Q1 2020 Earnings Call
Good morning, and welcome to the Lithia Motors first quarter 2020 conference call.
All lines have been placed on mute background noise.
After the speaker's remarks will be a question and answer session.
Now lets turn call over to Eric <unk>, Vice President Investor Relations and Treasurer. Please begin.
Thank you and welcome to the Lithia Motors first quarter 2020 earnings call presenting today are Brian de Boer, President and CEO.
Yeah.
Chris Holzshu executive Vice President and COO.
<unk> Miller senior Vice President and CFO.
Today's discussion may include statements about future events, including the duration and contemplated impacted the Kobe 19, pandemic financial projections and expectations about the company's products.
Markets and growth.
Statements are forward looking and subject to risks and uncertainties that could cause actual results to differ materially from the statements made.
We disclose those risks and uncertainties, we deem to be material in our filings with the Securities and Exchange Commission.
We urge you to carefully considered these disclosures and not.
Place undue reliance on forward looking statement.
We undertake no duty to update any forward looking statements. What's your made at the date of the three lead.
Our results discussed today include references to non-GAAP financial measures. Please refer to detect today's press release for a reconciliation to comparable GAAP measures.
We have also posted an updated investor presentation on our website, but at the Investor Relations Dot com highlighting our first quarter result, with that I'd like to turn the call over to Brian to poor President and CEO.
Thank you Eric good morning, and welcome everyone.
Before discussing our Q1 earnings result.
I wanted to take a moment cooks breath or empathy and thoughts for those directly affected by the cobot 19 pandemic and the disruption it has brought to our society and the economy.
During this time, our priority is to ensure the health and wellbeing of our team members customers in communities.
Providing reliable transportation to support our customer.
Emergency workers and everyday heroes and that's pandemic has required us to further adapt since you have to ensure these essential services are available.
Each area of our country is being impacted differently by stay at home.
And shelter in place orders that states counties and cities.
And we'll all respond in unique ways as we navigate out of this challenge.
Currently 95% of our markets are impacted by shelter in place orders with 100% of our service Department open.
95% of our sales department open at varying levels nationwide.
We are inspired by the diverse array of to loose ends our team members are developing to ensure our fellow employees and customers are safe and receiving our services as requested.
Earlier today we.
Reported and adjusted first quarter earnings of $2.01 per share.
These results were driven by our strong January and February performance with same store, new vehicle revenues, increasing 4% used vehicle revenues, increasing 22% happened I, increasing 18% and service body.
I'm parts, increasing 6% for that few months period.
This robust start to the year was offset in the quarter by a significant decline in the second half of March as shelter in place policies were enacted across most of the country.
For the full month of March.
Same store new vehicle sales declined 33% used vehicle sales declined 27%.
Happened I declined 29% and service body in parts declined 9%.
As a result for the quarter.
Total same store revenue declined 5%, while total same store.
Store gross profit declined 2%.
Chris Welfare further details on the quarter's performance and our response to the current environment in a few moments.
For the remaining duration of my discussion I'll be outlining the design of our diversified high growth highly complex.
Strategy that makes lithia so unique.
Our preparation foundational strength and the current environment provides us the opportunity to accelerate our progress towards our aspirationally goal of 5% national vehicle market share.
The foundation of our strategy.
That we have spent years building, it's stable and difficult to replicate.
It is built on a high performance and result based culture.
Six highly diversified business line.
Coast to coast physical network, I never limitless value based growth plan and a strong.
Balance sheet with regenerating cash flows.
Diversification through our core business lines creates resiliency and our revenues and profits.
Different than a recession over a decade ago, we're much more positioned and it's less certain environment.
Today each of our six business lines are.
Now being expanded inactivated three in home and digital solutions.
In addition, no single manufacture makes up more than 18% of our new vehicle product mix.
And we originally diversified with the broadest national network of any auto retail or reaching over 92% of our great.
Country.
Our balance sheet is also the strongest in our history with the low lets leverage in our industry and cash reserves of over $550 million plus an additional 500 million available through our and finance real estate.
Our capital discipline has positioned us well.
With no significant debt maturities until 2025, allowing us the flexibility to make strong opportunistic decisions with our capital.
Most importantly, our culture and teams are empowered entrepreneurial and driven do achieve high levels of performance by making decisions.
Closest to our customers.
As discussed in our preliminary earnings released last week.
This unique repositions live yet to respond to the extremely variable market conditions thrust upon us due to the differing levels of shelter in place orders.
Our stores in their team are.
We intend with their customers need and are making proactive decisions on their behalf at all levels.
In addition, our proprietary performance management systems and measurements interlace, our cultural values to create transparency trust and action the catalyst for.
Hi performance.
Combined with persistence and adaptability, we direct all of our attentions on what we can control, allowing us to maintain focus remain humble and drive for better result.
We see the growth and expansion of our physical network comfortably.
Taking a halfway to our 5% goal.
Just shy of 1% national market share today, our physical network will be leveraged with digital home solutions to complete the rest of the journey.
Consolidation opportunities within our industry remains plentiful.
Allowing us to continue to grow rapidly.
Our experience is over the past several years in our stores and with our business partner.
I have taught us that expert personnel the right inventory digital solutions and the physical network all are required element.
To seamlessly provide transportation solutions on a national scale.
The traditional dealer model is highly profitable however, the current customer experience lacks the speed east and transparency found in other retail transactions.
Digital.
Since our improving consumer experiences. However, most consumers still require expert assistance to complete their purchase.
Unlike most products.
Vehicles are highly complex last for over a decade.
Involve a trade in and financing require.
And our large making them expensive to transport.
Then unit economics, offset by higher logistics costs result in a six region strategy to most effectively compete and deliver profitable solutions.
With the addition of the Williams group late last year.
Sure. We're now located in all six regions and ready to add density to our network.
Our customers proximity to our physical network is a key element to our design.
This enables us to supply convenient and affordable touch points throughout the ownership lifecycle, especially related to our 50.
Net margin service and associated parts businesses.
Increasing our physical network to between four and 500 locations result, and 2.5% market share and the ability for us to reach most U.S. consumers and two hours or less.
Yes.
That's our top priority for allocating capital will continue to be expanding our network by acquiring strong new locations.
Our investments in modernization are well underway and we expect only minimal development costs in 2020.
As we continue to develop the engines to power or digital.
Solutions, we also work to transform the actions in behaviors to our teams within our existing network.
Our people and these engines will be powering our future national brands that will overlay, our six regions to attract a larger population of digital can.
Tumors thirsting for transparent empowered flexible and simple buying and servicing experiences.
Through sharing of best practices.
New digital solutions and our support for social distancing. These actions have taken hold at an accelerated pace than our net.
