Q1 2021 AutoNation Inc Earnings Call
Yeah.
Good morning, My name is Denise and I will be your conference operator today at this time I'd like to welcome everyone to the Autonation first quarter 'twenty 'twenty One earnings conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one and your telephone keypad, if you'd like to withdraw your question press the pound key.
I would now like turn the call over to Rob <unk>, Vice President of Investor Relations you May begin your conference.
Thank you.
Good morning, and welcome. The Autonation is first quarter 2021 conference call and webcast. Please ensure that your lines are muted until the operator announced it's your turn to ask a question.
Leading our call today will be Mike Jackson, our Chief Executive Officer, and Joe Lower our Chief Financial Officer.
Following their remarks, we will open up the call for questions I will be available by phone and following the call to address any additional questions that you may have.
Before we begin and 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 and objectives constitute forward looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1090 fives.
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 in our SEC filings, including our most recent annual report on form 10-K, and subsequent quarterly reports on form 10-Q, and current reports on form 8-K, and now I will turn the call over the Autonation as Chief Executive Officer.
Jackson.
Good morning, and thank you for joining us today.
Day, we reported all time record quarter results with adjusted EPS from continuing operations of $2 79.
And an increase of 207% compare to last year.
These outstanding results were driven by strong performance of new used and customer financial services and disciplined expense management.
Demand continues to exceed supply from new vehicles and law.
Expect this to continue through 2021 in part due to the production disruption.
More importantly, low interest rates and consumer preference for vehicle ownership versus ride sharing and public transportation are supporting demand.
We expect our shipments from the manufacturers to double and the second quarter compared to the prior year.
Autonation and same store new vehicle units were up 22% year over year and up 12% compared to 2019.
We remain focused on our pre owned vehicle procurement strategy nearly 90% of our pre owned vehicles retailed in the first quarter were self source.
Meaningly acquired to trade in the lease returns and we'll buy your car or service loners and avoided auctions.
Acquiring vehicles at the right price speeds of the frontline a fair one price environment and leading digital capabilities of our winning formula for our customers with shows and our results.
Autonation same store of pre owned units were up 28% year over year, and 20% compared to 2019.
We continued to luxury leverage of our digital capabilities to drive cost reductions and increased efficiency tools like customer 360, which has over 10 million active customer records and enable us to provide a truly comprehensive and personal experience for our customers.
It leads to higher close rates and increased vehicle sales.
These efforts allowed us to deliver adjusted SG&A as a percentage of gross profit of 62, 7% and the first quarter of 2021, which represents a 1120 basis point improvement compared to the first quarter of 2020.
Our target is the operate at or below 65% SG&A as a percentage of gross profit for 'twenty one.
We are committed to our business growth strategy through investment and our existing franchise business expansion of Autonation USA and future acquisitions.
We are on track the opened five new Autonation USA stores, and 2021 and 12 additional new stores in 2022.
Our target is to have over 130, Autonation USA stores and operation from coast to coast by the end of 2026.
Today, we announced that we signed an agreement to acquire 11 stores and one collision center for Peacock Automotive group, and Hilton head and Columbia, South Carolina, and Savannah, Georgia, representing approximately $380 million and annual revenue.
The brands acquired a portion of the Jag land Rover, Audi Subaru Chrysler Dodge Jeep Ram Volkswagen and Hyundai This acquisition will increase autonation footprint from coast to coast over 325 locations and is set to close and the summer.
We have set the target to sell 1 million combined new and pre owned vehicles annually.
Autonation remains committed to delivering value to our shareholders, which includes opportunistic share repurchase.
During the quarter, we bought back three 8 million shares of 5% of our shares outstanding.
I will now turn the call over to Joe <unk>, Our Chief Financial Officer.
Thank you, Mike and good morning, everyone.
Today, we reported adjusted net income from continuing operations of $234 million.
Or $2 79 per share versus <unk> $82 million or 91 per share during the first quarter of 2020.
This represents an all time high quarterly EPS and of 207 increase percentage increase year over year.
During the quarter, we sold the remaining stake and Broome for a gain of approximately $6 million after tax of <unk> <unk> per share, which was excluded from our adjusted results.
