Q2 2020 AutoNation Inc Earnings Call

Now, I'll turn the call over to AutoNation chairman and chief executive officer. Mike Jackson.

Good morning. Thank you for joining us AutoNation delivered remarkable results for the second quarter compared to the prior-year today reported an all-time record best ever quarter adjusted EPS from continuing operations of a dollar forty one an increase of 18% compared to last year.

No question. The second quarter is certainly one for the history books in early. April same-store retail unit sales dropped 50% compared to the prior-year when the entire country shut down due to the covid-19 pandemic for the month of June. Thanks to the Monumental effort of our Associates. We recovered to achieve unit volume in line with last year.

In April same-store new vehicle unit sales were down approximately 50% and for the month of June only down 13% compared to last year inventory shortages under manufacturer's plant closures led to strong new vehicle gross profit per vehicle retailed at the end of the quarter new vehicle inventory was down twenty-six thousand units down 41% compared to last year. We expect new vehicle margins to normalize as new vehicle inventories recover.

at the beginning of

April same-store used vehicle retail unit volume was down approximately 60% and for the month of June increased 14% compared to last month.

However, inventory levels are tight. The man is currently outpacing Supply. We continue to focus on will buy your car initiative where we sourced over 6000 units directly from consumers in the quarter for July. We will Source 3500 units to help build our inventory.

Customer care is also saving seeing Improvement in April. Our average same store customer care goes profit per service day was down approximately 40% and for the month of June. It was down roughly 10% compared to last year. The temp depend emack has accelerated a shift and consumer Behavior towards digital engagement are AutoNation Express online selling tools and enabled customers to buy and sell vehicles online and our Store to Door delivery option to allow customers to completely take delivery at home.

We're also investing in data and analytics we have build a we have built a proprietary Equity mining tool which leverages millions of sales and service transactions into a central wage. The tool automatically appraises the customer's current vehicle and identified as a newer replacement vehicle for a similar or lower payment. It shows household vehicle history propensity to purchase and customer Financial Service product history. The equity mining tool is linked to our recently launched customers 360 which has over eight million active customer sales and service records.

Customer 360 allows our Associates to see the lifetime value and transaction history of our customers. We will continue to invest in digital capabilities that enable us to provide a truly comprehensive and personal experience for our customers.

Over the last two years AutoNation has taken an aggressive approach to streamline the business the companies continued investment in digital created greater efficiencies, which would made possible position eliminations and reduction in advertising costs additionally in 2018 AutoNation implemented a restructuring plan that reduced cost annually Consolidated at Regional structure structure from 3 to 2.

This year we make further reductions to headcount advertising and discretionary spending.

These efforts allowed us to deliver adjusted sg&a as a percent of gross profit of 68.2% in the second quarter of 2020 which represents a 525 Point Improvement compared to the second quarter of 2018. We intend to operate below 69% sg&a as a percentage of gross profit on a long-term basis.

today

House plans to build at least 20 additional AutoNation USA stores over the next three years will provide details of the rollout schedule next quarter. We see an opportunity to take a share in the used vehicle Market which is substantially larger than the new vehicle market and benefit from The increased interest in vehicle ownership from consumers AutoNation strong and first class digital capabilities are one price strategy combined with lower acquisition costs table used vehicle retail pricing make AutoNation USA USA stores and attractive investment opportunity.

Now like to turn it over to Joe, please Joe.

Thank you, Mike and good morning, everyone.

Today we reported adjusted net income from continuing operations of $124 or a dollar forty cents per share versus $108 or $1,000 per share during the second quarter of 2019.

this represents an eighteen

per-share basis

second-quarter 2020 adjusted results exclude an unrealized gain of $161 after tax or a dollar eighty two per share associated with our Equity investment in brome an executive separation charges of five million after-tax or five cents per share going forward our investment in room will be marked-to-market at the end of each quarter off with fluctuations in value included in our Gap results.

During the second quarter same-store Revenue decreased $726 million or 14% compared to the prior-year as a global pandemic and shelter in place orders significantly disrupted our business particularly in April. We did see a significant recovery sequentially from month to month through the quarter as like highlighted earlier a shelter-in-place orders were listed in the economy real life.

