Q3 2020 Asbury Automotive Group Inc Earnings Call
Please standby.
Good day, ladies and gentlemen, and welcome to the Asbury Automotive Group Q3, 2020 earnings call. Today's conference is being recorded and at this time I would like to turn the conference over to Mr., Matt Pettoni. Please go ahead Sir.
Thanks, operator, and good morning, everyone welcome to Asbury automotive group's third quarter 2020 earnings call. Today's call is being recorded and will be available for replay later today.
A press release detailing Asbury third quarter results was issued earlier this morning and is posted on our website Asbury auto Dot com part.
Participating with me today are David Cole, our President and Chief Executive Officer, P.J. guidance, our Chief Financial Officer, and Dan Claire Our senior Vice President of operations.
At the conclusion of our remarks, we will open the call up for questions and I will be available later for any follow up questions. You might have before we begin I must remind you that the discussion during the call today is likely to contain forward looking statements.
Forward looking statements are statements other than those which are historical in nature, including those statements relating to the duration of contemplated the impact of the COVID-19 pandemic on our business and financial performance as well as the financial projections and expectations about our CRADA.
Markets and growth.
All forward looking statements are subject to significant uncertainties and the actual results may differ materially from those suggested by the statements including potential impacts from the COVID-19, pandemic honest, our industry and our customers suppliers vendors and business partners.
For information regarding certain of the risks that may cause actual results to differ.
Please see our filings with the FCC from time to time, including our form 10-K for the year ended December 2019, any subsequently filed quarterly reports on form 10-Q, and our earnings release issued earlier today.
We expressively disclaim any responsibility to update forward looking statements.
In addition, certain non-GAAP financial measures as defined under FCC rules may be discussed on this call as required by applicable FCC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website.
It is my pleasure to hand, the call over to our CEO, David <unk>, David Thanks, Matt Good morning, everyone welcome to our third quarter earnings call.
You just reported an all time record third quarter, despite the ongoing uncertainty in the economy.
Even with or well below prior year levels, we delivered an all time high adjusted operating margin of 6.6%.
As a result of our cost control measures, we implemented were able to achieve an adjusted EPS in <unk> as a percentage of gross profit of 61.1%.
Our focus on gross profit and expense management once again produced a great quarter.
Well, the adjusted EPS of $4, an eight cents up 75% over the prior year.
In addition.
This quarter continue to prove the strength of the new vehicle franchise dealer model.
With significantly lower volume of constrained inventories, we increased our front end yield per vehicle by $1045 over the prior year.
We also flex our cost structure down managed our inventories to improve margin and maximize profit to deliver these record results.
We also successfully closed on the highly strategic Barclays acquisition.
We want to welcome all of our new teammates and thank all of our employees who work on the integration to ensure we hit the ground running.
Due to our strong performance and cash flow our pro forma net leverage ended this quarter at 2.4 times.
Below our targeted range and well ahead of schedule after financing the largest acquisition in our history.
Which increased the size of our company by 25%.
This will allow us to maintain a more aggressive acquisition pipeline and grow our business by strategically deploying capital.
Our strong performance is the result of our pioneering omni channel.
So we launched over four years ago in the third quarter, 22% of our guests chose to buy their used vehicle online.
While we are pleased with these results we are focused on further building and refining our omni channel tools to enhance the guest experience.
In July I said, we'd have an update regarding our online buying software.
We have completed the construction of our newly redesigned on buying platform inside which will greatly enhance the guest experience.
We have begun live testing on the new platform to work out any Kinks, we may have.
We will have an investor day in mid to late November to walk you through the software in detail.
In addition to building an industry, leading online sales platform two years ago, we began our journey to become the most guest centric automotive retail.
We've made incredible strides and plan to continue enhancing the guest experience with our omnichannel tools and investing in our people and our culture.
We believe in the dealer franchise model amongst franchises you only differentiate as our first the level of service your teammates provide insight.
And second a world class Omnichannel strategy.
These key differentiators create a seamless and transparent experience for our guests.
Finally, I want to thank all of our teammates for their commitment. During this pandemic. These results happen because your passion and perseverance adapting to our new world.
Thank you.
I'll now hand, the call over to Dan to discuss our operating performance death.
