MEDFORD, Ore. — Ash Desai calls the shots at the two Lithia Motors Inc. stores he runs.

Lithia lets Desai take risks and try new things, as long as he keeps the Fresno, Calif., dealerships profitable and its customers satisfied.

“This is the closest you can come to being an owner of a dealership without owning it,” says Desai, general manager of Lithia Nissan of Fresno and Lithia Hyundai of Fresno.

It wasn’t always that way at the nation’s ninth-largest auto retailer.

For more than a decade, until 2008, Lithia ran nearly every aspect of its dealerships from its headquarters here. But that practice nearly sent the company into a tailspin. Its financials faltered well before the 2008-09 recession, and growth plans were put on hold.

In 2008, Lithia changed course. It began giving general managers more freedom to run their stores, while holding them accountable for the dealerships’ performance. The change has been slow and sometimes painful. But Lithia executives say the company has reinvented its corporate culture to encourage an entrepreneurial spirit among managers, while boosting profits and customer satisfaction.

“The cultural difference was this: The corporate people needed to get out of the way, and the store people needed to take control,” Lithia CEO Bryan DeBoer told Automotive News. “This didn’t happen overnight because many of our people in the stores didn’t have the abilities and were never expected to do certain things. Now they do.”

DeBoer says store managers now handle tasks similar to what “a typical dealer would.”

Lithia ranks No. 9 on the Automotive News list of the top 125 U.S. dealerships groups with retail sales of 56,960 new vehicles in 2012. Lithia owned 91 dealerships at the end of the second quarter.

Past pitfalls

Desai has worked in dealership management since 1993. Before joining publicly owned Lithia in 2009, he worked at private dealerships where he had a lot of freedom to call the shots.

“When I came to Lithia, it was a bit of a shock. I kind of felt my hands were tied,” Desai says. “It’s a huge, positive change now.”

And a much-needed change, DeBoer says. The robust U.S. economy of the mid-2000s blinded Lithia’s leadership to cracks in some of the company’s results, including market penetration, customer satisfaction and overall profitability, DeBoer says.

“Because we were able to buy acquisitions pretty attractively, we didn’t have to look much deeper into what were the pitfalls of what we were doing,” DeBoer says. “But we quickly realized — when we did a postmortem in ’07, ’08 and ’09 — what caused us to go into a tailspin, to some extent even before our competitors did.”

In 2006, Lithia’s net income tumbled 30 percent to $37.3 million — including a 47 percent drop in the fourth quarter — despite an 11 percent rise in revenue. The company posted a net loss in the fourth quarter of 2007 — its first quarterly loss since going public in 1996 — and in each quarter of 2008. Plans to expand to a national group with at least 350 stores by 2014 were shelved.

DeBoer realized many of Lithia’s financial problems were caused by overcentralization. The subprime housing mess and credit crunch devastated many of the 15 states in which Lithia did business, notably California, Nevada, Oregon and Colorado. But Lithia’s strong corporate control effectively blocked store managers from responding nimbly with ways to grow revenue and adapt to a changing economy.

“We were doing so much for the stores they didn’t feel they needed to do it for themselves,” DeBoer says.

Changes made

Lithia employed 555 people at the corporate office in support services during the early- to mid-2000s, DeBoer says. Support services lorded over 114 stores at Lithia’s peak in 2007. They ordered each store’s new vehicles, procured used cars, appraised all trade-ins and priced them for sale, recruited store employees, often made the hiring decisions and determined how each store would do its marketing.

“We used to tell them this is how you sell cars and every customer will be sold a car this way,” DeBoer says. The company didn’t “listen to our customers and learn from them how they want to be treated.”

The corporate office also recruited and screened most hires, allowing dealership managers to interview only two candidates for each position, DeBoer says.

“The problem with the 2-to-1 is you don’t have the ability to be able to find the personality that works for you,” DeBoer says.

Today, headquarters limits its employment screening to drug tests and driving record reviews. Store managers interview on average five candidates for every position they fill. DeBoer would like to get that up to 8-to-1.

“If the hiring manager believes in that person and can relate to that person, they can motivate that person to success,” DeBoer says. “More importantly, they have bought into that person.”

DeBoer succeeded his father, company founder Sid DeBoer, as Lithia’s CEO in May 2012. His goal is for store managers to embrace an entrepreneurial culture and to reinforce continuous improvement in the belief that “our customers are here for life,” he says.

Lithia now employs 280 people in support services. It terminated the other 275 in 2008-10. About 200 support services staffers handle centralized tasks such as accounts payable and payroll. They also work with Lithia’s ad agency to create ads for each store, based on input from the general managers, DeBoer says. About 80 people are in administrative roles, including accounting, legal, human resources, risk management and top management.

“What we began to do is push things back to the stores that were primarily customer focused: pricing, valuations of used vehicles, most of their Web site work, all their advertising, many of the individual decisions on how to hire and fire people,” DeBoer says.

In 2006, Katherine Alexander became general manager of Lithia’s All American Chevrolet of Midland in Midland, Texas. Since then, she has taken on general manager duties at three other Texas stores: Honda of Midland, All American Chevrolet of Odessa and Lithia Hyundai of Odessa.

‘We’re here’

Alexander says running her stores today is much better than in 2006.

“We’re here on a day-to-day basis, so we know what our customers want,” Alexander says. “We make our own buying decisions based on what’s selling in our market. Same with advertising. We get a budget and we choose where we want to advertise and how to market.”

General Manager Kenan Pyeatt of Lithia Toyota of Abilene in Abilene, Texas, immediately made changes to his store when he was given more control. In June 2012, for instance, he changed vendors for the dealership’s customer relationship management system. “It allows us to manage our daily duties better,” Pyeatt says. “So you could say it’s allowed us to sell more cars.”

Pyeatt says his store now sells an average of 230 new and used vehicles per month, vs. about 140 last year.

But an entrepreneurial culture can also mean some mistakes. For instance, Desai pitched an idea for an unorthodox TV campaign, which corporate approved. He ran it during the summer of 2010, but it flopped in Fresno. Desai pulled it and eventually found an approach that resonated better with his market’s residents, he says.

What matters to Desai is that he got to have input into the creative content of his advertising and decide how to run it. He decides how to spend the budget he gets from Lithia the best way for his market.

“I’d always had a dream of owning a dealership,” Desai says. “After working for Lithia, I don’t want to own my own dealership. I feel I already own one, but the risk isn’t my own money, it’s my reputation.”