used for valuing financial assets and liabilities are not necessarily an indication of the risk associated with investing in them.

We use the income approach to determine the fair value of our interest rate swaps using observable Level 2 market expectations at each measurement date and an income approach to convert estimated future cash flows to a single present value amount (discounted) assuming that participants are motivated, but not compelled, to transact. Level 2 inputs for the swap valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for fair value measurements. Key inputs, including the cash rates for very short term borrowings, futures rates for up to two years and LIBOR swap rates beyond the derivative maturity are used to predict future reset rates to discount those future cash flows to present value at the measurement date.

Inputs are collected from Bloomberg on the last market day of the period. The same method is used to determine the rate used to discount the future cash flows. The valuation of the interest rate swaps also takes into consideration our own, as well as the counterparty’s, risk of non-performance under the contract.

There were no changes to our valuation techniques during the three-month period ended March 31, 2013.

Assets and Liabilities Measured at Fair Value

Following are the disclosures related to our assets and (liabilities) that are measured at fair value (in thousands):

Fair Value at March 31, 2013	Level 1		Level 2			Level 3
Measured on a recurring basis:
Derivative contracts, net	$	-	$	(3,919	)	$	-

Fair Value at December 31, 2012	Level 1		Level 2			Level 3
Measured on a recurring basis:
Derivative contracts, net	$	-	$	(4,679	)	$	-

See Note 9 for more details regarding our derivative contracts.

Fair Value Disclosures for Financial Assets and Liabilities

We determined the carrying value of cash equivalents, accounts receivable, trade payables, accrued liabilities and short-term borrowings approximate their fair values because of the short term nature and current market rates of these instruments.  We believe the carrying value of our variable rate debt approximates fair value.

We have fixed rate debt and calculate the estimated fair value of our fixed rate debt using a discounted cash flow method. Using estimated current interest rates based on a similar risk profile and duration (Level 2), the fixed cash flows are discounted and summed to compute the fair value of the debt. As of March 31, 2013, this debt had maturity dates between November 2016 and May 2031. A summary of the aggregate carrying values and fair values of our long-term fixed interest rate debt is as follows (in thousands):

	March 31,  2013		December 31, 2012
Carrying value	$	132,567	$	130,469
Fair value		134,883		134,688

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Note 6 - Stockholders' Equity

3 Months Ended

Mar. 31, 2013

Stockholders' Equity Note Disclosure [Text Block]

Note 6. Stockholders’ Equity

Reclassification From Accumulated Other Comprehensive Income (Loss)

The reclassification from accumulated other comprehensive income is as follows (in thousands):

	Three Months Ended March 31, 2013			Affected Line Item in the Consolidated Statements of Operations
Loss on cash flow hedges	$	(307	)	Floor plan interest expense
Taxes		117		Income tax provision
Loss on cash flow hedges, net	$	(190	)

See Note 9 for more details regarding our derivative contracts.

Share Repurchases

In August 2011, our Board of Directors authorized the repurchase of up to 2,000,000 shares of our Class A common stock.On July 20, 2012, our Board of Directors authorized the repurchase of 1,000,000 additional shares of our Class A common stock. We repurchased 127,900 shares of our Class A common stock during the first quarter of 2013 at an average price of $40.76 per share, for a total of $5.2 million. Through March 31, 2013, we have repurchased 1,273,047 shares and 1,726,953 shares remained available for repurchase. This authority to repurchase shares does not have an expiration date and we may continue to repurchase shares from time to time as conditions warrant.

In addition, 59,721 shares subject to equity awards were repurchased during the first quarter of 2013 at an average price of $45.04, for a total of $2.7 million, related to tax withholdings associated with the exercise of stock options or the vesting of restricted stock units.

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Note 7 - Deferred Compensation and Long-term Incentive Plans

3 Months Ended

Mar. 31, 2013

Pension and Other Postretirement Benefits Disclosure [Text Block]

Note 7. Deferred Compensation and Long-term Incentive Plan

We offer a deferred compensation and long-term incentive plan (the “LTIP”) to provide certain employees the ability to accumulate assets for retirement on a tax deferred basis. We may make discretionary contributions to the LTIP. Discretionary contributions vest between one and seven years based on the employee’s age and position. Additionally, a participant may defer a portion of his or her compensation and receive the deferred amount upon certain events, including termination or retirement.

