The repurchase notice given by each holder must state:

•

if certificated notes have been issued, the note certificate numbers (or, if the notes are not certificated, the repurchase notice must comply with appropriate DTC procedures);



•

the portion of the principal amount of notes to be repurchased, which must be in $1,000 multiples; and



•

that the notes are to be repurchased by us pursuant to the applicable provisions of the notes and the indenture.

        A holder may withdraw any written repurchase notice by delivering a written notice of withdrawal to the paying agent prior to the close of business on the repurchase date. The withdrawal notice must state:

•

the principal amount of the withdrawn notes;



•

if certificated notes have been issued, the certificate numbers of the withdrawn notes (or, if the notes are not certificated, the withdrawal notice must comply with appropriate DTC procedures); and



•

the principal amount, if any, that remains subject to the repurchase notice.

        Payment of the repurchase price for a note for which a repurchase notice has been delivered and not withdrawn is conditioned upon book-entry transfer or delivery of the note, together with necessary endorsements, to the paying agent at its office in the Borough of Manhattan, The City of New York, or any other office of the paying agent, at any time after delivery of the repurchase notice. Payment of the repurchase price for the note will be made promptly following the later of the repurchase date and the time of book-entry transfer or delivery of the note. If the paying agent holds money sufficient to pay the repurchase price of the note on the business day following the repurchase date, then, on and after the date:

•

the note will cease to be outstanding;



•

interest, including contingent interest and additional interest, if any, will cease to accrue; and



•

all other rights of the holder will terminate, other than the right to receive the repurchase price upon delivery of the note.

This will be the case whether or not book-entry transfer of the note has been made or the note has been delivered to the paying agent.

        Our ability to repurchase notes with cash may be limited by the terms of our then-existing borrowing agreements. Even though we become obligated to repurchase any outstanding note on a repurchase date, we may not have sufficient funds to pay the repurchase price on that repurchase date.

        We will comply with the provisions of Rule 13e-4 and any other tender offer rules under the Exchange Act that may be applicable. We will file a Schedule TO or any other schedule required in connection with any offer by us to repurchase the notes.

Repurchase at Option of the Holder Upon a Designated Event

        If a designated event occurs at any time prior to the maturity of the notes, holders may require us to repurchase their notes for cash, in whole or in part, on a repurchase date that is 30 days after the date of our notice of the designated event. The notes will be repurchased in multiples of $1,000 principal amount.

        We will repurchase the notes at a price equal to 100% of the principal amount to be repurchased, plus accrued and unpaid interest, including contingent interest and additional interest, if any, to, but

excluding, the repurchase date. If the repurchase date is after a record date for an interest payment and on or before an interest payment date, we will pay accrued and unpaid interest, including contingent interest and additional interest, if any, to the record holder on the relevant record date.

        We will mail to all record holders a notice of a designated event within 10 days after it has occurred. We are also required to deliver to the trustee a copy of the designated event notice. If holders elect to require us to repurchase their notes, they must deliver to us or our designated agent, on or before the 30th day after the date of our designated event notice, their repurchase notice and any notes to be repurchased, duly endorsed for transfer. We will promptly pay the repurchase price for notes surrendered for repurchase following the repurchase date.

        A "designated event" will be deemed to have occurred upon a fundamental change or a termination of trading.

        A "fundamental change" is any transaction or event (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) in connection with which all or substantially all of our common stock is exchanged for, converted into, acquired for or constitutes solely the right to receive, consideration that is not all or substantially all common stock that:

•

is listed on, or immediately after the transaction or event will be listed on, a United States national securities exchange; or



•

is approved, or immediately after the transaction or event will be approved, for quotation on The Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices.

        A "termination of trading" will be deemed to have occurred if our common stock (or other common stock into which the notes are then convertible) is neither listed for trading on a United States national securities exchange nor approved for trading on The Nasdaq National Market.

        We will comply with any applicable provisions of Rule 13e-4 and any other applicable tender offer rules under the Exchange Act in the event of a designated event.

        These designated event repurchase rights could discourage a potential acquirer. However, this designated event repurchase feature is not the result of management's knowledge of any specific effort to obtain control of us by means of a merger, tender offer or solicitation, or part of a plan by management to adopt a series of anti-takeover provisions. The term "designated event" is limited to specified transactions and may not include other events that might adversely affect our financial condition or business operations. Our obligation to offer to repurchase the notes upon a designated event would not necessarily afford holders protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us.

        We may be unable to repurchase the notes in the event of a designated event. If a designated event were to occur, we may not have enough funds to pay the repurchase price for all tendered notes. Our credit agreement with DaimlerChrysler Services contains, and any future credit agreements or other agreements relating to our indebtedness may contain, provisions prohibiting repurchase of the notes under certain circumstances or providing that a designated event constitutes an event of default under that agreement, or may contain provisions that expressly prohibit our repurchase of the notes upon a designated event. If a designated event occurs at a time when we are prohibited from repurchasing notes, we could seek the consent of our lenders to repurchase the notes or attempt to refinance this debt. If we do not obtain consent, we would not be permitted to repurchase the notes. Our failure to repurchase tendered notes would constitute an event of default under the indenture, which might in turn constitute a default under the terms of our other indebtedness. In such circumstances, or if a fundamental change would constitute an event of default under our senior

indebtedness, the subordination provisions of the indenture would restrict payments to the holders of notes.

Merger or Sale of Assets by Lithia

        The indenture provides that we may not consolidate with or merge with or into any other person or convey, transfer or lease our properties and assets substantially as an entirety to another person, unless among other items:

•

we are the surviving person, or the resulting, surviving or transferee person, if other than us, is organized and existing under the laws of the United States, any state thereof or the District of Columbia;



•

the successor person assumes all of our obligations under the notes and the indenture; and



•

we or such successor person will not be in default under the indenture immediately after the transaction.

When such a person assumes our obligations in such circumstances, subject to certain exceptions, we shall be discharged from all obligations under the notes and the indenture.

Subordination of Notes

        The notes are our unsecured obligations, are subordinated in right of payment to all of our existing and future senior indebtedness, rank equally in right of payment with all of our existing and future senior subordinated indebtedness and are senior in right of payment to all of our existing and future subordinated obligations. The notes will also be effectively subordinated to our secured indebtedness to the extent of the value of the assets securing such indebtedness and to all indebtedness of our subsidiaries.

        As of June 30, 2004, we had outstanding:

•

$519.9 million of senior indebtedness under our credit agreement with DaimlerChrysler Services and our new vehicle floor plan financing;



•

$123.4 million of other senior indebtedness; and



•

no senior subordinated indebtedness other than the notes

        The indenture does not limit the amount of additional indebtedness, including senior indebtedness, that we can create, incur, assume or guarantee, nor does the indenture limit the amount of indebtedness or other liabilities that any of our subsidiaries can create, incur, assume or guarantee.

        Only our indebtedness that is senior indebtedness will rank senior in right of payment to the notes. The notes will rank equal in right of payment with any future senior subordinated indebtedness. We will not incur, directly or indirectly, any indebtedness that is subordinated or junior in right of payment to senior indebtedness unless such indebtedness is senior subordinated indebtedness or is expressly subordinated in right of payment to senior subordinated indebtedness. Unsecured indebtedness is not deemed to be subordinated or junior in right of payment to secured indebtedness merely because it is unsecured. Indebtedness for this purpose does not include trade payables and other accrued liabilities arising in the ordinary course of business.

        We are obligated to pay reasonable compensation to the trustee and to indemnify the trustee against certain losses, liabilities or expenses incurred by it in connection with its duties relating to the notes. The trustee's claims for these payments will generally be senior to those of the holders of the notes in respect of all funds collected or held by the trustee.

        We may not pay principal, interest (including interest accruing after filing of a petition initiating any proceeding under state, federal or foreign bankruptcy law, whether or not such interest is allowed or allowable under such proceedings) or other obligations in respect of the notes, or otherwise repurchase, redeem or retire the notes if:

        (1)   any designated senior indebtedness (which shall initially be the indebtedness under our credit agreement with DaimlerChrysler Services and new vehicle floorplan financing) is not paid when due; or

        (2)   any other default on designated senior indebtedness occurs and the maturity of such designated senior indebtedness is accelerated in accordance with its terms, unless, in either case,

        (a)   the default has been cured or waived and any such acceleration has been rescinded; or

        (b)   such designated senior indebtedness has been paid in full;

provided, however, that we may pay such obligations without regard to the foregoing if we and the trustee receive written notice approving such payment from the representative of the designated senior indebtedness with respect to which either of the events set forth in clause (1) or (2) above has occurred and is continuing.