Thank you David and good morning, everyone.
My remarks will pertain to our same store performance compared to the third quarter of 2019.
Looking at new vehicle.
As we mentioned last quarter, our focus remains on improving margin and not chasing volume and.
We continue to pursue this strategy in the third quarter.
Overall, our new gross profit per vehicle was up $830 per car for 58% from the prior year period.
All segment margins were up significantly from the prior year period.
With the acquisition of Barclays, We increased our luxury mix from 33% to 49%.
Driving our all store PB are up 41%.
At the end of September our total new vehicle inventory was 579 million and our day supply was 47 days.
Down 29 days from the prior year.
We expect the day supply to increase gradually through the fall and winter selling season.
Turning to used vehicles.
Our gross profit margin was 8.5% up a 170 basis points from the prior period.
Representing a gross profit per vehicle of $2036.
Similar to our new vehicle strategy, we focused on being opportunistic with our inventory and improving growth is to maximize profits.
The second aspect of our used car business at wholesale.
Well, we were able to increase our gross profit over $6 million.
And as a result, our U.S revenue, including wholesale was flat with the prior year period.
Our used vehicle inventory ended September at $204 million, which represents a 35 day supply down one day from the prior year.
Turning to economics.
Our strong consistent and sustainable growth in ethanol I delivered an increase of $208 to $1830 from the prior year quarter end.
In the third quarter, our front end yield per vehicle increased $902 per car to an all time record of $3992.
Finally, turning to parts and service.
Although our parts and service revenue decreased in the quarter, we continue to see the business improve each month.
In the month of September our same store parts and service revenue was up 8% over last year.
Also our parts and service gross margin declined 130 basis points to 60.8%.
The decline in gross margin was primarily attributable to a 2.7 million expense in our internal proper reserved for reconditioning and preparation work related to our increased vehicle inventory from the Barclays acquisition.
We expect our margin to return to normal levels next quarter.
I would like to take this opportunity to express appreciation to all of our teammates in the field and our support center for managing through this pandemic and transformational acquisition.
I will now hand, the call over to BJ to discuss our financial performance PJ. Thank.
Thank you Dan and good morning, everyone I would like to provide some financial highlights, which mark another great achievement for our company in a tough and still uncertain macro environment.
For additional details on our financial performance for the quarter older refer you to the financial supplement and our press release.
Overall compared to the third quarter of 2019 revenue was on par to last year. Despite a lower SAR due to completed acquisitions and improvement in ethanol PV Ars gains in wholesale revenue and a continued recovery in our parts and service business.
Gross margin expanded by 230 basis points to an all time high of 18.2% driven by our proactive inventory management and focus on improving gross profit per unit.
Moving down the PML, we saw adjusted EPS DNA as a percentage of gross profit decreased by 780 basis points to 61.1%.
This is due to proactive expense reductions and efficiencies gained on both personnel and advertising.
Actually to manage gross profit and control expenses resulted in an all time record adjusted operating margin of 6.6%.
Increase of 210 basis points above the same period last year.
Adjusted EPS increased by 75% versus the prior year period, which was also an all time record no.
Net income for the third quarter 2020 was adjusted for a $24.7 million gain or 96 cents per diluted share on the dealership divestiture.
$1.3 million or five cents per diluted share of acquisition related costs, and a 700000 or three cents per diluted share of real estate related charge.
Our effective tax rate was 24.8% for the third quarter of 2020.
Sales to 24.4% in the third quarter of 2019.
Floor plan interest expense for the quarter decreased by $6 million over the prior year quarter, driven primarily by lower inventory levels and lower LIBOR rates.
With respect to capital deployed excluding acquisitions, we spent approximately $10 million on store improvements and real estate this quarter.
During the quarter, we closed on the park place acquisition, we expect this acquisition to generate approximately $1.7 billion in annualized revenues.
To finance the acquisition, we used cash on hand, our credit facility and $200 million in seller notes.
Very shortly after closing we issued 250 million of debt as add ons to our existing senior notes.
We added $125 million to our senior notes due in 2028 and $125 million was senior notes due in 2013.
We used the proceeds to fully repay the seller notes and pay down approximately $50 million on our revolving credit facility.