Work over the past few quarters.
We are providing digital shopping experiences.
Contact list test drive.
And home delivery and curbside pickup for vehicle purchases in service.
Nationwide, we estimate that over 25% of our April deliveries are being completed off.
Right.
We are well positioned that stay at home orders are further relax and ultimately removed as we continue to expand our holistic strategy to capture additional market share and ex exponentially grow our company.
To summarize Lithia sound.
Business Foundation is composed of a dynamic entrepreneurial culture that attracts and retains the best talent.
World Class proprietary performance management systems, a proven growth strategy and capital discipline with regenerating cash flows.
Our growing.
Physical network composed of people inventory in facilities.
Combined with our digital home solutions completes our unique omnichannel strategy.
The additional advantages of a persistent adaptable and optimistic team with a multi decade track record.
Of executing together are more apparent than ever and are the catalyst for emerging from this pandemic stronger than ever.
This complex strategy outline for you today positions us to continue to lead our industry's transformation and progress towards making our goal of 5%.
National market share a reality.
With that I'd like to turn the call over to Chris.
Thank you, Brian well the situation and our nation is unprecedented our operational leaders are living our mission of growth power by people by focusing on what they can control and identifying the leverage they can pull to for Servier and this environment.
Our stores continue to fall CDC guidelines and local government directly while implementing strong safety measures for our customers and employees.
With that I'd like to discuss our same store quarterly results as well as trends in the first quarter and what we've seen since our pre released on April 14.
For the three months ended March 31st total.
Same store results were down 5% led by an 11% decrease in new vehicle sale, a 3% increase in used vehicle sales, a 1% decrease enough and I revenue and a 1% increase in service body in parts revenues.
Shared last week shelter in place policies have caused varying levels of business interruption across our.
At work, depending on the timing and the restricted nature of the orders posted by local governments specifically during the second half of March when shelter in place policies were enacted vehicle unit sales declined approximately 50% with new and used vehicle sales responding similarly.
Vehicle sales in our stores vary greatly.
The client between 15% and 75% other than in our most restricted the Pennsylvania in Vermont, which had virtually no sale due to government orders.
The most stable states, where Montana in Texas with little year over year change.
Service body parts sale and the second half of March.
At approximately 30%.
Our state performance during the same period at declines in service varying between 10% to 50% wouldn't Nevada in Texas remaining the strongest at the lower end of the range and the northeast towards the upper end of this range or the strictest shelter in place orders remain.
Since last week.
Pre release, we have seen restrictions on shelter in place policy and specific guidance for auto retailers continue to be relax.
Vehicle sales department saw some improvement with new vehicle sales being down less than 40% use less than 20% and service volumes are still hovering around a decrease of 30% as our teams.
Jeff and respond with safe responsible business practices that provide customer solutions wherever whenever and however, they desire.
In the quarter and new vehicle business line was down 11%, our average selling price increased 5% and unit sales decreased 15% gross profit per unit increased it.
$2200 compared to $2177 last year, an increase of $23.
For the past several weeks, most Oems have announced closures or their factories through their early part of me and our teams are incorporating those potential impacts and their plan. Despite this our history has taught us that OEM partners will.
For us and aggressively incentivize vehicles in the coming to mind as consumers return to more normal lives.
For used vehicle, we saw gross profit per unit of $2073 in the quarter, a decrease of 1% or $18 over last year. One large advantage we have over other U.S retail.
Tailor our that our OEM also provide programs are subsidies to support certified pre owned vehicle sales.
Our balanced inventories come from comprise 90% of the less volatile used vehicle certified pre all core or vehicle three to seven years old and value auto vehicle older than eight years.
Due to the scarcity in these units and the OEM subsidy, we can maintain better competitive pricing in March.
There are many 10% ever used vehicle inventory is late model conquest or vehicle less than three years old and less than 40000 miles that are positioned at off brand locations. We are actively moving through those vehicle.
Reposition ourselves to Opportunistically acquire replacement units.
Our strategy of selling deep into the U.S vehicle age spectrum through our core and value auto vehicle, which are 60% of our sales are resistant to value degradation.
Additionally, in weaker economic cycle, he's already scarce vehicles are in higher demand.
Consumers move to less expensive monthly payment and more affordable products.
When used vehicle sales are supported by our experience finance specialists that helped mass consumer needs with lending option and over 150 financial institution.
In the quarter, our finance and insurance business lines continue the incremental improvement we have seen the last several core.
We're averaging 1557 for retail units an increase of $89 per unit over the prior year as consumers continue to take advantage of the product offerings available that protect their mobility investment we have not seen any tightening in the credit market in fact financial institutions and.
In cap to significantly enhance the programs and incentive they're providing consumers with zero payment for 90 to 180 day zero percent neatly our financing in $0 down as well as more competitive leasing.
Overall when used vehicle sales create incremental profit opportunities through the reason I.
Of additional traded vehicles greater manufacturer incentive effort I sale and future parts and service work. We continue to monitor this through the growth of our total gross profit per unit, which was $3697 this quarter or an increase of $84 per unit over last year.
We remain focused.
On the highest margin business line, our service parts, including centers, which in the quarter increased 1% over the prior year. These teams have made massive operational shifts to adapt to consumers being conform to their home our home digital efforts that began in Pennsylvania, and then become the incubator for sharing both digital and manual best practices and all.
<unk> has been a catalyst for new ways to support our consumers.
The demand for from consumers for all of our stores to offer home solutions has created a mindset shift in our team that we expected to be one of the more difficult parts of our strategic transformation as if this week approximately 75% of our network is performing.
Home service solution by actively picking up vehicles to went from our consumers home.
Violent their online vehicle sales and used vehicle purchases are at home digital solutions position, our company to leverage our growing network, which now has the largest reach in the industry.
Our facility inventory and people are ready to.
Deliver online in dealership in in home solution, the non traditional auto consumer than we previously may not have appeal to.
Our culture and World Class performance management systems have been able to our teams to be nimble and responsible to this rapidly changing environment store leaders and taking prudent indecisive cost saving measures.
In personal on advertising expenses, which is comprised of 75% of Myrisk DNA.
Our marketing teams are identifying the advertising channels and messages that provide the most efficient investment on our advertising dollars overall, we expect store advertising spend to reduce 20% to 30%. Additionally.
We'd like to thank our vendor partners, who have provided additional support in the form a fee concessions for the next several mile.
Our teams that reduced our staffing levels by approximately 40% through the elimination of positions and by Furloughing are performing team members that we hope were turned to work soon.
Financially support furloughed employees, who were impacted by.
Covert 19, we're providing additional financial benefits starting with up to an additional two weeks and paid time off.