        During the continuance of any default (other than a default described in clause (1) or (2) above) with respect to any of our designated senior indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration or the expiration of any applicable grace periods), we may not make payments with respect to the notes for a period (a "payment blockage period") commencing upon the receipt by the trustee (with a copy to us) of written notice (a "blockage notice") of such default from the representative of such designated senior indebtedness specifying an election to effect a payment blockage period and ending 179 days thereafter, or earlier if such payment blockage period is terminated:

•

by written notice to the trustee and us from the person or persons who gave such blockage notice;



•

by repayment in full of such designated senior indebtedness; or



•

because no default with respect to any designated senior indebtedness is continuing.

Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the second preceding sentence), we may resume payments on the notes after the end of such payment blockage period, unless the holders of such designated senior indebtedness or the representative of such holders have accelerated the maturity of such designated senior indebtedness and such designated senior indebtedness has not been repaid in full.

        Not more than one blockage period may be commenced in any period of 360 consecutive days, irrespective of the number of defaults with respect to designated senior indebtedness during such period, and in no event may the total number of days during which any payment blockage period is in effect exceed 179 days in the aggregate during any period of 360 consecutive days. For purposes of this paragraph, no default or event of default that existed or was continuing on the date of the commencement of any payment blockage period with respect to the designated senior indebtedness initiating such payment blockage period shall be, or be made, the basis of the commencement of a subsequent payment blockage period by the representative of such designated senior indebtedness, whether or not within a period of 360 consecutive days, unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days; provided, that certain events may create an additional default or event of default under a provision where one already exists, which would for these purposes be considered a new default or event of default.

        Upon any payment or distribution of our assets to our creditors upon a total or partial liquidation or a total or partial dissolution of us or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to us or our property:

        (1)   the holders of our senior indebtedness will be entitled to receive payment in full of such senior indebtedness before the holders of the notes are entitled to receive any payment of principal or interest on the notes; and

        (2)   until such senior indebtedness is paid in full, any payment or distribution to which holders of the notes would be entitled but for the subordination provisions of the indenture will be made to the holders of such senior indebtedness as their interests may appear, except that holders may receive shares of stock and any debt securities that are subordinated to such senior indebtedness to at least the same extent as the notes; if a distribution is made to holders that due to the subordination provisions of the indenture should not have been made to them, such holders will be required to hold it in trust for the holders of our senior indebtedness, and pay it over to them as their interests may appear.

        If payment of the notes is accelerated because of an event of default, we or the trustee (provided, that the trustee shall have received written notice from us or a representative identifying the designated senior indebtedness for which such representative is so designated, on which notice the trustee shall be entitled to rely conclusively) shall promptly notify the holders of our designated senior indebtedness (or their representative) of the acceleration. If any such designated senior indebtedness is outstanding, we may not pay the notes until five business days after such holders or the representative of such designated senior indebtedness receive notice of such acceleration and, thereafter, may pay the notes only if the subordination provisions of the indenture otherwise permit payment at that time.

        By reason of the subordination provisions of the indenture, in the event of insolvency, our creditors who are holders of senior indebtedness may recover more, ratably, than the holders of the notes, and our creditors who are not holders of senior indebtedness or holders of senior subordinated indebtedness (including the notes) may recover less, ratably, than holders of senior indebtedness.

Limitation on Liens

        The indenture provides that we may not incur any secured indebtedness that is not senior indebtedness unless contemporaneously therewith effective provision is made to secure the notes equally and ratably with (or on a senior basis to, in the case of indebtedness subordinated in right of payment to the notes) such secured indebtedness for so long as such secured indebtedness is secured by a lien.

Events of Default; Notice and Waiver

        The following will be events of default under the indenture:

•

we fail to pay principal when due upon redemption or otherwise on the notes, whether or not such payment is prohibited by the subordination provisions of the indenture;



•

we fail to pay any interest, including contingent interest and additional interest, if any, on the notes, when due and such failure continues for a period of 30 days, whether or not such payment is prohibited by the subordination provisions of the indenture;



•

we fail to convert the notes upon exercise of a holder's conversion right;



•

we fail to perform our obligation to provide notice of a designated event within 10 days after it has occurred;

•

we fail to perform or observe any of the covenants in the indenture for 60 days after notice from the trustee or holders of at least 25% in principal amount of the notes then outstanding (other than a failure to provide timely notice of a designated event);



•

we fail to perform or observe any of the covenants described under "—Limitation of Liens" above for 30 days;



•

certain events involving our bankruptcy, insolvency or reorganization; or



•

default in the payment of principal when due at stated maturity of other indebtedness or acceleration of such other indebtedness for borrowed money where the aggregate principal amount with respect to which the default or acceleration has occurred exceeds $5 million, and such acceleration has not been rescinded or annulled within a period of 30 days after written notice as provided in the indenture.

        The trustee may withhold notice to the holders of the notes of any default, except defaults in payment of principal, interest, including contingent interest or additional interest, if any, on the notes. However, the trustee must consider it to be in the interest of the holders of the notes to withhold this notice.

        If an event of default occurs and continues, the trustee or the holders of at least 25% in principal amount of the outstanding notes may declare the principal, and accrued interest, including contingent interest and additional interest, if any, on the outstanding notes to be immediately due and payable. In case of certain events of bankruptcy or insolvency involving us, the principal, and accrued interest, including contingent interest and additional interest, if any, on the notes will automatically become due and payable. However, if we cure all defaults, except the nonpayment of principal, interest, including contingent interest and additional interest, if any, that became due as a result of the acceleration, and meet certain other conditions, with certain exceptions, this declaration may be cancelled and the holders of a majority of the principal amount of outstanding notes may waive these past defaults.

        Payments of principal and accrued interest, including contingent interest and additional interest, if any, on the notes that are not made when due will accrue interest at the annual rate of 1% above the then applicable interest rate from the required payment date.

        The holders of a majority of outstanding notes will have the right to direct the time, method and place of any proceedings for any remedy available to the trustee, subject to limitations specified in the indenture.

        No holder of the notes may pursue any remedy under the indenture, except in the case of a default in the payment of principal or interest on the notes, unless:

•

the holder has given the trustee written notice of an event of default;



•

the holders of at least 25% in principal amount of outstanding notes make a written request, and offer reasonable indemnity, to the trustee to pursue the remedy;



•

the trustee does not receive an inconsistent direction from the holders of a majority in principal amount of the notes; and



•

the trustee fails to comply with the request within 60 days after receipt.

Modification and Waiver

        The consent of the holders of a majority in principal amount of the outstanding notes is required to modify or amend certain provisions of the indenture. However, a modification or amendment requires the consent of the holder of each outstanding note if it would:

•

extend the fixed maturity of any note;

•

reduce the rate or extend the time for payment of interest, including contingent interest, or additional interest, if any, on any note;



•

reduce the principal amount of any note;



•

reduce any amount payable upon redemption or repurchase of any note;



•

adversely change our obligation to repurchase any note at the option of a holder or upon a designated event;



•

impair the right of a holder to institute suit for payment on any note;



•

change the currency in which any note is payable;



•

impair the right of a holder to convert any note or reduce the number of shares or the amount of any other property receivable upon conversion;



•

reduce the quorum or voting requirements under the indenture;



•

change any obligation of ours to maintain an office or agency in the places and for the purposes specified in the indenture;



•

modify the subordination provisions of the indenture in a manner adverse to the holders;



•

subject to specified exceptions, modify certain of the provisions of the indenture relating to modification or waiver of provisions of the indenture in a manner adverse to the holders; or



•

reduce the percentage of notes required for consent to any modification of the indenture.

        We are permitted to modify certain provisions of the indenture without the consent of the holders of the notes.

