MEDFORD, Ore. — Of the finance deals Lithia Motors facilitated during the
fourth quarter, 13 percent of those contracts went to subprime buyers: a level
company officials said was consistent with a year earlier.

But Lithia is looking for more because the absolute number
of contracts originated for subprime customers during the fourth quarter
increased 26 percent year-over-year

"We're seeing more lenders enter into that subprime space
again," Lithia senior vice president and chief financial officer Chris Holzshu
said during a conference call earlier this week when the company released its
fourth-quarter and full-year financial report.

"They realize there's a high return rate on loaning money to
subprime customers because your vehicle is what you tend to pay first before
all other bills. I don't think that was proven pre-recession so we're seeing a
lot more entrants come into that market," Holzshu continued.

"With that said, at 13 percent, we still feel like there are
a lot of opportunities for that subprime business to recover. We think a more
normalized level should be 18 to 20 percent, which means we have another lift
in vehicle sales of 5 to 7 percent," he went on to say.

"I think there's still opportunity and we're going to
continue to push to get as many lenders as we can into our stores in that
space. We're definitely seeing things move in the right direction," Holzshu
went on to say.

Another segment of Lithia's business that often deals with
buyers with less-than-perfect credit histories also is doing well.

Lithia also highlighted the 38-percent year-over-year sales
spike for its value autos segment. That's the category Lithia rolled out a
couple of years ago to move vehicles with more than 80,000 miles, units
executives said often arrive in the company's pipeline through trade.

Lithia also was pleased with its value autos segment for
another reason. The company calculated that gross margins on these units came
in at 21 percent during the fourth quarter.

To put that level into perspective, Lithia's fourth-quarter
gross margin for its entire used-sales operation rose 60 basis points
year-over-year to land at 14 percent.

Whether these subprime buyers are shopping in the value
autos department or even for a new model, Lithia is upbeat about how the credit
market is heading for these potential purchasers.

"As we have discussed for several quarters, an important
driver of recovery in auto sales is the expansion of consumer credit, particularly
for lower-tiered customers," Holzshu said. "Lenders are committed to increasing
their portfolios of automotive loans and loosening their lending criteria to
accomplish this objective.

"We focus on continuing to get the subprime customers back
into our stores. I can tell you the subprime customer is an opportunity for us
today," he concluded.

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