Q2 2021 AutoNation Inc Earnings Call
Good morning, My name of Chelan, and there'll be a conference operator today at this time I would like to welcome everyone to the Autonation and second quarter 2021 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.
And if you would like to ask a question. During this time simply press star followed by the number 1 on your telephone keypad. If he would like to withdraw your question price of the pound key.
And I'd like to 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 second quarter 2021 conference call and webcast. Please ensure that your lines of muted until the operator announcements of returned to ask a question.
Leading our call today will be Mike Jackson, our Chief Executive Officer, and Joe Lower Chief Financial Officer.
Following their remarks, we will open up the call for questions and I'll be available by phone and following the call to address any additional questions that you may have.
Before we begin let me read our brief statement regarding forward looking comments.
Certain statements and information on this call, including any statements regarding our anticipated financial results and objectives constitute forward looking statements within the meaning of the federal Private Securities Litigation Reform Act of the 1995.
Such forward looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward looking statements.
The 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, Mike Jackson.
Good morning, and thank you for joining us.
Today, we reported all time record quarterly results with adjusted earnings per share from continuing operations of $4.83.
And increase of 243 per cent compared to last year.
This marks autonation and fifth consecutive all time record quarter, the stellar performances across all of our business sectors.
Our second quarter of same store revenue was and industry, leading record 7 billion, which was up 54 per cent compared to the same period, a year ago and up 33 per cent compared to 2019.
The COVID-19 pandemic caused the dramatic shifts in consumer spending priorities and wouldn't pick at homes and the safety and convenience of personal transportation.
And bind with low interest rates. The strong vehicle demand has led to faster inventory turnover and consumers are buying vehicles before the ease and arrive at our stores.
We expect the current environment of demand exceeding supply and continue into 2022.
New vehicle shipments for the quarter were up 100% compared to last year and only down 6.6 per cent compared to 2019.
With demand outpacing supply.
The manufacturers are unable to increase their available inventory and with the limited supply of new vehicles. Many consumers are asking for pre owned vehicles.
With consumer demand and high for personal transportation, we're aggressively moved the increase our availability of pre owned vehicles.
Almost 90% of our pre owned vehicles retail on the second quarter, we're self sourced self sourcing as a core capability and a competitive advantage for autonation.
Our proven acquisition strategy successful, we'll buy your car program digital tools and operational execution allow us to source attractive inventory drive used vehicles years and deliver a peerless customer experience on.
And the nation same store pre owned units were up 37% year over year and up 32% compared to 2019.
Continued strength of our pre owned business was also evident and the success and profitability of our 6 Autonation USA stores.
We opened the Autonation USA San Antonio in May.
The store exceeded expectations and the store was profitable on its first full month of operation we were on.
On track the opening of 4 additional stores and the second second half of this year.
Turning to capital allocation.
From January 1st of July 15th, we repurchased 15 per cent of our shares outstanding and remain committed to opportunistic capital allocation and delivering value to our shareholders and.
I'll now turn the call over to Joe <unk>, Our Chief Executive Chief Financial Officer.
Thank you, Mike and good morning, everyone.
Today, we reported adjusted net income from continuing operations of $385 million for.
For $4.83 per share versus 124 million for.
For $1.41 per share during the second quarter of 2020.
This represents at all time high quarterly EPS, and a 243% increase year over year.
While year over year comparisons benefit from lapping the early stages of the COVID-19 pandemic last year. We've also demonstrated impressive growth compared to a more normal operating environment and the second quarter of 2019.
Mike stated second quarter revenue for 2020, 1 was $7 billion on a same store basis revenue increased $2.5 billion or 54%.
And increased 1.7 billion or 33% compared to the second quarter of 2019, driven by growth and both variable and fixed operations.
The current environment of demand exceeding supply continues to support strong vehicle sales and margins.
For the quarter same store variable gross profit increased 85% year over year, driven by an increase in total combined the units of <unk> 39 per se.