Despite the economic volatility our team executed at a high level during the quarter with same-store gross profit declining only 9% year-over-year driven by strong t-shirts and resiliency of our used vehicle business. Our same-store variable pbr's were up $585 or 16% while same-store used units just find only 3% all compared to the prior-year periods limited Supply and recovering demand benefited vehicle margins in the second quarter looking ahead. We expect margins to not live as inventory recovers through the second half of the Year moving the costs adjusted sg&a highest percentage of gross profit was 68.6% for the second quarter.

Which represents a 330 basis point decrease compared to a year ago. We drove significant as leverage to extensive cost reduction efforts, including leveraging our digital capabilities to reduce expenses across labor advertising and discretionary spending.

Is Mike stated we will continue to maintain a discipline in our cost structure going forward targeting to continue to operate sg&a as percentage of gross profit of 69% due to a job application in our stores recovering demand in our proactive cost reduction efforts adjusted operating income was only down 3% compared to the prior-year.

Further benefiting results floor plan interest expense decreased to $16 as compared to $37 in the second quarter of 2019 due to both lower interest rates and lower average floor plan balances.

Not vehicle interest expense decreased to twenty three million dollars as compared to twenty eight million dollars in the second quarter of 2019 as we refinanced our 5.5% Nelson February off with lower costs.

Importantly during the second quarter. We strengthened our balance sheet and improved are required efficient liquidity position through rigorous expense management disciplined Capital allocation strong free cash flow generation and the issuance of new 10-year notes at the end of June. We had two point 1 billion dollars of non vehicle. A decrease of $432 compared to the end of the first quarter our cash balance at quarter-end was $257 Million which combined with our additional borrowing capacity resulted in total liquidity of approximately 1.6 billion dollars at the end of June. This is an increase from 1.2 billion at the end of q1.

a covenant

Leverage ratio of debt to ebitda decrease to two point three times at the end of the second quarter compared to two point eight times at the end of the first quarter including cash. Our network was down to two point zero at quarter-end.

During the quarter we did not repurchase any shares as a result of the uncertainties presented by the global pandemic, but under the current board authorization, the company has approximately $139 available Cherry purchase.

Catholic expenditures were $25 compared to $67 in the prior-year reflecting the actions. We have implemented since March looking forward. We will maintain cost and capital discipline probably continue to invest in our business opportunistically allocating Capital to maximize shareholder returns are AutoNation USA expansion provides an attractive opportunity to increase our used vehicle market share and drive long-term shareholder value with that. I will now turn the call back over to my

Thank you, Joe. I'm really excited about the great opportunities in front of us as a company. We have an industry-leading brand with scale proprietary digital capabilities wage. Well positioned for the future or now happy to take any of your questions.

At this time, if you would like to ask a question over the phone lines, please press star then one on your telephone keypad. We will pause for a moment to compile the two and a roster your first question, the line of John Murphy of Bank of America your line is open.

Good morning guys and congrats on a great quarter my first question on AutoNation USA and just curious if you can update it. So you don't have the five stores are are progressing that are you know that are already launched and what's kind of triggered the decision to really accelerate, you know the growth over the next three years to twenty additional stores.

So we built five Pilots doors John and the key was after billing billing. The pilot stores was to pause and come to conclusions about what we had done. Right and what the we had done wrong and how do we have a clear understandable path to profitability and we'll stores meet or exceed births are returned threshold and that we did a lot right? But we also did a lot wrong and I'm glad we took the pause and we now have a very good understanding of what's right with with the stores and they're all the stores are solidly profitable go can give you some numbers in a moment. So the amount of investment per store will be 20 to 25% lower than what we originally did. This is primarily because we wage

narrowed the cape

Focus of the store to being a transactional delivery Center for vehicles and a reconditioning center. The number of Service Company amount of service capacity. We put in the stores simply didn't pan out and we don't want to repeat that in future stores. So that gets our investment for store down to around 10 or 11 million dollars a month. Then we perfected the process is that within the stores and really learned that the AutoNation one price and all the procedures that we use in our existing doors are actually First Rate and first class and no reason to try to reinvent everything and now we have a a very clear path dispatch on the stores. We we expect will rate reach break-even within 12 months and within eighteen months to two years. We'll be running already dead.

