Q2 2021 Lithia Motors Inc Earnings Call
Good morning, and welcome to the Lithia and Driveways second quarter 2021, the conference call.
All lines have been placed on mute to prevent background noise.
After the Speakers' remarks, there will be a question and answer session I would now like to turn the call over to Jack ever director of P. F of day. Thank you Sir please begin.
Thank you and welcome to the Lithia and driveway second quarter, 2020.1 earnings call presenting today are Bryan Deboer, President and CEO, Chris Holzschuh Executive Vice President and C of O and Tina Miller, Senior Vice President and CFO.
The discussions may include statements about future events, and financial projections and expectations about the company's products markets and growth.
Such statements are forward looking and subject to risks and uncertainties that could cause actual results to differ materially from the statements made.
And we disclose those risks and uncertainties, we deem to be material and in our filings with the Securities and Exchange Commission. We urge you to carefully consider these disclosures and not to place undue reliance on forward looking statements. We undertake no duty to update any forward looking statements, which are made as of the day of.
This release our results discussed today include references to non-GAAP financial measures. Please refer to the text of today's press release for a reconciliation to comparable GAAP measures. We have also posted and updated investor presentation on our website Lithia Investor Relations Dot com highlighting our second.
Quarter results with that I would like to turn the call over to Bryan Deboer, President and CEO.
Thank you Jack good morning, and welcome everyone.
Earlier today, we reported the highest adjusted second quarter earnings in company history at $11 and 12 pence per share of 199% increase over last year, including the impact of the 2 recent equity offerings.
Record revenues of $6 billion were driven by robust robust consumer demand and then acceleration of acquisitions to produce strong operational performance across all business lines and channels.
During the quarter total revenue grew 87% over 2019, while total gross profit increase of 125 per cent compared to 2019.
On a same store basis compared to 2019, we recorded a 20% increase and new vehicle revenues, 49% increase and used vehicle revenues, 39% increase and F&I income and 3% increase and service body and parts revenues comparisons.
Comparisons to 2020 it can be found and the financial performance tables of our press release.
Our operational teams continue to excel and procuring used vehicles delivering impressive gross margins and continuing to grow the business, Chris will be providing additional details on our same store sales results the inventory levels and other operational results and a few moments.
Reflecting back on the first year of our 5 year plan. We are considerably ahead of schedule and have the required capital to carry us to and beyond $50 and EPS and $50 billion and revenue at $8 billion and added revenue since plan inception, we have acquired 40% of our targeted.
$20 billion and annualized revenues.
In addition, both driveway and our core business are contributing at a higher than expected levels as we enter our second year of the plan.
We remain disciplined and our execution and actively focused on adjacencies and cost management and leveraging our network to increase productivity and lower SG&A costs.
Might the cost of the acquisition integration and driveways development and expansion of our SG&A as a percentage of gross profit was 55, 7% during the quarter. This level of SG&A is typical of our top quartile of locations and a pre COVID-19 environment.
Our 50.50 plan, which is the base case assumes mid to low 60% SG&A. The our management team has constructively focused on greater aspirations are.
Our past few decades have yielded a 1 dollar of EPS for every billion dollars and revenue.
We believe that there is significant potential and increasing profitability and constructively changing the calculus, so that $1 billion of revenue can produce more than $1 of EPS.
To follow our of some thoughts on just how much more than $50 and EPS can be generated from $50 billion and revenue.
First with capital raises behind US there is no further drag on EPS from equity dilution.
We can leverage our underutilized network by substantially increasing the volumes that are being produced by them and service of the magnitude increases forex and and sales to ex <unk>.
Improving personnel productivity by associates, and consumer utilization of technology to improve and simplify the experience and workflows next.
Next we are and the early innings of our exploration and high margin and low cost of Adjacencies, such as our driveway financial Fintech consumer insurance and fleet management.
National advertising now driving economies of scale through greater brand awareness, and lastly, and investment grade credit rating and will further decrease our borrowing costs.
As a reminder, our base of 5 year plan assumes at pre Covid business environment margins and the growth rates. We are not assuming that the current margin levels will continue and most likely will subside by early next year.
And the recently released Fortune 500, we jumped considerably and number 231.
We are particularly proud of our performance on 3 metrics, demonstrating our proven ability to grow our top line.
Increase earnings and create long term shareholder value.
We were number 12, and 10 year annual growth and revenues of 19, 9%.
Ladd was number 2 and 10 year annual growth and EPS with 43, 7% growth more than double what we achieved and revenues demonstrating our ability to integrate and increased profitability at.
And finally, we were number 3 and 10 year total return to shareholders, reflecting at 36, 7% return rate, which speaks for the ability to transform and execute the.
This growth continues as our current annual run rate is approximately $21 billion as compared to $12 billion and the base year of our plan slide 11 of our Investor presentation has been updated with our progress and we look forward to sharing further updates as they are solidified.
And May we raised $1.3 billion and equity and $500 million and net additional debt and plan to deploy this over the next 2 to 4 quarters.
Along with the cash flows generated from our existing business and future acquisitions, we have the funds necessary to execute all aspects of our 5 year plan and do not expect of returned to the capital equity markets aside from a transformative acquisition.
Across the board our teams are focused on execution through both channels.
We continued to rapidly integrate recent acquisitions and driveway expanded offerings are attracting incremental customers, who are seeking to fully transact online together, we generated approximately $492 million of adjusted EBITDA and the second quarter, our unique high growth strategy.
And with the massive regenerating capital engine is speeding towards our goal of $50 billion and revenue and over $50 and EPS.
Driveway is empowering consumers to simply and transparently shop sell and service their vehicles from the convenience of their home.
The driveway experience is designed to attract the different and incrementally new consumer and then the Lithia channel, we can now market and deliver our 57000 and vehicle inventory to the entire country under a single brand name and negotiation free experience.
Leveraging our nationwide network and driveways broad functionality, we are excited with our and less growth possibilities of.
Our used inventory is broader and more scarce addressing over 4 times the number of customers than the e-commerce retailers focused on selling only 1 to 5 year old used vehicles we.
We are now realizing the advantages as evidenced by our same store sales growth and strength and margins.
We are on target to achieve and annual run rate of 15000 driveway shop and sales transactions in the month of December the important to note. This target does not include driveway finance and service transactions.
On our pathway towards this volume milestone that took other ecommerce used only retailers 2 to 3 years to reach there are several interesting early trends, we'd like to share with you today.
Driveway generated over 350000 monthly unique visitors and June.