And an increase in total variable P b R of $1354 or 32%.
Further highlighting our impressive performance our same store total combined units increased 21% compared to the second quarter of 2019 with growth and new units of 12% and growth and used units of 32%.
Our customer care business continues to improve.
The same store customer care gross profit, increasing 41% on a year over year basis.
And 8% compared to the second quarter of 2019.
Taken together, our same store gross profit increased 68% compared to the prior year and 52% compared to the second quarter of 2019.
Moving to cost second quarter SG&A as a percentage of gross profit was 656, 5%.
1170 basis point improvement compared to the year ago period on an adjusted basis.
Our strong performance continues to be driven by strict cost discipline.
Leverage of our digital capabilities and robust vehicle margins.
As measured against gross profit on an adjusted basis overhead decreased 760 basis points compensation decreased 380 basis points and advertising decreased 30 basis points on a year over year basis.
Floorplan interest expense decreased to $7 million and the second quarter of 2021, due primarily to lower average floor plan balances.
This combined with lower non vehicle interest expense.
Our lower effective tax rate and fewer shares outstanding generated record adjusted EPS.
Turning to the balance sheet and liquidity, our cash balance at quarter end was $60 million, which combined with our additional borrowing capacity resulted in total liquidity of approximately $1.6 billion.
We continue to deploy capital to grow our business and draw and drive long term shareholder returns.
During the second quarter, we opened our sixth Autonation, USA store and San Antonio and Texas.
As Mike mentioned, our newest store reach profitability and its first 4 months of operations.
And on track to open for additional stores on the second half of 2021.
And 12, more and 2022 <unk>.
Longer term, we continue to target over 130 stores by the end of 2020.6.
Year to date through July 15th, we repurchased $12.9 million shares for an aggregate purchase price of $1.2 billion completing our prior authorization.
Today, we announced at our board has authorized an additional $1 billion for share repurchase.
As of July 15th there were approximately 70 to 72 million shares outstanding.
Despite the significant investments at our business and volume of share repurchase our covenant leverage ratio of debt to EBITDA declined to 1.2 times at the end of the second quarter.
Down from 1.3 times at the end of the first quarter based upon strong operating performance and cash flow generation Inc.
Including cash and used floor plan availability, our net leverage ratio was 1.1 times at the end of June.
Looking ahead, we will continue to leverage our strong balance sheet and robust cash flow to invest and Autonation USA expansion.
As well as opportunistic acquisitions and share repurchases.
With that I will turn the call back over to Michael Thank you Joe.
We continue to demonstrate strong performance and the second quarter. Looking ahead, we remain committed to driving value through solid execution with industry, leading digital capabilities and continuing to deliver an exceptional experience for our customers.
I'm wondering and remains an industry leader and customer satisfaction with over 500005 star reviews. According to reputation.
Autonation and the only automotive retailer to achieve this.
Outstanding job by all of our 21000 Autonation associates with that.
We'll now take your questions.
As a reminder, direct the question. Please press star 1 on your telephone keypad.
We'll pause for just a moment to go for all the Q&A roster.
Your first question comes from the line of Rich Nielsen from Stephens.
Current.
Kurt.
And congratulations.
Right quite true.
Ask you about for inventory.
The timing at Ford.
The team day supply.
And you are more profitable and then you remember ever been.
And I guess, where do you see our day supply.
And from here what the.
And your current terms the optimal level of them from.
The supply of kind of ex my hopes are proud of.
And when do you think things normalize.
Yeah. This is Mike.
And I assume youre, referring to new vehicles on pre owned first.
And you know a year ago, we moved very aggressive and we're very bullish on pre owned.
And all of that.
Culminated and our ability to increase pre owned revenue during the second quarter.
65% of it just a remarkable achievement.
On the new vehicle side first of all have to tip my hat for the manufacturers and they've done an incredible job to the restart the global supply chain shipments.
Shipments for us and the second quarter were up 100% compared to a year ago and were only 6% down for.