Form, Denomination and Registration

        The notes are issued:

•

in fully registered form;



•

without interest coupons; and



•

in denominations of $1,000 principal amount and multiples of $1,000.

Global Note, Book-Entry Form

        The notes are evidenced by a global note that is deposited with DTC and registered in the name of Cede & Co. as DTC's nominee. Except as set forth below, the global note may be transferred, in whole or in part, only to another nominee of DTC or to a successor of DTC or its nominee.

        Beneficial interests in the global note may be held through organizations that are participants in DTC (called "participants"). Transfers between participants will be effected in the ordinary way in accordance with DTC rules and will be settled in clearing house funds. The laws of some states require that certain persons take physical delivery of securities in definitive form. As a result, the ability to transfer beneficial interests in the global note to such persons may be limited.

        Beneficial interests in a global note held by DTC may be held only through participants, or certain banks, brokers, dealers, trust companies and other parties that clear through or maintain a custodial relationship with a participant, either directly or indirectly (called "indirect participants"). So long as Cede & Co., as the nominee of DTC, is the registered owner of the global note, Cede & Co. for all

purposes will be considered the sole holder of such global note. Except as provided below, owners of beneficial interests in the global note:

•

are not be entitled to have certificates registered in their names;



•

will not receive physical delivery of certificates in definitive registered form; and



•

are not be considered holders of the global note.

        We will pay interest, including contingent interest, if any, on and the redemption price and the repurchase price of the global note to Cede & Co., as the registered owner of the global note, by wire transfer of immediately available funds on each interest payment date or the redemption or repurchase date, as the case may be. Neither we, the trustee nor any paying agent will be responsible or liable:

•

for the records relating to, or payments made on account of, beneficial ownership interests in a global note; or



•

for maintaining, supervising or reviewing any records relating to the beneficial ownership interests.

        Neither we, the trustee, registrar, paying agent nor conversion agent will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. DTC has advised us that it will take any action permitted to be taken by a holder of notes, including the presentation of notes for conversion, only at the direction of one or more participants to whose account with DTC interests in the global note are credited, and only in respect of the principal amount of the notes represented by the global note as to which the participant or participants has or have given such direction.

        DTC has advised us that it is:

•

a limited purpose trust company organized under the laws of the State of New York, and a member of the Federal Reserve System;



•

a "clearing corporation" within the meaning of the Uniform Commercial Code; and



•

a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act.

        DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes to the accounts of its participants. Participants include securities brokers, dealers, banks, trust companies and clearing corporations and other organizations. Some of the participants or their representatives, together with other entities, own DTC. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly.

        DTC has agreed to the foregoing procedures to facilitate transfers of interests in the global note among participants. However, DTC is under no obligation to perform or continue to perform these procedures, and may discontinue these procedures at any time.

        We will issue notes in fully registered definitive certificate form only if:

•

DTC notifies us that it is unwilling or unable to continue as depositary or DTC ceases to be a clearing agency registered under the Securities and Exchange Act of 1934, as amended, and a successor depositary is not appointed by us within 90 days; or



•

an event of default shall have occurred and the maturity of the notes shall have been accelerated in accordance with the terms of the notes and any holder shall have requested in writing the issuance of definitive certificated notes.

        The notes represented by the global securities are eligible to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. We expect that secondary trading in any certificated securities will also be settled in immediately available funds.

Listing and trading

        We have not applied, and do not intend to apply, for listing of the notes on any securities exchange. Our common stock is listed on the New York Stock Exchange under the symbol "LAD."

Registration Rights of the Noteholders

        We entered into a registration rights agreement with the initial purchasers for the benefit of the holders of the notes and the common stock issuable on common stock issuable on conversion of the notes. We filed a registration statement with the SEC covering resale of the registrable securities within 90 days after the closing date. Under this agreement, we have agreed to use our best efforts to cause the shelf registration statement to become effective within 180 days of the closing date. We further agreed to use our best efforts to keep the shelf registration statement effective until the date there are no longer any registrable securities.

        When we use the term "registrable securities" in this section, we are referring to the notes and the common stock issuable upon conversion of the notes until the earliest of:

•

the effective registration under the Securities Act and the resale of such securities in accordance with the registration statement;



•

the sale of such securities to the public pursuant to Rule 144 under the Securities Act, or any similar provision then in force; and



•

the expiration of the holding period under Rule 144(k) under the Securities Act, or any successor provision.

        We may suspend the use of the prospectus under certain circumstances relating to pending corporate developments, public filings with the SEC and similar events. Any suspension period shall not exceed:

•

30 days in any three-month period; or



•

an aggregate of 90 days for all periods in any 12-month period.

        Notwithstanding the foregoing, we will be permitted to suspend the use of the prospectus for up to 60 days in any three-month period or an aggregate of 120 days for all periods in any 12-month period under certain circumstances relating to possible acquisitions, financings or other similar transactions or reviews by the SEC of our periodic reports.

        We will pay predetermined additional interest if the shelf registration statement is not timely made effective or if the prospectus is unavailable for periods in excess of those permitted above:

•

on the notes at an annual rate equal to 0.25% of the aggregate principal amount of the notes outstanding for the first 90-day period immediately following the failure to keep effective a shelf registration statement or the failure to make the prospectus available for periods described above, and such rate will increase to 0.50% per annum thereafter until the registration statement is filed or made effective or until the prospectus is available; and



•

on the common stock that has been converted, at an annual rate equal to 0.25% of an amount equal to $1,000 divided by the conversion rate during such periods for the first 90-day period immediately following the failure to keep effective a shelf registration statement or the failure to

make the prospectus available for periods described above, and such rate will increase to 0.50% per annum thereafter until the registration statement is filed or made effective or until the prospectus is available.

        In no event will additional interest accrue at a rate per annum exceeding 0.50%.

        A holder who elects to sell registrable securities pursuant to the shelf registration statement of which this prospectus forms a part is required to:

•

be named as a selling stockholder in this prospectus;



•

deliver a prospectus to purchasers; and



•

be subject to the provisions of the registration rights agreement, including indemnification provisions.

        Under the registration rights agreement we will:

•

pay all customary expenses of the shelf registration statement;



•

provide each registered holder copies of this prospectus;



•

notify holders when the shelf registration statement has become effective; and



•

take other reasonable actions as are required to permit unrestricted resales of the registrable securities in accordance with the terms and conditions of the registration rights agreement.

Information Concerning the Trustee

        We have appointed U.S. Bank National Association, the trustee under the indenture, as paying agent, conversion agent, note registrar and custodian for the notes. Except for the contents of this section, the trustee has not reviewed or participated in the preparation of this prospectus and does not assume any responsibility for the nature, completeness, contents or accuracy of this document.

        The trustee or its affiliates may provide banking and other services to us in the ordinary course of their business. The indenture contains certain limitations on the rights of the trustee, if it or any of its affiliates is then our creditor, to obtain payment of claims in certain cases or to realize on certain property received on any claim as security or otherwise. The trustee and its affiliates will be permitted to engage in other transactions with us. However, if the trustee or any affiliate continues to have any conflicting interest and a default occurs with respect to the notes, the trustee must eliminate such conflict or resign.

        Additional information about the trustee may be found at U.S. Bank's website at http://www.usbank.com/corporatetrust. The U.S. Bank website is not incorporated into this prospectus by such reference and is not a part hereof.

Governing Law

        The notes and the indenture will be governed by, and construed in accordance with, the laws of the State of New York.

DESCRIPTION OF CAPITAL STOCK

     Our authorized capital stock consists of 100,000,000 shares of Class A common stock, 25,000,000 shares of Class B common stock and 15,000,000 shares of preferred stock, each with no par value.

Common Stock

     Each share of common stock is designated as either Class A common stock or Class B common stock. As of June 30, 2004,August 27, 2009, there were 14,986,74217,395,711 shares of Class A common stock outstanding and 3,762,231 shares of Class B common stock outstanding. All shares of the outstanding Class B common stock isare held by Lithia Holding Company, LLC.LLC (“Lithia Holding”).

Voting

     Holders of Class B common stock are entitled to ten votes for each share held, while holders of Class A common stock are entitled to one vote for each share held. The Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of stockholdersshareholders, including the election of directors.