Benefit premiums and adjusted compensation plans for active employees that recognize their contribution in this unique operating environment.
In summary, our teams continue to adapt to the and operate in.
A ways the best match each of their local market and the ever changing consumer desires. The insight provided by our World class performance management system, although our teams to be nimble unresponsive to the changing environment, we're innovating and improving the consumer experience through incremental and pragmatic modernization and they are poised for the shelter in place orders.
Just to be lifted and the economy could reopen our team's ability to achieve high performance in any environment continues to be the foundation as we remain focused on our longer term goal of 5% national market share with that I'd like to turn the call over to Tina. Thank you Chris late last year, we took actions to strengthen our.
Our balance sheet to support the company's future growth <unk>.
We raised $400 million issuing senior notes, we're modifying our $2.8 billion syndicated credit facility, what the maturity extension to 2025 increase maximum allowable leverage ratio to 5.75 time and reduce interest.
Across the various line.
This financial position, coupled with no material debt maturities over the next for a year over $1 billion cash available credit and on finance real estate and three turns headroom on our leverage covenant have positioned us well.
As of March 31st our adjusted leverage ratio.
It's treats floor plan used vehicle service minor financing and operating expenses calculated as net debt to adjusted EBITDA for 2.2 time during the quarter, we generated 39 million in free cash flow, which was reduced by 41 million in capital expenditure.
Additionally, we completed 48 million.
Opportunistic share repurchases, representing approximately 2.4% of outstanding shares.
We have approximately 180 million and remaining availability under our existing share repurchase authorization.
Earlier. This morning, we are now that dividend of 30 cents per share consistent with our prior quarterly dividend.
Our capital allocation priorities, which support our diversified high growth strategy remain unchanged, we target to 65% investment in acquisition, 25% internal investment, including capital expenditure modernization and diversification and 10% and shareholder return and the pharma dividends and share repurchases.
In light of the uncertainty what the current situation, we have taken defensive measures to conserve cash in the second quarter as mentioned in our preliminary earnings release, all acquisitions have been deferred to the second half a year and will be restructure to preserve the strength of our balance sheet. Additionally, we have terminated or defer approximately 65 million in.
Planned capital expenditures and suspended share repurchases at this time.
We're monitoring is constantly changing environment and have modeled sensitivity for new vehicle Saar ranging from 12 to 15 million unit.
Ultimately, we believe the far level in the coming month and for full year 2020 will be dependent on how.
And one shelter in place orders I lifted as well as additional future government stimulus program. Additionally, we believe the used vehicle market will decline last venue and one can see wasn't able to move more freely our service body in parts business returned to normal level fairly quickly.
Whatever the outcome these sensitivity and.
And the associated actions derives will enable us to adapt and respond to this changing environment.
Reflecting back for 2008 and 2009, our resiliency with highlighted while we remain profitable and cash flow positive throughout this historic trial.
During that period, new vehicle sales were down over 50% used vehicle sales.
20% and service volume parts declined 5% disappeared illustrates the inherent strength of our business model during a severe economic downturn.
Fundamentally the diversity in our six revenue streams growth plan variable cost structure continued consumer innovation allow us to be responsive in any economic environment and.
Sure enough well as we continue to drive toward our operational goal of 5% national market share.
This concludes our prepared remarks, we would now like to open up the cost the question operator.
Thank you at this time will be conducting a question and answer session.
To ask a question today. Please press star one from your telephone keypad.
And a confirmation tone indicate your line is the question Q.
The press Star too if you let your move your question from the Q.
Participants that are using speaker equipment, and maybe necessary to pick up your handset before pursuing the sarkies.
One moment, please what we pull for questions.
Thank you.
Our first question.
It's from the line of Rick Nelson with Stephens. Please proceed with your question.
Thanks.
Good morning Giants [laughter], Brian Pig Iron can you provide some color on yeah cause.
Warrant for acquisition.
Sure appetite Oh.
<unk>.
The steel so they'll flexibility.
But to adjust.
Sure sure Rick This is Brian good morning, everyone <unk>, let's begin with.
That we have a total of 14 deals.
Under.
Track, we had actually previously renegotiated one of those that took us down to 13, but weve been signed another so we're back to 14.
In total a and the way that all deals have been restructured our our preference to own real estate is important we.
We currently own 87% of our real estate our issue is in an environment like this that it affects our leverage this same as goodwill dollar. So we kick the real estate out of all but two of the deal.
And and and then gained a.
Hey, what's called an American put call option, which means that we have the right to buy the real estate in three to five years for the then determinable price and we can do at any time on most deals with and then that period. So we can pick and choose.
To be able to still own the real estate, but that allows us to.
To defer half of the leverage until a later period of time, which is great. We were also able to lease those properties than at highly competitive cap rates.
Between four and 4.5% and the Delta between what we typically use as cap rate of 6%.
We'll be.
We used to help offset earnings which is a small amount approximately 5% to 10% allowance for earnings declines.
In the goodwill number that we're paying however.
The delay is caused as bina mentioned, because we need to verify earnings quality.
That there within that 90, then 95% earnings level of what they were pretty Cove at 19. So those earnings quality Verifications will determine the second half closing date or possibly even beyond that in the event the earnings quality hasn't improved.
There are chances that if earnings quality doesn't improve then we would actually renegotiate the transaction in terms of the goodwill amounts as well.
Thanks.
That's helpful.
Hi, Carolyn.
Sure I mean, it's a better.
Gross referred to 40%.
Oh Boy I O <unk> due to recover it that you know 12 to 15 million you know range now but should.
So.
Got head count.
Would you think would come back.
How much was permanently.
Gotcha.
Yeah, Hey, Rick This is Chris so the second half your question, which is about how much is permanent would be about 50% in that we feel like was permanent as you remember coming off of Q4, we were already talking about kind of a rightsizing effort to kind of regroup and each one of our stores and go back to the foundation of the productivity metrics.
We've had since really the last recession and the tools that weve used to manage since that time are still well in place and we anticipate.
We're going to continue to follow that through now as we move forward. The decisions are made on the local level. So each one of our general managers are making the decisions based on the volume.
And that they're seeing as you can imagine the recovery is different state by state and really local market by local market based on the shelter in place orders and so we're just going to continue to manage the volume and bring back our staff as quickly as we can based on the production levels that we have and based on volume.
Yeah.
Chris can you put that dollar.
Terms so.
That's a reduction searchers thing.
Yeah, Rick if I just went off the quarter and we look at our overall SGN age 75% of that is made up of two line items its personnel in advertising and so in the quarter. If we were just looking at Q.