2019, obviously, the chip shortage continues the <unk>.
Manufacturers had.
And in a very enlightened about how to meet the challenges of this.
Really admire the way that they are producing with the.
And using the chips that they do have the produce vehicles that consumers want to buy.
And in some cases, we'll produce vehicles and leads out of certain features.
And to keep the supply coming and and other cases day has produced the vehicles and are awaiting the arrival of chips just the plug them in and then they can shift but the.
Headline is at the demand is far higher than supply and I think that continues well into next year.
And I really don't know if.
If we'll obviously of crossover point of activity.
And push system. There is at very healthy discussion going on within the industry of the.
And.
Shortcomings and of the push system and that while the current situation is extreme no doubt about it.
Maybe the.
Best path is somewhere in between.
Youre, not even going to get to the bulk of that and that road until sometime into next year.
Go for it was.
Follow up do you think there is price.
So a paradigm shift here or wait for that.
You learn to live where the lifestyle of Torrey, everybody seems to be more profitable and amount of RMR.
The 2 we'd go back to the old.
The habits.
And until there is a very healthy discussion on.
And this pandemic has been absolutely God awful, it's just been unimaginable shelter in place and America is unimaginable, however, they're at very healthy constructive debate on.
Going on within the industry.
And that there is a better way than the old push system and you know.
And this whole idea that you couldn't sell.
This this this obsession with immediacy on delivery and on.
Immediate self gratification that drove the industry with the pushes and I think that's really being rethought, we are selling of Hughes as a percentage of our pipeline, which will make visible on autonation dot com and you can see what's income and then you can we can match up vehicles.
Consumers in the pipeline and they come in and go out and take delivery.
On.
And as valuable lesson for the industry that this idea of having 4 million vehicles sitting on lots of across America is the way to run and.
And the industry I think is genuinely being rethought.
And.
And I'm optimistic I'm optimistic now the truth is on between somewhere in between it's not 14 day supply at that.
Not not optimal for anyone that maybe its 30 day 36 days sort of 30 to 40 somewhere likely run for young.
That's probably where the truth is.
But the headline is demand is strong the strong demand will continue and.
This chip disruption is not coming.
And then quickly but now it's not lose sight of the fact that shipments doubled from a year ago and are only 6.7% behind where they werent and 2019.
Okay, great great color and hard parts.
Good luck to push forward and thank you. Thank you.
Your next question comes from the line of Stephanie more from choice.
Hi, Good morning, Thank you for the question.
And I kind of I wanted to continue on and the last set of questions. There and I think at and Mike you brought up the interesting point about just maybe the the day supply isn't what it was kind of at the pre COVID-19 levels at certainly higher than it is today what does this mean from anything for maybe a footprint of real estate standpoint.
Does it make sense to have such a large footprint at for holding less inventory on our on the same level and what does it mean from your digital capabilities and with that I'd love to get an update on on what Youre seeing and.
You saw during the quarter I guess, the adoption and usage of of your digital efforts.
Thank you.
Alright, you're absolutely spot on net the pandemic has also been an inflection point.
Towards digitalization.
And we're.
We were ready because of the investments that we told you that we made at the surge of investment and 13.14 and 15 of.
And that really gave us a capability, resulting in the 65% improvement and pre owned sales increase and pre owned sales here and the second quarter on on a revenue.
The basis and I don't I don't think that's going backward, but the USA strategy, you're wondering if and USA strategy.
Exactly describes our thinking that delivery centers remain essential point of purchase for the acquisition of pre owned inventory remain on a central speed to market and reconditioning centers remain a central and that's basically what the USA store is and we.
Expect to build and additional 125 over the next several years, we opened our sixth and the market, where the autonation footprint did not exist and San Antonio, Texas, and we were profitable in the first month congratulations to the entire team will open the for additional stores and the remainder of the year and accelerate.
The build out in future years, but.
And speed the market and reconditioning costs acquisition point and the delivery center.