Turning to operations, our first quarter same store revenue increased $1 3 billion or 27%.
Third to the prior year due to strong growth and new used and customer financial services.
While prior year comparisons are impacted by the onset of the COVID-19 pandemic, we continue to see strong consumer demand exceeds supply for new vehicles.
Given this backdrop, we remain focused on optimizing our business and the current environment.
For the quarter same store total variable gross profit increased 52% year over year.
Driven by an increase in total combined units of 25% and an increase in total variable PBR of $767 or 21%.
Our customer care business continues to gradually improve with same store customer care gross profit, increasing 1% year over year.
Taken together, our same store total gross profit increased 27% compared to the prior year.
Moving to costs first quarter SG&A as a percentage of gross profit was 62, 7% as Mike stated, a 1120 basis point improvement compared to the year ago period.
The strong performance was driven by a combination of strict cost discipline.
Leverage of our digital capabilities and healthy vehicle margins.
As measured against gross profit overhead decreased 590 basis points compensation decreased 320 basis points and advertising decreased 210 basis points.
Based on current business conditions, we project SG&A as a percentage of gross profit to be at or below 65% for the full year 2021.
Floor plan interest expense decreased to $9 million from the first quarter of 2021 due to lower interest rates and lower average floor plan balances. This combined with lower non vehicle interest expense of <unk>.
Lower effective tax rate and.
Fewer shares outstanding and generated record adjusted EPS.
Regarding our balance sheet and liquidity, we have ample capacity to continue investing and our business, including our autonation USA expansion as well as opportunistic share repurchases and acquisitions.
Our cash balance at quarter end was $350 million, which combined with our additional borrowing capacity resulted in total liquidity of approximately $2 1 billion.
Our covenant leverage ratio of debt to EBITDA declines of one three times at the end of the first quarter down from one eight times at the end of the fourth quarter and.
Including cash and used floor plan availability, our net leverage ratio was one one times at the end of March.
Our Autonation USA expansion continues to provide a very attractive growth opportunity.
During the first quarter, our five existing Autonation U S stores generated over $3 million and pre tax profit.
As Mike referenced earlier, we plan to open five new stores by the end of this year and 12, new stores and 2022 and targeting over 130 total locations by the end of 2026.
We're also excited to welcome Pete talked about of motive group to the Autonation family and.
We will continue to look for attractive acquisitions that complement our portfolio and.
And and meet our return thresholds.
During the first quarter repurchased three 8 million shares of common stock for an aggregate price of $306 million.
We have approximately $892 million of remaining board authorization for share repurchases and approximately 80 million shares outstanding.
Looking ahead, we will continue our disciplined capital allocation strategy utilizing.
Utilizing our strong balance sheet robust cash flow generation and ample liquidity to invest and our business and drive long term shareholder value.
With that I'll turn the call back over to Mike.
Thank you Joe.
We had another impressive and record breaking quarter.
We remain focused on delivering a peerless customer experience with industry, leading digital capabilities and outstanding associate interactions.
Our commitment to the customer experience is why we are number one and the J D power deal of excellence recognition program for the third year in a row.
Less than 2% of all U S franchise dealers and achieve this honor 78, autonation stores, representing over 20% of our dealerships were recognized.
Our associates did not let the pandemic interfere with your ability to provide a great experience and we're.
In the stores and in the offices to meet the needs of our customers.
I want to thank each of them to show up every day for our customers and each other.
With that I'm delighted to take any questions.
At this time I'd like to remind everyone and know how to ask a question Press Star then the number one and your telephone keypad, we'll pause for just a moment of the public Q&A roster.
Your first question comes from Rajat Gupta with Jpmorgan. Your line is open.
Hi, good morning, Thanks for taking my questions and congrats on a really strong quarter.
I just had the question.
And you can supply the day of supply.
Up pretty materially.
The fourth quarter, the fourth quarter, Youre, obviously sourcing a lot of.
Directly from consumers and outside of the auction.
Just curious as to.
How do you see that know the supply ended the quarter impacting the second quarter of growth.
Are you able to sustain the first quarter coming from growth into April.
