Q3 2020 AutoNation Inc Earnings Call
Answer session to ask a question during the session you will need to press star one on your telephone. Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would know, let's turn the call over to Rob Cordray, a VP of Investor Relations. Please go ahead.
Thank you good morning, and welcome to Autonations third quarter, 2020 conference call and webcast.
Leading our call today will be Mike Jackson, our chairman and Chief Executive Officer, and Joe Our our Chief Financial Officer.
Following their remarks, we will open up the call for questions I'll be available by phone following the call to address any additional questions that you may have.
Before we begin let me read our brief statement regarding forward looking comments.
Certain statements and information on this call, including any statements regarding our anticipated financial results an objective constitute forward looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1995.
Such forward looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward looking statements.
Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued earlier today and our SEC filings.
During our most recent annual report on form 10-K, and subsequent quarterly reports on form 10-Q, and current reports on form 8-K.
Now I'll turn the call over to Autonations, Chairman and Chief Executive Officer, Mike Jackson.
Hi, Thank you good morning, everyone.
Thank you for joining us today.
Wondered issued its third quarter results were the best ever in the company's history.
We reported an all time record quarter adjusted EPS from continuing operations.
Dollars and 38 cents.
Increase of 102% compared to last year.
In the third quarter, we saw solid demand and a strong pricing environment.
Due to low interest rates and increased interest in vehicle ownership from consumers.
With a higher demand and tight inventory, we adjusted pricing and we're able to improve our margins.
New vehicle inventory remains tight.
We expect it will remain tight into 21.
For the quarter.
Same store total variable gross profit per vehicle retailed increased $966 or 28% compared.
Compared to the prior year.
Same store new vehicle gross profit per vehicle retailed increased $914 or 56.
Okay.
And same store used vehicle gross profit per vehicle retail increased $602 or 43% compared to prior year.
With our continued focus on our we will buy your car initiative.
More than doubled the number of vehicles, we source compared to last quarter, approximately 75% of the pre owned units retailed or acquired from customers.
The third quarter, we acquired over 12000 units with will buy your car and we're currently sourcing over 4000 units a month to both supplement our inventory as well as reduce our average used vehicle acquisition cost.
During the third quarter.
We continue to leverage our digital capabilities to drive cost reductions and increase efficiency for the businesses long term success.
These efforts combined with our strong gross profit growth grow significant <unk> leverage in the quarter.
Adjusted S.U.S., United as a percentage gross profit was 64.4% in the third quarter of 2020, representing a 800 basis point improvement compared to the third quarter of 2019.
We are committed to operating below 68% as teenage percentage gross profit on a long term basis.
Our autonation USA stores delivered another profitable quarter they can do.
The continued growth and strong execution at these stores.
So on the fly decision to move forward with the Autonation USA expansion and after the second quarter we.
We plan to build over 100, Autonation USA pre owned stores with over 50 completed by the end of 2025.
The plan includes five no five new Autonation USA stores be open by the end of 21.
New stores opened in Austin, and San Antonio in 21.
These stores will continue to leverage your nation brand and.
And it's proven processes for competitive advantage with.
With this expansion we have set the long term goal of cell.
Selling over 1 million combined new and used retail units per year.
Additional information regarding our Autonation USA stores smashing can be found in the third quarter 2020 earnings presentation on our Investor Relations website.
I will now turn the call over to Joe Our Chief Financial Officer.
Thank you, Mike and good morning, everybody.
Mike has highlighted today, we reported adjusted net income from continuing operations of $212 million were $2.38 per share versus 106 million or $1.18 per share during the third quarter of 2019.
This represents 802% increase on a per share basis.
Third quarter 2020, adjusted results exclude charges $28 million aftertax.
Or 41 cents per share associated with the previously announced exit of our aftermarket collision parts business.
In an unrealized loss of 2 million after tax or two cents per share associated with our equity investment in Brazil.
During the third quarter State same store revenue was in line with the prior year.
Increases in used vehicles and customer financial services revenue were offset by declines in sales of new vehicles and custom.
And customer care.
Tight supply of new vehicles continue to limit sales volumes and lower miles driven has limited the pace of customer care recovery.
That said, we continue to execute in an extremely high level during the quarter with adjusted same store gross profit increasing 13% year over year.
Recovering demand coupled with limited new vehicle supply drove strong margins.
Same store total PV are up $966 or 28% compared to the prior year.
We were also able to grow our same store used unit sales, which were up 3% year over year as we successfully met strong demand with trade in volume and inventory stores, who are we'll buy your car program look.