And of our essential and we have the capability to build out of footprint and ultimately and the entirety of United States of America with Autonation USA stores.
Profitably.
Got it no. Thank you so much and then switching gears, a little bit I'd love to hear and just.
And what you're seeing from the from a customer care standpoint, as you know.
Very strong growth for the quarter days of this is pent up demand just because we kind of move through the pandemic and the country and continues to open up or what at what can you say in terms of driving such of such a nice clip.
Clip here at the second quarter.
Yes.
Yes, I think it's a combination of things.
I don't think it's solely attributable to pent up demand.
If you kind of go through the categories.
Of our pay the <unk>.
And of it has rebounded most quickly as well as obviously the internal reconditioning is obviously tracking with the impacts of the new volume and used volume.
We're finally seeing collision kind of.
Get back to its 19 level, which has been a little laggard and then warranty probably of the for categories as the slowest to recover.
But as we track it on a monthly basis, we continue to see continued recovery and anticipate that will continue through the rest of the year.
Great well. Thank you so much for the color.
Sure.
Your next question comes from the line of John Murphy from Bank of America. Your line is open.
Good morning, everybody.
Mike I just wanted to the challenge you on something we don't usually challenge you on because the you usually are the challenger of the inventory flow to the inventory.
Define optimal inventory because with these very low inventories youre generating record profits. So I mean, I would define optimal inventory at the level of that generates the highest profits and thats whats occurring right now and I think it's a little.
Interesting to hear you say and and other folks and the industry that usually are the more disciplined folks say, hey, we need a little bit more inventory I mean, if you are putting up record profits.
This tightness is really healthy for profitability.
What is the optimal inventories to you.
Well.
And maybe I was expressing more a hope of where the where the industry.
We would see as.
At the new goal.
And not be going back to 70 to $75.80.90 days' worth of the word.
Because of inventory there.
There are.
The issues today with the extremity of.
Some of the shortages.
And I don't see at remaining at its extreme level of.
Of this.
And the situation that we have right now.
But I don't see at going back for the old way.
And I guess, that's a big headline John.
Would you just kind of it's a year ago.
No 1 would be saying that I mean, I said at 10 years ago, but I now think it's at very realistic goal.
What do I like at the way it is right now forever happily ever after Camelot and absolutely absolutely.
Situations, we can match them.
I'm not sure and Thats, where its going to be a year for now, but I don't think its going back. The headline is I don't think it's going back to the old way.
Of a massive overproduction push system.
That's just the that's encouraging.
The other question that we get often is the GPU seem like they may be somewhat inflated at the moment because of this dislocation of the supply and demand, which is a good thing and.
And focusing it was and you guys used over earning but if I kind of normalize grosses as best I can I am coming up and 2 and SG&A to gross somewhere in the low <unk>.
Fairly mid sixteens, right and so of meaning that you are half of the speed at least is coming from pure execution on your side, which means at the cost you've taken out are a lot more stickier structural then and maybe even you talked about before I mean at 68% that youre talking about SG&A and gross before as kind of the <unk>.
The level it seems like it's ticked down by 3% to 500 basis points.
How do you think about that going forward is at 60% still relevant or is your execution, which apparently just based on the call. So I'm doing it at just much better.
And then people have been thinking and that you were thinking before and can you maybe reset the bar on the 68 per cent or how are you thinking about that right now.
So John.
We're actually.
You are correct and.
And particularly I'm on I'm talking about Autonation.
We had a surge of investment in digital of the 13, 14, and 15, which took up our cost we're very transparent about that and then called it out at.
And are delighted with the digital platform and the digital capability and tools that we created today that are unique and proprietary to autonation. So if you look at Autonation as SG&A, while at the surge period is over and we said at the time. These digital capabilities would bring us to a lower cost, which it has and then 1 of the.
The N demick hit and we said, okay. We're going to do everything we had planned to do over the next several years now so that accelerated and additional cost saving so it's really 3 steps, which has taken us towards the permanently lower basis on SG&A absolutely no question about now.