Do you expect that to continue here into the second quarter based on stronger demand and Youre just curious as true.
How much of the constrained the supply right now, but both of new and use thanks.
And Theres no question that the there is more demand and supply and that is the head line on the new vehicles side.
Day supply is tight but.
Shipments and production are disrupted with the chip prices and will be for the rest of the year, but it's nothing like a year ago during.
During the pandemic when we had the factory factory shutdowns.
Our shipments this second quarter will be double what they were a year ago. So it's on the margin as far as shipments, but the headline is <unk>.
More of them and then supply we've adjusted pricing to reflect that and you see the improvement and our funding and growth.
The demand for personal transportation is across the board from price point of $5000 through $500000.
And we.
We've aggressively moved to increase our availability on pre owned do you see that and we have the capability to source, 90% of what we retail ourselves and that's a core capability.
And the marketplace is good and our combination to perform within that of of brand great experience digital platform and operating execution, which includes how we acquire and speed the market and we can do it profitably.
Is all.
To the benefit of Autonation, where and.
And a very good position.
Got it so it looks like the the trends online just the same store comps here.
And he is comparing versus 2019 level. That's continued here into April or.
And have you seen any any any slowdown at all or is it pretty pretty solid.
The demand is very strong and I've been saying it for over a year that there has been a.
David.
This mix shift you pick the word.
But the American spirit is that they want individual transportation of the individual personal vehicle.
They wanted the side, where they go when.
Who's list them who's been in the vehicles before them and who has been and the vehicle after them and I think this.
This demand shift towards personal vehicles is very strong you'll also see it and the housing industry and.
People want a bigger and more comfortable home.
With more electronics and it hence the competition for chips between and the home of industry and the automobile industry and of course.
Underpinning all of this is.
Very attractive interest rates for our customers.
Which so the demand we expect to.
Last for.
For the rest of the year interest.
The interest rates will be low for the rest of the year.
The result disruption will be there for the rest of the year.
So I think it continues.
Got it.
Just a follow up on the capital capital allocation of pretty aggressive buybacks here and the last couple of quarters.
And also started to ramp ups on M&A activity.
Could you give us a sense that the narrowing of how we expect how we should expect the balance of capital allocation to be.
Going forward I mean, do we see a bigger pivot towards M&A and.
Just on the M&A side, if you could comment on.
And the pipeline is looking like and arrow.
And we're looking right therefore assets would be helpful and that'll be ultimately and thank you.
Joe can you take that please.
Sure So I'll start out.
Extremely strong cash flow and just where you have to start that discussion so.
$278 million of free cash flow out of the quarter. So we're generating the extremely strong cash.
Our first priority is always going to be reinvesting in the business.
Again, we've come out and communicated expectations on Autonation USA and of general timetable and kind of giving you a sense on average about $10 million of store.
In addition.
We are going to continue to be opportunistic and M&A, we do.
And do have a high threshold for both financial and I'll call. It strategic cultural fit but we're very encouraged by what we're seeing and the marketplace remained disciplined and.
And still believe that our stock represents an attractive value and given the strong free cash flow extremely strong balance sheet.
We continue expect to continue to have a very balanced deployment across all of those categories.
Obviously, the hardest predictors of the M&A, but that is going to be opportunistic based on situation.
Got it got it okay.
Very helpful. Thanks, again and good luck.
Thanks, Thank you.
Your next question comes from Bret Jordan with Jefferies. Your line is open.
Thinking about your used retail sourcing going forward I think you mentioned non.
Always sourced in house, but given.
Given the current environment should we expect to see a shift and how these used vehicles are sourced and.
Said, another way, there's a slowdown and trade and from maybe a lack of new vehicles supply should we expect to see more sourcing from off lease and direct to customers and is there ample opportunity and both of those channels.
Yes.
We intend to source.
Everywhere and aggressively and have the capability to do all of that and have to be prepared.
To deal with any developments and the marketplace that.
Would be of challenge.
We're very excited about our direct purchases from consumers.
Which are now running over 5000 per month.
And we expect to continue to grow that.
So clearly our ability to acquire pre owned.
As a core capability requirement the right place more.
More importantly, we have a <unk>.