Driveway eclipsed the 500 unit milestone with 550 transactions and June only 6 months after launch.
98% of our driveway customers during our second quarter were incremental and have never done business with lithia or drive way before <unk>.
And 95% of our dealership network is actively participating and driveway with reconditioning logistics transaction fulfillment inventory procurement and last mile delivery.
We continue to build on our online reputation with an average Google review score of $4.98 stars out of 5.
In addition, our driveway Google domain authority score, which ranks online search is now of 57, which is higher than all 3 used the only E. Commerce competitors, who have also been and operation for significantly longer than driveway.
Driveway receives continuous enhancements that are released every 2 weeks throughout the year and we recently launched 3 powerful new features.
First customers can now shop and filter our nationwide inventory by price or monthly payment.
Remember that over 80% of customers purchase of vehicle based on monthly payment and this provides upfront transparency and allows customers to focus their search.
Second driveway now offers the budget and payment calculator.
Once the customer has selected a vehicle and obtain the trade and value. The calculator allows them to adjust down payment and term to see how these affect their monthly payments.
Finally prior to submitting of credit application, our instant AI financing feedback tool informs consumers of the likelihood there credit will be approved based on their identified downpayment loans term and credit profile.
And the tool provides customers with the opportunity to modify the key terms to increase their likelihood providing them with the confidence that they will be approved prior to running a formal credit checks.
At this predictive indicator is essential to improving the consumer is progress through of technology happy path and our care associates productivity levels.
While our entire inventory is available nationwide. We are currently reaching approximately 25% of the population with driveway advertising that we are far from saturating These markets.
We are targeting our marketing dollars and believe that our omnichannel offerings enable us to scale on a cost effective and highly competitive basis. We continue to measure the impact of both our own and e-commerce competitors marketing dollars using what we call the golden ratio the relationship between.
Queen monthly unique visitors and completed sales are.
Our decision to expand driver of the advertising 2 additional markets will be based on achieving certain golden ratio levels and we expect the next level of scaling to occur by the end of this year.
And this is expected to be the final increase and marketing needed to fully assess and most effectively deploy nationwide marketing.
We anticipate nationwide marketing occurring and the second half of 2022, allowing considerably more time for all markets to season prior to completion of our 5 year plan.
Today, our team of driveway engineers data scientists procurement specialist care Center Associates and drive away Finance associates number over 300 and are growing rapidly to mirror, the exponential growth and consumer demand.
We have developed a suite of consumer solutions and functionality of that provide the first complete end to end digital ownership experience spanning the full vehicle ownership lifecycle the.
The foundation of our Omni channel plan is the growth expansion and leveraging of our physical network to provide consumers convenient access to all of our business lines in store and home through driveway.
Our highly fragmented industry provides ample opportunity to grow and accretively invest and increasing the reach and density of our physical network for decades, we have demonstrated the ability to successfully purchased and integrate acquisitions with and over 80% success rate of exceeding our 15% return threshold and <unk>.
And actual after tax returns averaging 25%.
During the quarter, we completed acquisitions, which are expected to generate $3.7 billion and annualized revenues and.
And year to date, we have acquired $4.4 billion.
We expanded our national footprint entering the Detroit, Las Vegas, and Jackson, Mississippi markets substantially increasing our density and reach in North Central region, 3 southwest region, 2 and southeast region 6.
It's important to note that automotive the largest retail segment and the country remains totally unconsolidated, we believe consolidation can be accomplished and a highly accretive way and these cash flow positive businesses can further add to our massive cash engine and consumer offerings are.
Our pipeline for acquisitions remains full and we are focused on continuing to improve the density of our network to ensure a full and convenient lifetime of consumer experiences.
Despite a slightly more competitive environment, we continue to successfully target after tax returns of 15% plus investments of 15% to 30% of revenues and 3% to 7 times EBITDA.
The higher end of the range is reserved for targets located in key markets that strategically increase our network density and the lower end end of our range is paid when density has already achieved.
Even with our pace being well ahead of schedule and we continued to replant as our more than $2 billion under LOI and.
And the more than $15 billion pipeline of potential acquisitions that we believe our price to meet our return thresholds.
As such we are expecting the acquisition cadence for the remainder of 2021 to remains strong as we build out our network within the United States and potentially internationally with the focus on English speaking countries.
As our nationwide network continues to grow and each of our 6 regions. We continue to target of 1 higher mile reach to allow for convenient affordable and timely the consumer service experiences during and after the purchase of their vehicles.
As a reminder, infrastructure cost for delivering a driveway e-commerce experience at zero as they reside and the underutilized capacity of our growing network.
Key to our design and 3 years ago was allowing for the flexibility to adjust investments between channels and multiple business lines to align with consumer demand, whether any economic cycle and compete with any future competitor and grow our cash engine to expand into further adjacencies.
These combined with our many other competitive advantages strongly position us to gain a meaningful portion of the market and lead our industries continued transformation.
In closing, we continue to seek new ways to improve and remain tenaciously committed to growing and finding new opportunities.
The advantages of our responsive and adaptable team with the multi decade track record of executing together is the driving force behind our ability to outperform and compete in any environment with our technology poised for rapid scalability across our existing and future network, we are positioned to lead.
Lithia and driveways progress towards $50 billion and revenue to produce more than $50 of EPS. The first leg of our journey with that I'd like to turn the call over to Chris.
Thank you Bryan as we live our mission of growth powered by people. We are once again humbled by our extraordinary team of almost 20000 associates and in the second quarter and more than doubled our previous earnings records as we navigate the back half of 2021, we are confident at the demand from consumers remains strong and for both in home and in network solutions and the acceleration.
And of driveways incremental sales and key strategic markets.
Be well received each day, our leaders are rising to the challenge of achieving or exceeding our 50.50 plan of evolving their skills growing their teams and navigating the unprecedented operating environment experienced and the first half of 2021.
Our team remains humbled and never satisfied as they look to continued record performance levels and massive growth throughout the back half of 2021.
Following his discussion of our quarterly results and is reported on a same store basis as Bryan mentioned earlier, we're providing comparisons against 2019 as 2020 results are not meaningful.
For the 3 months ended June 32021, total same store sales increased 26% over 2019. These increases were driven by a 20% increase and new vehicle sales of 49% increase and used vehicle sales at 39% increase and F&I revenue and the 3% increase and service body and parts revenues.
For the quarter, our new vehicle average selling price increased 13% and unit sales increased 6% over 2019 total gross profit per unit, including F&I was $6123 and increase of 2000 and $463 per unit or 67% and.