Also during the quarter, we divested our Greenville, Lexus dealership as we reached our regional ownership cap due to acquire in two parts place Lexus stores. However, we are still under our total national cap for Lexus store ownership.
Dealership generated approximately 90 million in annualized revenue.
As a result of our operational performance our balance sheet remains in a very strong position and we ended the quarter with approximately $385 million of liquidity comprised of cash floor plan offset accounts and availability on both our U.S line and revolving credit facility.
Also at the end of the quarter, our pro forma net leverage ratio stood at 2.4 times below our targeted leverage range of two and a half to three times.
As a result of our strong cash flow generation, we were able to fulfill our commitment to reduce leverage on the heels of the park place acquisition well ended in advance of our original guidance.
This will put us in a much more proactive and flexible position to strategically deploy capital going forward.
In closing I would also like to thank our teams across the business to continue to work tirelessly. During this unprecedented time to ensure our current and long term success.
We will now turn the call over to the operator and take your questions.
Operator.
Thank you and ladies and gentlemen ask a question. Please press Star then one on your telephone keypad. Please.
Please note if you're on a speakerphone. Please pick up your handset or de press your mute function well that signal to reach our system.
Again that is star one to ask a question and we'll go first to Rick Nelson of Stephens.
Thanks good.
Pardon.
Were you.
Ask you about Oh, yes, yes inventory supply.
Thanks.
Pretty good.
Strained Brian.
I think that is going to normalize.
The implication there.
Perjury period, and that's true.
Good morning, Rick This is Dan.
To your point, we have seen via constraint in inventory, we do it we are seeing inventory flowing back in.
Slowly, but surely into the stores and we expect that to continue to grow.
As we go through the fall and winter selling seasons, and obviously into a into Q1 as business continues to come.
Back around we do expect some of our expenses to.
Cost structure to go along for the ride as well.
And I think there was one other question you asked and did I Miss one.
[laughter] yeah.
Yeah.
Is that true.
Okay, Great go back to pretty cold wet levels or.
We normalize its.
Higher or higher right.
Next year.
Rick This is David.
Yeah, I would tell you we're with you know as as we sit here today.
We're still benefiting NRG to use some of the the lower inventory.
And we anticipate at this point to benefit throughout the quarter.
You know the virus is starting to heat back up as we all know assuming factories don't shut down at all we anticipate at some point in the first quarter to get inventory levels somewhat back to normal and at that point you would assume.
You would feel it in the margins, but we don't see that happening in Q4.
Terrific, thanks for that and not like ours.
Cars.
We're all sort of things how great. It is to your current balance follow lock stuff.
What type of new car.
Or is that going to take a different trajectory.
Yeah.
Yes, what Corey.
Oh, sorry, other newspapers also if you could comment there.
Sure.
There's a little bit of seasonality in that as well with what's going on with the heat up of the virus.
Used car inventory for us is a little bit more available than new car inventory.
We've seen a little bit of pressure this quarter and in gross profit but.
But we don't anticipate it in the quarter falling back to levels of pre covert at this point, but.
But we too again think overtime that.
But those will start to normalize as well just not in this particular quarter.
Okay. Thanks.
I'm sorry to ask you about the hard part is.
How that's performing relative to your expectations from sellers had about four.
Filing.
So Joe said first house.
But before it was down.
23% on the card can calculate it if you could comment on the drivers.
That's great color and what changes are going to affect the park place.
Yeah.
Place, it's very new we closed at the end of August, but so far they are exceeding our expectations.
In in all all departments parts sales service pre owned margins.
We're very you know the park place like Asbury is benefiting from the low day supply and what's going on.
Ed it's exceeding our expectations at this point.
Sorry.
Thanks, and good luck.
Thank you.
Our next question will come from John Murphy of Bank of America.
Good morning, guys.
First question on the parts and service recovery was sounded like it was a solid ratings.
You expect to continue to ramp.
In the fourth quarter as we catch up on deferred maintenance.
In other words Maple co loss or do you think it's going to take a little longer.
Really tiny.
Generally pick back up to drive that.
Yeah, I would just John I'll start with just a reminder, first you know in our parts and service numbers that we disclose collisions in there.
Collision for us is running for 12% to 15% back depending upon the markets. So thats pulling back RCP numbers.
