On the heels of Lithia Motors' first quarterly loss since offering public stock more than a decade ago and its stock plummeting 30 percent in one day to settle at a third of its value just one year ago, the Medford auto retailer's leader reaffirmed commitment to Medford's ambitious downtown rehabilitation project, The Commons.

On the heels of Lithia Motors' first quarterly loss since offering public stock more than a decade ago and its stock plummeting 30 percent in one day to settle at a third of its value just one year ago, the Medford auto retailer's leader reaffirmed commitment to Medford's ambitious downtown rehabilitation project, The Commons.

Lithia, the nation's No. 7 auto retailer by volume, is working in concert with the Medford Urban Renewal Agency to build a new headquarters — flanked by retail, residential and park space.

It's also weathering what Chairman and Chief Executive Sid DeBoer described last week as a recession.

DeBoer said Saturday that a limited liability company has been formed with the intent of pursuing a federal grant that would give the urban renewal effort a hefty boost.

"We're still working through the process on The Commons, and there is no panic to get it done, and there has been no decision to delay it," DeBoer said.

He said an accounting firm specializing in such public/private partnerships thought there was a "50-50 chance" the Commons would get a $20 million grant.

"It's for distressed areas, which we qualify for with public/private partnership involved," DeBoer said. "The grant would be split between several parties involved."

Amid the company's financial struggles, two former Lithia store general managers voiced criticism of the company's shift from hands-on general managers to centralized control.

"The L2 Assured Used Cars is a good plan, I just don't think they have the personnel — the leadership — to pull it off," said Jim Walker, a general manager in Missoula, Mont., from 2003 to 2005 who now works for another company in the Puget Sound area.

Don Thompson, a general manager at a Lithia dealership in Fort Collins during the same period, said tight corporate control made it hard to compete in some markets.

"They have a lot of great processes I liked, but they don't allow a manager to effectively lead a dealership," Thompson said. "They are trying to manage from afar, trying to make a plow horse out of race horse."

Lithia stores in larger markets have struggled.

DeBoer acknowledged that the company's model fares better in smaller markets, and Lithia has sold some stores in larger markets such as Denver and Seattle.

"Ninety percent of our stores are not in bigger markets," DeBoer said, "Although I do think our customer-centric changes will allow us to do better in big cities."

He said this is as good as any time to revamp the way his company does business. The shift from negotiated selling prices to assured pricing, middle-management transition and a greater emphasis on used car sales may cost the company, short-term, but DeBoer is confident it will pave the way to long-term success.

"When you make changes affecting business short-term you want to do it when things are soft," DeBoer said. "You are going to forfeit profit if you make the changes when the market is booming. It might look better from the outside to do it during the good times, but for the sake of long-term gain, the short-term pain is worth it — it's reality."

Lithia scuffled through one of its dreariest quarters during the final three months of 2007 since going public in 1997. The company's preliminary fourth-quarter results of a $5.1 million loss, accelerated a broad sell-off Thursday that saw the stock fall briefly below the $10 mark. On Friday, Lithia shares gained 10 cents and closed at $10.13. More than 3 million Lithia shares traded hands the last two days of the week when a normal day's trading is 100,000 to 300,000 shares.

"We're actually accelerating the changes so when the markets begin to do better we'll realize the benefit," DeBoer said. "The (drop in stock price) has no impact on operations, but obviously it affects investors. There is going to be a little pain to make the change, it goes against the culture of the industry. But it's going to happen with the impact the Internet has had."

Lithia opened its second and third L2 stores — similar to CarMax — in the Texas markets of Amarillo and Lubbock in December and plans more later this year.

Lithia acknowledged during last Wednesday's conference call that the present quarter wouldn't likely be any rosier than the previous one, but DeBoer shook off implications of a long-term slide.

"We still had a half-way decent year (in 2007)," the chief executive said. "We just haven't had a good month since March last year. We thought maybe we'd get one in the fourth quarter. We've got to get our variable expenses down and in the macro economy we're in that's really soft, that's hard to do."

Analyst Mike Nemer of Thomas Weisel Partners noted the change to a consumer-friendly approach was part of the reason he downgraded Lithia's stock this week.

Two months ago, analysts were mildly in favor of adding Lithia stock to portfolios — it scored as 2.55 mean with 1 being a strong buy and five a strong sell. In the past month, that has fallen to a luke-warm hold value of 3.25. Since the last week of January, four analysts lowered their Lithia ratings to the point where nine of 12 analysts surveyed by Thomson Financial, now have Lithia stock pegged for a hold. Three suggest investors should decrease the number of Lithia shares held in their portfolio, but none have urged investors to divest.

While Securities and Exchange Commission reports are only available through Dec. 31, of the top 10 institutional investors and top 10 mutual fund investors, only three lowered their holdings in the past year.

"Things always come down to common sense and (analysts) are all disappointed," DeBoer said, "because we've never really lost money before."

Reach reporter Greg Stiles at 776-4463 or e-mail business@mailtribune.com.