MEDFORD, Ore. — Three members of Lithia Motors' management
team all voiced strong opinions about the Consumer Financial Protection Bureau's
recent guidance on indirect auto lending and dealers' role in retail vehicle
sales.

All three reiterated not only their own processes but how
the dealer body as a whole works with lenders to originate loans to help buyers
get into a vehicle that meets their needs and is within their budget.

When asked about the CFPB guidance during the company's
quarterly conference call this week, Lithia senior vice president and chief
financial officer Chris Holzshu said, "The first thing I want to talk about
with the CFPB is you have to step back and say look at the fact that the
majority of the vehicle sales in the U.S. are done by the dealer body.

"This is a complex transaction that involves a new- or used-vehicle
sale," Holzshu continued. "There's a trade. There's the budgeting aspect to
figure out what your payment is and what your term is and then all of the
products we offer consumers, like prepaid maintenance plans, that go into that
transaction.

"That's a complex set of variables that are going into every
retail sale we have," he went on to say.

Soon after the CFPB released its guidance in March, agency
director Richard Cordray reaffirmed the position the dealer has in a retail
transaction, especially when financing is required to complete the deal.

"Dealers play an essential role for car buyers nationwide.
They provide value, and they deserve fair compensation for their work," Cordray
said.

That's a stance Holzshu takes, as well.

"The lenders see the value because they don't have a
transaction without the help of the dealer," he said. "Whether you look forward
and you talk about flats or reserve payments or you look at incentive-based
compensation from our lenders, we feel like the amount of revenue we get in
F&I from that transaction will be stable. It might just shift in how that
compensation works over time."

Lithia management indicated it has an internal rate markup cap
of 2.5 percent, but officials didn't disclose exactly how much of its F&I
gross profit comes from dealer participation. The company generated $1,116 in
F&I gross profit per retail sale during the first quarter, up 4.7 percent
year-over-year.

Lithia founder, executive chairman and chairman of the board
of directors Sid DeBoer discussed how that profit potential might change if the
CFPB continues to ramp up regulations and lenders adjust compensation
structure.

"If it does turn into a flat and the rate is dictated by the
finance source, then I don't where that goes," DeBoer said. "I don't think
finance sources are going to really like that. But if it goes there, I think
the amount might be very similar to what we currently earn because we all have
caps on that and they have caps on that, on what we can charge a customer."

DeBoer has held a variety of leadership roles with the
National Automobile Dealers Association. He explained this week how he and NADA colleagues
have worked feverishly on Capitol Hill and elsewhere in Washington, D.C., to
explain to lawmakers and regulators exactly how the markup process works.

"We aren't the lender, and that's often misunderstood. They
often think of it as that we're the fee generator, like we're more like a
broker in the deal," DeBoer said. "In reality, we originate the loan. The loan
is made between our store and the customer. We negotiate an interest rate.

"But we're originating loans. How do you regulate that? We
have no data to indicate what race (the buyers) are," he went on to say. "We
have the data relative to their credit score, but we have no other data. It's
really a monster to try to get control of that. Obviously, that's why we were
not included in (the CFPB's) realm of control."

However, DeBoer didn't discredit all of the CFPB intentions
of its indirect auto loan guidance.

"I think the pressure is good to make sure dealers don't
overcharge a customer," DeBoer said. "I think that's very valid. We've always
been very much in control of that. We monitor it. We have criteria internally
to look at what each customer is charged and the margin in it. I don't believe
it's a big problem.

Lithia president and chief executive officer Bryan DeBoer
closed the conference call dialogue about the CFPB by reiterating what he
believes is a "transparent sales process," at group dealerships.

"Our people in the stores get it," Bryan DeBoer said. "If it
becomes a flat rate or a reduced rate, we sell our product through sheer
transparency and selling the cost benefits of those things.

"No matter what happens in this arena, it's going to turn
out good for our consumers and good for ultimately our profitability," he continued.
"When they walk out of our dealership and get 7 percent on their contract,
they're not going to be able to walk down to their credit union or bank and get
5, 5.5 or 6. It's going to be in a relative realm to what their credit
substantiates. I think that's the important thing to keep in mind."

Nick Zulovich can be reached at nzulovich@subprimenews.com. Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.