Pat are returned threshold. We need to green light and investment. So if you ignore March and April, which were supposed to be really disrupted by the pandemic and really just looking at January February. We were already on track two green lights green like this. So actually I think the month the pause. Was actually longer than we thought it was going to be so it's not all of a sudden we've been building to this but we wanted to have a high degree of confidence in certitude that we knew exactly what we were doing and that we would hit the return targets and and so were there and off we go Joe you want to talk about any other numbers only thing I would add like is if you look at the stores today and again very performance, but we're generating about a little over two million a quarter on a run-rate and I think that's a kind of a good estimate of birth.

Our existing footprint is done recognizing there are obviously very good performance of that and put a model is kind of going forward as Mike said to give you some confidence that it is a profitable model that we have now been a successful.

Okay, that's helpful. And then just a second question on m&a and the online, you know efforts and I mean obviously been doing this for a long time and have a lot of perspective, you know, it seems that you know, there's a loser or loosening a framework agreements and constraints by the auto makers allowing sort of networks to potentially grow above and beyond where they they used to be limited whether it be in the physical or or virtual world. I'm just curious, you know in your interactions with the auto makers, you know, are they at a point where they're accepting more and more that these large well-heeled partners and distribution like yourself, you know can get larger without creating issues, but they they kind of anticipated in the past.

Yeah, well, I would say.

As the largest there's still issues there that are by no means completely behind us and the gating to get to get the Greenlight has implications for every store you already own with that particularly particular franchise. So the bargain higher and higher so when we look at Future Capital allocation, of course, we love our existing business and you see how it's performing. We made a surge investment in digital that we have a much more capable robust platform with proprietary tools that. Paradise for when there was this surge in the consumer moving in this direction and on the cost side and had a double benefit in that the surge investment is dead.

Behind us. We're on the other side of the mountain now, and now that investment is allowing us to operate at a lower sg&a as a percentage of gross and you heard the new Target and John you and I have talked about one will be under seventy again while we were there. So that was a solid investment. So we love the Returns on a USA stores and then I don't we don't have to pay Goodwill. We don't have to deal with all the manufacturer restrictions. And we also look at the pricing that we see on the deals for a new vehicle franchises and hitting our return threshold. It's not always clear that that's the best place to put our Capital. So I'm not saying we won't do deals but so probably be more on the line of tuck-ins rather than something big that would be my expectation. So we'll invest our capital and Ed.

Making sure our existing businesses first class will always look at share repurchase opportunistically quite frankly during the second quarter, even though the price was attractive. There was just too much uncertainty was what was going to happen next and then we had to be disciplined and refrain from share repurchase, but we'll certainly be very keen to watch for opportunities in the future and then we'll do tuck-ins on on new vehicle franchise.

Footprint we have with basic footprint. We have we like as you know, we we took a look at everything in our footprint from top to bottom and I would say I needed the best the best teachers have new vehicle franchise is for AutoNation is complete.

Okay, but that's very helpful. And then just lastly real quick on sg&a. I mean you guys are saying, you know opportunity to remain below 69% I'm just curious if there's a greater opportunity to go lower is more sales and birth process goes online and then also as automation USA Storage ramp-up, do they have a low rest of your day to grow so maybe we could blend down overtime. So what does online mean and then what is foundation USA mean to that number?

Yes.

John I will Direction I would agree with your statement that our efforts have certainly not will not cease but I can't commit wage day that it's going to be you know, I have to stay under What We Said Today want to be below 69% but our work has not stopped certain age. There was a big step to take it in the second quarter. Certainly you can see this is two years of effort that's been underway with this focus on digital improving both Effectiveness and efficiency. There's no reason to stop.

Okay, great. Thank you very much. I appreciate what the the USA stores. I don't know the answer to that. You have to get back to you. Okay? All right. Thank you very much. I greatly appreciate it.

Your next question comes from the line of Rick Nelson of Stevens your line is open. All right, thanks. So other than the alerts hard pointing to a big step change in profitability in June curious if you could comment there and you know, whether that's home in Ewing hear it too too cute. Maybe you could talk about the sg&a the choose calling tune to give us some perspective.

well June was

Remarkable month month, I think our sg&a in June was at a level. You have the number there Joe I would assume it's 60,000. It was the low Mark of the it was clearly the low Mark of the quarter. I would have to put it down. So it's below 68%

Yeah, and it was a very good number but not the run-rate were declaring were declaring 69% will be below with opportunity and work to go home and we'll see what what the future brings their.