Excluding F&I, we earned $4266 of gross profit per unit, a 10, 1% margin strong consumer demand as we exit the pandemic has accelerated inventory turns and increase new vehicle gross profit levels.
For used vehicle total gross profit per unit, including F&I was $5227 and increase of $1658 of 46%.
Our used vehicle sales mix and the quarter was 19% certified 60% core or vehicles, 3 to 7 years old and 21% value auto or vehicles older than 8 years with over 60% of the $40 million used vehicle sold in the U S being 9 years and older. Our continued strategy of selling deeper into the used.
Vehicle age spectrum, and our ability to procure the right scarce vehicles remain the catalyst for future success and growth of Lithia and driveway.
And the quarter, our average used units per rooftop was 96 units of strong push towards our goal of 100 units per rooftop that we raised in 2020, we.
We had 21000 new vehicle units of 23 day supply and 36000 used vehicle unit of <unk> 58 day supply as a reminder, these amounts do not include and transit units.
Our success and procuring used vehicle inventory allows us to offer customers a wide spectrum of vehicles and mitigate potential sales leakage due to a tight new vehicle supply are 900 used vehicle procurement specialists have been working diligently to enable us to navigate the current demand environment with their focused on procuring scarce high demand used vehicles.
Through the most profitable channels, our model gives us access to customer trade ins as well as first look at lease returns and service loners minimizing our reliance on auctions and other third party purchases and the second quarter on the of 14% of our used vehicles were acquired through the auction and over 50% of our inventory came from passive channels.
Only available to new car dealers new.
New and used vehicle sales are supported by our experienced financing specialists that help match the complexity of the consumer's financial position with lending options at over 180 financial institutions, including driveway financial and.
And the quarter, our finance and insurance business line continued to show substantial improvement averaging $1818 per retail unit compared to 1004 hundred $58 per unit in 2019 and increase of $360 million. While we are pleased with this progress we acknowledged at F&I remains an area of opportunity to expand.
And additional product offerings, and we remain focused on continuing to improve penetration of our protection products.
New and used vehicle sales create incremental profit opportunities through the resale of trade and vehicles greater manufacturer incentives F&I sales and future parts and service work and we continue to monitor this through the growth of our total gross profit per unit, which was $5778 this quarter and increase of $2118 per unit.
At our 58% over 2019.
Our stores remain focused on the highest margin business lines and service body and parts, which increased 3.4% and revenue and 11% and gross profit as consumers return to work and travel the roads and the comfort and safety of the vehicle. The recovery was driven by an 11% increase and customer pay and a 6% increase and wholesale parts.
<unk> by a 10% decrease and warranty and and 8% decrease and body shop revenue we.
We expect these trends to continue into the third quarter as the economy Reopens further as a reminder, our service by the end parts business see over 5 million paying consumers and brand impressions of annually, which generate over 50% margin and remain a huge competitive advantage for lithia and driveway.
Same store SG&A to gross profit was 56, 4% and the quarter and improvement of 1440 basis points over 2019.
While we expect SG&A to gross profit to normalize as new vehicle supply and gross margins bounce back to historical levels. We continue to benefit from the permanent head count reductions of 20% or almost 300 basis points of SG&A and other efficiency measures implemented last year.
Given these improvements to our model and the realization that our highest performing stores consistently maintain and SG&A and a gross profit metric and the mid fifties pre pandemic. We believe that we are well on our way to exceeding our 5 year plan and look to improve beyond our top quartile.
The opportunity to leverage our cost structure will further be enhanced as we maximize the utilization of our existing locations with our digital home solution driveway and continue to add incremental sales.
Turning to driveway. The recently launched features Bryan spoke to earlier provide consumers with a massive selection with upfront transparency that allows you to solve your financing needs quickly easily and independently.
And while financing is 1 of the most complex components of the vehicle buying process. The changes have already enabled us to see better qualified leads and increased transaction efficiency driveways financing solutions, which includes new vehicle leasing and captive OEM finance options now represent 29 lenders that are fully integrated with <unk> technology.
And our available to consumers with approvals at can occur in a matter of seconds with a variety of financing sources to match consumers needs. Our offerings are uniquely positioned and difficult to replicate and we also want to welcome our second driveway care Center in New Jersey with plans to add an additional care center location by the end of the year as we are.
Scale to supporting growing consumer demand, we anticipate expanding our driveway support teams 10 times by the end of 2022 to support expected demand.
During the quarter ladder Fintech arm driveway Finance Corporation originated over 500 loans per month, resulting in a 400% increase and business over 2020 at quarter end, our loan portfolio exceeded $370 million.
Our underwriting Decisioning and supported by driveway finance, all proprietary credit scoring model, which is supported by years of historical data, allowing us to offer the customer attractive rates and mitigating the risk of loss driveway finance allows us to synergistically retain more of the profit generated from our existing retail <unk>.
And as another example of the further diversity available to our business model.
We continue to see driveways fintech platform elevating the experience for consumers and our goal over the next 5 years is the scale of driveway finance to capture 20% of all vehicle sales transactions given the acceleration of acquisitions, we are expanding the base for driveway Finance corp to draw from and.
In summary, our teams remain humble and responsive to the changing environment and the opportunities available to continuously improve the evolving consumer demand and personal transportation, we are innovating and meeting consumers', increasing digital and in home expectations and are focused on meeting the preferences of our consumers wherever whenever and however, they desire.
Higher with the integration of several regional platforms that transitioned with strong operational leaders and customer focused teams, we remain humble and confident that we can continue to deliver industry, leading results, while pragmatically modernizing automotive retail and we're focused on our 5 year plan to achieve $50 billion and revenue and exceed.
The $50 of earnings per share with that I'd like to turn the call over to Gina.
Thank you Chris for the quarter, we generated over $492 million of adjusted EBITDA and increase of 284% compared to 2019 and $282 million of free cash flow defined as adjusted EBITDA plus stock based compensation less of the following items paid and cash interest.
Income taxes dividends and capital expenditures.
As a result, we ended the quarter with $2.6 billion and cash and available credit and.
In addition, our on finance real estate could provide additional liquidity of approximately $655 million for a combined nearly $3.3 billion of liquidity.
As of June 30, we had $4.3 billion outstanding and debt of which $1.3 billion with floor plan used vehicle and the service loaner financing. The remaining portion of our debt is primarily related to senior notes and finance real estate and we own over 85% of our physical network.