Am I going to give you a number today and probably not bad.
Say, Joe can you give us the number for the rest of this year. When we entered the year I think for this year will be at around the 60% range.
And as you just the within like there clearly are some permanent changes if you look at the increase in SG&A.
Over 90% of that is coming through variable comp.
We are doing at very good job of keeping the fixed cost fixed.
And with strict discipline and leveraging the digital tools. We have so we clearly are on a different trajectory than we thought even a year ago.
That's that's very helpful.
And then just just lastly.
Share repos of Ben.
Massive year to date.
I'm just curious to think as you think about cap allocation I mean, you turned to tack on and if it makes sense of doing M&A and obviously you're reinvesting.
Cash and and Autonation USA.
As you look at the assuming the investment opportunities on the accuracy and side I guess youre viewing those as really not that attractive at current levels and your stock is much more attractive and that's why you're making that decision is at.
Correct interpretation of how capital is being reallocated at the moment.
At the very fair statement.
So we invest and our existing stores no question and keep our existing stores topnotch strategically.
Strategically we are investing and USA have very ambitious.
Ambitious rollout plan.
Culminating and having 130 of these built out and the next several years.
And then we.
And we'll see where it goes from there, but also John and you know maybe when I feel.
And at.
Autonation isn't attractive.
Price and we have not hesitated to buy aggressively.
And we keep a strong balance sheet and we're investment grade.
Clearly, we're optimistic about the future see things at Bob as you described them and therefore, we view purchasing our own company relative to the pricing we see as other choices.
As the best use of that capital.
After having taken care of of investing in our existing stores and building out the USA, Joe what would you like to add to that I think you nailed it Michael.
The M&A pipeline is robust, we're just demonstrating real discipline and.
And as you.
Right now if we look at on return basis.
Following and USA and our existing stores of share repurchase has done and the most attractive returns. So we're going to continue a balanced at just the disciplined approach.
All the while we're at very low leverage levels. So we have tremendous capacity.
To be opportunistic.
Very very very sensible given where the stock is right now thank you very much guys.
Your next question comes from the line of Michael Ward from Benchmark. Your line is open.
Thank you. Thank you very much for taking the question.
And maybe the follow on with John's question on either or both of the digital side of it.
A couple of things does the digital side of it to improve.
For the F&I side I think you mentioned the 2 thirds of F&I has come on and vehicle protection does the digital streams.
The streaming that you have and people looking online for different purchasing options does that enhance the F&I revenue stream.
So the way, we think about digital is of the customers.
Want to engage.
And the digital process, where they are empowered and it's at high value.
And.
However, they still want to come to the store.
For final delivery.
And final decision.
And you might say well how can that be what is what is the.
Answered there well they actually feel more empowered coming into the store and they do having the car show up in the driveway and then.
Over 90% of the situations I'm, not saying there aren't exceptions to that.
Now.
Our in store process is all integrated and seamless with our digital process and this includes.
The presentation offering of Autonation products. So if I look at the numbers right now.
The 55% of our customers of our business and engage with us digitally first.
And they go through different levels of engagement, depending on their preference and we can go as far and deep into it as day, 1 and engage with the specific store.
And then our store process.
It is very much and the express lane, we love the adoption rate of our Autonation.
On the customer care products because.
Okay. So the benefit not only us to us today, but we are building a repeat and referral.
Customer care business.
For the future.
And has a tremendous pat on tremendous momentum.
So I think we've found just the right in line at.
And I've already said in the past I think who wins in the in the marketplace of the future of our companies that have the brand.
And customer friendly experience of digital platform, the interact with their customers and the operating ability to be very profitable at.
That's the combination net wins and the marketplace.
And is there any reason not to expect the elevated levels of and either continue.
I see no reason.
But here's why we're it's not that we're raising pricing on F&I, it's at the adoption rate.
All of our products is going.
Up and up per transaction.