For as an example, I'd say, it's around 50 million in permanent cuts in the quarter. So depending on what happens with volume and what happens with their variable comp levels. We'll just have to play it out as we move forward into Q2 in Q3.
Okay, Gotcha and timely to cut out.
<unk>.
How do you see consumer behavior on the other side Oh.
Oh, good Oh, but.
Situation.
Hi, how you see operations are changing to put that change consumer behavior.
Brick back to Brian.
I think this is obviously unprecedented obviously our business will be determined in our future based upon the stay at home orders being relaxed are removed. It's surprising that the departments are responding today, a little bit differently.
And I, let me just quickly talk.
How about that and then I'll talk about what we foresee in the future of how consumers behavior is ultimately may or may not change. Okay. I think when we think about our volumes today. What we are noticing is it in the vehicle department for some reason that seems to be coming back quicker. If you notice on the.
Pre release, we were down about 50% in that or early April period late March period, and we've seen in new vehicles that recovered to only down 40% used vehicles has recovered a fair amount, though meaning that it seems like consumers are more adept to either.
Or downsize on car, which is probably the most likely scenario, meaning that they're not sure about their employment status and they're not sure what they should do so they should cut their expenses. So we saw that moved from down 50% in the late March to early April period to the last seven days being only down 19% which is.
Pretty good shift now on the service and parts side, it's really stabilized that that 30% and we really believe that because we're not offering maintenance specials on those other types of of of services, even though we're picking up Carson People's homes.
We haven't seen the big shift getting back to our.
Our service departments, and we think that is something that people can easily differ okay and its small amounts of money typically that we think that as soon as those stay at home owners are lifted that should become bat come back as well now I would also say this longer term in terms of the consumers behaviors.
We believe when we began this venture what two to three years ago on digital home solutions.
But this is a wave and that we believe that about half of the consumers today wouldn't really prefer to be able to buy cars and the comfort of their own home. We are seeing though that there is still many.
The other consumers and we've we've narrowed it down that we think that about 20% of that consumers have the ability to buy the car put the money down that they want achieved the payments if they want and finance the car with their this equity situation by doing it digitally and doing it all from home without.
Human interaction okay. The other 80%, we really believe even though they they want to that's the biggest impediment not the desire, but consumers just don't have the ability is a lot of time.
To be able to understand that this equity in their car to get rid of their trade and then find a finance source that.
All of that criteria, that's what Lithia Motors does that's what our 500 or plus specialists in finance do and what George and our and our teams are starting to digitizing cracked the code on that I think will help respond to that big demand from consumers that I've always wanted.
One of the do that they just haven't had the ability to do that so I do believe that there will be higher propensity to want to socially distance in both service in sales, but I also believe that the abilities for consumers to do it fully digitally I think is a misnomer because I think it's more about I want to do.
And then that come to my Oh, my own home the way that I want to do it and I want it to be transparent and I think you can do that both manually and digitally.
Thanks.
Very helpful.
'cause would push forward here.
Thanks, Rick.
Our next questions from the line of Russia Gupta with JP Morgan. Please proceed with your question.
Hi, good morning, Thanks for taking my questions I'm, just sort of question on you know and be a on the online delivery you know.
Both foreseeable them for service, where did you could you give us a sense.
The margin profile.
Oh, that's different for the service related work and then you know just on under unit deliveries.
Could you give us a sense of what the unit economics look like for goes I mean, given you know there's.
And then uptick in Wogan, there both from a gross profit perspective.
Then as DNA per unit perspective, if you could get a sense there.
Thanks.
Sure I got this is Brian I'm going to I'm going to take the service components of it and then I'm going to give.
The unit components.
On on vehicle sales to Chris.
We began in home service and pick up.
In delivery.
Q3, Q4 was part of our Pittsburgh initiatives and some stuff in the northwest what's going on we began to build whats called opt codes, okay or operational codes, which is how we price our products in service and parts to our consumers.
We believed at that.
At times that there could be a premium paid to by consumers for home service and delivery. So we built two different code models, we've always had in dealership, but we built this in home and it was somewhat being utilized by a handful of stores I would say.
Today, it's being utilized by over three quarters of our stores. The difference is it today, we're not charging any premium for using in home delivery it ER and pick up in service because it's our it's our duties to our consumers to keep their cars are running.
Most importantly, but it's also our duties to keep our technicians, turning wrenches and I think that's kind of the the difference today, we believe that as we move past Cove at 19 and consumers have a choice again, where they mentally will decide I want to pay a little less so I'm going to go.
We ended the dealership, which can take a little bit at time, usually 30 minutes to an hour to get their primary maintenance Dunn of lifetime oil right.
But we believe that there is massive margin differences between in home and dealership and I think how we originally thought about it was.
Lower priced items, you may have a 50% margin premium.
And higher priced items that may only be 10% to 20% premium in an example, probably would be on a oil change, which we typically charged whether it's important domestic or luxury somewhere between $30 and $50 for an oil.
Change, we believed that it could easily be at $30 oil change could easily be $50, maybe even $60 and then the highline store when it $50 you probably charge 100. So there is a massive difference for that for the delivery our technology now within our barrel solutions are already doing geo fencing. So we.
We already know that will pick up your car within 45 minute drive and the cost of that is X 10 Bucks, Okay, a half an hour or something like that and we got to do it twice. This is what the cost of labor. It so that will be utilized in its already being utilized manually in most of our markets to be able to determine.
Whether it makes sense now on the opposite side is that thousand dollar service that it brake pads or something like that typically were I don't believe that we're going to get $2000 for that service and I don't know that that would be equitable unfair to the consumer, but I think $1100 or $1200 is something that's reasonable so there's where we really.
We get into that 10% to 50% higher margin than what we currently do on end dealership, Chris you want to take the unit unit Economics, you Bad Roger Chris.
As Brian mentioned in his prepared remarks about 25% of our deliveries coming into April now have been really at home athletes have business.
Our curbside deliveries and I think what we've really talked about on kind of moving forward with hard to digital solution was this idea someday, we were going to be able to complete a transaction online and deliver the vehicle to consumers home because of the current pandemic I think that we were actually a.
Seller reading quickly the mind shift of our people that this is real and this is now and were pretty I was going to be aside it wasn't that Chris yes, very much go and I think we're really excited about kind of the way things are moving forward and new any ideas that people have about not just about the environment that we live in today, but what is gonna be like in.
June July August the next year with the ability to both deliver vehicles in our brick and you know a brick and mortar stores because a lot of customers that come in whether they don't know what they're looking to acquire they don't know the kind of vehicle that the one for their family or they have some financial issues. As we said before you know our average consumer has $5100.