The current environment offers attractive returns on lending and to expand our reach last month, we increase at the financing available on our ABS warehouse line from $150 million to $300 million with the ability to expand the line to $400 million.
We expect to enter the avs term market late this year that along with the efficiencies that would be realized upon attaining an investment grade credit rating will further increase our returns on the driveway finance portfolio.
Our unique aspect of debt and our industry is the financing of vehicle inventory with floor plan debt. This financing is integral to our operations and collateralized by these assets the industry treats the associated interest expense and operating expense and EBITDA and excludes this debt from balance sheet leverage calculation.
Unadjusted, our total debt to EBITDA is overstated at 337 times adjusted to treat these items as an operating expenses, our net debt to adjusted EBITDA is 125 times.
As a reminder, our disciplined approach is to maintain leverage between 2 and 3 times as we continue to progress toward another sizable competitive cost advantage of achieving an investment grade credit rating.
Our capital allocation priorities for deployment of our annual free cash flows generated remains unchanged, we target at 65% and VACMAN and acquisitions, 25% internal investments, including capital expenditures modernization and diversification and 10% and shareholder return and the form of dividends and share repurchases.
Earlier this morning, we announced the 35 per share dividend related to our Q2 performance.
And with the capital raise completed we are well positioned for accelerated disciplined growth. We continued to make strong progress and modernizing and omnichannel consumer experience both in store and through driveline.
And with a robust balance sheet, we are well positioned to be the leader and consolidating this massive industry all while progressing towards our 5 year plan of achieving $50 billion and revenue and exceeding $50 and earnings per share.
This concludes our prepared remarks, we would now like to open the call for questions operator.
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Our first question today is coming from Rick Nelson of Stephens. Please go ahead.
Thanks.
Good morning.
And that's kind of other great quarter.
Rick.
And the carriers.
As of March towards the $50 billion.
Are you running into any.
Challenges at all with the Oems in terms of sales.
Approvals.
Rick This is Bryan.
We are not running into any challenges I think the.
The the pathway has been paved with them over the last couple of decades of.
Of really buying underperforming stores and really showing that that we can put the right people in place to be able to improve the performance at substantial levels and.
And Thats really helped with those relationships plus myself and Chris and our and our group leaders are actively involved with the relationship with those manufacturers and don't foresee that as and inhibition to achieving the 50.50 plan.
Okay.
Follow up.
The pricing environment kind of adequate.
Some of your peers are saying, it's really product.
At this data you are at.
Provided this morning.
The <unk> 7 times EBITDA.
More rational or not but I mean.
Commentary about price range and quite frankly a bit helpful.
Sure I think that there is some frothiness, there's no question, Rick but I think when you have of 15 plus billion dollar pipeline there is enough stuff the choose that.
That's appropriately price and most of that is all within that 3% to 7 times range.
And it's surprising that with capital gains and increases looming.
The number of acquisitions out there just continues to grow and we're really sitting there at about 120 day window the deals have to be complete.
Completed for them to occur during this calendar year, so that's helping.
Helping maintain pricing at some level of of reasonableness and other.
I think as we think about our growth strategies, it's really about the network and ensuring that the density of the network like the Mississippi deal and a few others that we've got working and the southeast are filled in and allows us the ability to be able to service our customers throughout the entire.
Lifecycle of their ownership experience.
Great.
Thanks for the commentary and good luck.
Thanks, Rick.
Thank you. Our next question is coming from Rajat Gupta of Jpmorgan. Please go ahead.
Hi, good morning, Thanks for taking the questions then.
And we're pretty strong quarter.
And I wanted to start with the question on the SG&A.
Could you give us a sense of the number of employees at.
The company today.
Based on like the say recent acquisitions.
Yes. Good morning. This is Chris So currently were running around 20000 employees and the network.
And.
Yes.
Got Roger Let me also add debt, we had permanently reduced head count by 20% of <unk>.
The last March and April and those.
And that I think it was about 2800 people at that time are still are permanent.
Which is about a 300 point.
The reduction in overall SG&A cost okay. Most of the increases that are just coming from buying the new businesses, we have acquired $8 billion and revenue over the last 12 months or so which is really where those that overall increases happen, but at the disciplined in terms of cost management and the head count is still quite high and the productivity.
<unk>.
<unk> continues to grow.
Got it yes, yes, and the reason I was asking the number is and it looks like versus <unk> 19 levels.
I believe you are at around 14000 employees. So it looks like Youre employee head count is up roughly 30% 35%.
And you combine the units have grown 65% since 2019 so.
Is that kind of productivity level sustainable going forward.
And do you think you need more people at the store just from the customer experience standpoint.
And just curious and like how we should think about sustainability of this of this kind of productivity.
Yes, so we actually we added some things to slide 16, which is at.
Our network costs, which includes those people, okay, we really believe that technology as well as.
The consumer spending more time on working through their transactions on their own is going to be able to continue to increase productivity levels on a finite basis pre COVID-19. We were at about 15000 employees and we dropped at.
Around 99000, if you remember of which half of that 6000 drop was <unk>.
Furloughs, Okay and those are all back now the other 3000 is what's permanent so on and if youre using of 14000 base, Okay that would be probably relative to about 11..5 is is the net employee count.
And.
On a same store basis at that level. So.
When we think about our ability to constructively drive down SG&A. We don't know how low is low I mean, what we know is at the top quartile of our stores perform at a sub 55% level and a pre COVID-19 environment and and our operating about 1000 basis points below that.
So, let's say of mid 40 percentile range. What we know is our network is quite optimized and the has a lot of good businesses at all should be able to perform at that and we really haven't started to really constructively changed the economics in terms of how do we manage the ultimate business, but we believe and.
And we're up for the challenge to be able to drive down SGA and a and a massive amount and really D link that idea of $1 billion and revenue produces $1 of EPS. We hope it can produce a $1.20 or or more and.
The drive ways of lot of that ability to gain that leverage because we've never really sat here with the national brand and had the advantages of of scale and leveraging that inventory and that infrastructure debt that we've built.
Got it got it that's helpful.
A question on driveway as well.
Can you give us a sense of you based on the regions that you launched at platform.
Many of the stores are opting in.
On the driveway and and then Relatedly how are the in person store sales force and.
And then devised and this on driveway is it based on procurement or Joe nowhere et cetera.
Just curious if you can share any thoughts on that thanks.
Sure. So we have 95% of the traditional Lithia network that's participating.
And driveway.
We we also when we think about what the stores participation is it is a non customer facing.