And every year it goes up and call.
As we improve the products, we improved the price value for our customers and we improve our skill and presenting them to customers.
So on.
I think that continues.
And just is there sort of a huge difference on the F&I side between new and used are the pretty comparable.
I think it was just like difference Joe please slight difference generally the.
The first is slightly higher on the new vehicles.
And then used.
But we've seen we've seen increases really across all categories, both new and used and really all segments domestic important and luxury.
And all stores, both new and used including Autonation USA USA of full digital capabilities correct.
And that is correct.
Thank you very much yes at the company wide platform.
At the entire.
Offering of the company has presented.
The new pre owned.
Certified pre owned.
And most importantly, the entire pipeline of Autonation. So if the.
If youre looking for pink suburban and for whatever reason and.
And we have 1 going for the West Coast you live on the East Coast and you can see at 6 weeks out and you want it we will redirect it to us and.
And that's a tremendous competitive advantage.
The church.
Thank you.
Thank you.
Your next question comes from Rajat Gupta from Jpmorgan. Your line is open.
Hi, Good morning, Thanks for taking my question and congrats on the strong quarter.
Just had a couple of follow ups from all of them.
At this question on parts and services.
Revenue is up you know and roughly 10% versus 2019 levels.
Can you give us a sense of how much of that 10 percentage.
You know of higher transaction volumes.
You know more transactions versus pricing like any way to parse that out on a like for like basis.
And just a couple of follow ups. Thanks.
Yeah, I can't give you specifics I would say the price has improved and so it's not solely volume at the total return if you will.
It's the combination of both so we have seen recovery and.
Absolute volume, but there also has been the pricing improvement that's complemented that.
Got it and what are you, saying the.
1 of the higher greater contributor than the other or the good.
Is it pretty similar.
I would say, it's generally generally pretty similar.
Got it got it.
And on the on the SG&A side, you know you mentioned earlier, the Johns question that 90% of.
Of the uptick was more wary of ball.
Can you give us a sense of where your head count stands today and the past you talked about the 3000 between a haphazard.
For a minute and employee reduction.
On a like for like basis, if you went back to pre pandemic volumes, but.
The overall unit growth is now tracking roughly 20% plus horses.
19 levels.
So are you now we're at.
And as you head count's down of sand versus that kind of volume growth level on the hiring back more people or for.
All of this is just coming through higher productivity.
And just to get a sense of kind of how this can continue going forward.
Yeah. So I'll answer the question directly and then elaborate so of head counts around 21006 hundred were down about 14% so to the point about the increase and units despite production and head count and this is.
Clearly touches on I think the power of the digital tools and how our folks are much more effective.
And we talked about digital digital is simply not what the customer sees its also the tools, we provide to our sales and service representatives and we clearly are seeing more effective.
And close rates almost doubled the close rates.
Our digital tools, and clearly higher P. B ours with the tools being used so when you look at our ability to manage the volumes on lower head count at clearly is in part by the tools that we have put and our sales and service of associates. It's also enhanced by the tools that we've put into our shared service center all of.
Of which provide us greater leverage.
If you will given the the volumes of vehicles that were solid.
Got it and got it yeah, that's that's the.
Clearly extremely impressive.
1 last question on the used vehicle side of the business the <unk>.
The 2% growth versus.
<unk> and 19 levels and.
The sense of how much of that is coming from franchise versus the U S same stores.
And you just so we can get a sense of the contribution.
And the new doublet buckets and.
And I guess, the GPU there as well.
Any way to parse out the joint U 200 level and <unk>, how much of that is.
More structural versus December at all given like the changes of used vehicle pricing.
So first and foremost we learnt and integrated approach on pre owned.
On.
We really view.
Every location, we have as of as at pre owned delivery center and pre owned the opportunity.
And we do at.
Acquisition.
And pricing.
Essentially.
And so it is all behind the Autonation brand.
And the USA stores are solidly profitable and you want to.