Looking ahead, we expect the rebalancing of volume and beautiful margins its inventory of recover next year.
Our customer care business also continues to gradually improve.
Adjusted same store customer care gross profit declined 2% in the quarter compared to the prior year.
Moving to costs and as Mike highlighted adjusted EPS DNA as a percentage of gross profit was 64.4% for the third quarter, which Rob.
Which represents an 800 basis point improvement compared to the year ago period.
This impressive performance was driven by the combination of strong cost discipline leverage of our digital capabilities and healthy vehicle margins. Looking ahead, we remain committed to maintaining expense discipline and we continue to target operating below 68% as DNA as a percentage of gross profit.
A decline in floor plan interest expense also benefited our results floor.
Floor plan interest expense decreased to $11 million compared to $33 million in the third quarter of 2019.
Due to both lower interest rates and lower average floor plan balances. This.
This combined with lower non vehicle interest expense, a slightly lower effective tax rate and fewer shares outstanding generated adjusted EPS from continuing operations of $2.38.
Oh, 102%.
Moving to the balance sheet and liquidity, our cash balance at quarter end was $351 million.
Which combined with our additional borrowing capacity resulted in total liquidity of $2.4 billion at the end of September.
Our covenant leverage ratio of debt to EBITDA declined to 2.0 at the ended the third quarter down from 2.3 times at the end of the second quarter and.
Including cash and used floor plan availability, our net leverage ratio was 1.4 times at quarter end.
Looking ahead, we will continue our disciplined capital allocation strategy utilizing our strong balance sheet robust cash flow generation and ample liquidity to invest in our business and drive long term shareholder value.
To this end today, we are providing additional details regarding the expansion of our Autonation USA footprint.
Leveraging our established brand and proven success to further penetrate the attractive used vehicle market.
Our autonation USA stores require upfront capital investment.
$10 million to $11 million per store and.
And we expect to build at least 50 additional stores by the end of 2025.
Our Autonation USA expansion is an exciting growth driver with each store expected to earn a pretax profit of almost two and a half million dollars annually once running at an initial run rate.
In addition, today, we announced that our board of directors has increased our share repurchase authorization to $500 million.
I will now turn the call back over to Mike.
Thank you Joe.
Throughout this pandemic Autonation has remained committed to our associates into communities, we live and work in 2020 marks the fifth anniversary of our drive Pink initiative are.
Our associates, our customers and our partners have helped autonation reach a tremendous milestone.
Raising and contributing over 25 million in the fight against cancer.
I want to thank our associates for all their reference as we drive towards the next 25 million.
I'm excited by the opportunities are in front office, we have built an industry, leading brand and one of the largest and most recognized the automotive retailer.
We will capitalize on our strategic advantages and we look forward to now taking your questions.
Uh huh.
Ladies and gentlemen to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from Raj I dealt with JP Morgan Your line is open.
Oh, Hey, good morning, everyone and thanks for thanks for taking my question.
True congrats congrats on a very strong quarter.
Thank you Yeah I just had a question you know on the gross margins you know just to start with that.
I mean, clearly like these levels do not do not seem to be sustainable.
No longer term firstly do you agree with that and then when can we expect a.
These levels to start moderating or are you already starting to see that you're.
Early in the fourth quarter or do you expect this to happen sometime like middle of next year or first quarter next year any any clarity on that would be helpful.
Absolutely after.
Absolutely.
So there is a.
[noise] been a significant shift towards individual mobility as a result of depend demick and shelter in place.
And this is an increased demand across the board.
From.
Pre owned through new in every segment.
This individual retail demand is lasting.
We will continue for the next several years.
We do not have the inventory.
On the new side or on the premium side to meet the demand that's out there so.
So we've adjusted pricing to balance the situation now.
Now, we expect availability to improve hi.
Next year fourth quarter, we don't see any improvement in the pipeline whatsoever, but I think first quarter into the second quarter next year I think it will happen.
Uh huh.
However.
You know the way to think about it is we're.
We're leaving at the moment, a significant volume opportunity that can't be realized because of inventory restrictions. Therefore, we adjusted pricing. So then we'll manage it as it goes the other way that.
When availability improves I fully expect this individual demand to still be there interest rates are going to be supportive of auto sales and housing.
Industry for the next several years I'll see any change there.
So we're bullish and optimistic about Uh huh.
Overall auto retail the.