In March 2013, we made a discretionary contribution of $2.0 million to the Plan. Participants will receive a guaranteed return of 5.25% in 2013. We recognized compensation expense related to the Plan of $0.3 million for the three months ended March 31, 2013 and 2012. As of March 31, 2013 and December 31, 2012, the balance due to participants was $4.4 million and $3.6 million, respectively, and was included as a component of other long-term liabilities in the Consolidated Balance Sheets.

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Note 9 - Derivative Financial Instruments

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 9. Derivative Financial Instruments

We enter into interest rate swaps to fix a portion of our interest expense. We do not enter into derivative instruments for any purpose other than to manage interest rate exposure to fluctuations in the one-month LIBOR benchmark. That is, we do not engage in interest rate speculation using derivative instruments.

Typically, we designate all interest rate swaps as cash flow hedges and, accordingly, we record the change in fair value for the effective portion of these interest rate swaps in comprehensive income rather than net income until the underlying hedged transaction affects net income. If a swap is no longer designated as a cash flow hedge and the forecasted transaction remains probable or reasonably possible of occurring, the gain or loss recorded in accumulated other comprehensive loss is recognized in income as the forecasted transaction occurs. If the forecasted transaction is probable of not occurring, the gain or loss recorded in accumulated other comprehensive loss is recognized in income immediately.

At March 31, 2013 and December 31, 2012, the net fair value of all of our agreements totaled a liability of $3.9 million and $4.7 million, respectively, which was recorded on our Consolidated Balance Sheets as a component of accrued liabilities and other long-term liabilities. The estimated amount that we expect to reclassify as earnings within the next twelve months is $1.3 million at March 31, 2013.

As of March 31, 2013, we had outstanding the following interest rate swaps with U.S. Bank Dealer Commercial Services:

· $50 million interest rate swap at a fixed rate of 3.495% per annum, matures April 30, 2013; and

· $25 million interest rate swap at a fixed rate of 5.587% per annum, matures June 15, 2016.

We receive interest on all of the interest rate swaps at the one-month LIBOR rate. The one-month LIBOR rate at March 31, 2013 was 0.20% per annum, as reported in the Wall Street Journal.

At March 31, 2013 and December 31, 2012, the fair value of our derivative instruments was included in our Consolidated Balance Sheets as follows (in thousands):

Balance Sheet Information	Fair Value of Liability Derivatives
	Location in Balance Sheet	March 31, 2013
Derivatives Designated as Hedging Instruments
Interest Rate Swap Contracts	Accrued liabilities	$	1,351
	Other long-term liabilities		2,568
		$	3,919

Balance Sheet Information	Fair Value of Liability Derivatives
	Location in Balance Sheet	December 31, 2012
Derivatives Designated as Hedging Instruments
Interest Rate Swap Contracts	Accrued liabilities	$	1,839
	Other long-term liabilities		2,840
		$	4,679

The effect of derivative instruments on our Consolidated Statements of Operations for the three-month periods ended March 31, 2013 and 2012 was as follows (in thousands):

Derivatives in Cash Flow Hedging Relationships	Amount of Gain Recognized in Accumulated OCI (Effective Portion)		Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Three Months Ended March 31, 2013
Interest Rate Swap Contracts	$	514	Floor plan interest expense	$	(307	)	Floor plan interest expense	$	(594	)
Three Months Ended March 31, 2012
Interest Rate Swap Contracts	$	283	Floor plan interest expense	$	(408	)	Floor plan interest expense	$	(654	)

See also Note 8.