The Oregon Business Corporation Act, OBCA,

however, entitles either the Class A common stock or the Class B common stock to vote as a separate voting group on any proposed amendment of our Restated Articles of Incorporation otherwise requiring stockholdershareholder approval if the proposed amendment would:

•

increase or decrease the aggregate number of authorized shares of the class;



•

effect an exchange or reclassification of all or part of the shares of the class into shares of another classclass;

effect an exchange or reclassification, or create athe right to do so;



•

of exchange, of all or part of the shares ofanother class into shares of the class;

change the designation, rights, preferences or limitations of all or part of the shares of the class;

change the shares of all or part of the class into a different number of shares of the same class;



•

create a new class of shares having rights or preferences with respect to distributions or to dissolutionthat are prior, to superior or substantially equal to the shares of the class; or



•

otherwise alter

increase the rights, preferences or limitationsnumber of authorized shares of any class that, after giving effect tothe amendment, have rights or preferences with respect to distributions or to dissolution that are prior,superior or substantially equal to the shares of the class;

limit or deny an existing preemptive right of all or part of the shares of the class; or

cancel or otherwise affect rights to distributions or dividends that have accumulated but not yet beendeclared on all or part of the shares of the class.

Shares of the two classes of common stock do not have cumulative voting rights with respect to the election of directors.

     As of August 27, 2009, Lithia Holding Company, LLC holds shares of Class B common stock controlling 71.5%68% of the aggregate number of votes eligible to be cast by stockholdersshareholders for the election of directors and on all other actions to be taken by the stockholders,shareholders, except as noted above. Therefore,Accordingly, Lithia Holding controls the election of theour Board of Directors and will beis in a position to control the policies and operations of our company. Currently, Sidney B. DeBoer, our Chairman and Chief Executive Officer, is the sole managermanaging member of Lithia Holding, and can direct the voting of all Class B common stock.

Dividends and Other Rights

     Subject to the preferences applicable to any preferred stock outstanding at the time, holders of shares of common stock are entitled to dividends if, when and as declared by the Board of Directors from funds legally available therefor, and are entitled, in the event of liquidation, to share ratably in all assets remaining after payment of liabilities and preferred stock preferences, if any. Each share of Class A common stock and Class B common stock will beis treated equally with respect to dividends and distributions.

     The OBCA allows an Oregon business corporation to make a distribution, including payment of dividends, only if, after giving effect to the distribution, in the judgment of the board of directors: (a) the corporation would be able to pay its debts as they become due in the usual course of business; and (b) the corporation’s total assets would at least equal the sum of its total liabilities plus, unless the articles of incorporation permit otherwise, the amount that would be needed if the corporation were to be dissolved at the time of the distribution to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. From time to time, our credit facilities may restrict or prohibit the paying of dividends without our lender’s consent.

     No additional shares of Class B common stock can be issued without the prior approval of stockholdersshareholders holding a majority of all Class A common stock outstanding, except in conjunction with stock splits, stock dividends, reclassification and similar transactions and events regarding the Class A

common stock that would otherwise have the effect of changing conversion rights of the Class B common stock relative to the Class A common stock.

     Holders of common stock have no preemptive rights nor rights to subscribe for additional securities. Shares of common stock are not redeemable and there are no sinking fund provisions. Shares of Class A common stock are not convertible into any other series or class of our securities. Subject to adjustments for stock splits, stock dividends, reclassification and similar transactions and events, each share of Class B common stock is freely convertible into one share of Class A common stock at the option of the holder. Each share of Class B common stock shall automatically convert to shares of Class A common stock on a share-for-share basis on the earliest record date for an annual meeting of our stockholdersshareholders on which the number of shares of Class B common stock outstanding is less than 1% of the total number of shares of common stock outstanding.

     Shares of Class B common stock may not be transferred to third parties except for transfers to certain family members and in other limited circumstances. Any purported transfer of Class B common stock to a person who is not a permitted transferee under our Restated Articles of Incorporation is automatically void.

Transfer Agent; Listing

     The transfer agent and registrar for the Class A common stock is Computershare Trust Company, Inc., Golden, Colorado. Our outstanding shares of Class A common stock are listed on The New York Stock Exchange under the symbol “LAD.”

Preferred Stock

     As of August 27, 2009, there were no shares of our preferred stock outstanding. The Board of Directors may, without further action of our stockholders,shareholders, issue shares of preferred stock in one or more series and fix the rights and preferences thereof, including the dividend rights, dividend rates, conversion rights, voting rights, rights and terms of redemption and sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or the designations of such series, and increase or decrease the number of shares of any such series (but not below the number of such shares then outstanding). The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Issuance of preferred stock provides desirable flexibility in connection with possible acquisitions andacquisi tions, raising capital or other corporate purposes. However, theour Board of Directors, without further stockholdershareholder approval, can issue preferred stock with voting and conversion rights that would adversely affect the voting power and other rights of the holders of common stock. In addition,

Anti-Takeover Effects

     Certain provisions of Oregon law and our Restated Articles of Incorporation, summarized in the following paragraphs, may have anti-takeover effects and could delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider to be in such shareholder’s best interest, including those attempts that might result in a premium over the market price for the shares held by shareholders, and may make removal of the incumbent management and directors more difficult.

Class B Common Shares

     Our Restated Articles of Incorporation provide for Class A and Class B common stock. A holder of Class B common stock is entitled to ten votes for each share held, while a holder of Class A common stock is entitled to one vote per share held. On most matters, the Class A and Class B common stock vote together as a single class, including the election of our Board of Directors can issue and sellthe approval of any merger. Lithia Holding holds all of the outstanding shares of preferred stock to designated persons, the impact of which could make it more difficult for a holder of a substantial block ofour Class B common stock, which control approximately 68% of the aggregate number of votes eligible to remove incumbent directorsbe cast by shareholders. Therefore, Lithia Holding controls the election of our Board of Directors, and is in a position to control the policies and operations of our company and can reject any merger or otherwiseacquisition proposal. In addition, because Sidney B. DeBoer, our Chairman and Chief Executive Officer, is the sole managing member of Lithia Holding, he currently controls and will continue to control all of the outstanding Class B common stock, thereby allowing him to control our company. So long as at least 16 2/3% of the total shares outstanding are shares of Class B common stock, the holders of Class B common stock will be able to control all matters requiring approval of 66 2/3% or less of the aggregate number of votes.

Authorized Shares

     Our Restated Articles of Incorporation authorize the issuance of 100,000,000 shares of Class A common stock. The Class A common shares that are authorized but unissued provide our Board of Directors with flexibility to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and the granting of equity incentive awards. However, these authorized but unissued shares may also be used by our Board of Directors consistent with its fiduciary duty to deter future attempts to gain control of Lithia. We have no present plansus.

     In addition, our Restated Articles of Incorporation authorize the issuance of “blank check” voting preferred stock, which, although intended primarily as a financing tool and not as a defense against takeovers, could potentially be used by management to issue anymake uninvited attempts to acquire control more difficult by, for example, diluting the ownership interest or voting power of shareholders, increasing the consideration necessary to effect an acquisition or selling unissued shares of preferred stock.to a friendly third party.

Oregon Corporate LawControl Share Act

     We are subject to the Oregon Control Share Act, under which a person who acquires voting stock in a transaction which results in such person holding more than 20%, 33¹/3% 1/3% or 50% of the total voting power cannot vote the shares it acquires in the acquisition unless voting rights are accorded to such control shares by the holders of a majority of the outstanding voting shares, excluding the control shares held by such person and shares held by our officers and inside directors, and by the holders of a majority of the outstanding voting shares, including shares held by our officers and inside directors. This vote would be required at the time an acquiring person's holdings exceed 20% of the total voting power, and again at the time the acquiring person's holdings exceed 33¹/3% 1/3% and 50%, respectively. An acquiring person can include persons acting as a group. A transaction in which voting power is acquiredacqui red solely by receipt of an immediately revocable proxy does not constitute an acquisition covered by the provisions of the Oregon Business Corporation ActOBCA described here. The acquiring person may, but is not required to, submit to us an "Acquiring“Acquiring Person Statement"Statement” setting forth certain information about the acquiring person and its plans with respect to us. The Acquiring Person Statement may also request that we call a special meeting of stockholdersshareholders to determine whether the control shares will be allowed to retain voting rights. If the acquiring person does not request a special meeting of stockholders,shareholders, the

issue of voting rights of control shares will be considered at the next annual meeting or special meeting of stockholdersshareholders that is held more than 60 days after the date of the acquisition of control shares. If the acquiring person'sperson’s control shares are accorded voting rights and represent a majority or more of all voting power, stockholdersshareholders who do not vote in favor of the restoration of such voting rights will have the right to receive the appraised "fair value"“fair value” of their shares, which may not be less than the highest price paid per share by the acquiring person for the control shares.