The key word there is auto retail within the total auto industry I'm, not commenting about fleet and what happens over there. So that's not my specialty I can tell you when it comes to auto retail and people buying individual cars. Both pre owned a new demand is exceptionally strong it outstrip supply.
And therefore, our volume opportunities are restricted in therefore, we adjusted.
On the pricing side, and we will just when that day comes we will just manage it back in the other direction, but we will be selling more units.
Got it because it seems like you're suggesting that you might be you might.
You might be moving towards a a slightly higher.
Gross profit per unit level on both New news you know just you know just structurally has given how strong demand is expected to be.
That that's fair I think that's fair, it's not going to be what it is right this moment, but.
Oh, just like on the cost side of where we are.
Uh huh.
With our digital efforts have gotten to a new cost basis, and that's a couple of years several years underway.
And weve publicly committed to run below 68%.
So there's there's.
For this foreseeable future, there's higher retail demand, there's lower interest rates and more a better cost basis and are more productive and efficient.
Got it well then adds are helpful. Within that there are certain shifts that we'll have to manage.
And we will.
Right right you just as a follow up you know when the Autonation USA Mad dog. The details in the slide deck is really helpful. So you talk about you know or you know achieving a 2.4 million you showed a run rate.
Could you give us a sense of like what you were expecting these stores to run that you know just from a maturity perspective.
You know like what's the what's the long term potential within like these individual stores I mean, assuming it's higher than the 2.4 million.
Any color on that would be helpful. So.
A 2.4 million, it's an outstanding internal rate of return.
And one of the best investments, we can make it a company level.
Leveraging on our brand.
Pre owned one price process and.
And the way that we think about these USA stores is very much as point of sale delivery centers and speed to market reconditioning centers.
It's very cost effective.
Rather than moving everything around and doing the reconditioning centrally where our speed to market is is a real strength.
So.
What we're saying and what were publicly committing to.
Is this number which we're already achieving today.
It's well above our return threshold.
Ah, but 15% internal rate of return.
And therefore, that's when we went public with obviously were ambitious and a continuous improvement organization and ultimately we will see a if we can do more but as far as a green light to build another harness hundreds stores were there.
Got it right. That's helpful. So I guess just one last one for me on the S.G.N. inside.
Just looking at like the dollar amount of the S. DNA looks it went up significantly from the second quarter to the tort corridor.
And looks like it's only slightly down you are we are excuse me like a couple of percent.
Blood based on what do you announced in the past you know around the three and a half to 4000 permanent reduction it seems like the the dollar number for the U.S. Uni should have been a little lower.
I'm just curious as to like it's like all those things.
This is like a good run rate to use or there's still more cost cutting measures that are there I'm pleased that no are falling off reflected ER.
So again, it's I guess, a that will be all thanks, so much yeah.
Of course, the issue is that a total gross.
Significantly higher than a year ago, and we are a condition based system. So just without generating higher gross we have higher commissions by definition.
The challenge is really to pay out to be more efficient in total and to have a lower percentage of payout. So as DNA as a percent of gross to go down I don't want.
I don't want to restrict improving or increasing the total amount of gross but why don't you give a little color on that Joe. Please [noise].
Sure. Thanks, Mike. So when you think about trying to calibrate that makes it. So you had a $105 million improvement year over year, and gross and actually a reduction in S. You know with almost 5 million. So you.
So you generate 800 basis points of improvement year over year, and if you look you talked about heads and heads or you know about 15% lower than they were at the beginning of the year.
That flows through compensation, obviously, and you know compensation is down if you break down that 800 basis points compensation was down about 330 basis points year over year.
Advertising continues to work down as about down about a 120 basis points year over year and store comp in overhead. So the three buckets I outlined last quarter down 360 basis points. So we've continued to leverage digital capabilities and sales process as Mike said with a signal.
Because of the higher gross and elements of variable pay despite having 15% fewer employees you are going to see some.
Some pressure on S.J. total dollars, but as a percentage of gross dramatic improvement.
And in regard just to go back to your question on gross I think there are two other elements I just want to highlight as you think about that one Oh, you talked about good for pricing, but recognize another significant contributor as CFS, which has continued to prove a year over year in the second component I'd highlight is fixed rate.
Which is still recovering on adjusted basis down just 2%, but I do believe as people continue to increase usage of vehicles will continue to see that recover and that shouldn't be a tailwind on a comparative basis.
I wanted to pick back for all the color and good luck. Thank you.
<unk>.
Your next question comes from Rick Nelson with Stephens. Your line is open.
