The cure proved more expensive than the ailment plaguing Lithia Motors at the end of 2007.

The Medford auto retailer discovered accounting irregularities related to incentives programs, but a lengthy investigation found the breadth of the problem was limited in scope. The amount Lithia refunded to the manufacturer was $300,000.

The swarm of accountants and lawyers investigating the matter, however, billed the company $1.3 million, costing stockholders seven cents per share.

The one-time expense coupled with sagging winter sales left Lithia Motors with a first-quarter net loss of $2.17 million, or 11 cents a share, swinging from a profit of $7.08 million, or 34 cents a share, a year earlier. Excluding the investigation expense, losses from continuing operations were three cents a share.

A Thomson Reuters survey of analysts, on average, projected a loss of seven cents per share. Analyst estimates typically exclude unusual items.

"March was profitable and it was a trend," said Lithia Chairman and Chief Executive Officer Sid DeBoer. "We saw January was a worse month, February was better and then we were profitable again in March. We're pleased with the trends and we have no great fears that things will grow worse."

Lithia's first quarter revenue was $699.3 million, a 9.7 percent decrease from first-quarter 2007 revenue of $774.5 million. The company expects second-quarter earnings per share of 25 cents to 30 cents and forecasts 2008 earnings per share of $1 to $1.30 and sales of $3.1 billion to $3.2 billion.

DeBoer said the company aggressively cut expenses — to the tune of 8 percent in the first quarter — and combined positions while putting off acquisitions until the economy turns around.

"We're dismantling our acquisitions team and combined positions so that general managers are over multiple stores," DeBoer said. "We're also taking more administrative functions out of stores and bringing them to Medford. The $5 million to $7 million savings is not apparent in the first quarter, but began to take effect in March."

Asked by financial analysts if the company would continue paying a dividend in light of recent losses, DeBoer said Lithia has an untapped $70 million credit line.

"But we're not going to keep losing money," he said. "We've made the adjustments we needed to already."

Chief Accounting Officer Linda Ganim, leaving at the end of April, is the second executive to exit the company in recent weeks. Chief Financial Officer Jeff DeBoer assumed her duties.

Detroit manufacturers have been making a push to consolidate dealerships in smaller markets or redundant metro dealerships, but Jeff DeBoer said that won't affect Lithia operations.

"The closures are coming east of the Mississippi where there are lots of dealerships in small markets or where there are lots of dealerships," the chief financial officer said. "There will always be a Dodge store and a GM store in the towns we're in. We're in small markets like Sioux Falls, where there are 200,000 people. The kind they are closing are in ultra-small markets of 20,000 or where they can go from 12 to six dealerships."

Lithia also said it has opened its fourth L2 used car store in Cedar Rapids, Iowa, as it continues to make a push to re-establish a higher used-to-new car sales ratio.

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