Role other than the last mile delivery, that's completed by a non negotiating valet, which makes up about 2 thirds of our employee base.
But it's typically that the store is doing some level of of.
Paperwork and Theyre doing reconditioning, they're procuring inventory.
And really they're doing behind the scenes VC step for for for purchasing of vehicle. So we keep it pretty straightforward that the stores continue to sell cars under their traditional model, we do share best practices and hopefully over time, they are able to take some of the.
The cost out of their traditional model, but ultimately today, we're asking them the continue to sell and service cars the way that they traditionally do now there are also beginning the behaviorally shift into.
In home service and we have a little over half of our stores that are performing in home service for their traditional customers, but remember at Lithia and driveway. Most of all of our service experiences are 1 price of those are very transferable into the driveway experience as well.
As our sales experiences have some level of negotiation, and obviously and todays hyper and inflated demand environment.
There is probably a little less negotiation and then normally occurs and the network.
Got it alright, great.
That's helpful. Thanks for all of the color and good luck.
Thanks Roger.
Thank you. Our next question is coming from Bryan Mcdonald of Craig Hallum. Please go ahead.
Good morning, Congrats on the another quarter of great results and progress.
Hey, Bryan.
I am curious of couple of questions on driveway. So you mentioned 550 transactions and June I'm curious how that compares to April and May 1st.
So those volumes.
Increased month over month by about 15%.
Gotcha, and then you mentioned, 5% of dealers not participating at this time on drive way I guess is your expectation that eventually they will and then what is stopping those dealers from.
Coming on.
It's a small amount and the main reason at stopping them is the ability to to breakdown price into a rebate and a <unk>.
Accessory level, so it's more about legalities and certain states.
And as to why they don't participate there is a little bit of a propensity for people to be a little territorial and inventory right now when we sit at at.
<unk> 3 day supply of new with we do have another 20 days of in transit. So for a total of about 43 days on new and we are sitting at 58 day supply on used which is quite nice, but still there is some stores that have tendencies to 1 of service their local consumers and non.
<unk>.
At the current time because of that debt that tighter inventory supply.
Participate and driveway, but it's a small amount of about.
What are maybe about 10 to 15 stores today.
And then on the auto approval for financing.
It was down from 20% to 15% quarter over quarter, that's just normal variability.
The numbers or have you recalibrated the algorithms to effectively auto approve les.
And.
No. The algorithms are working the same we also have.
The diagnostic AI now Thats, helping guide consumers. It's really just the makeup of our consumer doesn't allow them to get auto approved and that's where the care centers are having to be.
Built at faster level than we expected because it does take constructive time to guide consumers through the process and help them understand their cash.
Requirements of this equity situations and their credit.
Their credit needs.
Fantastic ill turn it over to others and nice job guys. Good luck.
Thanks Bryan.
Thank you. Our next question is coming from John Murphy of Bank of America. Please go ahead.
Good morning, guys I have about 50 questions, but im going to.
The 101, 1 bucket, so I'll try to be efficient and I apologize, so again and the change.
And.
And the transformation of the company here.
A couple of things that just seemed a little interesting and I just wonder if you could clarify and comment on the first you mentioned that you could do equity for a transformative acquisition and also mentioned that you were considering English speaking countries. So both of those can mean a lot. So I just wonder if you could maybe give us a little bit of clarity on that.
Also on the on the captive didn't Joe Youre up to $370 million.
On the books right now I'm just curious.
As you build driveway financial and and go out to the ABS market.
What size deals, we should be thinking of of when that will come and then also.
On the 500 transactions that were done on driveway.
It sounds like that's ramping quickly. So I mean, it's a small number now but that will get much bigger over time, but just curious the interaction other than full transactions getting executed on driveway and do you have any other metrics on how much consumers of working down the purchase funnel.
And then maybe coming into the showroom or interacting with age and associate and actually get the deal done and so those 3 transformative comments or data points you gave us on the call.
Can you clarify questions John hopefully hopefully I can remember all 4 okay.
First and foremost the equity that we raised and the last 2 offerings.
And it takes us.
Up substantially to about $1 billion and 5 in total cash flows as a company that billion 5 once the capital is deployed over the next 2 to 4 quarters gives us the ability to really grow at about a 7% to $8 billion annual clip without adding leverage to the balance sheet. So that can get us.
Somewhere in the 2025% level, which should cover everything other than a transformative acquisition that would require us to maintain leverage at below 3 times, Okay, and I think thats why we kind of note that even though the likelihood of that is obviously still low.
The English speaking countries comment I mean really we're talking about.
And this is the order of priority, Canada is our number 1 target. We've spent the last 5 years getting to know the dealer body there.
And have pretty good relationships with most of the large groups and.
Believe that something is imminent.
And that country, if it comes to the U K or Australia.
Those are a little less.
The less relevant at today's date those are probably 2 to 4.5 years out kind of where Canada was a few years ago. So nothing urgent and we really look at Canada as an extension of the United States at has similar.
And it has similar economic backgrounds at has similar.
The governmental regulation and so on so we feel very comfortable and that.
Chris do you want to quickly talk about the the captive and what our time frame looks like on the ABS and the scale of that Yeah, you bet, Brian So as far as our driveway finance team and we're really.
Proud of the job that theyre doing being up over 400% year over year and originations at 4400 and the quarter.
And ultimately when we started this strategy the goal was to get 20% of our finance business and as we continue to ramp up.
Our acquisitions and our partnerships with new teams, obviously that pool of business continues to grow as far as the ABS market is concerned I think of lot of it is going to be dependent on the capital of that.
We generate and the capital we deploy and other means but were anticipating something around Q4 of this year that we would do our first ABS launch.
John 1 other quick thing on that would be that we expect it to be and the $400 million range. Okay. As the first tranche.
It's quite good credit, it's a little higher than what we expected so stay tuned on that.
But that should grow momentum 1 other quick comment as our base case on the $50.50 plan.
The only assumed at $12 billion.
Base of business, that's being generated and contributing to the 50.50 plan. When the 50.50 plan ultimately is about 4 times larger than that so again, that's the way to constructively.
Separate that EPS from revenue and be able to bring more money to the bottom line.
The the last thing that you had asked about was the ramp up of the driveway business and the 550 units.
It is important to remember at that level of volume.
And is nearly 2 to 3 times, what our E. Commerce used only competitors were at and their 6 months of business. So we are trending at a much better rate at is ramping up at an accelerated pace and as Chris mentioned.