There's a negative equity that's are working to leverage our finance specialist to help them find the right solutions for them and so you know as far as economics are concerned the short term I'd say that they're pretty much. The same we're not we don't have a data set that is large enough to compare the two yet, but we're going to continue to monitor that make sure that we show up the right way.
For the consumers to deliver vehicles that they want at the right margins both with the it with the vehicle transaction and with the up an eye products that we attached to the sale.
Got it but that doesn't make sense, but they are just to sum it up in terms of the overall EBITDA.
Rob truly see like EBITDA per unit or something like that I mean as that ultimately going to be higher once once well bosko bid 19 with the online with the online channels.
I've got this is this is back to Brian.
I think that long term.
As you think of the Omnichannel solution.
Part of our logic is that digital home solutions do or more organized consumers do most of the work themselves and as we begin to digitize the financing element, which is a lot of what we pay for today is expertise not for Nick.
Go Chase runs a price it's for negotiations.
Deal structuring to be able to get financed by the 150 lenders that we have so I believe that as the two channels grow and develop our traditional channel those experts will be able to produce a lot more with what they what they.
What resources, they have meaning that salespeople will most likely move from 11 salespeople and I think Chris is numbers of our staffing reductions for furlough are to bringing people back at a rate at 15 sales per sales person right, which is that 30% improvement in productivity long term and that gets pushed.
Through the model in different ways, and that's with not a lot of digital help in most of our stores. That's a lot a manual will help okay. So I think as we think about the two omnichannel strategies, we should be able to improve productivity in our additional and our traditional resources as well as the support staff.
For the digital home solutions to be able to drive our SGN eight down beyond what we've already mentioned, which we've always been striving to be in the low to mid 65% range right, 60% range in our traditional model. So I think if we think out 357 10 years.
As the two channels begin to develop together and you begin to find those efficiencies in marketing and personnel costs and inventory procurement and income inventory pricing those that you need a drop can be larger than that overtime as the two models come together.
Got it that's super helpful. A a constant on engine back in queue. Thank you.
Thanks Roger.
Our next questions from the line of Ryan seek dealt with Craig Hallum such proceed with your question.
Great. Thanks, guys for taking my questions.
Just a follow on Oh that recent.
And.
So with the permanent staffing reduction can you clarify was that 15, one five or five zero a million per quarter savings and then secondly on that do you think you have to backfill any of that or is that kind of permanent savings as you look towards kind of the future model more technology.
Ryan Hey, this is Chris so I guess to try to quantify and in the quarter. You know we have about 350 million in asking and as we've said about 75% of that are about 250 million of that is coming from our personnel in advertising. So you know if you look at the total cost reductions that we have in those two line items it.
Is about 1 million steady state now we didn't see any of that come in the first quarter, because even when we started to make our our termination of our Underperformers and then furloughing of our performers.
We also provided PGBL and payouts along that period of time that went into early April and so.
We've kind of got that piece of of the expense behind us, but going forward. What we're going to do is you know the 50% of the 40% I guess was a 3000 employees that we have right now on furlough, we will be bringing those back as volumes decades as the markets recover and we've already started out I mean, we've seen.
Great things happen in one of our most restrictive states are the most restrictive speed than we have this pennsylvania and just yesterday. They were able to started doing online sales again. So you know we anticipate green salespeople backing those environments and we will continue to monitor each local market with each leader to make sure to what Brian said is we.
Cover out of is we have what we hope or productivity levels and that we haven't seen in a very long time.
Good day.
Then shifting over so can you update us on your partnership will shift and how that business has fared in this environment or the last few weeks your month.
It is compare that to Lithia is omni channel strategy in your at home deliveries and then versus kind of in store anyway to quantify kind of those in any commentary.
Right sure sure Ryan I, I think first and foremost in my prepared remarks, I discussed the idea of partnerships.
One thing that we know for sure.
Sure as the sharing of best practices between our two companies has allowed us to see that there is consumer demand massive amounts of consumer demand for transparency simplicity and in home.
Sales and I think that that reaffirmed our belief a pre partnership with shift.
That we needed to provide those solutions I. He is why we now are working on our barrel northeastern northwest solutions to be able to provide those things to our consumers as well I think I think where we're going to be moving and I mentioned that a little bit briefly was.
This idea of national brands that are wholly lithia owned and operated but they are there.
There are supported by the engines that we're building in barrel, but they'll be skin and the customer interfaces, we'll all be transparent simple much like a ship model okay.
Hey, we obviously won't be competing in the same markets and we support them in a few markets still a and that partnership is still collaborative Ah, but I think most importantly, we believe that the ability to leverage our entire network, which is people inventory and facilities needed to be done with our own did digital.
Solutions, because we needed to learn how consumers are behaving and how that 50% of the population that today, we're not really attracting.
Behaved and I think our initial works and and Pennsylvania in New Jersey, and in the northwest whether its service or.
Sales are teaching us that that is the right decision and I think maybe even to share just a little bit of what we have in mind. It is a earth day today, one of the brands and I would say one of the minor brands that that we're developing is is W. W.
You W. Green car Dot com, Okay. We we've controlled that for a good period of time, we also have controlled Oregon Green car as well as Vermont Green car, which allows us to deploy consumer identical brand I identifiable brand in a sustainable space.
With transparent simple easy buying homes solutions, a in a pretty rapid rate. Okay. We will also have a national brand. That's a more holistic appeal to the general population that we'll be announcing later this year, but the same.
Hi from home sell from home and service from home solutions will be powering all of those skins at at somewhat differing levels, because our green car a as well as the future national holistic brand will be powered as a one price model, whereas our existing.
Stores today are more of a although hagel type of model hopefully that adds enough color Ryan for years. So you understand the basic strategy.
Yeah. That's fantastic one more question for me then I'll turn it over.
So used to vehicle residual values have fallen off pretty substantially at auction.
Has that flowed through to retail pricing and then secondly on that you guys commented kind of on the 90 10 split on your inventory onto the more scarce categories, maybe comment maybe between those two buckets, what you've seen on pricing as well thanks and good luck.
Sure Ryan This is Bryan again.
I think on used valuations in pricing, it's a misnomer as what you're seeing on Mannheim data or.
Other auction data as well as sales pricing because I think it's a knee jerk reaction. The main reason the price we believe has dropped and it won't stabilize down there yet.
Because the what what sellers are asking which is called aligned amount at the auction is it's still too high meaning that the auction cells to sell through rates at 20%, meaning only two out of 10 cars are selling is because it's because the sellers are not willing to take that.
Because they know that this is all dependent upon stay at home orders being relax and I think once we see stay at home or as being relax, we'll see the actual impact to what the used car market is now we do have a playbook from 2000 in one a little bit and most importantly, 2008 and.