The amount of process that we can recondition to of very high standard.
Both cost effectively and very quickly and have them frontline ready.
And therefore run of very high turn rate.
On our pre owned inventory.
<unk>.
We're in a good place with the brand all of pre owned is one price what's the consumers love.
We have a great digital platform, where everything is listed and we have the speed to market and the core ability to acquire for young so we're very confident and optimistic about the future of our pre owned business.
Hence the decision to.
Lay out the additional years of our investment and the USA stores and that will take us to 130 of USA stores in operation by the end of 2026.
Okay, great and thinking about estimate of growth Q1 was another really great quarter in that respect and and.
And obviously a portion of that is due to the higher gross profit and you're putting up.
But it looks like your updated expectations for the year, 265% from I think of your prior target was below 68% and I'm just wondering what opportunities you're seeing there the contributes to that updated outlook.
Joe could you please take that.
Sure so.
Really seen the deployment of our digital tools, both in the stores and the back office really helping and.
And where we're seeing a greater leverage both in the overhead and.
And compensation and advertising so as we kind of look across all three categories.
<unk> seen significant improvement I believe the only kind of differences variable comp, which actually increase which is understandable given the strong growth, but if you look at the underlying drivers.
We've continued to see the benefits of strict discipline and fewer heads and what we're spending on advertising and lower discretionary spend and when we now look out the rest of the year, we have a high degree of confidence that we can drive that and so that 65% range and below.
So it really is leveraging the tools that we put in place and it's maintaining the discipline on costs going forward.
Okay, great. Thank you very much for taking my questions.
Your next question comes from Stephanie Benjamin with tourists. Your line is open.
Hi, good morning.
Good morning, good morning.
I think following up on your other question net.
Just asked and I wanted to hear a little bit more about the updated USA store investment and I believe you know expanded not only the store count, but it sounds like.
The accelerated the timeline as well so we'd love to hear you know what.
Happened really over the last couple of months that gave you the confidence that to accelerate the plans and solicit the performance of of your existing stores. The overall market with a lot of just get more color on and what was behind that decision.
So.
And the performance of the existing stores is outstanding and continues to develop really well.
Joe I think the operating profit of the existing stores was $3 million for the quarter of is that correct correct exceeded 3 million stage.
The $3 million in the quarter.
Now as far as what we just announced we really had already announced.
'twenty, one and 'twenty, two and I think there's only a slight difference in the store count and those two years and.
And what we really announced the day was what we're building from.
23, two of the end of 'twenty six.
And it's that's just an expression of our confidence that we really have this combination figured out.
And not to be repetitive, but its important the brand one price digital platform of.
Operating skills speed the market USA stores are really a reconditioning center.
That we can when we acquire vehicles and so the acquisition point of the Reconditioning Center.
Full of pre owned and for speed the market and it's the delivery center.
And we're able to.
Bill does vary.
Cost effectively.
And with a very reasonable ramp the profitability.
Joe you and what would you like to add to that on the USA stores, Inc.
The only thing I would add Mike is just underlying that is the success, we've had and procure and vehicles, which is where it all starts. If you go back just a year, 80% of our procurement was self sourced.
And as you cited earlier in Q1 were up to 90% of and I think the skills, we have learned and procuring vehicles directly from customers really is a differentiator in the marketplace and something that we think we can leverage going further going forward.
Great. That's really helpful. And then lastly, just a follow up question.
I don't believe you called out any kind of impact this quarter from the weather events and Texas, if you could kind of.
Quantify that and any way or anything that you saw or do you feel like most of that most of that was for copper and at least at some point later on and I'll call It margin yourself.
And yes, I think I said at the time that.
It was a huge challenge protection, Texas, but.
It's one of the most of them.
Yeah.
The fight back.
States and the country and.
And they really got the state of Texas moving.
Quickly and I think whatever disruption, we had we were able to recover.
And Joe you would know the actual numbers, but.
Yes.
The material impact one way or the other.
No there really wasn't and if anything we did better than the market and Texas I think as we kind of demonstrate our ability of navigate that.
Great well thank you so much.
Your next question comes from the line of.
Vic and Nelson with Stephens Your line is open.
Thanks.