A lot of this now is really behind the scenes. It's care center involvement where now we just opened and in South Amboy, South Jersey, Our second care center, even though it would seem like you'd only need 1 or 2 we believe that the care centers need to compete because its young for us and it's new to us that we want.
Those care centers competing and then eventually we'll be opening of Mega care Center in Texas, which is of good is the central time zone and it has lots of staffing ability and should be able to take us.
Words of those targets that Chris at outlined per year and then.
And in 12 months following that.
It's an exciting time and drive way and I think our early learnings are the consumers are willing to transact without viewing the vehicle, Okay, which is quite nice we are.
Selling a lot more used cars so are used and new ratio is around.
Around 5.5 to 1 whereas at Lithia its 1 to 1 approximately and that was expected.
But we believe that at our technology by year end becomes better at the auto approval process, meaning that consumers are able to take it even another step further where we're actually of proving the actual credit and there is not a predictive indicator, where it's actually doing at all 4 of them, which.
As will be the first and the industry to be able to crack that code. So hopefully that gives you enough color on the on the few questions John John and any follow ups on that.
Just the as far as the interaction no I mean, it just seems like there's a lot more going on and just the 500.550 that you mentioned are there any other metrics of 90% of your consumers are starting and driveway and then you fulfill them via your omnichannel or physical stores.
Or associates and I, just trying to understand how many do.
And how many of your customers are starting and driveway and then ultimately flow into your lap and.
And other and yes, so fully transacting.
John There is zero.
And.
Intermissions or intermittent between channels. There is no relationship at all so there is no mechanisms and the care center to send it back to the store at stays within drive way of the entire life of that customer.
We're very fortunate debt and our first 6 months of our Q2 data we were 97, 5%.
Of customers and drive way, we're entirely new to Lithia and driveway. So it's an important part of the design and and important delineation between any of the competition that there is no overlap between the channels, it's an entirely independent.
Experience for the consumers that's negotiation free and that is the cost of of our ability to get to a 4 point 98, Yahoo, and Google rating, which.
That experience has to be peer and it makes it much easier to be able to do that we are we are delivering cars at of <unk>.
What further radio so if you remember last quarter, we were at 740 miles or so we're at 930 mile. So I think with scarcity of vehicles, there's definitely consumers that are more apt to turn to the internet defined inventory just because there is just the massive shortage and that increased the average logistics.
Cost of the consumer from about $4.40 to a little over $550.
And for their actual out of pocket on that.
Great. Thank you very much guys.
John.
Thank you. Our next question is coming from Adam Jonas of Morgan Stanley. Please go ahead.
And everybody really great information and very very exciting times for you.
So Bryan.
Lot of investors are asking us.
Seemingly daily win would driveway b at a condition, where it can be spun off separated financially.
And for evaluation and appraisal by the capital markets and I realize that the means seemly premature question given share it at 500 and said you mean.
But but how do you respond to that kind of question because it is yes. There may be some merit to this sort of at a time and a place or not but just would love to love to hear how you think about it and what your message would be on that level of financial independence, and what what it needs to happen between now and then if we get there and then I have a follow up.
Sure. Adam This is Bryan again, I think at 550 transactions per month, we are about the size of what 2 of the 3 publics where when they went public.
So there is the ability to do that and I think that's important to keep in mind, but I would also reiterate that the model was built in a way that the 2 channels and highly support each other and there are many believe that the 3 e-commerce retailers do not.
And have infrastructure, it's important to note on page 16 that their infrastructure costs today are about the same of what lithia and driveways are so the idea of bifurcated that I believe that it could be done, but I don't believe that at unnecessary thing.
I think Lithia Motors and drive way has proven that it has the ability to execute that it has developed a plan that's much different and is very difficult to replicate for anyone else coming into the space. It's important to remember that the competitive advantages of being a new car dealer or hyper important to the overall model of the <unk>.
Things and that I think over time, the world will see that infrastructure is important and at the traditional business has the ability to recondition and closer to consumers or new cars generate trade ins that other independent used car dealers will never be able to get giving us a massive cost advantage.
<unk>.
And there's other benefits that I think over time I think the 2 organizations behaved best together now we have built everything so it could be bifurcated in the event that we're not able to see separation and values of our stock value.
And we'll take that as you know as the time dictates and as our valuations.
Really.
And.
I appreciate that answer.
Ryan just a quick follow up when you mentioned transformative.
And the acquisition and I think you said low probability and that's totally fair or are we thinking of horizontal like another dealer group, which I think is how.
And the people interpreted your comments when you said something similar a quarter or 2 ago or code of transfer transformative acquisition be something non horizontal non dealer group, but but at filling and an important technological or infrastructure capability.
Great Great question, Adam I believe that it would be something within the current realm, which would be a net other new car dealer, where you're adding physical network and the ability to service the entire customers lifecycle.
I would also say that Lithia motors and drive way is the fairly conservative company that had the stretch to be able to think about it's driveway strategies 3 to 5 years ago and redesigned how we approach that and it's important to remember that those 300.
<unk> are of additional SG&A costs today, and we've built that to be able to scale to nearly 300000 units over the remaining 4 years of our 5 year plan. So we have plenty of of what I would call headroom to be able to grow and most importantly lever.
<unk> the infrastructure to be able to constructively drive down SG&A. So any type of of transformative acquisition with the most likely be and our wheelhouse. We think that we've built what we need to build to constructively and meaningfully aggregate this unconsolidated space and as such.
As you know the.
The we like where we really sit and don't believe that there's anything that needs to be added materially to be able to execute on the 50.50 plan or beyond.
Thanks Bryan.
Thanks, Adam appreciate it.
Thank you. Our next question is coming from Nick Jones of Citi. Please go ahead.
Okay.
Great. Thanks for taking the questions.
2 for me I guess first.
And you are pacing ahead of.
Youre pacing nicely against the 5 year plan.
A year and I guess, how are you thinking about maybe updating the plan either shortening at or increasing the numbers of what the targets are and I don't know if its still too early but given kind of of the progress just curious and how youre thinking about that.
The second question is nation.
Nationwide advertising back.
Back half of next year.
How should we think about that in terms of the impact on margin and do we expect the tick up and then I guess, what kind of population coverage are you expecting.
When you launched at the 50.
And 55% and you're expecting maybe something closer to 70 of our higher just how should we think about the nationwide launch. Thanks.
Sure and.
And Nick you're correct. We are ahead of the 5 year plan, what we tried to do on this call was to help you understand that.