2009, where gas Guzzlers definitely got hit really hard and late model gas Guzzlers got hit the hardest. Okay. That's a game that Lithia Motors doesn't plan I mean, we focus our attentions encore product and that's how we get at our trade ins for value and that 70% of our sales 70 plus percent of our sales which is.
Pretty stable inventory. So I think if you look if there does end up being some stabilization of declines in valuations I believe that we're positioned nicely and that was the 10% of our inventory that is truly conquest vehicles, meaning its off brand from what we sell new.
Okay, and it's one to three year old vehicles, and that's going to be the most volatile because those stores have to compete much like the independent used car retailers that have to compete now against the incentives and the subsidies that our manufacturers are going to give us on certified car. So I think Chris is efforts are.
Try to reposition as many of the 10% of the cars into like brand, meaning moved into stores moved the Dodge is the Dod stores and certify those products. Because then they will be they'll qualify for subsidies in financing the rebates zero percent ATP ours and all the other 90.
Deferral of payments and those type of things that manufacturers subsidies will be providing that independence long have and we won't have if we have those stores those cars located in off brand comp stores.
Thank you.
Our next question.
Actions from the line of I'm into us seniors with Morgan Stanley. Please proceed with your question.
Great. Thanks for taking the question you know you gave us some nice color there around the trends in March and how they have trended here the past seven days in April.
And any reasons to think that we havent trough.
Today.
We're going forward.
Well our mantis this is Brian or.
I wouldn't say in vehicle sales.
There's there's no chance that it will trough again, unless theres a a.
A relapse or something and cobot.
19 in the states get more strict because we're already seeing relaxation of stay at home orders in early indications are where plus 10 week over week, and new where a plus 30 week over week in used.
The fixed operation is a misnomer, it's behaving more like what happened.
In 2001, with 911, where people were so glued to the TV and they were staying at home for that what four days between that Monday and Thursday, when we were all uncertain because air travel had been to spend it and this guy is were closed and we were just waiting for the next year to drop.
I think that this.
This is more similar to that because we're going on now what five week six weeks.
And it it is stay at home, which means a lot of consumers are driving their car. So it's not front and center in their minds that they need to repair their cars are they need to maintain their cars and I think the moment that they get back in their cars.
At a repetitious level, not just going to the grocery store that should come back pretty rapidly we did actually see it almost like spiked in in bottomed out at about a minus 40, and then came back to the minus 30, which we were really pleased to see so I think we are trough in fixed operations.
And as well and I think as soon as you know state start to begin to reopen in most states are talking about you know late April early May you know and I think a few of push it now into into mid to late may.
And then to piggyback off the last question a little bit.
Gross profit.
For unit.
First quarter, not not as a significant impact given the a though the late March impact, but you know how do we think about gross profit per unit your answer the second third quarter, both undo it use given.
The potential challenges around used car prices.
Oh sure I meant as I I think.
I think you could go back and look at 2008, nine and 10 and see what happens in it looked like.
He got to remember that we're a subsidized business by our manufactures and unless it's massive swings in market valuations are consumer behaviors.
The market swings are gonna be taking out within.
Incentives and that's on both certified products, which is that most volatile use as well as new vehicles. So were we think we're pretty nicely positioned because we think that as soon as the stay at home owners are relaxed, we'll get massive you know incentives from our manufacturers on new.
And we already saw that on the domestics that started four weeks ago. I mean, we got zero percent 84 months with multiple manufacturers, which is massive amounts of savings for the consumers.
I think what we what we prefer not to have happened is even though it's an election year, we're pretty confident like a cash for clunkers.
They're going to be additional stimulus and that cost I believe the federal and state governments around $1 billion.
Last time and that was a pretty good GDP boots. So I got to think that a cash for clunkers will most likely happen. We're hoping it happens in Q3 Q4 timeframe because I think that the.
Incentives will carry us through the next three to six months, a pretty nicely because even with the this shutting of the of our plan for that month period of time by most manufacturers I.
I think that incentives, we will clear out that pipeline nicely where margins can can stabilize.
As to some extent and I think if you look at used it that's going to be our innate ability to be able to adapt to whatever happens with used car pricing and I think than the biggest exposure is really in those late model cars, where we have 10% and you know and I think a lot of independents a lot of times have 60.
70% of their inventory in that bucket <unk>.
<unk>.
Great well appreciate taking the question.
Thank you. Our next question just from the line of John Murphy with Bank of America. Please proceed with your question.
[noise] good morning, everybody.
Just wanted to follow bolt on or norms as is.
Sort of line of questioning on on the inventory and help beginning from the Oems is there anything else with unions are kind of pitching on in the interim on floor plan financing or other sort of activities to help out the dealers in the distribution channel because we hear from them that there are big concerned on on restart distribution channel.
Not the and is going to shades of was going into it. So just curious if there's anything any other actions you're seeing some some automakers that to help in this tough times.
Yeah, Hey, John I mean, I think the short answer is absolutely there's a ton of support that we're getting from the Oems right now including.
Special incentive right now and.
For plan.
Our stair step programs for most Oems have gone to flat Oh flat dollar amounts, meaning that you don't have to hit the objectives are just giving you X amount per car.
Brian mentioned, a lot of the things that doing on the retail side, you know with that with their zero dollars down to zero percent.
Our the 90 to 180 days to first payment. We just saw yesterday a launch with one of our finance partners at the went to used.
Vehicle in zero percent for 48 months I'm, So theres a lot of activity happening right now, but we think that's just the beginning because right now were inventories are at you know production hasn't started.
When they start to ramp up again, and usually want the ramp up starts and takes about 30 days for a vehicle to get completed on the production line and make it to one of our stores, we really think and anticipate that we're going to see an accelerated amount and then of incentives come in for our new car inventory and also our our CPL vehicles as we've talked about.
Earlier, and so we do have a lot of support right now we're looking forward to Morris one other little thing that they were doing to a number manufacturers are now paying us to go to consumers' homes to pick up there are there their service vehicle. So we're getting either overpayments lift payments or if we do it ourselves, which is probably the better way to do it because typically we just drop.
For loaner car to the consumer some that were getting that as well and I I think there's a lot of creativity around that fits that that I think we'll continue to happen and I know, Chris and our teams are working diligently on their reporting around these op codes and making sure that post Cove at 19 that our behaviors.
Mhm.
Hum digital solution remains in the mines of not only our consumers, but remains in the mines of our employees to ensure that they stay true to our strategy of achieving that omni channel and that 5% market share, which I believe that that transparent home.
Mission is going to be what takes us and I think we all believe that as a company.
Right, but it's also it's also fair to say that I think that Im just curious if you agree with is that the relationship and the actions are taking now are very different than what you saw.