Gotcha code, you know, we did see him prove meant in the service and parts operation. You know you mentioned in April and it's 10:00 in June. Yeah, like what to thinking there as we pushed over break. Let me tell you exactly where we are. Usually we don't give updates on the current month. But this is extraordinary circumstances. So new unit sales so far in July are running minus 15% It's definitely a supply issue. The manufacturers are ramping up and they have challenges and I think our shipments of new vehicles to us. We'll be down 5% lower than a year ago. So I think it's really into the fall before new vehicle inventories normalize.

our used

Pre-owned sales or running + 7 + 8 something like that good demand and if we had more we could sell more so we're we had a really suck on clothes and the end of June. So inventories were tight going into July we're working to get more but the demand is definitely there and on customer care it can Pace continues to improve and we are running on a daily basis at minus 7% compared to a year ago and off and if the trend continues at some point during this quarter

I expect customer care will be running equal to Prior year and there's going to be a lot of pent-up demand ultimately for maintenance. No maintenance was done during this page. We only did repairs that had to be done. So it's gradually it's only down seven in July and still getting a little better each day.

Great. Thanks for that color. Also liked asking about market for we've seen some coveted uprights here like Texas, Florida, California any, you know commentary about what what you're seeing there would be helpful. Yeah. Sure first for AutoNation, I think we are the first if not today the only Auto retailer that of any size is Gail page that mandated Mastro's employees. We had them. We we started buying them acquiring them in in late, March by early April. We had a good Supply and the policy one in place on April 17th.

As well as social distancing within the stores and and that put our employees in a safe environment and we could really see wage at a customer's appreciated it I will tell you the overriding theme we're hearing from customers. Is there a demand for personal Mobility rather than shared mobility in every aspect and this is trumping any concerns they may have about leaving the house or not leaving the house. I want to they want to come out and and get their personal Mobility situations to a new place else. And so with these markets where become so-called hot spots we have seen no change in customer Pig.

business

Fine, no real change with additional outbreaks. Now, that's not to say there won't be a government action in some of these places between now and the year and there could still be some twists and turns but if I put it all together and try to step back from that, I mean ultimately they'll be a vaccine. So let's look at Twenty-One. I think this demand for personal Mobility will very much remain. So for retail Automotive new and pre-owned, I think the Outlook is quite positive quite confident you combine that with the fact that I believe we're going to have low interest rates for both ourselves and our customers for years a very positive outlook about Auto retail sales key word. There is retail a fleet is another whole story wage.

Not our expertise not our issue. I'm talking Automotive retail.

It sounds thanks a lot and good luck. Thank you. Thank you. Our next question comes from the line of pissed off. Your line is open up Morgan Stanley your line is open.

You may be on mute. We don't hear anything.

I think we have the next caller then.

All right.

One moment.

So line is open. Hello. Hello? Hello. Hey that was weird. I did not have my mute button on but I'm glad you're glad we're connected now with um, you know, there seems to be a greater focus on on on digital particularly the press release your prepared remarks, um, you know, maybe you could talk about your your your plan here for for digital going forward, you know, walk a mile Stone. Do you hope the head or or you know some some initiative that that you're targeting and on rolling out?

Well, we had a surge investment in digital over the last few years that was quite remarkable and we felt the customer was on the aggression to digital and certainly this pandemic is an inflection point out for which we're fully prepared. So we have a very robust platform today that performs across the Enterprise flawlessly that is really quite remarkable and we have proprietary tools that we will systematically add to but we're now as I said earlier on the other side of the mountain so off we were rolling his Stone uphill where we had to make these significant Investments with the hope and the belief that it would give us capabilities and get us to a different Club.

so one of the reasons

Since we're so confident on the spaces is that the surge investment. Is past and the tools are working and we can see the effect Effectiveness and efficiency that they bring em just continue to build on the platform that we have and we have very smart talented people but climbing them out and and pressing the mountain was the third part and I'm happy to say we're on the other side. Okay, and how many of your sales uh-huh, you know during the quarter and and since then have been involving delivery and or you know curbside pickup. Have you seen that continue to increase since you know just over the top of a month or so we we have that capability and we and we do it for our customers both on the sales and service side, but our experience remains that the customer wants to do a substantial amount of the transaction digitally and you better have that capability. Yep.