We've always sat at 1 dollar of EPS is generated from $1 billion of revenue and we laid out those 6 items that can constructively disconnect that formula or that ratio to be able to do that so I would say that our next update will be about.
How do we turn $50.1 billion of revenue into something greater than $50 and EPS and I know when we first designed the strategy a few years ago. It was really easy to have that 1 to 1 ratio and today.
Today now that we see the synergies and adjacencies that are occurring and the ability to leverage and national brand and driveway, that's going to be pretty easy to be able to adjust that I think that's an easier part of the formula and saying that the network should grow bigger than $50 billion.
Even though at very likely will need to or can especially when you start to look at areas.
Internationally to be able to do that now in terms of part 2 of the question, which is the nationwide advertising. What you will see is at Lithia Motors and drive way will constructively manage marketing budget. According to the Golden ratio and according to what.
Of our lead costs are to do what's best for the long term health of the organization, while still building and E. Commerce President that is competitive and is well aware of any of the competitors that may be out there. So I would say that when we move.
The national marketing that should look like.
At different metric at inception, which is basically seasoning those markets to be able to improve the golden ratio, whereas today, we sit at 0.05 Golden ratio at about 350000 leads a month okay.
Our unique visitors.
Whereas at National presence, it's 10 fold of that which obviously has implications in terms of the overall business model.
Whereas those initial 8 markets will most likely be end of the $2 per lead and instead of 4 to $6 of lead like leads cost when we first moved into a marketplace. So in the 50.50 plan for driveway, we have $1000 built in 2 year 5.
And for marketing, which is basically a point to golden ratio or about.
Point of 5 lower than what our peer group is doing and e-commerce and they run at about 2.5%. So we're pretty conservative there that means you need about <unk>.
500 leads for every 1 sale, okay and at $2 a unique visitor youre talking about of $1000 that thousand dollars and marketing cost. We believe ultimately can be much lower than that over time, the other $1000 and the SG&A cost is.
Is really built up personnel expenses and then there is a small incremental amount on network for the care centers and the innovation hub, but that gets you to around 57% SG&A as a percentage of gross okay, but again, we think that type of conservative relative to the numbers that we're.
Actively working towards on and aspirational basis.
Great. Thank you.
Thanks, Nick.
Our next question is coming from Chris spoke theory of ex.
<unk> BNP Paribas. Please go ahead.
Hey, good morning, everybody and it's taking the questions.
So yes, it's the first off I agree with you the like I would net.
Break these 2 business is up with the dry away just given the sourcing and infrastructure of vintages, but I guess my question to you would be why not do the opposite and <unk>.
Bring them closer together and it seems like E. Commerce businesses are more of at scale network effects and customer acquisition. The lithia businesses, 1 of the largest dealership networks and the country 1 net leverage at scale.
And at the space and it really early learnings from from driveway today like have you.
And you got to think about this longer term and the benefits of bringing the 2 together.
Yes, Chris that's a great that's of great insight and I think when we think about the idea of the channels, becoming similar I think.
When we began the behavioral transformation of the organization.
Couple of years ago, and began to talk about incentivizing the existing network for 4 of those that procure the inventory get the profit.
That was instrumental and gaining the buy and from them and I believe over time, the best practices will be shared by the different channels and the stores may make the decision to be able to transition.
Think constructively to be able to drive down SG&A at may have to be.
Done in a way that you are motivating the stores that do it much like we do with the profitability from driveway.
I also know that the existing model is highly profitable at has massive advantages in terms of finance ability in terms of face to face presence with the consumer that keep those channels independent because we always say that we are.
Going to provide solutions to consumers, when where and how they choose and there is a large portion of the consuming public and.
Debt today.
The ideas of negotiation they like the idea of face to face test drives and the idea and they need help with finance ability. So I think we'll know if theres, a right time and place, but I think today there is no constructive plan to bring those together.
And even though the constructive plan is provide multiple solutions to consumers and drive down SG&A costs as low as we can possibly get to and I think some of that idea of combination of the channels will occur over time, we also most likely will.
And modify some of the new car network with driveway brand names over the coming quarters and years.
And that may be an easier way to gain the scale and leverage the national brand across new car franchises as well with those manufacturers that allow the branding of driveway, which is about 75% of the manufacturers.
Got you, Okay, and then just quick follow up.
Obviously, 1 of the plans is to make the the store dealership network more efficient it seems like.
And it seems like the driveway websites.
Getting a lot better and more technology, leading to route efficiency, how challenging of the exercise would it be to take that driveway infrastructure from the website and kind of create a homogenized like standardized website for your local dealerships and other to keep the same brain and we have today, but it doesn't even technologically feasible to create like a camera the camera.
Common architecture, that's creates more of the process on lines of the local dealerships or how do you think about that over and that's the accurate Chris I mean, we designed it. So it's transferable I think when you think about the proprietary technology of driveway at does wrap around 2 things 1 is a transfer.
Apparent buying process that is negotiation free and then secondarily is the in home convenience of having that delivery model, but we do have on the roadmap.
The ability to apply the proprietary technology to the local.
Brands, but that will start with the stores that have similar buying practices, which today, we have probably a half a dozen stores is at about right. Chris Yes, it's exactly that debt that are really of 1 price or low haggle type of model and do a lot of their business and home and then.
Also on the road map is really powering up green cars, Okay, which is a.
And neither affinity brand that now.
And now makes up about I think it was about 5.8% of our total volume is made up of a sustainable vehicle as the company so on the.
The West Greene cars are quite important and.
Of our states out of here are a little bit more electrified and.
That's a big part of it of wells. So that is all roadmap and the design and add stores processes become more similar to drive way if they choose to do that then the technology can be ramped up and obviously.
Replicated in those environments, we can replicate the process, even and a and a negotiated type of environment where at consumer.
Can actually complete end to end to end transaction and it just means at the datasets have to allow for some input when price isn't typically determined by the consumer it's a little tricky to do it but in a and a.
The consultative environment, where consumers are coming in to the stores, it's easy for and associate to be able to work through with the consumer and negotiated price and input that variation and pricing.
Got you very helpful. Thank you.
Thank you.
Accuse me of our next question is coming from Bret Jordan of Jefferies. Please go ahead.
Hey, good morning, guys.
On the right Brett.
As you look at the inventory and used so you've got 20 days and transit could you talk about the cadence of the in transit or you're seeing supply coming back at all and maybe if you could give us a feeling for when youll see the low watermark and new vehicle inventory.