We've been positive.
For the last few months.
The service specifically as it relates to the customer pay and warranty.
We anticipate that to continue and I think I hate to keep putting this disclaimer on it but depending upon what happens with the virus and how much that eats up I would assume that could have a negative impact but to this point in time the last few months.
We've been in the green as it specifically relates to parts and service excluding collision.
Hey, good morning, as Paul any games that need sort of mid single digit or does that will that there was a fair amount of the slow in the second quarter guidance.
This natural will catch are you getting on board attached to the parts and service.
It seems like and that's what we're talking about that you should be able to kind of put up mid single sort of natural so we did that without what's been happening or is it something better or worse than that.
Yes, no I think that's a fair number is as Dan said in his script you know for September were up 8% in revenue.
You know, we had a little bit of a gross in the quarter, but that was more to do with borrowers how we handle reserves and the increasing them for the park place acquisition. So we actually improve if you pull out the reserve our margin in the quarter as well so.
So I would say mid single digits at this point.
It is fair to say, we're back on track with that and.
Again, you know assuming nothing dramatically changes with the virus, we should stay on that trend.
Our medical so I'll use the you're going after this was with push button leveraging were listening.
Asset sold Q auto was we'll start in one stops.
It sounds like for good reason at least equal close below the operating EPS. So you could do that how much opportunity equal boring able to get those points, we need to Nichols.
Number in the quarter to maybe drive that up to the higher end, although as you roll that lease coastguard does omni channel efforts will could you get significantly above 1 billion.
That would be a big growth driver just off the existing Los angles.
There's no question Jami everything you said is accurate our biggest opportunity is in pre owned sales I'm not.
Making excuses, but it was a busy quarter for us.
Adding that at large acquisition.
I think when you see on Investor day, what we've done with the digital tools how significantly different they are.
Well, it's been a busy quarter for us, but having said that we don't think the tools. The end all be all there's still people that will want to come in person. We just think that we thought this thing through and we're going to be industry, leading with a lot of tools that don't exist in the market today as it relates to the acquisition online.
To answer the question can we get above one to one for one there is no question about it I would tell you that many of our operators in the quarter.
Purposely dial back volume to really take a target margin.
And that was the focus we really just didnt feel like with what was going on in the quarter. It wasn't about driving unit sales is about driving gross and net profit.
That makes sense all just lastly, what how do you think about sustainable will funnel yields on loans totaling 4000 Bucks year Threeseven thousand lives pretty good before that those are good solid numbers, yes, what do you think the all in mortgages sustainable and yes.
What's kind of the glide path there.
Okay any other quarter tools, how did very high level yields or is.
Right like indicate reasonably quickly.
Yes, so again I wish I had a crystal ball, but I'll give you my personal opinion on the way I see it I think that this particular fourth quarter will remain elevated on our total yields compared to what pre covert levels are.
I think when inventories get back in the world gets back to normal I'm sure that will come down a little bit, but even when you go pretty coded if you look back even though we have pressure on our new car margins, we were still raising our total yield so.
Slightly every quarter and now with the material acquisition of park place and their PV use for PV ours excuse me, we expect some natural lift there as well.
So I think we will remain elevated in the fourth quarter will be as high as Q3, I'm not sure, but certainly elevated the pre folded and then even when the dust settles I expect us to settle in at a higher number because of the impact of Barclays as well.
Great Thats very helpful. Thank you so much.
Thank you.
We will now go to Adam Jonas from Morgan Stanley.
[noise] everybody can you give a bit more they CPI is on digital.
I know you have a number internally that you share on percentage of your sales that are done at the U.S sales that are down 50% to 100% online I don't know if you can get that number for the third quarter and how that compared year on year.
Good morning, Good morning, Adam This is down so.
For the quarter of 22% of our used vehicle sales were transacted fully online through push start.
And just as a reminder, we define a full online sales when a customer completes the entire process online and have the option to receive a home delivery. This process must include cylinder trading purchasing insurance broader receive in financing and funding all the documents online.
Not requiring a with signature by state law.
And then in addition to one of the things that we continue to see is surprisingly most of our customers select to pick up the via the vehicle at the dealership.
