The auto industry is back in the driver’s seat. According to a report last week from Autodata, US automobile and light truck sales rose 12.8 percent in September, compared with the same month a year ago.

Among US automakers, Chrysler posted the largest gain from 12 months earlier. With 142,041 vehicles sold, Chrysler’s sales rose 11.5 percent compared with September 2011.  Sales at General Motors (NYSE: GM) rose a relatively paltry 1.5 percent on 210,245 vehicles sold, while sales at Ford Motor (NYSE: F) fell 0.2 percent.

During the past 6 months, General Motors’ stock has dropped 5 percent and Ford’s by 20 percent. Automaker stocks are great buy candidates now, if you think the auto industry will eventually see better days. However, there’s a better way to play rising new auto sales than just buying automaker stocks.

Auto dealer Lithia Motors Inc (NYSE: LAD) posted a rise in second-quarter 2012 earnings and raised its full-year earnings forecast, as higher demand for new cars spurred sales. Unlike most large US auto dealer groups, cars and trucks made by US automakers account for most of Lithia’s new-vehicle sales.

Earnings from continuing operations rose to $20.5 million, or $0.78 in earnings per share (EPS), for the second quarter, from $14.7 million, or $0.55 in EPS, a year earlier.  Excluding items, Lithia earned $0.76 in EPS, an increase of 25 percent from the same quarter a year earlier.

Total revenue rose 26 percent to $847.1 million. Revenue from its new vehicle retail segment, which accounts for more than half of total revenue, rose 35 percent to $470.4 million.

Lithia, the ninth-largest US auto dealer, said it now expects between $2.69 and $2.75 in EPS for the full year 2012, from an earlier forecast of $2.45 to $2.53 in EPS. This is an increase of 9.8 percent on the new earnings outlook. Earnings are projected to increase 12 percent in 2013 to $3.07.

Lithia has a current dividend yield of 1.15 percent and has increased its dividends by 43 percent in the past year. The company has a current payout ratio of 11.5 percent.

Lithia’s stock price is up 60 percent year to date and 113 percent in the past year.  However, Lithia is trading at a price-to-earnings (P/E) ratio of 13, significantly below the industry’s P/E of 19.

We give Lithia Motors a BUY recommendation, with an equity score of 1.7. Our 12-month price target is 40, a potential 14 percent increase from the current price.

Methodology: Our Equity Summary Score provides a consolidated view of the ratings of 10+ independent research providers. It uses the providers’ relative, historical recommendation performance along with other factors to give you an aggregate, accuracy-weighted indication of the independent research firms’ stock sentiment. The normalized analysts’ recommendations and the accuracy weightings are combined to create a single score. For the largest 1,500 stocks by market capitalization, these scores are then forcibly ranked against all the other scores to create a standardized Equity Summary Score on a scale of 0.1 to 10.0 for the 1,500 stocks.

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Greg Pugh, an income-investing expert, publishes a newsletter called Investing for Monthly Income.