Lithia Motors' Q2 2025: Unpacking Contradictions in SG&A, Tariffs, and Used Car Strategies

SG&A expense management and efficiency, tariff impact on aftersales margins, used car market performance and strategy, SG&A cost management and efficiency, impact of tariffs on operations are the key contradictions discussed in Lithia Motors' latest 2025Q2 earnings call.



Revenue and Earnings Growth:
- Lithia Motors reported record revenue of $9.6 billion for Q2 2025, marking a 4% year-over-year same-store revenue increase.
- Diluted earnings per share for the quarter were $9.87, and on an adjusted basis, were $10.24, reflecting a 25% and 30% year-over-year increase, respectively.
- The growth was driven by increased profitability in financing operations, expanding aftersales margins, and flat SG&A despite pressures from lower front-end GPUs.

Adjacency Contributions:
- DFC, Lithia's captive finance arm, demonstrated significant growth, with financing operations income more than doubling to $20 million year-over-year.
- The improvement was supported by a 50 basis point expansion in net interest margin to 4.6%, reflecting disciplined underwriting and strong originations.
- The growth in adjacencies contributed meaningfully to earnings and consumer engagement, reinforcing the company's position in the market.

Aftersales Performance:
- Same-store aftersales gross profit grew by 8.5% year-over-year, with a gross profit margin widening to 57.8%, reflecting stronger mix and operating efficiency.
- This was driven by solid momentum in customer pay and warranty work, which are high-margin areas of the business.
- Aftersales now contributes more than 60% of the company's net income, indicating continued headroom for growth and stability in earnings.

Capital Allocation and Share Repurchase:
- Lithia Motors repurchased 3% of its outstanding shares in the first half of the year, with plans to accelerate to repurchasing 50% of free cash flow.
- The company aims to use its discounted stock price to execute a more aggressive buyback strategy, supported by a strong cash engine and consistent free cash flow generation.
- This is part of a balanced approach to capital allocation, which also includes strategic acquisitions and investments in store CapEx and the customer experience.