Good morning, Rick [laughter] Good morning, Mike just to follow up on Wow, Scott those cuts as we look out to 2021 M. So supply is normal lives you get back to you that's true today.
Presumably why do you think.
Do you think you can grow in an environment like that yeah.
So what would be the growth drivers.
You've done a lot of work on that.
Yeah. So when you say growth drivers you're talking about top line correct.
Oh in revenue or or or what just makes it more from our terms of earnings but it kind of metric.
I think I think down the income statement.
Yes, let's let's think that start with gross I come from a growth perspective, I think we just addressed I think you are going to see a rebalancing.
Which we recognize and we'll address again I think continued benefit in areas like CFS and fixed gross well continue to drive the gross profit.
We really have adopted a very different mindset regarding cost. So now you get down into the cost lines and with the commitment to keep the headcount low again, I mentioned were 15% down because of the year I see that we'll continue to have leverage.
We are committed to operate below.
Below 68% and I think we're going to continue to see an advantage when it comes to the cost to floor plan, which has been a benefit I think as Mike highlighted earlier, we see interest rates staying low for some sustained period of time.
And when you couple longer term or the U.S.A. expansion I think that complements the existing franchise growth.
And I would highlight as you go down to eat P.S.. We've we've announced this morning, a increase in authorization of share repurchase which gets you will think about operating leverage and financial leverage we are thinking about that in totality to drive ultimately down to growing bps year over year.
Okay [laughter] tank [laughter], that's helpful. So that <unk> Gpus.
What we're seeing here in Threeq you.
Do you think that was carrying into the fourth quarter. I know you know seasonally you'd be more premium luxury which bring higher entry barriers, but on a like for like a base.
Do you think they might carry him.
Hi, Rick we see no change in that.
And they're going to change in inventory levels or the demand level in the fourth quarter I think.
I think it's I think we're into next year before.
Inventory start to move that's our sense yeah.
Right Okay.
And then finally it was hard to ask on the automation U.S.A. heart.
Hi, you know, but the big change.
[laughter] start growth outlook, I'm curious, what's driving that account for them.
And what do you think is unique.
About the Autonation USA model compared to our competitors format.
It's very addressing we opened five pilot stores and committed to stop and have them perfected before we committed to a.
A big roll out and we were really disciplined and took the time and.
Any effort to get those stores just right now.
I'd say we had.
We had a lot of new ideas as far as.
Customer process going into the USA stores.
That we put in place and overtime, we realized that the.
The process as we already have in our Autonation stores are world class and what the lover customers really embracing like so we actually transformed our USA stores.
And all this process is digital marketing everything to standard USA that we use a standard alternation, which we use as.
And it made a huge difference in taking out cost and being effective.
We also have confidence that the brand can move into new markets and be embraced by customers. So.
With a very good outlook on understanding what we did right and what we did wrong I used the expression we paid our tuition.
Ah gives us a great deal of confidence.
To go forward.
Uh huh.
Within all that do you also have.
I talked about before that there's.
There's definitely been a shift in consumer mindset towards person.
Personal mobility, rather than shared mobility and interest rates are coming down not going up and interest rates are going to be low.
As far as I can see next several years.
So you put that all together and it's clearly a an opportunity that's ready to go.
Ready to be embraced and we haven't figured out why are you confident and off we go.
Right.
Hi, it's robin color, great quarter, and a good luck because we put children.
Thank you.
Your next question comes from John Murphy with Bank of America. Your line is open.
Hi, Good morning, guys and should have a first question Michael on strategy, I mean, and when we look at the a line in the press release of retailing over a million new and used units you know ultimately as the goal I am just curious it seems like you're not doing a lot of New York.
Dealership acquisitions the moment, so we kind of hold that reasonably static and assume you get to one to one on new and used in your dealerships. It looks like Autonation USA would be you know about a third of your volume. So it's almost like a news about a third of your bought that volumes used in your dealerships. It's about a third of our volume and our nation's about autonation USA stores for about a sort of the volume.
I'm just curious if that's it that's about right and if we think about how you position the used units in your your franchise stores versus watching Autonation USA. How do you differentiate goes to and are they kind of competing forces and how does that work over time as it gets very big.
So.
They are very different in the sense that.
And the new able sort you know it says autonation, let's say, it's a Chevrolet new vehicle store.
Yeah, the average price point in that store for new vehicle is.
$40000.
And you combine that with the pre owned business that that source doing our average retail unit is around $30000 something like that and our price point in the USA store, which is strictly pre owned is $20000. The other thing.
The other thing is the USA store.