Oregon Business Combination Act

     We are also subject to the Oregon Business Combination Act, which generally provides that in the event a person or entity acquires 15% or more of our voting stock, we and such person or entity, or any affiliated entity, may not engage in the following business combination transactions for a period of three years following the date the person became acquired 15% or more of the voting stock:

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a merger or plan of share exchange;



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any sale, lease, mortgage or other disposition of the assets of the corporation where the assets have anaggregate market value equal to 10% or more of the aggregate market value of our assets oroutstanding capital stock; and



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transactions that result in the issuance of our capital stock to the stockholdershareholder that acquired 15% ormore of the voting stock.

These restrictions do not apply if:

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the stockholdershareholder that acquired 15% or more of the voting stock, as a result of such acquisition, owns atleast 85% of our outstanding voting stock disregarding shares owned by directors who are also officersand certain employee benefit plans;

• our Board of Directors approves the share acquisition or business combination before the stockholder shareholderacquired 15% or more of our voting stock; or
  
  

  •
  the

• our Board of Directors and the holders of at least two-thirds of our outstanding voting stock,disregarding shares owned by the Interested Stockholder,shareholder that acquired 15% or more of the voting stock, approvethe transaction after the stockholdershareholder acquires 15% or more of our voting stock.

     The Oregon Control Share Act and the Oregon Business Combination Act will have the effect of encouraging any potential acquirer to negotiate with our Board of Directors and will also discourage potential acquirers unwilling to comply with the provisions of these laws. An Oregon corporation may provide in its articles of incorporation or bylaws that the laws described above do not apply to its shares. We have not adopted such a provision and do not currently intend to do so. These laws may make us less attractive for takeover, and thus stockholdersshareholders may not benefit from a rise in the price of our Class A common stock that a takeover could cause.

Limitation of Liability and IndemnificationDESCRIPTION OF WARRANTS

     As allowed by the Oregon Business Corporation Act, our Articles of Incorporation provide that the liability of our directors for monetary damages will be eliminatedWe may issue warrants in one or more series to the fullest extent permissible under Oregon law. This is intended to eliminate the personal liability of a director for monetary damages in an action brought by or in the right of our company for breach of a director's duties to us or our stockholders except for liability:

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for any breach of the director's duty of loyalty to us or our stockholders;



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for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;



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for any unlawful distribution to stockholders; or



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for any transaction from which the director derived an improper personal benefit.

This provision does not limit or eliminate our rights or any stockholder's rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director's duty of care. This provision also does not affect the director's responsibilities under any other laws, such as the federal or state securities or environmental laws.

        Our Articles of Incorporation and the Bylaws also provide that we shall indemnify, to the fullest extent permitted under Oregon law, any person who has been made, or is threatened to be made, a party to an action, suit or legal proceeding by reason of the fact that the person is or was a director or officer of ours. Our Articles provide that we shall indemnify directors and officers against certain liabilities that may arise by reason of their status or service as a director or officer and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.

Transfer Agent

        The transfer agent and registrar for thepurchase Class A common stock, is Computershare Trust Company, Inc., Golden, Colorado.

MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS

Generalpreferred stock, debt securities, depositary shares or any combination of these securities. Warrants may be issued independently or together with any underlying securities and may be attached to or separate from the underlying securities. We will issue each series of warrants under a separate warrant agreement to be entered into between us and a warrant agent. The warrant agent will act solely as our agent in connection with the warrants of such series and will not assume any obligation or relationship of agency for or on behalf of holders or beneficial owners of warrants.

     This is a summary of certain material U.S. federal income tax consequences relevant to holdersThe particular terms of the notes. This summary is based upon the Internal Revenue Code of 1986, as amended (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury regulations now in effect, all of whichwarrants that are subject to change (possibly with retroactive effect) or differing interpretations. The discussion below deals only with notes held as capital assets and does not purport to deal with persons in special tax situations, such as financial institutions, insurance companies, regulated investment companies, dealers in securities or currencies, certain U.S. expatriates, entities generally exempt from U.S. federal income tax, persons holding notesoffered by us will be described in a tax deferred or tax-advantaged account,prospectus supplement. The prospectus supplement will describe the terms of any warrants, including the following, as a position in a "straddle" or as partmay be applicable:

• the title of a "hedge," "conversion" or other risk-reduction transaction for tax purposes, or persons who have ceasedthe warrants;

• the total number of warrants to be U.S. citizens orissued;

• the consideration for which we will issue the warrants and the aggregate amount of securitiespurchasable upon exercise of the warrants;

• anti-dilution provisions to adjust the number of our securities to be taxed as resident aliens. Persons considering the purchasedelivered upon exercise of the notes should consult their own tax advisors concerning warrants;

• the applicationdesignation and terms of the U.S. federal income tax laws to their particular situations as well as any consequencesunderlying securities purchasable upon exercise of the warrants;

• the price at which investors may purchase ownership and dispositionthe underlying securities purchasable upon exercise of the notes arising under warrants;

• the laws of any state, local, foreign or other taxing jurisdiction.dates on which the right to exercise the warrants will commence and expire;

•         We do not address allthe procedures and conditions relating to the exercise of the tax consequenceswarrants;

• whether the warrants will be in registered or bearer form;

• information with respect to book-entry registration and transfer procedures, if any;

• the minimum or maximum amount of warrants that may be relevant to a holder of notes. In particular, we do not address:exercised at any one time;

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  the U.S. federal income tax consequences to stockholders in, or partners or beneficiaries of, an entity that is a holder of notes;
  
  

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  the U.S. federal estate, gift or alternative minimum tax consequences of the purchase, ownership or disposition of notes;
  
  

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  any state, local or foreign tax consequences of the purchase, ownership or disposition of notes;designation and
  
  

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  any U.S. federal, state, local or foreign tax consequences of owning or disposing of common stock.

          The U.S. federal income tax treatment of a partner in a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) that holds the notes generally will depend on such partner's particular circumstances and on the activities of the partnership. Partners in such partnerships should consult their own tax advisors.

  
  
  
  

  We urge prospective investors to consult their own tax advisors with respect to the tax consequences to them of the purchase, ownership and disposition of notes in light of their own particular circumstances, including the tax consequences under state, local, foreign and other tax laws and the possible effects of changes in U.S. federal or other tax laws.

  Classification of the Notes

          Pursuant to the terms of the indenture, weunderlying securities with which the warrants are issued and every holder agree (in thenumber of warrants issued with each underlying security;

• the absence of administrative pronouncement or judicial ruling todate on and after which the contrary), for U.S. federal income tax purposes, to treatwarrants and securities issued with the notes as debt instruments that are subject to the Treasury regulations governing contingent payment debt instruments (the "contingent debt regulations") and to be bound by our application of the contingent debt regulations to the notes, including our determination of the rate at which interestwarrants will be deemed to accrue on the notes and the related "projected payment schedule" determined by us as described below, and our treatmentseparatelytransferable;

• a discussion of the fair market value of any common stock received upon conversion of a note as a contingent payment.

          No statutory or judicial directly addresses the treatment of the notes or instruments similar to the notes formaterial United States federal income tax purposes. The Internal Revenue Service (the "IRS") has issued a revenue ruling with respect to instruments having certain features similarconsiderations;

• redemption or call provisions, if any;

• the identity of the warrant agent; and

• any other terms of the warrants, including terms, procedures and limitations relating to the notes. To the extent the ruling addresses the issue, this ruling supports certain aspectsexchange,transfer and exercise of the treatmentwarrants.