And Mike Congrats on a great quarter.
Thank you Terry.
Kurt.
New car side the same store.
And it's.
And up 22%.
Up 12% compared to 2019.
Are you in fact.
Pacing, the and just straight one what do you think kind of retail.
The.
And the first quarter.
I think we are at or close to retail Saar for.
The new vehicles in the quarter I think we've clearly outperformed on.
<unk> owned.
And there it is.
And we clearly with limited supply.
Or have made the decision on new too.
Hold margin, there's no reason to rush things out the door you can't easily replace it.
And we've increased front and gross margins on new considerably.
But all of them pre owned and why.
Our net margins are excellent.
Clearly have gone for volume.
And feel the demand is there.
And our.
And those customers who are looking for a different price points are.
Not.
Open to paying what it's being asked for new vehicles.
And we shift them to pre owned which we have and we can and do replace.
So that's how we're moving through this situation, but the headline is.
There is significant demand significant sustainable demand.
And we.
Our.
Moving with market I would say on volume, but doing an excellent job on farnell and gross margin while new.
And.
Going for volume and pre owned and plus 28%.
And alright, yes true.
The target.
65% or below I'm.
And what that assumes in terms of true.
The U T. The prints.
And so youre going to be able to hang on to the use of outside of just the trip reviews as we move through the year.
Yeah.
Again, our front end gross on new move from 4% of 6% and is that correct Joe.
We've been at 6% before and the path its not like were at some unprecedented level or some unreasonable level.
So and there's a very active discussion by the manufacturers about.
Having some.
Discipline.
And and and maybe.
As I've been advocating for 15 years running of different balance between demand and supply.
It would be intelligence, so we'll see.
The question won't be answered until 2022, I mean, there is going to be more demand and supply for the balance of this year.
Yes.
Supplier challenge might be.
The worst is behind us.
More problematic.
Unfolds.
So look.
From my perspective, and my World the worst was the the factory shutdowns.
Literally a year ago 468, 10 weeks, depending on the manufacturer and then and then of very very gradual resumption of what we faced with the chip is absolutely nothing like that.
What is the.
Very interesting at the moment is how much of our.
Incoming shipments of our pre sold.
So shipments are somewhat disrupted and.
And they can't run everything at 100%.
But.
It's twice as good as was the year ago, but I sort of think the way. It is now is the way it's going to be the rest of the year from everything I hear from the manufacturers. They really do not have a clear sight line.
Two higher levels of production, so we probably of running.
The plan that we have right now which is good for net grosses on new and go for the volume and pre owned and that seems to be of very winning equation and this environment.
It's kind of makes sense.
Thanks, and good luck.
Thank you.
Your next question comes from John Murphy with Bank of America of your line is open.
Hey, Mike Good morning.
Good morning, and I was just wanted to just wanted to follow up real quickly on that.
And that you made about that the automakers I mean with the dealer body, including the Autonation is doing is we're at the list right with the level of inventories being so low and you sell and <unk> seven and the first quarter and the industry at large.
Mostly retail not of lot of fleets. So just curious I mean do you really think of it I mean is there a discussion that you're having and that theyre having.
Finally, I understand the balance because they're making a whole lot more money too, but it's not just you.
They are too I mean and are there rumblings of that or is it just still TBD.
[laughter].
And having this conversation for 30 plus years from my days of run of the Mercedes through my days here at Autonation and I think for the first time ever and I can see.
A lively constructive.
The conversation about this issue I mean in the past it was always theoretical.
And I would never wish for this pandemic and it's a horrific horrible.
And the thing that we're going through but if you ever wanted a case study of what the world looks like if you did it different.
This past year and this moment and all of this year will be at.
And the list of benefits both of the manufacturer supplier and retail.
Level with a little adjustment here and there is considerable and it's long so retail is and on top of that a big part of that is.
Trade and values for consumers is excellent and it's one of the ways. This situation is working for everyone from the consumer through the manufacturer.
So look it's it's force Miss your at the moment because the the.
The chip simply you're out there and they're not going to be there and any meaningful way for some time compared to the demand.
But I think John at the end of the day.
And there could be a new way forward.
Yes.
