Lithia Motors Inc (NYSE:LAD) Q4 2017 Earnings Conference Call - Final Transcript

Feb 14, 2018 • 10:00 am ET

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Lithia Motors Inc (NYSE:LAD) Q4 2017 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you. [Operator Instructions] Our first question comes from the line of Steve Dyer with Craig-Hallum. Please go ahead.

Analyst
Steven Dyer

Thanks. Good morning guys.

Executive
Bryan DeBoer

Hi Steve.

Analyst
Steven Dyer

Just wondering if you guys could elaborate on the self-deduction comment. I guess I wouldn't have necessarily put two together. But maybe what are you seeing or what do you anticipate seeing in terms of changing behavior?

Executive
John North

Yes, Steve this is John. We'll talk a little bit more broadly about our guidance overall. We upgraded our outlook for '18 based on the current store performance and market conditions. And certainly the tax reform is going to be accretive to us but we also anticipate likely increases in interest rates this year. Fed is talking about 3% to even 4% interest rate increases.

I'd remind you that 1% move in interest rate is $50 million pre-tax for us or about $0.40. And then [Indecipherable] bit on the coasts, where the majority of our sales are due to limitation of the self as you mentioned.

We also didn't see a lot of the benefit of the peers -- many of our peers had from replacement demand due to hurricane Harvey. And when you look at our kind of current trends in the market, we're taking the opportunity to utilize some of the tax savings to invest in our team members and improve certain employee benefits.

So we kind of put that all together, it appears the market is stable. We're certainly not seeing and as Bryan mentioned an increasing SAAR in 2018. And I think it's too soon to tell any more about what the ultimate impact might be on the coast.

Analyst
Steven Dyer

That's helpful John and then, I mean as it relates I guess drilling down a little bit more on the tax deductibility limitations, etc., I mean are you expecting just overall demand softness? Are you expecting people are just sort of trading down, buying less car, what are you I guess sort of baking in in your expectations there generally?

Executive
John North

I think it's more that we haven't seen a real acceleration and if you look at how the fourth quarter ended, I mean I think SAAR ended the quarter at 17.8 million, which was up pretty dramatically. But it appears that a lot of that was concentrated in the middle part of the US, particularly around kind of hurricane replacement. We estimate 200,000 cars to 300,000 cars were lost there.

As we look at our coastal performance, it appears things are pretty steady in kind of the upper 16 million, low 17 million unit range and we think that some of that's a function of the fact that those are high state income tax locations that might be affected.

So I wouldn't say that we've seen a big shift. I think it's more that we saw pretty consistent performance in the quarter. But it appears that the underlying demand is a little softer than it might have indicated in Q4, based on some of that hurricane