     You should keep in mind, however, that it is the warrants, the agreement relating to the warrants and the warrant certificates, and not the summaries in such prospectus supplement, which define your rights as a holder of such warrants. You should carefully read these documents for a full description of the terms of such warrants. A copy of the form of warrant agreement will be filed with the SEC as an exhibit to a report on Form 8-K or by a post-effective amendment to the registration statement that includes this prospectus. See “Where You Can Find More Information” for information on how to obtain copies of this document.

DESCRIPTION OF DEBT SECURITIES

     We may issue several different types of debt securities, including senior debt securities, subordinated debt securities, junior subordinated debt securities, debentures, notes or other types of debt. We will issue debt securities under separate indentures to be entered into by and between us and a qualified trustee selected by us.

     A prospectus supplement will describe specific terms relating to the series of debt securities then being offered. Debt securities may be convertible into our Class A common stock or preferred stock, as described below. Notwithstandingin the issuance of this ruling, the proper application of certain aspects of the contingent debt regulations to the notes is not entirely certain. In addition, no ruling has beenprospectus supplement. The prospectus supplement may also include some or is expected to be sought from the IRS with respect to the U.S. federal income tax consequences discussed below. The IRS would not be precluded from taking contrary positions. As a result, no assurance can be given that the IRS will agree with all of the tax characterizationsfollowing terms:

• the title and the tax consequences described below. You should be aware that different treatment from that described below could affect the amount, timing, source and character of income, gain or loss with respect to an investment in the notes. For example, a holder might be required to accrue interest income at a higher or lower rate, might not recognize income, gain or loss upon conversion of a note into common stock, and might recognize capital gain or loss upon a taxable disposition of a note. Holders should consult their tax advisors concerning the tax treatment of holding a note.

          The remainder of this discussion assumes that the notes are treated as indebtedness subject to the contingent debt regulations.

  U.S. Holders

          For purposes of this discussion, a U.S. Holder is a beneficial ownertype of the notes who or which is for U.S. federal income tax purposes:debt securities;

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  a citizen or individual resident of the United States;
  
  

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  a corporation, including

  any entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
  
  

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  an estate if its income is subject to U.S. federal income taxation regardless of its source; or
  
  

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  a trust if (a) a U.S. court can exercise primary supervision over its administration and (b) one or more U.S. persons have the authority to control all of its substantial decisions.

  Notwithstanding the preceding sentence, certain trusts in existence on August 20, 1996, and treated as U.S. persons prior to such date, may also be treated as U.S. Holders.

  
  
  
  

  Accrual of Interestlimit on the Notes

          Pursuant to the contingent debt regulations, U.S. Holders of the notes are required to accrue interest income on the notes on a constant-yield basis, based on a comparable yield to maturity as described below, regardless of whether such holders use the cash or accrual method of tax accounting. As such, U.S. Holders generally will be required to include interest in income each year in excess of any stated interest payments actually received in that year.

          The contingent debt regulations provide that a U.S. Holder must accrue an amount of ordinary interest income, as original issue discount for U.S. federal income tax purposes, for each accrual period prior to and including the maturity date of the notes that equals:

          1.     the product of (a) the adjusted issue price (as defined below) of the notes as of the beginning of the accrual period and (b) the comparable yield to maturity (as defined below) of the notes, adjusted for the length of the accrual period;

          2.     divided by the number of days in the accrual period; and

          3.     multiplied by the number of days during the accrual period that the U.S. Holder held the notes.

          A note's issue price is the first price at which a substantialtotal principal amount of the notes is solddebt securities;

• the date or dates on which the principal of the debt securities will be payable, or the method ofdetermining or extending such date(s), and the amount or amounts of such principal payments;

• the date or dates from which any interest will accrue, or the method of determining such date(s);

• any interest rate or rates (which may be fixed or variable) that the debt securities will bear, or themethod of determining or resetting such rate or rates, and the interest payment dates (if any) for thedebt securities;

• the circumstances, if any, in which payments of principal, premium, if any, or interest on the debtsecurities may be deferred;

• the place or places where any principal, premium or interest payments may be made;

• any optional redemption or other early payment provisions, including the period(s) within which, theprice(s) at which, the currency or currencies (including currency units) in which, and the terms andconditions upon which, Lithia may redeem or prepay the debt securities;

• any provisions obligating Lithia to repurchase or otherwise redeem the public, excluding salesdebt securities pursuant to bond houses, brokerssinking fund or similar persons or organizations acting inanalogous provisions, upon the capacity of underwriters, placement agents or wholesalers. The adjusted issue priceoccurrence of a note is its issue price increased by any interest income previously accrued, determined without regard to any adjustments to interest accruals described below, and decreased byspecified event or at the projected amount of any payments (in accordance with holder'soption;

• the projected payment schedule described below) previously made with respect todenominations in which the notes.

          The term "comparable yield" as used in the contingent debt regulations means the annual yield we would pay, as of the issue date, on a fixed-rate, nonconvertible debt instrument with no contingent payments, but with terms and conditions otherwise comparable to those of the notes. We have determined that the comparable yield for the notes is 9.0%, compounded semi-annually. The precise manner of calculating the comparable yield is not entirely clear. If our determination of the comparable yield were successfully challenged by the IRS, the redetermined yield could be materially greater or less than the comparable yield determined by us.

          The contingent debt regulations require that we provide to U.S. Holders, solely for U.S. federal income tax purposes, a schedule of the projected amounts of payments (which we refer to as "projected payments") on the notes. This schedule must produce a yield to maturity that equals the comparable yield. The projected payment schedule includes estimates for contingent interest payments and an estimate for a payment at maturity taking into account the conversion feature. In this connection, the fair market value of any common stock (and cash, if any) received by a holder upon conversion will be treated as a contingent payment. The comparable yield and the projected payment schedule will be set forth in the indenture. U.S. Holders also may obtain the projected payment schedule by submitting a written request for such information to us at: Lithia Motors, Inc., Investor Relations Department, 360 E. Jackson Street, Medford, Oregon 97501.

          By purchasing the notes, U.S. Holders agree in the indenture to be bound by our determination of the comparable yield and projected payment schedule and agree to use the comparable yield and projected payments schedule in determining its interest accruals, and the adjustments thereto described below, in respect of the notes for U.S. federal income tax purposes.

  The comparable yield and the projected payment schedulesecurities are not used for any purpose other than to determine a holder's interest accruals and adjustments thereto in respect of the notes for U.S.issuable;

  
  
  
  

• federal income tax purposes. They do not constitute a projection or representation regarding the actual amounts payable on the notes.

          We may be required to make payments of additional interest if we do not file or cause to be declared effective a registration statement, as described under "Description of the Notes—Registration Rights of the Noteholders." We intend to take the position for U.S. federal income tax purposes that any payments of additional interest should be taxable to U.S. Holders as additional ordinary income when received or accrued, in accordance with their method of tax accounting. If we do fail to file or cause to be declared effective a registration statement, U.S. Holders should consult their tax advisers concerning the appropriate tax treatment of the payment of additional interest with respect to the notes.

  Adjustments to Interest Accruals on the Notes

          If, during any taxable year, a U.S. Holder of notes receives actual payments with respect to such notes that, in the aggregate, exceed the total amount of projected payments for that taxable year, the U.S. Holder will incur a "net positive adjustment" under the contingent debt regulations equal to the amount of such excess. The U.S. Holder will treat a net positive adjustment as additional interest income in that taxable year. Fordiscount, if any, with which the purpose, the payment in a taxable year include the fair market value of property (including common stock received upon conversion or repurchase of the notes) received in that year.

          If a U.S. Holder receives in a taxable year actual payments with respect to the notes that, in the aggregate, are less than the amount of projected payments for that taxable year, the U.S. Holder will incur a "net negative adjustment" under the contingent debt regulations equal to the amount of such deficit. This net negative adjustment will (a) reduce the U.S. Holder's interest income on the notes for that taxable year, and (b) to the extent of any excess after the application of (a), give rise to an ordinary loss to the extent of the U.S. Holder's interest income on the notes during prior taxable years, reduced to the extent such interest was offset by prior net negative adjustments.