It's very encouraging second quick question on acquisitions.
And it seems like pricing is going up dramatically. This is very once weighted and we model off of 15% to 30% of price the sales just and our cash flow statement and our models.
How should we think about that roughly that range.
About right. These days and it look some of these number of seemed like they're a bit higher and that on price the sales.
How should we think about that and modeling and its tough thing for us to do because not a lot of information disclosed, but just how should we think about it.
And I'd say, we generally think more about it as a multiple of EBITDA and revenue.
And it's kind of and that high single digit range.
And the returns are mid teens.
Got it okay, that's very helpful.
And then just on the Autonation USA expansion.
And it seems like you'll be at 22 stores I think by the end of 2022 of my Count is correct. There will be 27 per year for the next four years after that.
The heavy pace, I mean, I'm sure and the capital front and the unions.
And sorry front and I'm confident you guys can pull it off but human capital and it's always the question right. So I mean, how do you how do you ramp up those gms of the.
The stores and staffs of those stores and that's a lot of hiring.
With people that are.
Task list.
A lot of expenses of employees.
No you're spot on this was just there's two critical paths as far as.
Sustaining that level of growth.
And it's both management.
And the ability to build the stores on the right side for the right locations and we've been hard at work at that.
For the past two years.
And it's the reason why we weighted to say something publicly until we were absolutely convinced that we could do it so on and on the human capital side, we have.
Autonation General manager of University, which is and internal development.
Capability.
That general management within the company is trained and developed high potential future General and general managers are identified.
It was ahead of time and go into development programs and the development programs as the big component around pre owned cars and running.
And leading of USA store is something now that the <unk>.
Buyer to within the company everybody sees the success that they are now we have a development pipeline of talent that we will.
Promote from within and to lead the stores.
Okay.
And then just lastly.
Parts and service is still not getting a lot of airtime or inc. Historically, that's been the key driver of the of the business used to get <unk> and yet you run the parts and service business off of them.
When do you think we see an inflection point there and is there a lot of deferred maintenance that second half of this year early next year. It really pops back up because I mean, if what's going on right. Now continues and then you get that kicker of.
Parts and service I mean, it just seems like nuclear fuel to earnings and cash flow I'm, just when do you think that kicks in.
So first and principle, yes, you're exactly.
Exactly right.
Although in the past year, the number of miles driven.
And was reduced the.
Depending on the period of time, you pick and as such the the pent up need for maintenance was reduced proportionately to that but it's.
There is the point coming.
And Joe you've done the calculations backwards and forward several times.
And can you describe where we are for the first quarter and and where do you think it goes from here.
And as we've said it continues to recover the first quarter customer care gross was positive the percent, which is a continuation of the progress of its really month by month.
The areas that our recovery and the fastest and not surprisingly our customer pay.
At the end sort of work as far as a prep and cars.
Warranty and collision has a trail of as we've mentioned and it really is tied to that miles driven but we continue to see sequential monthly improvement, but that's that's been the laggard. We do expect that that will continue to improve over the course of this year, which will help all of our customer care business.
But March was our best the best month, we've seen and a while we've continued to see a positive trend.
So it would be fair to say, we're just the precipice of a positive inflection point at but how parts of it is still TBD.
The the way you characterized the is that fair.
Fair.
Okay, Alright, thank you very much guys.
Your next question comes from Adam Jonas with Morgan Stanley. Your line is open.
Thanks, everybody, Hey, Mike I'd like to ask you a long term questions. Because you just got such an unbelievable experience and.
We all value of your views.
So Volvo is trying to go direct to consumer where their evs right, Mike I'm sure you've been following that why and your opinion would they want to do that can you see the motivation from their perspective.
And you think they could be successful or should they just are they are they nuts. That's my first question.
Yeah that'd be polite.
Yeah, they're not thank you Adam sort of allow me to say that.
And I think at the end of the day, they're gonna have kind of kicked to be hive and end up not that different from where they are today for very rational.
And appropriate.
Reasons, and others, who talk about the selling direct.
And we've experienced with other manufacturers.
When the moment of truth.
Finally arrives day.