With the customer or else you're going to lose them to someone else but ultimately the customer wants to come in to take final delivery package. That's what they want. We're good at it. It's efficient. It's effective. It's a safe environment. But the point is we have the capability to move wherever the customer wants to go and I think we certainly demonstrated that during this Corona. If they want to search the digital we're ready for it if they want to search the home delivery. We're ready for it. We have the capability to do both but on home delivery and pickup I would say it's less than 10% of the business.

Okay, and just last one here, you know any Lessons Learned From Broome. I know it was a financial investment. But you know anything that you were you able to take away from that experience in working with them. I think the room it's been a terrific investment and it's a company that we admire and I think the life having been at the table as as a board member and all the bilateral discussions was constructed for both companies, but it did not lead to Thursday. We operating Partnerships and I would say we are now an investor in room.

Okay, great. Thank you for taking the questions. Absolutely you our next question comes from line of David whiston of Morningstar your line is open.

Thanks. Good morning. Can you in the first race? You were really differentiating between customer 360 and the equity mining tool in terms of 360 being a more personalized experience. And I'm I'm just took you doing a little more detail on what makes it more personally than the inside you're already getting from the mining tool. So

What's amazing about 360 and what we mean by 360° first it's a customer Centric approach rather than a vehicle Centric approach. So if you're Mr. Smith and you go in and buy your daughter who's going away to college a pre-owned car and you fly to Miami your home and walk into a Mercedes-Benz store this we know instantly when you enter in the ma'am or what you just did in L A. So it's not in silos. It's a pan Enterprise customer-centric platform.

That's quite remarkable. So we know your whole history both sales and service with every AutoNation store in our system in real life time, then Equity mining tools and analytical tool. It's applied to that which then identified eyes off when customers on certain Vehicles. They own are in the

maximum opportunity window to do something. So if we know you're XYZ number of months into a Toyota and we see that it's what the equity is you have in the vehicle. And then there's a special deal on what we think with a predictive model, but you will want next that you can move to this other vehicle at the same price or less price and you're coming in for service tomorrow at our store. Then we walk up to them say hey, by the way, this opportunity is there we just wanted to make you aware of it you think about it? But here it is. So we've proactively turned a service visit into a sales opportunity with a very specific compelling offer that is in the customers interest. It's not dead.

Were you just make a cold approach? It's like we know all this you should think about this. This is in your interest and the closing rate is remarkable and a customers are delighted that we are thinking for them.

We could not cannot do that without a customer-centric database that goes across the entire concern and without the analytics that go with it.

That's very helpful. Appreciate the detail moving on to new vehicles unit volume was down 23% but the probability at least on the on a unit was over $400 and then your total new vehicle gross profit dollars. I think we're only down about just under 5% So is there no price we're really going on among the few new vehicle customers that are there because it's it's all just Supply constraints.

Yeah, it's very very reminiscent of 2011. When the Japanese factories closed due to that horrific Kisame, you know, we just took the factories were closed for how long we just looked at our inventory and said there's no reason to rush it out the door unless there's something some reason to and we just adjusted our prices and felt that

we we

Would get a higher yield on it and that's exactly how it played out exactly how it developed now, but we're not saying it's sustainable open-ended. I mean when inventory name is normalizing the plants are all humming again, then I I think the prices will also normalize.

But it is a demonstration of how resilient the auto retail model is that in very challenging circumstances. There's a lot of ways to manage the business and happy to tell you in my twenty years here. We've never had an operating loss.

at store level in the company's history including the month of April was the toughest shelter-in-place was really tough, but

A lot of different ways to go.

Yeah, I agree on your up and I has been awesome to seeing on that that shut down topic though. Are you worried about California, Texas and Florida possibly shutting down again?