Whereas people have a singular focus on say chevy going into one autonation Chevy store.
The USA stores Universal we sell everything at a different price point.
And the other thing we've learned is on.
We'll buy your car.
USA stores much more approachable and the customer doesn't feel they're gonna be confirmed that about buying a new car, they're very comfortable to come in and sell us their car and we have.
And we have an industry leading process where.
We give them a check within an hour of the car coming in and being appraised. So it's really.
Quite remarkable and the fact, we have a centralized.
I shared resource center in Texas makes all that possible that were do able to do that at lightning speed again, it's part of our technical capabilities.
So as far as growth for the future I mean, it's really a capital allocation journey I mean, we're going to generate remarkable amounts of capital and we're going to apply them to building. These USA stores, we're going to do some new vehicle franchise acquisitions were up.
Propionate with good return and as announced we're very open to share repurchase we think there's an eye on.
An opportunity here.
And.
So if you put all those together it's.
Pretty compelling.
My vision and strategy.
Going forward.
Your Chief strategy Officer also [laughter] Miss anything in your story.
No I think you are communicated very effectively and it's a balanced approach.
Yeah that we're taking to its great [laughter] well, so I mean, maybe if I could just follow up though is as you do more retailing online customer gets more comfortable with that I mean is there any reason that inventory at the Autonation USA stores as well as your franchise stores couldn't all being created in a single.
Portal to drive a better offering a wider offering to the to the customer Oh geez, we're there already.
<unk> Reits that's done that's down you go to Autonation Dotcom Yep, it's all there.
Got it quick punchy question, Barry, but I mean, you were talking about as gene a bit what portion is variable just so we can use or is there a rough rule of thumb, we can use there.
To go forward, we can you can maybe estimate that.
That or maybe how.
Maybe half is probably isn't a rough estimate.
Got it and then Mike just lastly on on the demand recovery here I agree with you. It seems like there was some incremental sticking is to this demand recovery and good but I'm. Just curious you know as you look at the release of some of the pent up demand from the crisis months of.
Actually been through for a while now but.
But the last couple of months you look at the 16 to you that we saw in September do you think if you had a lot more inventory you could have sold significantly more and is there any potential for a couple of months of payback before the Rebase and you cycle really takes off or do you think we are in and take off mode for that the cycle.
For the next three to five years, what kind of what seems like.
Yeah I don't think this is a pent up demand from the shelter in place. Although there's there's probably some of that there are some place, but this is really a fundamental shift in demand.
Towards individual mobility now you have to be careful when you focus on the total Saar that includes fleet because that number is going to be impacted by.
The fact that people are traveling the rental car business is down.
How there's various businesses, what they're doing with their fleet. So I'm not talking about the topline SAR I'm laser focused on the retail selling right.
And that is significantly restricted at the moment due to availability and as availability improves and first quarter second quarter of next year.
You'll see that number.
Be positive.
So I think we're past the whatever you want to call it snapped back China demand no he's or <unk>.
And here's the way to think about it I know everybody says well, what's with the overall economy, what's happening here is a reorientation and prioritization of the household budget, okay and what their what the American people are saying and doing is you know what.
I want to move away from density I want more space at home I may be working more at home in the future than I thought I would D and by the way I want to be <unk>.
I I love the independence of deciding when I move around and high how I move around and I'm not real excited to get back on public transportation and this is a cost all price points from a 5000 dollar pre owned car I feel premium luxury car. We are hearing this all day long.
No our fully say the fact that we have very attractive interest rates.
Is a is a multiplier effect on this reorientation of the household budget, but that's the priority in the households today.
There are a lot of things, they're not spending money on at or.
And ER and one or two things I'd definitely spending money on is spending more time in the home.
Where that home is and how it is and how they get about and.
And so for all.
Auto retail those are two very positive optimistic development for the next several years.
Completely agree. Thank you very much for the time actually [noise].
Thank you.
Your next question comes from Adam Jonas with Morgan Stanley. Your line is open.
Hey, Mike.
I have a question about your digital fulfillment can you tell us either and I assume the numbers are very very low.
But what percentage of your used vehicle sales for example.
Our completely digitally fulfilled.
Meaning little or no touch at all.
And between the consumer and dealer.
And our retail location.
It's a low percentage we could.
And that's where the consumer is happiest they want to choose to.
To do as much as they want digitally.
And then at a certain point they want to engage a with a delivery center.
And or we delivered Saddam.
So we have to kind of like nickel west.
<unk> percent is that.