And up with the and what is basically of reservation lifting order bank, which you can't even specify your and detail your vehicle with the manufacturer and it gets turned over to the dealer and the retailer.
To take over but they sort of establish the reservation reservation is the best word to describe what some of these selling direct things are now of course, you have the Tesla model, which is absolutely of sell direct model and you have other of electric vehicles startups that are talking about it I think the Achilles heel and.
And that model is that you do not put in a service infrastructure. So the franchise system in order to get of franchise you have to invest and the facilities that you are going to care for the units that of our operation and the marketplace. So if you're a start up you don't need that on day, one, but ultimately you know.
And it and I think it's and.
And of Kelly's heal and very expensive and difficult to build subsequently, but it's but if you're a startup of to your decision to go to market. However, you wish, but I think I think the franchise model.
Right.
Is the best for the manufacturer for the consumer and as a retailer.
If you're a good at the business. It can be very rewarding return. So I think its viable sustainable and all of my and I was once one once the manufacturer on the manufacturer side I mean, you sit and the you said and these meeting rooms, and the dream all of this stuff up and Heathrow and against the wall and see what sticks.
I don't think this is going to stick I'm not overly concerned about it I will say, though unequivocally.
And that retailers, who have a proprietary digital capability.
Our unique tools that are very effective.
Have a significant competitive advantage I think thats really the headline and all of this and for US It's global.
The $3 60 and.
And the equity mining and some other fabulous tools that are just unlocking business force every day, if you're competing against us and you're buying off the shelf manufacturer cookie cutter tools. The convenient retail you are really.
And in Asia.
Unsustainable position because you don't have the scale and go out and build your own pools.
And it's you know what we you know Adam what we went through and 14 15 and 16 to build these things and I'm glad we did it especially with the inflection point that came so I think that's driving I think that's the headline for auto retail and I think that's going on I think and you're gonna see more by itself.
And.
And consolidation into bigger entities and the ultimate winters winners are those who have scale of big brand great experience.
The digital platform and the ability to do all of that profitably.
And Mike I was kind of follow up and I Love you and.
I guess the only thing is I just wish you'd really tell me what you really think some time yeah.
Oh really don't venture, whereas the Adam like like you and hold back right.
Yeah.
Alright, I want to put at the risk of putting some napalm on the Hornets and asked here I go.
And here, we go back and so.
All of these dealer frankly state dealer franchise laws I mean.
Don't you think there past the or sell by date and some areas.
Just for the sake of discussion if you are wrong and the startups are all going down some path, where they say just kidding, we need we need how we're not kind of go direct to consumer anymore that was a bad idea and but let's say they actually do and they start building their parts and collision and stopped the way Tesla is doing and going service centers and they'll have hiccups and <unk>.
Do we run the risk of having two classes of auto distribution, one where you've got the new guys that actually have the option and they might screw it up but some of alone of going direct and then the others that are illegally kind of can't do it and there may be things to do but they just they just kind of locked in to the one and I wonder if this reach.
Just like FCC or.
Sorry, FTC or Supreme Court like you really think that that is.
And those 60 year old laws are just absolutely they don't need any tweaking the just right for this moment and tech well, Adam and you've never seen Autonation object, Yeah, I know of any of these startups.
It is really and.
Their decision.
And how they want and go to market and.
And it's their decision and their responsibility is sort of capital and you've never seen autonation protests that and any state or getting involved and it now.
And now.
Where state franchise laws have of certain relevance and merit is one of the manufacturer comes to US and says okay. Here's the deal and build this exclusive facility here's the keyword exclusive facility for us and this given market and we're giving you of given territory and REIT.
And for that exclusive investment well.
I'm going to object, if you make that deal with me and you put another one.
And down the road for me a week later.
And now so you're not asking me to be exclusive if you. Let me do what I want is a retailer which is I'm gonna big build one great Big Mega facility delivery center, and put everything and it under one roof and I only.
The franchise will also parts to deal with that issue, but as long as you were asking for exclusivity there has to be some protection on this exclusive of investment that that's been made and their franchise of all of us have relevance, but this whole campaign to block startup manufacturers from going direct and we're not involved in and Scott.
And its really their choice what they want to do.