And talk about the numbers and yes.
2 parts of the 2 parts of the response, so first on the used volume to be clear that's across the end.
Enterprise and when we only have today, 6 USA stores, which sold 3000 units and the <unk>.
So it's not as if its solely incremental and you'll say that said, it's doing extremely well I mean, the profit in the quarter. It was about $5 million, which clearly demonstrates the leverage that we're seeing there and as we mentioned earlier San Antonio.
And has already achieved profitability in the first 4 months so.
But it's across the entire enterprise that we're seeing the success of our sourcing.
Inventory for us actually increased from the end of Q1 to Q2 and large part by the success of our we'll buy your car and at other procurement methods.
Which we do think of as a competitive advantage.
Got it at all.
On the GPU side of it.
The drop of 200.
It's not materially different between our various stores for my used perspective.
But just at the 'twenty 200 level.
Versus what you've historically done any sense of like how much of that is new.
And as temporary versus structural and given like the changes and the sourcing mix that you've had.
And it's I mean of uncomfortable, saying right now how much of what the timing is going to be clearly we have seen the benefits.
From our sourcing decisions and being well positioned but ultimately there may be some pressure and that area, but we don't see it and the current environment.
Got it great. Thanks.
Thanks for all of the color and good luck.
Yeah.
Thank you. Your next question comes from Bret Jordan from Jefferies. Your line is open.
Hey, good morning, guys.
Yeah.
On the on the service business could you talk about the cadence of service as the quarter progressed, maybe against the 19 sort of take the volatility of pointing out is this.
Correlated to the reopening and sort of.
Returned to work on or is this sort of just pent up demand and given the time that's passed.
And since we've really seen the COVID-19 shutdown.
We've commented kind of throughout that we saw on a month to month basis continued improvement.
And what I would tell you from my perspective is we're starting to see a bit of of stabilization I Wouldnt say its just been at each was better and better I think we're starting to see the level of stability.
Across the business.
And what's really the warranty work and the 1 part of the business for US continues to lag.
But otherwise I'd say.
And we're cautiously optimistic that we'll continue to see this level of demand through the rest of the year.
Okay, Great and you commented that the M&A pipeline was robust.
Are you seeing and like seller price expectations, I mean, obviously of wildly profitable environment are they expecting them to sell off fees.
The very high profit levels are they sort of expecting.
At this pricing rational as the store question.
So and as Mike Jackson, and if I.
I think we've already expressed what we take on that question and the second quarter, we repurchased 9% of Autonation cycle at 9% of.
The autonation rather than doing a lot of acquisitions that I thought were over price.
Okay, great. Thank you and I guess, 1 quick final question and the self source mix of the 90% of your used.
Does that shake out between we'll buy your car versus trades versus lease returns could you sort of call.
All of that for us.
So clearly the largest piece is.
As a trade at.
I would say from a sourcing standpoint, that's that can be 60%, we'll buy your car from a sourcing is probably 20% so between trade and and we'll buy your car and you're talking about 80% and then you have at least for turn and service Walter.
Yes at the 90% of our sourcing and the quarter right there.
Okay, great. Thank you yep.
Yep.
Your next question comes from Adam Jonas from Morgan Stanley. Your line is open.
Hey, Thanks, everybody, Michael I always love your.
Opinions and wisdom around industry moves, especially from Oems, where we're seeing some auto companies looking to go direct to consumer.
For things like the.
The vehicle maintenance or service through <unk>, and then a bit more visibly and insurance.
And related financial services, so Mike in your opinion could and OEM using the car of connected car.
As a way to kind of engage directly with the consumer on say insurance or insurance or that kind of thing.
And could that constitute a violation of dealer franchise laws I mean, your dealers you guys generate significant revenue from the F&I and even putting the I and I'm just wondering if the connected car gives the Oems the chance to kind of circle navigate that do you have a right to get access of that data are the allowed to do at I'm. Just curious if you see that being and emerging problem. If you take it to its logical conclusion.