Adam just to follow up on that I mean in this day and age 95% of their people are looking online first I mean, that's the new newspaper for lack of a better term, we're not counting that.
Part of the field utilize the first our tool and come down the channel with the tool.
And what was the prior year, just wouldn't get the cop, 21% this quarter over the last year.
Okay and is it was 8% last year.
Okay, just say okay.
And any color on that front end or attachment rate or GPU of that.
Of the online or what you define as online.
Push start versus the <unk>.
In store sales.
Yeah. It runs about the same I mean, it but when you look individually to each individual store you will see a couple of hundred up or down, but when you when you aggregate it it's averaging about the same as.
That's great and then finally a.
As seen a 61.1% in the quarter obvious.
Obviously helped by the kind of Juicy needy GP is.
I would just ask you high level, how much of the year on year improvement would you say is related to.
Let's just call it unusual gross adverse as structural and sustainable.
Thanks Sarah.
I I would tell you some.
Some of the Tailwinds and some of the headwinds that we potentially could have from.
From a tailwind perspective, you know you learn over time as an operator never let a downturn go to waste.
So that gave us an opportunity to really increase our production per employee.
We believe that sustainable when we get back and we'll get a natural lift from that.
Some headwinds could be the normal stuff that you expect medical expenses insurance cost that kind of stuff. So those always seem to creep up every year and something that we're trying to get aggressive on.
The advertising you know you could make a case that we've we've trimmed it so much to the bone it might be affecting our volume to a certain degree on it.
And we May take a look at that in play with that later on in November when you get a real very detailed walk through of the software won't be screenshots to those that will be the actual video of the tool.
If we get the conversion right there.
Theres opportunities on the cost structure side again, but I'd be getting ahead of myself with that until we really get it implemented and see what the data looks like.
I look forward to that thanks.
Thank you.
We will now take our next question from as you could die of JP Morgan.
Hi, good morning, Thanks for taking my question.
You just sort of broader question electric vehicles, you know Walter.
The recent homeware announcement looks like you are to GMC dealer inventory.
The program.
Yeah, I do think the dealer channel is likely to be impacted.
Moral deal Yens.
Stock to offer one price vehicle.
Hi, Anthony how do you think this could change the profitability profile.
On the new vehicle side.
And we also noted that they're trying to remove the efficiencies of the dealer channel.
Our way of doing that so, but it's a bit unclear to arch like how the economics.
Might look like if that becomes a more and more just for electric vehicles.
Our margin, but still.
Do you have to get the service side of the business, but just curious as to what changes might happen there.
Mike a supply chain perspective economics going forward.
Thanks.
Yeah I read. This is this is David I'll give you my perspective as a.
As a dealer with the manufacturer I guess I don't interpret it that way you do.
With as it relates to specifically the general Motors.
In my career I've seen a lot of manufacturers and a lot of different states started direct selling it doesn't work well.
The supply chain to where it currently works and local deal is servicing and selling vehicles tends to produce the best results and I don't see that changing.
Specific to electric sales look at their coming and it's coming over time.
But as the current world as we sit here today, it's still a for sale.
It's still has to be dramatically incentivized by the government with credits.
It has to be heavily incentivized to the manufacturer it's not a profitable solution at this point in time and because of the push of the gas is so cheap biggest movies are selling in big trucks are selling the big engines right now but.
But again, that's going to change over time, there's a lot of work that has to be done to the infrastructure.
We think the franchise model works really well and we don't see them materially changing all the startup electric companies.
That are going direct.
You know time will tell how many of them make it how many of them don't how many consolidated what this success looks like.
Okay understood I mean like I I think.
Multi talked about you know like girls signing participation agreement going in lease.
Now have their GMT dealers are going to be on the network like it.
Can you give us a sense as to like why one would decide to participate or art or demographics or like economics are like investment requirement on them any color on that.
I couldn't give you insight as to how deals would think and what the decisions that they make.
Yes, any time you you become part of something there's investments that have to be made.
In the infrastructure and getting ready for specific products.
We see the value in it we anticipate doing it.
But I couldn't speak does what other deals might be thinking and why.
Got it that makes sense and just last one on capital allocation.
Balance sheet is a little less or no currently on a pro forma basis, no. It's still looks fine.