I'd say I mean like single digits slow single digits. Okay.
Okay and I'm just curious Mike have you.
I'm sure you have but I'd love to know.
Assuming that you use the Carvana web site to buy a car to see how it works.
What do you think of that user experience, it's not a question about the business model or the valuation or anything like that I think Sheryl I think we'd all like their multiple but what do you think of their user experience for used car purchase or sale and and.
As you roll out Autonation USA kind of.
How how is this going to be different.
But I I think I think its.
I think it's a very good experience.
However, ours is better and the.
And the reputation all scores and Joe maybe you have in there.
And the net promoter scores of Autonation are.
Industry, leading.
So we have a great experience and we found the right long line and we let the consumer decide where that line. Yes. So what I can tell you is where the consumer is happiest is right where autonation is.
And we fully originate HM 45% of our business through the digital channel.
And then at some point, there's a crossover and we let the customer decide where that crossover is and we give them a fabulous experience from that cross over and they can move seamlessly back and forth.
And our reputation will scores and our net promoter scores show that's exactly where the consumer is and we are we now have a robust platform that is capable to move wherever the consumer wants to go as far as far as where that line gets strong but this leads into the design.
Vision as to why we're building USA stores because.
The customer wants a delivery center they want a place to go to complete the transaction and another benefit is.
Our reconditioning costs are significantly lower and our speed to market is significantly higher by being close to the market and rather than moving everything around multiple pipes.
Because we also care about making money at the end of the day. That's a that's another expectation we have we have a double expectation like the customers sell a lot of vehicles and make money.
And so it's that's a lot harder.
For our tourist place to get and where there and that's why we're going to go out and build 100 USA stores.
That's that's great Mike and just one one last one from me on kind of culture and incentives between the digital initiatives that you're investing heavily in its accelerating and over the years to come and then they kind of legacy stores or the legacy operation, where you're on your investment in people and systems.
Right now we're more in the brick and mortar side, so to the extent that you moved to omni channel.
How do you overcome what could be some conflict between the corporate digital initiative for omni channel to get the returns for shareholders in the same store and all those efficiencies.
How do you make it how do you incentivize the Gee Atms at that brick and mortar stores to be truly channel agnostic. So that they kind of don't care, whether you come in and generate a commission an in store sale versus if it's totally touchless online. Thank you.
Yes, it was a huge.
Complex cultural challenge for us to go through to create an autonation experience with an omni channel.
So.
We went through a significant investment period as I announced we went through a significant brand extension period has announced it was difficult disruptive painful and required perseverance to get through it and we paid our tuition and we climbed a mountain and now we're on the other side of the Mountain then it's a great place to be and some of that Kelly.
So what we really did is if you look at the fact that we won priced all pre owned across the entire enterprise and we don't care, whether it's in a traditional new car dealership or any USA store. It's one price its appraised acquired by the company and priced centrally.
Well, we have the we built the technical capability.
To one price all our inventory for pre owned across the entire enterprise. So that's an example of Oh, how we've dealt with this issue and now running a USA store a within the Autonation management system is something that people aspire to do.
Whereas before it was the glamour new car business still important to us, but now just as important is the excitement of running a autonation USA store. So I'm happy to say that what we will continue to invest in debt and in digital and technical capability.
It will not require the same level of investment and cost that we've had in the past years, because we built it it works.
And now we just enhance it from from this time forward, but we have a.
Central understanding of 9 million customers.
That is you're taking your daughter off to school and you buy her a car in.
In California, and then following week, you're back here in Miami and you walk into one of our dealerships we know exactly what you.
What you did the previous week, but your daughter out in California, and if you come into service in New York and then you have a house in Florida, We know exactly we know the entirety of your relationship and your history with Autonation and everything that happens what your preferences are and what is the likelihood of what you're going to find next.
And think is next and we proactively market to that and it's completely changed our marketing cost is completely change the productivity.
Of our salespeople and so we're really on a new bases and I guess the key point, we did it.
On an enterprise basis, it's not two cultures.
It's not two companies, it's one company.
One brand.
Thanks, Mike.
Thank you.
Your next question comes from Bret Jordan with Jefferies. Your line is open.
Hey, good morning, guys.
Good.
Good morning, though we will buy strategy I guess could you talk to us about what percentage of the cars that you're buying that are young and healthy enough to turn around and and resell and.
And I guess, whether there's any trend in negative equity that's preventing the vehicle owner from from converting and then.