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Note 6 - Stockholders' Equity (Detail) - Reclassification from Accumulated Other comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Loss on cash flow hedges	$ (307)
Taxes	117
Loss on cash flow hedges, net	$ (190)

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Note 2 - Accounts Receivable (Tables)

3 Months Ended

Mar. 31, 2013

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	March 31, 2013			December 31, 2012
Contracts in transit	$	68,066		$	65,597
Trade receivables		27,682			25,885
Vehicle receivables		18,525			21,298
Manufacturer receivables		24,398			25,658
		138,671			138,438
Less: Allowance		(141	)		(336	)
Less: Long-term portion of trade receivables		(4,421	)		(4,953	)
Total accounts receivable, net	$	134,109		$	133,149

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Note 9 - Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2013

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]

Balance Sheet Information	Fair Value of Liability Derivatives
	Location in Balance Sheet	March 31, 2013
Derivatives Designated as Hedging Instruments
Interest Rate Swap Contracts	Accrued liabilities	$	1,351
	Other long-term liabilities		2,568
		$	3,919

Balance Sheet Information	Fair Value of Liability Derivatives
	Location in Balance Sheet	December 31, 2012
Derivatives Designated as Hedging Instruments
Interest Rate Swap Contracts	Accrued liabilities	$	1,839
	Other long-term liabilities		2,840
		$	4,679

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block]

Derivatives in Cash Flow Hedging Relationships	Amount of Gain Recognized in Accumulated OCI (Effective Portion)		Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Three Months Ended March 31, 2013
Interest Rate Swap Contracts	$	514	Floor plan interest expense	$	(307	)	Floor plan interest expense	$	(594	)
Three Months Ended March 31, 2012
Interest Rate Swap Contracts	$	283	Floor plan interest expense	$	(408	)	Floor plan interest expense	$	(654	)

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Note 10 - Discontinued Operations (Detail) - Financial Information Related to Discontinued Operations (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Revenue	$ 8,800	$ 20,647
Gain from discontinued operations	284	257
Income tax expense	(111)	(95)
Income from discontinued operations, net of income tax expense	$ 173	$ 162

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Net income	$ 22,055	$ 16,796
Gain on cash flow hedges, net of tax expense of $315 and $265	506	426
Comprehensive income	$ 22,561	$ 17,222

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Note 3 - Inventories

3 Months Ended

Mar. 31, 2013

Inventory Disclosure [Text Block]

Note 3. Inventories

The components of inventory consisted of the following (in thousands):

	March 31, 2013		December 31, 2012
New vehicles	$	551,820	$	563,275
Used vehicles		132,616		130,529
Parts and accessories		29,685		29,522
Total inventories	$	714,121	$	723,326

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Note 10 - Discontinued Operations (Tables)

3 Months Ended

Mar. 31, 2013

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures [Table Text Block]

	Three Months Ended March 31,
	2013			2012
Revenue	$	8,800		$	20,647
Gain from discontinued operations	$	284		$	257
Income tax expense		(111	)		(95	)
Income from discontinued operations, net of income tax expense	$	173		$	162

Disclosure of Long Lived Assets Held-for-sale [Table Text Block]

	March 31, 2013		December 31, 2012
Inventories	$	9,828	$	9,412
Property, plant and equipment		1,103		1,102
Intangible assets		2,065		2,065
	$	12,996	$	12,579

	March 31, 2013		December 31, 2012
Floor plan notes payable	$	8,662	$	8,347

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Note 9 - Derivative Financial Instruments (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Derivative Liability, Fair Value, Net	$ 3.9	$ 4.7
Cash Flow Hedge Gain (Loss) to be Reclassified within Twelve Months	1.3
One-month LIBOR [Member]
Derivative, Variable Interest Rate	0.20%
50 Million Dollars Interest Rate Swap at a Fixed Rate of 3.495% Matures April 30, 2013 [Member]
Notional Amount of Interest Rate Derivatives	50
Derivative, Fixed Interest Rate	3.495%
$25 Million Interest Rate Swap at a Fixed Rate of 5.587% Matures June 15, 2016 [Member]
Notional Amount of Interest Rate Derivatives	$ 25
Derivative, Fixed Interest Rate	5.587%

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Accounting Policies, by Policy (Policies)

3 Months Ended

Mar. 31, 2013

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

These condensed Consolidated Financial Statements contain unaudited information as of March 31, 2013 and for the three-month periods ended March 31, 2013 and 2012. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our 2012 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2012 is derived from our 2012 Annual Report on Form 10-K. The interim condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our 2012 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements to maintain consistency and comparability between periods presented.

These reclassifications had no impact on previously reported net income.