Well, look anybody who says they know the the two covid-19 story, you know, I don't believe I I think if it's still has some twists and turns left. I can't tell you just what we hear from customers. It's like they do not want to shelter-in-place again that by and large people would be responsible and we've all seen photographs of those who are not but the page of shelter-in-place again is not what we're hearing from customers now,

What the authorities government finally decide I can't predict but I think American people are like, okay, let's be responsible one step in front of other thank goodness. Better treatments are here every day and can't wait for a vaccine.

So still a ways to go hard to predict. I agree. I agree. I just want to clarify finally one thing you said on the beginning. Did you say going forward they would have basically no service or just very liquid service primarily first, they our reconditioning centers. So we have two choices do a centralized reconditioning Center, which means we acquire a vehicle ship it to a Central reconditioning Center recondition it ship it back to the point of sale delivered to a customer. So we've analyzed that whole model and have concluded that we have the ability to do very cost-effective reconditioning and the technical expertise at the point of sale that we're not shipping the car multiple times to get it in in front line conditions. So speed-to-market speed the front line sale with point-of-sale recondition wage.

is a

Very strong Advantage because our intention is very serious in the sense that we want to grow our pre-owned business profitably month. So we want the shortest time from opening a store to break. Even we now feel it's about 1 year and then the quickest time we hit our return targets and has now eighteen months to two years. So that's a very and in our return those losses have to all be factored in so when your focus is really on profitability grow the pre-owned business profitably these are the conclusions you we came came to and so it is a reconditioning center page of sale speed the front end Frontline presentation to the customer. There will be some service capability in those stores but not nearly as much as was in the dog.

Great. Thanks for all the details.

Your next question comes from line of Russia. Gupta of JPMorgan or line is open.

Oh, hi, good morning. And thanks for joining questions and congrats congrats on the on the quarter executed. I just had a follow-up on you know on the edge n a question. Could you give us a sense of you know where your Staffing levels are right now or are you back to a level of Staffing that you think your life right now or do you think you need to continue around that up? Just trying to get a sense of like how much Personnel headcount reduction is likely to be permanent in nature and related to that page. Also. How should we think about you know how the advertising expense might move forward here, you know keeping in mind. You're also expanding automation USA and you how how do those on land in June spending profile? And I have a follow-up. Thanks. Yes. So on Staffing I'll just pick up where we entered 2020.

We had already taken actions in 2019. But let's just do 20 20. We got 25,000 Associates one. We entered 20/20. We have 21,000 wage Associates today. There is no plan on a ramp. Now within that I would say we're very certain that three thousand five permanent reductions. There is discussion around another thousand and maybe the truth is somewhere in between 21 and 22, but there's no plan to ramp 2:22 a.m. That is what somebody asked me earlier. Are you still working on sg&a? Do you still see possibilities in it sg&a? It's it's within that thousand there that we're working with right now. So I can't commit today one way or the other other than to say for the same level of business that we were tracking at in the first quarter we can now do that. Yep.

Twenty-two thousand employees rather than twenty-five and maybe even less than 22 but we'll have to see on that and Joe you want to take the other cost questions. Please break down on a whole discussion. So if you you think about sg&a, we've talked a lot about the digital enablement. So I think the best day in three big buckets, I think if it is in compensation, I think it was advertising I think of it as a call ahead. So you take those three buckets, not surprisingly being the largest your compensation quarter-over-quarter Works down about 14% It's pretty consistent with the headcount reduction and clearly we are seeing majority of that is in the store and clearly the more efficient sales process in particular is enabling those suctions, you know, it's a hundred basis points as a percentage of sg&a you every year Improvement.

Absolutely, we see opportunity there and it's like an area we think has further leverage going forward, you know, the next bucket I think of is advertising. It's the smallest and dollars but clearly the one that had the biggest impact from a career perspective. We were down about 40% in advertising year-over-year really driven by the environment and our digital capabilities and being far more efficient and using our advertising dollars and and that was you know, 180 basis points year-over-year Improvement. And then the third docket I think there's overhead and in the store and in corporate office and that was down against primarily head town and discretionary spend 13% or 50 basis points. So, you know, each of those buckets have been impacted by the head Chrome extensions enabled by our digital capabilities that accumulate was about 15% down year-over-year or 330 basis points.

And as you look at the model going forward, we do see continued leverage particularly as some of the higher-margin a customer care type business recover dead.