Nine downturn, obviously use different circumstances year, but the.
The ship and the willingness to work with you as a distribution partners seems to be.
Quite a bit different than back then is that a fair statement.
I I think that's definitely a fair statement I think Lithia Motors has always been a company that is collaborative and and really believed that it's hard.
Duties to make sure our manufacturers Love US. Okay. Now we do go through times, occasionally where we challenge each other but that is something that weve always looked at and I think most importantly from Lithia standpoint, we're may weigh more diversified so we were 73% domestic going into the last recession and almost.
90% of that was general motors and Chrysler that if you recall went bankrupt. So our management team has been through this we've restructured the company where were highly diversified we now have a footprint across the entire country in the people sitting in this room have been together since 2005.
And you know and I think are prepared and we knew we were late cycle, we didnt realize that the that the late cycle would would come so quickly. We do believe that the market will recover and this may take you know this may prevent a deeper recession.
Because.
It hit so hard and so fast you know and I think it's going to be a fun of a fun period over the next 90 days to be able to continue to pull the levers that lithia has created in developed to maximize our opportunities to get to that 5%.
Okay. That's helpful and then on the parts and service side it sounds like.
We're not seeing the sequential recovery, yet, but you know when things open up it's fair to think they'd be a snap back.
You when you think about the capacity in your service fees as we think about maybe the third and fourth quarter is a reasonable timeframe, let's say same store sales were up 10%, 20% is that something that you're.
Service base would have the capacity to handle any what would be sort of governing limit on your human capacity in the installed base capacities, we think about that snap back on what you could handle on a same store increase basis.
Sure. John This is Brian that's that's a great insight because our facility capacity.
He is greater than 50%, meaning that we're only running at like 47% in pre Kobin days, we were only running at that meaning that we have the facilities to be able to double our volume and then still could extend hours to get even more out of that capacity and you hit on the true the true.
And then how many people do we need and if there is pent up demand how much could we actually produce if you remember pre cobot 19, we were running at a mid to high single digit same store sales rates I think that Theres. No question that are people had been sitting on our their couches watching TV and stuff and.
We are ready to go and can turn wrenches faster.
But I don't believe that much more than if we look at that we've had some quarters that a push 10% I believe there's another 10% potential that you could through your existing labor force be able to increase business. So that gets you to what a.
About 20 to be able to cover that pent up demand for some period of time and I think lithia is pretty responsive and our HR teams are pretty good at attracting talent. So there's a chance that we could also hire talent and show what we did for our employees during the downturn to be able to.
You know to conquest people into our organization in the event that we believe that could be stabilized as well by expanding our market share with home service. So I guess it so that's a little bit of a variable answer, but I think 10% no doubt, 20% as possible and with additional hiring.
Possibly even beyond that.
Great and then just just lastly, when you talk about the M&A and not necessarily really repricing deals, but kind of reworking the the cap structure of the acquisition.
Your stock has been repriced pretty pretty aggressively.
Pretty negative way I'm, just curious when you look at yours.
Stock and maybe even other public groups you could see the whole group has been repriced yet you are not taking this opportunity to reprice.
The deal I'm I'm just curious why you think good that's I mean, you know the right tack to take and then I guess, maybe also when you think about cap allocation.
Your your you're looking at these 14 deals in the pipeline wouldn't you maybe be better serve just in the near term and maybe even in the next year to two of buying back your own owned stock.
If you can't reprice those deals to where your own stock is it just it just seems unfair to yourself.
Given what.
What's happened with the repricing.
Your brand at the public markets, there might be an opportunity.
Yeah sure Eminem and those those are great insights in the same things that we've been thinking about and adjusting to so remember on the 14 deals they're all highly accretive okay, we have $550 million of cash sitting there.
Ready to be deployed like you said could be used on stock buyback, which we bought back 2.5% of our float through.
Through the first quarter, Okay. It came back a little bit we always put preferential treatment into acquisitions and we've actually looked at that we believe that because our strategy and the.
Wave it we're going to be able to be hyper constructive in our future is to get the 5% market share and to get into those six zones, meaning that we can throw our weight around in terms of our consumer offerings are affordability and can convenience to our consumers when we get to that 5% market share, but we don't have the ability today.
Today with our inventory to be able to provides a selection and the convenience because the proximity to get the things that services in parts and service and then sale quickly enough to the consumers to be convenient enough. So and I think that's why we prioritize M&A over share buyback.
Okay, and if you think about why would lithia motors.
Want to continue on M&A strategy in this environment when their stock prices dropped and ultimately therapy. He has lower it's because our cost of capital is still four 4.5%, okay, which what Eric almost 400 million of.
That is on a credit line that LIBOR base. It just dropped 80 basis points. So every one of the acquisitions is accretive out of the blocks.
If you think about why would we not be renegotiating the the goodwill portion.
We may Okay remember earnings quality has beaten.
Shade into into the majority of those transactions and the earnings quality has to be there for us to be able to do those deals and that's the lever then and mechanism that we'll be using to push deals out in the event that the earnings quality isn't there if the earnings quality is there.
Then they're going to be as accretive as they were initially and we go back to Lithia his track record of.
Were 80% success rate plus in terms of getting somewhere between 10% to 20% return on our investments over a short term period of time in our over five year period of time.
As a 25% after tax return on those investments. So I think what we know is acquisitions or the gift that keep on giving which share buybacks only give one and ultimately don't take us one step closer to that 5% market share in beyond that we know that the.
History is ripe for consolidation and it can be achieved with the support of our manufacturer partners and developing a well designed strategy much like what I just spoke to.
To be able to execute on.
Seems logical thank you very much.
Thank you. Our next question comes from the line or David Whiston with Morningstar. Please proceed with your question.
Thanks, Good morning.
First I I think any shareholder would be wondering it's great. You maintained your dividend, but are you really confident you can may tenant for the rest of the year or is that just a wait and see dynamic right now.
Sure. David This is Brian I I think when we think about our dividend we set a range between I believe it's eight and 25% of our cash flows.
And we were sitting at the lower end of that going into the cobot.
In crisis.
Which means that we have a lot of cash flow adjustments that can occur. We also try to look out four quarters in setting that so it's stable.
When we do that we will revisit in Q2 Q3 in Q4, just like we always do to be.
Well to determine whether we move up or whether we move down.
Okay, that's helpful and.
In terms of vehicles right now they're coming off lease are the Oems basically.
Saying the customers, we don't want to buying back at all and keep it for another four five months no payment or do they still want to take.
The vehicle back.
David This Brian again I I think this is this is just a business decision in a customer centric decision from the Oems they've always allowed most Oems have always allowed or their captives have allowed consumers to defer the lease and for some period of.