          A net negative adjustment is not subject to the two percent floor limitation on miscellaneous itemized deductions under Section 67 of the Code. Any net negative adjustment in excess of the amounts described in (a) and (b)securities will be carried forward as a negative adjustment to offset future interest income with respect toissued;

• if other than U.S. dollars, the notescurrency or to reduce the amount realized on a sale, exchange, conversioncurrencies, composite currency or retirementcurrencies or currencyunits of the notes.

          Since amounts of contingent interest payments with respect to the notes will become fixed more than six months prior to the date that such interest is payable, the U.S. Holder will be required under the contingent debt regulations to take the adjustment into account at the time the contingent interest payment becomes fixed. The amount of the U.S. Holder's adjustment will be measured by the difference between the present value of the amount of contingent interest that becomes fixed and the present value of the projected contingent interest payment, with present values being determined by discounting each amount from the date that the contingent interest is due to the date that the contingent interest becomes fixed using a discount rate equal to the comparable yield, as discussed above. The adjustment will be treated as a positive or negative adjustment, as appropriate. Any positive or negative adjustment required will increase or decrease, respectively, the adjusted issue price and basis of the U.S. Holder's notes at the time the contingent interest becomes fixed. On the date a contingent payment is fixed, the projected payment schedule for the debt instrument is modified prospectively to reflect the fixed amount of the payment such that upon receipt of the contingent interest payment, the adjusted issue price and basis of the U.S. Holder's note will effectively be reduced by the amount of the contingent interest payment.

  
  
  
  

  Sale, Exchange, Conversion or Redemption of Notes

          Generally the sale, exchange, conversion, repurchase or redemption of a note will result in taxable gain or loss to a U.S. Holder. As described above, our calculation of the comparable yield and the projected payment schedule for the notes includes the receipt of stock upon conversion as a contingent payment with respect to the notes. Accordingly, we intend to treat the receipt of common stock by a U.S. Holder upon the conversion of a note as a payment under the contingent debt regulations. As described above, a U.S. Holder agrees to be bound by our determination of the comparable yield and projected payment schedule. Under this treatment, a conversion of a note into common stock also will result in taxable gain or loss to a U.S. Holder. The amount of gain or loss on a sale, exchange, conversion or redemption of a note will be equal to the difference between (a) the amount of cash plus the fair market value of any other property received by the U.S. Holder, including the fair market value of any common stock received, and (b) the U.S. Holder's adjusted tax basis in the note.

          A U.S. Holder's adjusted tax basis in a note generally will be equal to the U.S Holder's original purchase price for the note, increased by any interest income previously accrued by the U.S. Holder (determined without regard to any adjustments to interest accruals described above) and decreased by the amount of any projected payments that previously have been scheduled to be made in respect of the notes (without regard to the actual amount paid).

          Gain recognized by a U.S. Holder upon a sale, exchange, conversion or redemption of a note generally will be treated as ordinary interest income; any loss will be ordinary loss to the extent of total net interest previously included in income by the U.S. Holder in respect of the note, and thereafter capital loss (which will be long-term if the note is held for more than one year). The deducibility of capital losses is subject to limitations.

          A U.S. Holder's tax basis in common stock received upon a conversion of a note will equal the then current fair market value of such common stock. The U.S. Holder's holding period for the common stock received will commence on the day immediately following the date of conversion.

          If a U.S. Holder purchases a note at a discount or premium to the adjusted issue price, so that such Holder's tax basis in the note differs from the adjusted issue price of the note at the time of the acquisition, the normal rules for accrual of premium or discount generally will not apply. Instead, the U.S. Holder must reasonably allocate such difference to (i) daily portions of interest, or (ii) the projected payment at maturity. An allocation to daily portions of interest should be reasonable to the extent that the difference is due to a change in the yield, at such acquisition date, at which we could issue a nonconvertible fixed rate debt instrument with no contingent payments, but with terms otherwise similar to those of the notes. An allocation to the projected payment at maturity should be reasonable to the extent that the anticipated value of our common stock at maturity, determined on the basis of the market conditions at the acquisition date, differs from the anticipated value of our common stock as it has been determined on the basis of market conditions which prevailed at the time of original issuance.

          If a U.S. Holder's tax basis in a note is greater than the adjusted issue price of the note, the amount of the difference allocated to a daily portion of interest or to the projected payment will be treated as a negative adjustment on the date the daily portion accrues or the payment is made. On the date of the adjustment, the U.S. Holder's adjusted tax basis in the note will be reduced by the amount the U. S. Holder treats as a negative adjustment. If a U.S. Holder's tax basis in a note is less than the adjusted issue price of the note, the amount of the difference allocated to a daily portion of interest or to the projected payment will be treated as a positive adjustment on the date the daily portion accrues or the payment is made. On the date of the adjustment, the U.S. Holder's adjusted tax basis in the note will be increased by the amount the U.S. Holder treats as a positive adjustment.

  
  
  
  

          A U.S. Holder who purchases notes for an amount that is more or less than the adjusted issue price of the notes should consult its tax advisor regarding the adjustments described above.

  Constructive Dividends to Holders of Notes

          If at any time we were to make a distribution of cash or property to our stockholders that would be taxable to the stockholders as a dividend for U.S. federal income tax purposes and, in accordance with the anti-dilution provisions of the notes, the conversion rate of the notes were increased, such increase will be deemed to be the payment of a taxable dividend to holders of the notes to the extent of our current and accumulated earnings and profits, notwithstanding the fact that the holders do not receive a cash payment.

          If the conversion rate is increased at our discretion or in certain other circumstances, such increase also may be deemed to be the payment of a taxable dividend to holders, notwithstanding the fact that the holders do not receive a cash payment. In certain circumstances the failure to make an adjustment of the conversion rate under the indenture may result in a taxable distribution to holders of our common stock. Any deemed distribution will be taxable as a dividend, return of capital or capital gain in accordance with the tax rules applicable to corporate distributions, but may not be eligible for the reduced rates of tax applicable to certain dividends paid to individual holders nor to the dividends-received deduction applicable to certain dividends paid to corporate holders.

  Backup Withholding Tax and Information Reporting

          Payments of principal, premium, if any, and interest (including original issue discount and a paymenton the debt securities or in common stock pursuant to a conversion of a note) on, andwhich the proceeds of dispositions of, the notesdebtsecurities are denominated;

• any index, formula or shares of our common stock may be subject to information reporting and U.S. federal backup withholding tax (currently, at the rate of 28%) if the U.S. Holder thereof fails to supply an accurate taxpayer identification number or otherwise fails to comply with applicable U.S. information reporting or certification requirements. Backup withholding is not an additional tax. Any amounts so withheld will be allowed as a credit against a U.S. Holder's U.S. federal income tax liability and may entitle a holder to a refund, provided the required information is timely furnished to the IRS.

  
  SELLING SECURITYHOLDERS
  

          The notes were originally issued by us and sold by Morgan Stanley & Co. Incorporated, Stephens Inc., Raymond James & Associates, Inc., and Jefferies & Company, Inc. (the "initial purchasers") in transactions exempt from the registration requirements of the Securities Act to persons reasonably believed by the initial purchasersother method to be "qualified institutional buyers" as defined by Rule 144A underused for determining the Securities Act. The selling securityholders may from time to time offer and sell pursuant to this prospectusamount of any or all ofpayments on the notes listed below anddebtsecurities;

• if other than the shares of common stock issued upon conversion of such notes. When we refer to the "selling securityholders" in this prospectus, we mean those persons listed in the table below, as well as the pledgees, donees, assignees, transferees, successors and others who later hold any of the selling securityholders' interests.

          The table below sets forth the name of each selling securityholder, theoutstanding principal amount, at maturity of notes that each selling securityholder may offer pursuant to this prospectus and the number of shares of common stock into which such notes are convertible. To our knowledge, none of the selling securityholders has, or within the past three years has had, any material relationship with us or any of our predecessors or affiliates or beneficially owns in excess of 1% of the outstanding common stock.

          The principal amounts of the notes provided in the table below is based on information provided to us by each of the selling securityholders and the percentages are based on $85 million principal amount at maturity of notes outstanding. The number of shares of common stock that may be sold is calculated based on the current conversion price of $37.69 per share.