And then I guess I'll ask my follow up question at the same time are you seeing given this demand for personal mobility, a reduction in volumes folks not coming into sell you their car because they want to keep them.
[noise] you want to take that.
Sure So from my Oh experiment standpoint.
I generally think of.
I generally think of a former U.S standpoint, you know between 60 defensive the franchise or USA store I'd say between 60% to 75% of our cars don't get in more detail our acquired from customers. So we have a much lower dependency on auctions and whatnot if you.
If you look at if you look at well buy your car it ranges from 10 to 20.
10% to 20%, it's higher in the USA, so almost 20% of our cars or it will USA are procured from well buy your car that's a lower percentage understandably in the franchise is probably 10%.
But that gives us a significant advantage from a procurement standpoint, if you compare it to the peers.
Don't see anyone close to that percentage of customers actually pardon cars acquire from customers.
Which clearly is a benefit to us when we think through the value proposition, we can offer our customers.
Does that help kind of understand the right and it gets all seeing any trends that negative equity is preventing people from selling to you when they when they want to.
We haven't got nothing out of the ordinary nothing out of the ordinary.
We continue sorry month over month, we continue to find a continued growth in the program. So we haven't.
Face that obstacle.
Okay, and then I guess the question on mobility demand are you, saying and I guess, maybe this question to Mike as you see this spike in demand for personal mobility.
Do you see that flowing more to used versus new in 21, and maybe if you've got a thought for where retail Saar is in 21 that'd be helpful.
At the moment, it's it's so much across the board.
And it demand is so strong that.
When you when we customer can't get exactly what they want.
New at the moment.
Where we're able to show them something in pre owned and they are willing to make whatever trade off that requires and so the.
That's how you get this additional demand in pre owned so now as availability improves on new I can't it's very hard to predict exactly what will happen.
And also I have.
I have to say I'm I'm reluctant at this point to put out a.
A retail Saar for next year, because I still truly don't understand exactly how and when these plants and shipments come through.
So certainly we've had of course running conversations with the manufacturers since the spring.
And every targets been missed.
What we've been told we would be shipped it simply did not happen. So I'm like Okay. This is this is now we're in a one I see it I'll I'll understand it and I'll be able to predict it so as I already said I don't see any change in the fourth quarter.
From what I understand is coming through and.
And so now we're into the first quarter that's case.
Well when I see.
That they're able to consistently.
Achieve their shipping targets.
And Okay. Now we can talk about what you can sell new the demand is there at retail I know, it's very interesting I'm not worried about the demand and on the demand will either get it through the volume or we'll get it through pricing. So we were pretty good at balancing that I just can't tell you when exactly also for a moment come so it's very hard to predict reach.
So for next year and.
Under the circumstances.
Thank you.
Your next question comes from David Whiston with Morningstar. Your line is open.
Thanks, Good morning its.
I guess first on our new vehicles. The the ASP is up the unit volumes down and.
I was just curious how much of that.
That ASP increase and then ultimately the the increase in new vehicle gross profit is due to the higher ticket versus a mix shift to light trucks and the inventory shortage, giving your pricing power.
Joe you want to take that.
Yeah, I can't give you exact numbers, but clearly it's been well documented you've seen the shift.
I'm going to trucks and S. Yoo viz, a it has had a modest impact on the increased a price per vehicle.
And we thought we could see do we see that trend continuing frankly, it's one of the areas that we have the tightest inventory supply in so many ways here, we are restricted by supply not demand and I don't see anything right now that is likely to change that trend, particularly given what's happening with gas prices et cetera.
Okay and on buybacks, if it's down the road.
You were to.
Basically buybacks would be would be very difficult due to your float getting too low and what on some institutions not wanting to get rid of their shares would you want to at that point started dividend or would you prefer M&A.
I think our capital plan.
The most likely capital plan is what I discussed earlier.
Investment.
Investment in USA stores.
Acquisition of new vehicle franchises and share repurchase I don't really see a change from that you Joe Your your your views.
No.
We did have some really good opportunities in front of US are the returns are too attractive.
But until we feel we've exhausted those I think the priorities that you've got Mike or the exact right ones.
[laughter], Okay, and just one last question on products.
As you know a GMC unveiled duck there I'm a pickup last night and there's a there's a lot of automakers legacy and startups wanting to get in the very high end of the electric pickup market, including now you're being partners with GM that hummer starts.
Batman Hummer starts at $112000 for the performance model I'm just curious one your reaction to the product that you saw last night and that that whole niche getting current down do you think that will ultimately be a really successful in the market because there's just a lot of wealthy customer didn't want that to be.
