MEDFORD, Ore. — Lithia Motors attempted to explain why its
origination level of financing to subprime customers fell below what company
executives cited as the national penetration reading for the third quarter.

During its quarterly conference call last week, Lithia
reported that 11 percent of its sales went to subprime customers. The company
believed the national penetration reading settled at 16 percent during Q3.

Despite trailing the national level, Lithia senior vice
president and chief financial officer Chris Holzshu highlighted the absolute
number of contracts originated for subprime customers increased 18 percent
year-over-year

"We believe that the mix of subprime customers remains
underweight relative to normal market conditions," Holzshu said. "Given our
rural market and domestic brand exposure, we believe our customer base is more
dependent on subprime financing than broad national trend. We anticipate our
normalized volume of subprime customers should be approximately 20 percent of
the overall mix of financing.

"Banks are continuing to increase their appetite for lower credit
quality customers, but we believe in improving employment environment will be
the most significant factor to increase subprime lending," he continued.

When questioned by investment analysts, Holzshu admitted
Lithia is "a little disappointed in the way the numbers play out," in terms of
how much subprime paper the company originated. He again pointed to the area
where most Lithia stores operate.

"Our Western markets are still depressed. And a lot of those
consumers are still subprime customers that need a job in order to get financed
so I think there's a lot of opportunity and upside there," Holzshu said.

Nick Zulovich can be reached at nzulovich@subprimenews.com. Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.

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