  
  
  
  

          Since the date on which each selling securityholder provided this information, each selling securityholder identified below may have sold, transferred or otherwise disposed of all or a portion of its notes in a transaction exempt from the registration requirements of the Securities Act. Information concerning the selling securityholders may change from time to time and any changed information will be set forth in supplements to this prospectus to the extent required. In addition, the conversion ratio, and therefore the number of shares of our common stock issuable upon conversion of the notes, is subject to adjustment. Accordingly, the number of shares of common stock issuable upon conversion of the notes may increase or decrease.

          Any or all of the notes or shares of our common stock listed below may be offered for sale pursuant to this prospectus by the selling securityholders from time to time. Accordingly, no estimate can be given as to the amounts of notes or our common stock that will be held bypayable if the selling securityholders upon consummationmaturity of thedebt securities are accelerated, or the method of determining such amount;

• the person to whom any interest on the debt securities will be payable (if other than the registeredholder of such sales.debt securities on the applicable record date) and the manner in which it shall bepayable;

  Name		Original Principal Amount of Notes Beneficially Owned That May Be Sold			Percentage of Notes Oustanding Before Offering		Number of Shares of Common Stock Held Before Offering(1)		Number of Shares of Common Stock Offered for Sale(1)		Number of Shares of Common Stock Held After Offer(2)
  Alexandra Global Master Fund, Ltd		$	1,500,000		1.76	%	39,799		39,799		—
  Argent Classic Convertible Arbitrage Fund (Bermuda) Ltd.			2,000,000		2.35	%	53,066		53,066		—
  Bear, Stearns & Co., Inc.			500,000		*		13,266		13,266		—
  Calamos® Market Neutral Fund—Calamos® Investment Trust			2,800,000		3.29	%	74,292		74,292		—
  CNH CA Master Account, LP			500,000		*		13,266		13,266		—
  Consulting Group Capital Markets Funds			200,000		*		5,306		5,306		—
  Context Convertible Arbitrage Fund LP			1,450,000		1.71	%	38,472		38,472		—
  Context Convertible Arbitrage, Offshore, Ltd			3,250,000		3.82	%	86,232		86,232		—
  CQS Convertible And Quantitative Strategies Master Fund Ltd			1,500,000		1.76	%	39,799		39,799		—
  DKR SoundShore Oasis Holding Fund Ltd			500,000		*		13,266		13,266		—
  DKR SoundShore Opportunity Holding Fund Ltd.			1,750,000		2.06	%	46,432		46,432		—
  Institutional Benchmark Master Fund			1,000,000		1.18	%	26,533		26,533		—
  Institutional Benchmarks Master Fund Ltd			2,000,000		2.35	%	53,066		53,066		—
  Lighthouse Multi-Strategy Master Fund Ltd.			50,000		*		1,326		1,326		—
  Lyxor/Quest Fund Ltd.			150,000		*		3,979		3,979		—
  Mellon HBV Master Convertible Arbitrage Fund LP			255,000		*		6,765		6,765		—
  Mellon HBV Master Leveraged Multi-Strategy Fund LP			35,000		*		928		928		—
  Mellon HBV Master Multi-Strategy Fund LP							1,326		1,326		—
  Mint Master Fund Ltd.			50,000		*		1,326		1,326		—
  National Bank of Canada			600,000		*		15,919		15,919		—
  National Bank of Canada c/o Putnam Lovell NBK Securities, Inc.			3,000,000		3.53	%	79,599		79,599		—
  Quest Global Convertible Fund Ltd.			300,000		*		7,959		7,959		—
  Urivest Convertible Arbitrage Fund II Ltd (Norshield)			200,000		*		5,306		5,306		—
  Vicis Capital Master Fund			565,000		*		14,991		14,991		—
  Victus Capital, LP			2,260,000		2.66	%	59,964		59,964		—
  White River Securities LLC			500,000		*		13,266		13,266		—
  Whitebox Diversified Convertible Arbitrage Partners LP			1,500,000		1.76	%	39,799		39,799		—
  Zazore Convertible Arbitrage Fund L.P.			2,000,000		2.35	%	53,066		53,066		—
  All other holders of notes or future transferees, pledges or donees or their successors(3)			54,585,000			(3)		(3)	1,448,309		—
  Total		$	85,000,000						2,255,313	(4)	—

  ---

  *

  Represents less than 1.0%.

(1)

The number

• any changes to or additional events of conversion shares showndefault or covenants;

• any additions or changes to the indenture relating to a series of debt securities necessary to permit orfacilitate issuing the series in bearer form, registrable or not registrable as to principal, and with orwithout interest coupons;

• any provisions for the table above assumes conversionpayment of additional amounts on debt securities, including additional amountson debt securities held by non-U.S. persons in respect of taxes or similar charges withheld or deducted,and for the optional redemption of the full amountdebt securities in lieu of notes held bypaying such holder atadditional amounts;

• any provisions modifying the initialdefeasance or covenant defeasance provisions that apply to the debtsecurities;

• appointment of any paying agent(s);

• the terms and conditions of any obligation or right we would have or any option you would have toconvert or exchange the debt securities into other securities, cash or property of Lithia or any otherperson and any changes to the indenture to permit or facilitate such conversion rate of 26.5331 shares per $1,000 principal amount at maturity of notes. This conversion rate is subjector exchange;

• the law governing the debt securities and the extent to certain adjustments. Accordingly, the number of shares of common stock issuable upon conversionwhich such other law governs; and

• any other special terms of the notes may increase or decrease from timedebt securities.

     You should keep in mind, however, that it is the debt securities and indenture agreement relating to time. Underthe debt securities, and not the summaries in such prospectus supplement, which define your rights as a holder of such debt securities. You should carefully read these documents for a full description of the terms of the indenture, fractional shares will not be issued upon conversionsuch debt securities. A copy of the notes. Cashform of indenture agreement will be paid instead of fractional shares, if any.

(2)

Exceptfiled with the SEC as noted in the table, assumes all of the notes and shares of common stock issuable upon their conversion are sold in the offering.

(3)

Information about additional selling securityholders will be set forth in an exhibit to a report on Form 8-K or by a post-effective amendment to the registration statement that includes this prospectus. See “Where You Can Find More Information” for information on how to obtain copies of which this document.

DESCRIPTION OF UNITS

     We may elect to offer, in one more series, units consisting of Class A common stock, preferred stock, warrants, one or more debt securities, stock purchase contracts and depositary shares in any combination in such amounts and in such numerous distinct series as we determine. When we offer to sell units, we will summarize in a prospectus forms a part.

(4)

Because fractional sharessupplement the particular terms of the units and the applicable unit agreement that would otherwise be issuable upon conversion of noteswe believe will be paidmost important to your decision to invest in cash, such units. The applicable prospectus supplement may describe:

• the sumdesignation and terms of the numberunits and of shares listedthe securities comprising the units, including whether andunder what circumstances those securities may be held or transferred separately;

• provisions of the governing unit agreement; and

• any provisions for the issuance, payment, settlement, transfer or exchange of the units or of thesecurities comprising the units.

     You should keep in mind, however, that it is the units and unit agreement, and not the summaries in such prospectus supplement, which define your rights as a holder of such units. You should carefully read these documents for a full description of the terms of such units. A copy of the form of unit agreement will be filed with the SEC as an exhibit to a report on Form 8-K or by a post-effective amendment to the registration statement that includes this prospectus. See “Where You Can Find More Information” for information on how to obtain copies of this document. Unless otherwise specified in the column doesapplicable prospectus supplement, unit and unit agreement, each unit will be issued so that the holder of the unit is also the holder of each security included in the unit. The unit agreement under which a unit is issued may provide that the securities included in the unit may not equal the total.

PLANDESCRIPTION OF DISTRIBUTION
STOCK PURCHASE CONTRACTS

     The notes and the underlying common stock are being registeredWe may elect to permit the resale of such securities by the holders of such securitiesoffer, from time to time, after the datestock purchase contracts, representing contracts obligating or entitling holders to purchase from us, and obligating or entitling us to sell to holders, a specific or varying number of this prospectus. We will not receive any