So the.
Shifting electrification is underway.
There's no turning back.
We're excited to sell them.
And.
The investment is there across the industry is just tremendous.
Execution still matters.
On the actual product.
You can you just got you got you just got to get it right.
So I have to admit the hummer announcement last night put a smile on my face Oh My God. If you want a metaphor for all general Motors versus New General Motors, just look at the Hummer.
What a fantastic vehicle I mean, I in my personal view, they nailed it and they used to they used.
Name, which you literally had to pull the plug on some years ago.
Relaunch.
The pinnacle of the technical capability that general motors possesses today.
And I think it's going to be.
A great success, now obviously with that price point.
You can make good money, but there's only so much <unk> body and you can do but I I think it shows a spirit.
And an understanding of what you have to do for an electric vehicle to be success, it's not enough just drops in batteries in there and put electric motor in there that's not going to get it done.
And I think general motors is to be congratulated and GMC. Your numbers just put a smile on my face I think it was it was just a great moment, it's a great video and that's saying we're at.
Perhaps across the trail I almost fell out of my chair, Oh, My God, who fall into that.
It's exciting to see from general Motors. It really is I couldn't be happier they buy night.
No I agree I mean.
Earnings This morning, which made me feel also very because I have a good day between between a hammer in our earnings I'm, having a good day.
All right I mean, it's it's it's a grand Slam, it's a grand Slam for the company, it's a grand Slam for the brand and customers will go nuts.
Yeah on in 13 years I've seen a lot of product unveiling that I've never been more excited and enjoyed a video or unveiling as much as what I Watch last night. There you go where we're brothers were brothers wholly agree and were completely different places and bone. There we are and let me make a point.
We sell them.
I'm very excited about that.
Yeah, I I look forward to hearing more about it as they are on site and we haven't seen so here's my point, we have great.
Products coming from the manufacturers around.
Around electrification, whether it's from the TTI con to the hummer.
And Oh.
ER volume products that are getting better and better that.
We are.
Our our are excited to be in electric and ER physician business and our digital platform.
In the not too distant future, we'll on Val.
The full range of electric vehicles that autonation.
Has available and coming to the consumer and you just go to our site you want to push on electric and it's all there for me.
For me to see.
Including pre on Tesla.
We're excited.
Alright, great well. Thank you I always appreciate your opinion.
Thank you.
[noise]. Your last question comes from Stephanie Benjamin with Suntrust. Your line is open.
Hi, Thank you thanks for squeezing me in here.
Yes definitely.
I wanted to talk a little bit about new vehicle volumes I know, we talked a lot about where we stand with the new vehicle, but how are you feeling about your current used vehicle inventory levels, given it's a pretty hot market, where you're positioned now and going forward I think youd side.
Well, we're actually doing a very very good job and our speed to market is excellent and I think our big advantage is that.
That 75% of what we retail.
We acquired from consumers either through trade or direct purchases and.
This puts us in a very good position.
On the gross profit side is very sustainable.
Now we think we could have sold even more if we had them I think sell and that's an ongoing discussion within the company.
But of course, as we increase our footprint with USA stores will get significant growth there and has.
And hence you put it all together and.
We feel ultimately autonation as a company in a brand will retail over a million vehicles in the U.S.
Got it and then just on the customer care performance, whether kind of remained down year over year.
Wanted to the continued decrease in vehicle miles driven are there any pockets of strength or weakness in different geographies across your footprint and you know maybe some that might show a picture to you know when you expect this segment to return to maybe at least flat year over year. Thanks.
Joe can you take that please.
Sure so.
Within customer care, probably not surprising and an area that's down a bit is collision, which.
Fewer people driving what's interesting dynamic, though is the average ticket really across the customer care portfolio has increased so were seen in general folks spend a little more money. When they are in we're seeing a collision recover but that has been a a slower area today.
But again, just I think really driven by the miles, but if you look at the last couple of months month to month to month. It has been a continued improvement.
So not down 2% for the quarter again, if you think through the sequential improvement or the business is recovering and we do believe collusion will be the final strong if you will as people continue to increase driving.
This fall and then through the winter.
But that really is probably the only area that is just continued to lag a little bit versus our expectations.
Got it thanks, so much.
All right everyone. Thank you for joining it has today, we very much appreciate all your questions and inputs and ongoing discussions Robbins of course are available. If you have any follow up questions. We'll try to get the answers for you. Thank you for joining us today.
[laughter] me its conference call you may now disconnect.
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