Yes, Bryan good morning, it's Chris and the clarity and all of that is not perfect. Because every OEM has a different allocation method for giving you kind of what that and transit number it looks like.
But generally speaking we expect inventories to continue to normalize throughout the back half of 2021 and and the first part of 2022.
As far as the low watermark of concern I mean by indications of what we're getting and what we're seeing and allocations I think July and August should be the low watermark and we should see improvement after that just based on the increasing allocations that were seeing and certain Oems already.
As far as like specifics of our concern the.
The leanest inventory that we're running right now is with Toyota.
Toyota Subaru and general Motors, but all indications from them seem to be seem to make us believe that we're going to see improvement and those allocations over the next couple of months.
Okay, and I guess, the recent move of Oes source of Coes to restrict lease returns 2 franchised same brand dealerships is that of is that a real positive or were not of lot of vehicles going back to say used only or outside brand dealerships.
Yes, I think that the idea of round it makes sense and I think there is going to be some lift if you have of lease return at a typical OEM, but typically the.
And the home Oems or the home brand of the home store is the 1 that's actually taking first shot at those vehicles anyway, so while there might be some incremental lift and it should support.
Some off lease vehicles going too.
And our existing stores.
I don't think its going to be that meaningful for us to really comment on today.
And then 1 last question on supply I guess as you've seen a lot of M&A activity.
Activity or are you in your in your pipeline you must have some visibility as to broader day sales and inventory out there.
Would you say the smaller dealerships are materially different inventory levels than some of the public dealer groups, we see numbers on.
Brett This is Bryan when we look at the businesses that we're buying we're not seeing major differences and inventories I would say if anything it may be.
The more geographically dispersed because you still have to remember that the pandemic is still about 60 days out of the box and in the Western States that were a little slower to reopen.
Their inventory is probably look a little better than the Texas and Florida that went off while 4 to 6 months ago. So I would say that's probably more of the December dissimilarities and we do sit at that 23 day supply, which is quite nice and have that in transit that should all look good and.
And obviously with 58 days supply and used we sit quite nicely.
Going into end of Q3 and into Q4 and I will say this that the.
This is as much of a demand driven environment that it is a supply our chip driven shortage, okay, and obviously now with the child credits that are that just started and are going to carry through the end of the year. We see no reason why demand shouldn't be strong and obviously the manufacturers are scrambling from other parts of the world debt.
Higher COVID-19 numbers and are able to pull some units, but like Chris said I think we've seen the seen the the worst of things and should be able to offset any any differentiation in new cars with with used car sales.
Great. Thank you.
You bet Brett.
Thank you. Our next question is coming from the Winston of Morningstar. Please go ahead.
Thanks, Good morning.
On Slide 15, you are talking about the average.
FICO score for driveway customer being lower than the typical lithia customer and and I'm just curious how much of that FICO differences, because driveways and much more heavily used vehicles versus.
Drivers of getting a totally different customer.
It's possible the slice of that.
Sure David.
This is Bryan we are our average driveway FICO score.
Is 670 <unk>.
Score and at Lithia at 7%.
The 17, so it is a little bit different I actually what our original findings are and this was part of the original thesis is we believe.
That 1 of the major groups of consumers and E. Commerce is people looking for finance ability. So I think theres been a lot of pain felt by consumers over the last number of decades on their finance ability and I think that it's easier for a consumer to turn to.
The transparent online experience and not have to deal with the battering from traditional dealers in terms of their credit, which I think drives that more than anything because remember the online inventory is about matched for lithia and drive way there is no material difference.
Okay. So it is something more about who the consumer is rather than what the inventory is.
We do sit.
We are selling a lot more used cars the new cars, even though the new car inventory is online.
But that's really.
A function of the finance ability of the consumer debt I think is really out there lithia is financing about 66% of its sales, whereas driveways at about 73%. So I think that lower credit as more of a behavior of people don't want of half 2.
The uncover difficult circumstances that they may have had that caused the the credit impairment okay.
And this is an easier way to deal with it and I think our care centers are highly acutely aware of that and spend that time consulting and helping people feel comfortable in the driveway environment.
Yes.
That's helpful. Thank you and then on the.
On the auto world after the chip shortage and I'd like to get your opinion on.
Where should inventory go in terms of that old benchmark of 60 days of GM and Ford of committed to being a lot less.
And doing a lot with inventory at once the dissolved resolved and then some of it related to that is do you want to see the American honors. We go back to a much more build to order model and it was a long time ago or do you at the current setup.
Yeah.
I think that if the industry could move to a built to order much like Western Europe, where it has higher.
Real estate cost.
And then it would be very beneficial to the overall model.
Find it difficult to believe that competitive manufacturers, though are going to build the correct number of cars and of always.
Traditionally overproduced, even though we'll hope that they're able to do that I find it hard to believe that that will occur and I believe that new car inventories of 60 to 70 day supply is probably pretty typical and those manufacturers that are pretty savvy on inventory and always have been like.
Most of the Japanese imports.
<unk> will continue to be and the 30 to 45 day supply like we normally realizing more of a build to order model or a little bit less complex.
Buildable orders and then what the domestic manufacturers that really have a broader product array with many more options when it comes to the pickups and Suvs.
So related to that though what's your opinion on the American consumer and the patient and not to do build the order or are they going to want the out of that vehicle and a lot when they go to the store and 1 of the website.
Well I think that Theres, a big way between.
Between the $60.70 day supply and a zero day supply at even at 23 day supply consumers are willing or able to get immediate gratification and I think that'll be for the consumers to decide and my looking for and exclusive built car that specifically me or am I.
And.
At where I'm willing to wait or am I going to take something that's on the lot and I think thats to each of their own to make that decision, but I do believe you're right. David that there is there is an immediate gratification and this idea that youre going to have 100 cars to choose from that are all quite similar that Amir.
It can seem to like but we'll have the balance that and I think the consumers will ultimately determine that by not buying cars on the lot that our run of the mill and rather get.
That additional.
And the individuality that maybe they're looking for which you know maybe.
And maybe some consumers, but I think it's difficult to speak to that and generalities.
Okay. Thank you.
Thanks, David.
Thank you this brings us at the end of our question and answer session I would like to turn the floor back over to Mr. <unk> for closing comments.
And as Donna Thanks, everyone for joining us today and look forward to updating you on our Lithia and driveway third quarter results in October and bye bye.
Ladies and gentlemen, thank you for your participation and interest and Lithia.
This does conclude todays event you may disconnect your lines of log off the webcast at the time and have a wonderful day.
And then.
And.
And.