You talked about you know you know looking out for in strategic opportunities.
Can you give us a sense of what those might look like is it more trying to expand your regional density or your brand mix further or any sense of what those sky's these might look like going forward.
Thanks.
Sure.
You know I I would say and I've said this in the past.
We look at a lot of deals.
And don't acquire many big.
Because we are really looking for the right fit for us it's easy to buy something much harder to operate it and we try to be thoughtful about that.
It's an interesting time with the election coming up there are deals out there right now weve looked at some deals.
They're not deals that excite us or think that it's worth the time or investment in capital and I'm right now, it's a more competitive space with other private cap money, that's coming into it as well, but there is a lot of stores that are coming up in certain markets that just don't interest does.
You know, we generate a lot of cash will generate a lot more cash now at the Barclays acquisition, we still have some mortgages to pay down over time, and we'll certainly chip away at that and deployed capital to the ties return.
But we're very focused on certainly getting our debt down in the meantime, but were opportunistic with acquiring well certainly look at every deal that comes our way and put the time into it.
But we're not going to jump on it if we don't feel like its accretive for us.
Honestly.
Super helpful. Thank you so much and good luck.
Thank you.
We will now go to U.S., Stephanie Benjamin of chest.
Hi, good morning.
Good morning.
I was hoping you could you could kind of update us a little bit on the integration plans apart place obviously closely in August so maybe what.
With implemented at the end of the quarter and whats on deck for the fourth quarter here.
Yeah.
This is David.
Yeah, I would tell you the integration piece the biggest part early on is all the accounting and extended chart of accounts and doing all that integration from an operational standpoint, we didn't change anything at Barclays.
We didnt change their infrastructure, we didn't change his support structure, we wanted to keep them Hall.
There were a very profitable well run organization. So we kept their ecosystem the same and kind of plugged into ours. So I.
I would say you know for several weeks where for lack of a better term business as normal in the first couple of weeks, we certainly had the normal challenges with phone lines and software issues and integrating certain things like that and circuits, but we've worked through all those Kingston everyone's back to normal Rob.
Good.
Got it. Thank you and then in terms on inventory I think you noted that you're seeing some of that start to slowly come back on the new side is.
Is there any difference between.
Extremely important or domestic divisions, where you're seeing inventory returns.
Faster rate.
Good morning, Stephanie This is Dan.
You know we are yes, there was a slight difference or not.
The different segments, whether it is luxury and import or domestic.
You know there was.
Some of the domestic as you know.
Were affected by.
The strike pre COVID-19, and obviously that is carrying over to where we are today on our inventory coming in because you.
Your build out with the Carbonite can impact.
And then some.
Did not go through that and so we're seeing a better inflow.
In some of our luxury and some of our important and then some of the domestic maybe a little bit slower than we would like it to be.
Yeah, and the only thing I would add to that some of our luxury stores in the quarter had less than a 20 day supply of cars at times and when we talked about a 20 day supply. That's overall all models included we had some models, where we didnt have any cars in stock.
So naturally that dramatically impacted the unit counts as well when you think of the domestic side and even the import side. It was kind of the same story.
You know, even though you had a light inventory there's certain models no different than our peers Im sure. You just didn't have you just didn't have the inventory to sell.
Yes.
Got it that's all I had thank you so much thank.
Thank you.
And now we closed a question from Bret Jordan of Jefferies.
Hey, good morning, guys.
Good morning.
On the wholesale gross is that driven by greater demand for used vehicles in pricing or is that because you now are putting more cars to your own options will acquire good park place.
I guess, if you give us an outlook, which you think you're going to be doing will hold auctions now what do you expect your yes.
Yes, no. It's it's kinda like the data you see better with with Mannheim I mean, the auction prices in July and August are ridiculously high last few weeks as theyve tails off a little bit, but theyve failed off to two is still a high number.
Auction that we acquired you know again.
Forget about the last week of August because there was a lot going on here, we had a for the month of September.
We really just observe for the month.
We really wanted to see what it did how did it Howard operated and what the potential is we certainly went into it with a mindset of what we thought our potential is and.
We are even more convinced today than we were a pre closing of our potential with that auction.
So we anticipate growing that auction.