Thanks, Mike.
And I doubt and good to talk to you and stocking.
And again to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from David Whiston with Morgan Star Morningstar. Your line is open.
Thanks, Good morning.
<unk>.
I guess I know, it's too early to talk about our SAR expectation for next year, but.
Similar to what I think Jon was asking about on service and given all of the supply shocks and we've had on new vehicles for a couple of years now plus the low interest rates plus actually healthy demand do you see of scenario for next year, where sales could just the new vehicles sales could just explode.
So again the headline is there's far more demand and the resupply so it's really difficult to judge where.
Where the level of demand is out there I think the pandemic was of scarring event for America.
Think of shelter in place one of the scarring event for America and people have changed the way they live and they changed the name.
And the way they work because of.
Of this pandemic and I can remember as a kid meeting.
And my grandparents and works, we're unbelievably frugal and I say wanted to loosen up and spend a little money and they would say listen you don't understand you haven't been through the great Depression. So I think there's been of scarring event on the psyche of America.
And they think differently about their home.
There's a there's a concern about density they want more space and their home they want their home to be able to do more for them and when they do leave their home they want to control the vehicles that they are in to the greatest extent possible and who's been net before them. So I don't really know.
Where demand has gone because.
Uh huh.
And this is the supply is restricted.
Yeah.
What what.
We should be careful here whats I've never seen so much pre selling of shipments.
Shipments.
<unk>.
These vehicles are coming in and going out if you want and indication of the level of demand. So people are buying up the pipeline before they even get to the dealership.
And we've gone on our digital platform Autonation, where we show now and market everything we have incoming.
And we are selling incoming.
The vehicles that have been produced now the predictability of arrival is not exact with the disruption in production, but it's amazing how many people are now.
It has changed the way they buy vehicles in that sense and again, that's all possible to do where our incoming pipeline is visible on the national basis. So.
And it would be.
It's hard to predict on and it's premature to of brick to predict on 22, and I think I think kind of pretty good sight line for the rest of the year.
The headline is demand is high.
They want personal vehicles, they're willing to buy and incoming vehicles, they're willing to switch to of late model. The pre owned and the demand is across the board and if you manage the business correctly, you can do very well in this environment.
Thanks, and then somewhat related to that question. Then is as you know there is a balance between the amount of inventory you have and then your pricing power and you talked about right now youre sticking there getting the high front end gross which I agree with Brian.
And just crudely speaking do you want a slightly more inventory than you have now a lot more.
And they were bid.
Yeah.
It's a careful what you wish for.
And.
As I walk the stores I hear that all the time, they say Oh, Mike if you could if we can only get some more cars. We sell so many it's just unbelievable and I and I always say well be careful what you wish for it so look.
I have a very good sight line on the rest of the 'twenty, one and I think the rest of the 'twenty. One is about as I described outstanding demand very attractive.
Interest rates and customer flexibility that they're willing to purchase incoming shipments and advance and they're willing to.
Switchover, the pre owned to to get their personal vehicle.
Okay, and just last question on the balance sheet, the big bond maturities and both 24 and 25 they are only at three and five 5%.
And are quite low right now do you have any interest and perhaps define and either of those this year and then the timeline out beyond the 24 and 'twenty five.
Joe and your wheelhouse yet not.
Not at this time, we continue to evaluate but not a priority and this current environment.
Okay. Thank you I appreciate it.
And there are no further questions at the time, Mr. Jackson, and I will turn the call back over to you.
And I wanted to thank.
Thank you for joining us today, and all and thank you for all your questions.
And I also want to thank all of our associates, who put it on the mask every day and come to work and imagine just imagine there is entire of pandemic on any given day, 95% of our associates were physically at work to take care of our customers and for that great very grateful and this outstanding performance and full of.
Record quarters in a row would not be possible without and 95% of our associates and putting them on that masks and coming to work.
So we have 50% of them are vaccinated at this point, we're working hard that everyone, who wants a vaccination can get it and we look forward to the day that we don't have to wear masks, it's not here yet, but we look forward to that sort of thing. Thank you everyone for joining us appreciate your margin.
This concludes today's conference call you may now disconnect.
Okay.
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