The economic downturn, tighter credit and skyrocketing fuel prices have caught Medford's Lithia Motors Inc. in a crossfire.
The nation's eighth-largest auto retailer Monday announced aggressive measures to shore up sagging fortunes.
The centerpiece of a major downtown redevelopment project may be put on hold after Lithia Motors announced it was deferring all uncommitted capital expenditures.
"All of our current capital expenditures across the entire company are under review," said Robert Sacks, Lithia community relations director.
Asked if that included its planned 10-story headquarters in The Commons project in downtown Medford, he said, "Everything is under review."
The Commons is a $169 million, multi-block urban project that will include residential, retail, restaurants and publicly funded infrastructure improvements such as park blocks, utilities and sidewalks. The project is planned for an area bounded by Central and Riverside avenues and Jackson and Sixth streets. Lithia's new headquarters, paid for by the auto retailer, is to be its centerpiece.
Bill Dames, Medford Urban Renewal Association board secretary, said Lithia's news isn't surprising.
"I think they would be crazy, if they painted a rosy picture and said sales are wonderful," Dames said. "They're not in a different situation than any other retailer — it's a difficult time. We obviously have to talk with them and see how they assess it. It's a unique environment and until we talk, we won't know exactly what they are thinking."
MURA budget committee member Scott Henselman said he hoped the agency had some guarantee that the downtown blocks, vacated when Lithia moved its Dodge Chrysler Jeep dealership to Highway 62 last fall, won't be left undeveloped.
"The reason MURA jumped quickly on The Commons was to prevent an extended blight condition caused by Lithia vacating the downtown," Henselman said. "I cannot imagine that MURA would not have put into place time-frame requirements and guarantees on Lithia for this project. MURA is spending millions of dollars and they would not make the same mistake as they did with Bella Vita, where a parking structure was designed around a big project that didn't happen."
Dames didn't think timelines were that important for the overall project.
"(Lithia has) got to work some things out," he said. "It's not a permanent situation and I expect them to ride it out."
Lithia said it is selling dealerships, consolidating offices and reducing staff across its network of 110 stores located in 46 markets in 15 states. The auto retailer also said it was slamming on the expansion brakes, saying it is postponing acquisition of dealerships and the opening of additional L2 used car stores.
"As the economic environment has worsened, we have taken a comprehensive look at our business and determined how it can be right-sized to achieve our profit margin and growth objectives for the long term," Lithia Chief Executive Officer and Chairman Sid DeBoer said in a statement. "This is just formalizing what we've been doing."
Lithia said it was selling 10 to 15 stores, but DeBoer declined to identify possible cities or states.
"Nothing is closing, we're selling them," DeBoer said. "Everybody keeps their job, they'll just be working for someone else. There is all kinds of private capital waiting to invest in our industry."
Lithia said it is accelerating its cost cuts because of reduced sales volume. In addition to the $6 million in cuts announced at the end of April, the company now seeks additional savings of $1 million per month, trimming overall costs by $18 million annually.
DeBoer reiterated store management duties were shifting and roles will be combined. The company also said its head count will decline across the system.
"The stronger people will take on bigger roles and the people not performing won't be able to work for us," DeBoer said. "Not much of that will take place at headquarters. Most of our top-performing people are at our headquarters. Our acquisition team went into stores or directly into the field in helping direct what we're doing."
One way the company is cutting annual expenditures is centralizing offices in markets such as Fresno, Calif., where three stores report to one office.
DeBoer said there wasn't a specific list of stores up for sale. Asked if any local stores will be placed on the block, DeBoer said, "No, all of the local stores are successful."
Although falling consumer confidence, declining home values, tightening credit markets and lost market share for domestic auto manufacturers have eroded vehicle sales, the company said the driving force is the accelerated rise in gasoline and diesel prices. Oil prices have doubled in the past year and have increased six-fold since 2002.
At least one outside observer isn't so sure Lithia will find a buyer for its domestic dealerships.
"The need to cut back on the domestic stores is somewhat of a new phenomena in the industry," said Charlie Vogelheim, vice president of automotive development at J.D. Power and Associates, a global marketing firm. "They are overloaded with Chrysler stores. Back in the day, that might have been a decent store they got at a decent price, but there are too many Chrysler stores in the country right now and they're victimized by it."
Lithia stores are typically in secondary markets, meaning it might be even harder to off-load underperforming stores, Vogelheim said.
"They are not in robust or high-volume markets and the reality is there are not necessarily buyers right now," Vogelheim said. "I can easily say that from afar, but there are too many domestic dealers. Domestics have lost a percentage and imports have gained.
"The number of vehicles sold this year is down by a million. It's easy math — we're in an economy where there isn't a buyer. I'm not picking on Lithia or necessarily on Chrysler, but something has to give."
As part of its restructuring efforts, Lithia said it would:
The first L2 Auto store was introduced in August 2007 in Loveland, Colo. By some estimates, L2 Auto openings cost the company about $60 million.
"Every time we open one we lose money," DeBoer said. "We're going to hold off until the recession is gone and then we'll re-accelerate that. We're working with a well-proven model."
Lithia's quarter dividend, instituted during the third quarter of 2003, was not mentioned among the reductions.
"It's certainly something precious to the company and its shareholders," said Dan Werthaiser-Kent, Lithia's investor relations manager. "We value it greatly and it would be one of the last things to take off the table as far as we're concerned. Certainly it could be cut — just as any dividend payment goes, there are a lot of options. Given share price right now, it's a pretty good return."
The present 14-cents-per-share quarterly dividend pays out about $2.8 million to Class A and Class B shareholders.
"After improving sequentially to near break-even in the first quarter, we are continuing to improve in the second quarter," DeBoer said. "April sales volume came in a little below plan but May is tracking in line with our internal projections. We're hoping June will be on track — actually business isn't that bad, it's just not what we hoped it would be. The oil shock is huge and people want fuel-economy cars now."
On a day when the Dow Jones Industrial Average plummeted 134.5 points, Lithia shares gained 13 cents Monday to close at $6.96. Lithia stock has been on a steady decline since Feb. 26, 2007, when it sold for $30.54.
Reach reporter Greg Stiles at 776-4463 or e-mail firstname.lastname@example.org.