Hope that helps.

Yep, that's how the advertising dollars per unit. If you just like / like the union salesman that does that lower your going for Life normalized basis. Is that fair to assume? Okay, that's super helpful. And on the GPU really very solid numbers in the quarterback was any of that temporary major you think I don't know if there was higher penetration on any of the buckets that held that or is that a pretty good sustainable number that we can expect to see? Uh, you didn't term so this is Mike I'll go first are are remarkable success. In fni is due to the auto nation project that we've developed at customers are choosing the amount of Finance income over. The last few years is relatively stable job.

Five six hundred dollars a car like that. That's not the growth it and and it's not that we're selling.

Customers more expensive products that's not the growth greater percentage of customers are choosing AutoNation service contracts maintenance contracts, which by the way is is building a customer care business for the future and that adoption by customers just continues and we refine the products and we refine our processes every quarter. It's a continuous Improvement Loop. And and so that goes on in life not some Quirk that is a windfall. It's at the core level. It's it's really a a branded product that customers just suck.

One and are adopting at a higher level. So anything you want to add to that joke.

Once you got that like a reiterate the point that you know, it's it's less than a third is the financing paced and now with much experience completely digitally enabled it makes it even a month in process. So I agree with Mike I do not I would not expect any sort of material reduction and think that is a number that we will continue to see improved.

That's helpful. Just just one last one for me. If I may ask, you know on the management change. I know you said that you would you would be appointing your successor, you know sometime in early twenty-two. Could you give us a sense of you know, just the kind of candidate you would be looking for as successor. I mean, do you think that process would be action-oriented at any point, you know, you just curious as your thoughts there apparently certainly second quarter of 2026 In My Memory forever that in the midst of this pandemic we achieved the best earnings per share in the history of the company that was a tremendous performance on behalf of all our employees and a lot of decisions. We as executive team had to make and we also had to have the Sharjah

Of unexpectedly losing Charles as a part of the leadership team here and she was doing a terrific job and I have to tell you I miss her. I worked side-by-side with her for ten years and and and I miss her now having said that I love you all know. I'm passionate about Auto and auto retail on a passion. Our nation. I love the business. I love the people in the company. I love the board. I love every day here and divorce said, you know, Mike

You know exactly chopped liver and we're in the middle of a pandemic. We think there should be a singular focus by the board by executive team and by managing and that not only we get through this pandemic but we on the other side of this pandemic we're stronger than ever. That was the singular mandate from the board.

and

We all felt nobody knows exactly how this pandemic is going to play out. But we all sort of felt well certainly by beginning of 2022 we can do succession wage and an orderly fashion and this pandemic will be behind us. So that's the singular focus and there's been not a single meeting or a single discussion about succession process this... Nothing singular Focus lead the business run the business and and Achieve something remarkable through this difficult challenging. With the pandemic and I think our results show that decision to go for a singular Focus was the right one. That's the road. We're on an island. I don't expect much change in the timeline one way or the other.

Got it. Got it. That's helpful. So there is no there is no discussion as now it's like a successor would be internal or external or 0 the kind of profile. Okay zero singular Focus.

Rhonda great. Thank you. Thanks for the color and come back again. Okay. Yep.

Your next question comes from line of Stephanie Benjamin of SunTrust. Your line is open. Hi, good morning morning morning. I wanted to touch on them. I kind of go back to the digital initiatives in the commentary you said before and I apologize if I missed this, but did you quantify the percentage of units or sales in the quarter that did come from home? Um, you know, a digital digital platform or anything like that.

Well, we were for the way we measure it for our metrics. We were somewhere entering the year in the low 30s. And if I went back five years ago, in the low twenties something like that and each year there would be a hundred two hundred basis point increase. And so, that's the road. We're wrong with the arrival of Corona in a matter of ten days that number moved into the low 40s and it hasn't moved back and I don't think it will I think there was an inflection point that lifted.

The whole digital issue accelerated if you will now, I think we go back to increasing a hundred two hundred basis points a year, but wage you're going to have this inflection point where all of a sudden it went from the low thirties still low 40s and doesn't go back. So the only thing I can can say is that happy made the Investments that we were fully prepared for that moment. We didn't expect that moment. But there was and we were able then to perform the expectations of our customers and and take that moment to to move to a different cost basis.