And may be doing more down the road besides that.
Okay, Great and then.
Question in Omnichannel and clearly it seems to be applied to use study effectively can you do an omni channel new or you're going to be respected selling new vehicles to markets, where you don't all the franchise and could you sell luxury from park place into California old you get push back on that.
Sure I'm going to address that in a couple of different ways and if I don't hit it please come back.
We felt that 22% because it's the highest number on the new car side, we're running about 13%.
With the push started so we have franchise laws with our brands and we have framework agreements I cannot market.
A brand new vehicle of any kind in Los Angeles can.
Can someone from Los Angeles reached out to us and want to buy a car from US. The answer is yes, I just can't market. There. So there is some semantics there.
I think you'll see if you participate in the Investor day.
And if you have purchased a car from say a carvana you will see some dramatic differences in the tool and dramatic differences from what we currently have in the push start school.
Full disclosure this some things and that pushed our tool that just don't exist that needs to enhance the experience and fully baked the sale for lack of a better term we know we've solved for those equations.
And we're excited to show that in a few weeks, but.
But to answer the question more direct the way we look at omni channel.
You know there is an opportunity for lack of a better term you know is down the road, we chose to target certain markets with pre owned.
And utilizing this tool and having more of a distribution hub in that part of the country at a lower cost than say, having a a franchise or a show room.
Just to create a distribution system, there's a lot of opportunities that we're looking at we think the benefit through.
Through a digital tools. The fact that you don't need brick and mortar and how do you maximize that for full flow through and that's through the tool and what the ability of it and what it can do.
Great. Thank you.
Thank you.
Now, we'll go to David Whiston of Morningstar.
[laughter] Thanks, good morning.
First on the special items for the quarter. The 700000 real estate charges for GAAP was up books and other income.
Hey, David CJ, yet, but in other income.
Okay and can you just talk a bit about what drove that Tonight, GPU up 11% year over year.
Yes, good morning, David This is Dan.
Our our.
Our ETF and I team is doing a very good job are consistently training as you know we have or bottom of the stores that we continue to focus and we continue to train and we're seeing improvement there are top producers.
They are consistently performing don't do much more of an uptick with the top producers, but strategically focusing on the bottom one and.
Strategically our training them on a week to week basis and following through to ensure that that consistency is maintained at the store level.
Okay.
And do you still think there is a lot of room for improvement on that bottom end.
Like I said, there is always via the bottom half that we focus on and there's always opportunity and room for improvement in those bottom how if you.
The top half like I said earlier.
I would say, there's not much more room to go in the past.
Yeah.
Okay and on the.
The.
Looking at the GMC hummer pickup from a different angle beyond the distribution logistics discussed earlier.
I'm more interested in just the fact that a lot of automakers, both legacy like GM, but ought to start up like that Saudi Arabia and all of your are all going after this pure electric very high end premium pickup.
Pickup truck.
A niche that really creating a new segment and it's obviously going to be a low volume segment given the price point so.
I, just like I mean, you're talking with the customers. There I mean do you think it's there's a lot of interest for vehicles at that price point, or especially all electric ones or will people.
Waiting for something that perhaps even other open it will be pickup truck they want something a bit more reasonably priced but maybe the F series will be a few years.
You know David I'll take a shot at this and Dan can clean it up.
I I think of the traditional truck fire and how long they have been buying trucks than I am.
Very curious and interested to see when the electric trucks start to come out if that buyer shifts at all or what happened.
I'll tell you I'll just talked about a traditional domestic truck right now.
And it's probably a lot to do with the pandemic and people have more discretionary cash available the.
The more expensive the truck is today.
Faster itself.
We will sell a $75000 pickup truck faster than we will have 50000 dollar pickup truck now I don't know if that's sustainable over time, but it's been creeping that way for a while.
So I do think that.
Theres an appetite.
I don't think there is again its just one person's opinion today as I sit here the truck market seems to have a watermark.
From what I can see.
And it's somewhere in the 75 to 80000 range when you start to see trucks much more than that.
The sales become very small.
Okay. Thank you that's helpful. Appreciate it.
Thank you. Thank you.
This concludes today's discussion we appreciate your participation and look forward to discussing the next quarter have a great day.
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