Time, typically it's 90 days I think manufacturers are smart and using the fact that consumers maybe don't want to make that decision when things are uncertain, but more importantly, it allows them to adjust when they take back vehicles. So they can play them.
Market the best they possibly can in term of the used car value on the lease in value.
And so somewhat related would be just the consumer right now that either digitally or where we're allowed is coming in store or the someone who you mentioned earlier it sounds like people are trading now more into use it or the <unk> are.
The buyers right now.
It's really just more people really really needs.
Vehicle due to do something in there is not very much of like say really wealthy customers looking for a great deal.
Okay.
David Bryant again.
I think that the people coming in today are the people that need of.
Cool I think there also they're starting to be that element of larceny in a consumer that they believe that maybe Kobe at 19 isn't as bad as what everyone thinks and I better take advantage of the incentives while I can okay. We also have a big advantage coming out of.
19 remember were seasonality is okay, we're going into Q2 in Q3, which are the most robust selling season, the whether it is going to be getting better. So behaviors that consumers are going to become more probably positive. There is an advantage than what we had going and Oh seven lado seven I know.
Eight when we were going into those winter periods as well as 911 that I think can help us. Okay. So maybe just a matter thoughts there David one add onto that is just that our web traffic is up 22% right now and over year over year now or lead traffic is down about 10%, but that 10% decline compared to where.
Vehicles around I think is a very positive sign that we are seeing active consumers again.
Moving further into that digital experience in that process a little further you hope to see that transition is sales here in the coming months.
Okay and last questions on M&A. The 14 first of all the 14 deals do you expect all.
Those to still close in the second half its up 20 or is that also beyond 20, and we moved once those deals are.
Process are you are you expecting given just the downturn him.
Oh likely recession that a lot of sellers or people, who are about that go into the marketplace. As a seller. This year are now just going to back out till 2021 or even 22.
Great Great questions I I think the answer to that on the 14 deals as its earnings dependent Okay. And then if they don't get the earnings are they willing to adjust their goodwill to something that is appropriately balancing what their earnings are reflecting so I think that answers question one I believe.
That a lot of the M&A activity is in new areas of the country, where we don't have a massive footprint that are that have been hit less than.
Other states. So that's a positive thing that most likely those will occur. Okay. I will also say this the pipeline is still full of.
Those that are not under contract that are very attractive they're going to be lucrative for lithia motors and I believe that that will continue now when cove at 19 stay at home or begin stay at home orders began to be in implemented in state we did have a.
One to three month, we gap, where consumers seem to just fade off it's like while I'm not going to put my business on the line here yet Okay. We are starting to see some activity again in the state where they're starting to see recovery or relaxation of those orders.
And I don't think that the.
Sure, let changes for Lithia motors that we typically by underperforming strong assets.
That are typically less capitalized than others. The PPP loans, probably helped defer some of that but it also may have given a catalyst, which we've now heard that twice that can I keep.
My own PPP money and it's like absolutely with the closing won't be for 90 to 180 days, depending on your earnings. So as you know and that's something that is additional goodwill to them I think what we saw in the last recession and what we really expect to happen on what we would call more distressed selling.
I don't believe that distress selling occurs I believe that distressed sellers ask too much and in a time like this they come within our very strict are are we expectations is lithia motors and we can finally volume for something that we would have always bought them for but they haven't been able to.
Seth that.
Okay. Thank you.
Our next questions from the line of Bret Jordan with Jefferies distributors.
Good morning, This is mark Jordan on for Brett.
Just have a quick question on the outlook for certain energy dependent markets.
It's and I guess, specifically, Texas, which was not as being stable in the quarter given the current environment. How do you how do you see those markets performing.
Forward.
Sure Mark This is Brian I I think most importantly, it's surprising what's happening in Texas because.
Oil prices there.
Negative dollars per barrel and even even when covert 19 hit the barrel prices were in the mid what $20 range.
We expected that it was going to be pretty hard hit and if you remember in 2008 2009 2010 after the $4 gas prices.
Plummeted, what the advantage that we had his lithia motors was the fact that our technicians, who were out fixing pump jacks came back to us and took their 20 to $25 an hour pay back instead of 50 to $75 on the oilfield. So we have the ability to rehire those people which speaks.
Well to the possibility of having service and parts pent up demand from this.
45 to 60 day period, so I really believe that that in Texas on the service side, we should be good I think on the sales side Lithia Motors last time going into the recession.
Our operators in Texas, where what I would call mediocre and I Love you all out there in Texas. Okay. In terms of their used car operations like they were such new good new car dealer that they couldn't respond to the downgrade that consumers were asking for today our Texas.
And are much better in their used car businesses, which helped offset that idea of economic decline where people are having to have 200 dollar payment on their vehicles, rather than $500 payments on their vehicles.
Okay, great and in relation to.
The used car environment do you only read on the maybe the current health of independent use dealers.
No. We don't really have a a big look on that I did see something on one of the large digital independence that I think it's been running in the high 80 to 90.
Percentile same store used car sales.
And they indicated that their most recent weeks are down around 20%, which is about the same as what Lithia motors, it's been down and if you remember Lithia motors same store sales rates have been in the.
10% range and used cars rather than in the plus 80% range. So it seems like that Delta difference of I mean, our delta is 40%, 35% and the Delta. The other is over 100% change in business activity and I think when you think about.
Vince and you're looking at that kind of run rate you build your inventories.
You build your personnel you build your marketing bat budgets and your infrastructure and related costs.
To be up 80% as well and I think that delta of us only being down 40 only for a brief period of time are down 20 only for a brief.
Great a time I think bodes nicely that lithia has found that mix between digital home solutions as well as a physical network to be able to accomplish good results.
Okay, great. Thank you very much.
Our next questions follow up from the line of fresh acceptance with JP Morgan.
All right sorry, just one last follow up here.
The credit on the credit side, you talked about like things are meeting healthy there.
With the customer base and maybe slightly shifting.
Based on the.
Credit spectrum I do see any shifts in the GPU levels, you're in the near term or should that stay pretty healthy at the current levels that would be all things.
Yeah, Hey, this is Chris I mean, ultimately like we said in our prepared remarks, we aren't seeing any shift right now and consumers have the ability to get financed.
And as far as Gpus are concerned.
We haven't seen issue there either in our new car volume used car volumes or or American I products. So so far everything's remaining pretty stable.
Great. Thanks Roger.
Thank you I'll turn the call back to Bryant for his closing remarks.
Thank you everyone for joining us today, we hope each of you remain healthy and say, okay, and we look forward do a updating you again, our second quarter results in July bye.
This concludes today's conference you may disconnect your lines at this time.
Thank you for your participation.