Got it. Thank you. And in the same vein wanted to hear your thoughts on just your ability to continue to penetrate your F&I products particularly the warranty and extended service with the fully digital platform. So maybe kind of discuss how you're able to sell those, you know, digitally and kind of engage the consumer without it being in person and off and then just the adoption rate you've seen but those are the windows digital sales. Yeah. Thank you Joe is the over 90% of our customers don't know what the exact number is, Joe may have it of our customers prefer to take delivery of the vehicle at the store. And I think a selection rate from customers for AutoNation branded products is somewhere around $42 43% something like that. So we have excellent presentation in it. And it's yep.

Growing quite frankly though as far as achieving that level of penetration digitally we have not been able to do that successfully yet off various attempts, but we do not I don't know the exact number but we do not have the same adoption rate of those products digitally online that we speak with an in-store process.

With the install process the customers are delighted or happy that they have the product. Of course, they have the right to walk away. So it's not for sale. It's something they really dead choose our happy to have but we have it. I would say perfected in the stores. There's still work to do in the digital world on those Products off.

Got it, and that's all I had. So thank you for your time do our last question comes from the line of Brett. Jordan. Jefferies line is open.

Hey, good morning, Brad. Good morning morning. You guys be emphasized the customer pay service at AutoNation USA. Does that change your strategy around the Auto Nation branded Parts at all?

Now the AutoNation branded Parts have been a big success as far as all the maintenance parts and mechanical part. It's certainly has put us on a very good basis for recondition and it'll be AutoNation branded parts that we use in the USA stores for a reconditioning. That's a complete success and has made meaningful contributions and profitability the company now AutoNation Collision Parts is another story a whole Coalition business was very challenged during the second quarter with the dramatic reductions in the amount of miles driven and that business was in a profitable even before the marketplace got much more difficult. That's a relatively small part of the alternation Parts world, but I would say that wage.

only area of concern everything else is

Is moving very good direction.

Okay, and then one big picture question I guess is it seems most everyone including all the online startups are really focusing on building out used volumes and growing units quickly. See you the structural change in the inventory sourcing is is the world just going to be more competitive to buy the incremental used car or is the share just going to ship from independent used car dealers to be the larger players like yourself and the the total number of fires up there won't necessarily it's absolutely the second one first. It's a huge Market thirty-five million a year. You have Prime transactions independent transaction. Then you have franchised dealers and then you have the big the big players. I think there is a yearning in the pre-owned market for a brand that can be trusted and scale also brings in the consumers mind an idea of birth.

Trust and if you really have a good experience and you stand behind the product, I think that's where the where the business is going to consolidate around and whether that's karvana Carmax Auto Nation. I think the big players that are branded are clearly going to take share wage. It's it's a share consolidation in in a very big ocean. That's how I see it developing now when it comes to making money then in that consolidation, I like our position and I believe we built the brand we have the brand that Brands respected. Our reputational score is through the roof. We figured out how to do a conditioning competitively and I like our acquisition plans because I have a new vehicle business which is huge on which I'm taking trades very cost-effectively then I have a big pre-owned business wage.

That I'm taking trades very cost effectively. We're building our will buy your car business. We're going to buy directly from consumers another $3,500 in July and then you have the auction off and it has the icing on the cake. So I think we're very competitive in how we acquire. We have a brand that's trusted and we won price on the retail side, We had a very good idea that retail pricing was not moving in the second quarter downward precipitously that gave us the confidence to go out and buy a lot of inventory home, even though there was a lot of those who said this guy was falling and and we really performed well through there. So a core skill set of AutoNation is acquiring Pre-owned Vehicles off at very good prices and we know how to One Price them centrally across the company. We. How to recondition them cost-effectively. We have a brand we have a process we have dinner.

Capability. I'm optimistic about it.

Our future in pre-owned and I view the big players as the winners. I think that's what the yearning bulb is out there for great. Thank you. Appreciate it.

Great. Thank you everyone for joining us today. Thank you for all your questions.

There are no more questions at this time there for this concludes today's conference call. You may now disconnect phone.

Dead dead dead.

Dead dead dead dead.

Thursday Thursday