Yes.
And here's what I and here's what I'd say is the strategic channel trend.
On the.
Alexia the of the automobile is going up exponentially and that way and there are issues and there always are issues.
The number of entities that actually cash.
And care for it and fix it or fewer and fewer and the eventually look I don't think electric vehicles, the investments, we're having to make and it.
And especially equipment and technical training.
And expertise is.
On the connected car.
And whoever youre doing at whatever manufacturer there are issues and we have the expertise.
And to resolve it and so I see complexity going up exponentially as far as the eye can see and as far as a company like Autonation is concern we lot of complexity, because it's what we do and the barriers to entry on the complexity of very hot.
Okay Mike.
And I appreciate that just 1 follow up I think last quarter I asked you about Volvo.
Looking to do some things selling electric vehicles on line through a separate channel on 1 price.
More recently I think on auto news there was GM bright drop they're ahead of their vehicle distribution said they are looking at have district of distribution footprint that might include the sites outside of Gm's current dealer network. Just curious again, if you had.
1 of the share thoughts on whether that is something that gets gets close to the states franchise law of issue or whether it's kind of more nuance of that.
So I'm well aware of the state franchise laws.
I don't obsess over them.
And really.
And look at the equation of what what.
Works for consumers and what works for manufacturers and.
And so far from what I've seen on the 10th.
And by OE.
And.
With the reservation system and they really haven't had much added value for consumers and at the end of the day everything gets transferred over to us and we can't even specify your vehicle and this reservation system.
Really has a direct model of any sort of at that as well.
And well at the moment is Tesla.
Now, let's skip the step and then build the customer care.
Network to take care of that so we here at every day from customer Tesla customers who are at.
Set up with the.
The amount of time it takes for the cars to be cared for and so that's 1 thing you can't with the franchise system, that's extremely worthwhile for the manufacturers that new frontload the customer care.
Platform for your for your vehicles so.
And in listening to.
And the challenges of the or the question of the viability of the auto franchise system and America.
Sure.
Over a decade, and I think were resilient and adaptable and viable as far as the eye can see.
Thanks, Mike.
Thank you.
The next question comes from the line of David Winston of Morningstar.
Thanks, Good morning.
First on the vehicles coming off of the sub brands at Honda and GM.
Saying that they want lease buyouts at all can be done by their own dealers for their respective.
Franchise dealers and does that slow down your ability to do deals from conquest customers and why don't the factories at this policy all of autonomy I think it would be good for their day 1.
I think we do that already or at least we've all we've always embraced the partnership with the with the Oems.
On all of it.
Issues like this at our win win situations and we've always been on.
Hi, participant and the acquisition of off lease vehicles.
And the manufacturers know that and respect that about us.
We'll buy almost everything they have.
Okay and going back to the the conversation at the beginning.
Uh huh.
Instant gratification of consumers and.
I mean, it sounds like Youre, saying that some consumers may be 1.
The.
And I haven't neither for the.
And while the others would be and you do a build the order model and longtime ago of the U S was entirely build the orders there at the same with Chicago.
Where do you think of our consumers that some will wait and some of them with me.
So I've never been a strong proponent or advocate of the build the order model.
And I really can and.
I mean, there is of certain small percentage of the marketplace.
Especially on the specialty vehicles.
That's what they want but.
And here.
And if any of that the industry has really embraced is that when they are building the production schedules. They prioritize what people want to buy and you configure them very close to what people want to buy and with the with a little bit of.
And given take people who are getting at.
The 90.598 per cent of what they want in a relatively short period of time of 30.
And 45 days and that is really working at.
And going all the way back to the early conversations I think it's on leased at very healthy discussion.
And the industry.
And make this.
Nirvana build the order I think.
At sort of you sort of lose your way, it's a bridge too far and you don't really need to go that far but there is and between build and what people would like to buy and configure and very close to what they want to buy given the visibility into the pipeline and they will buy it and the wait a little bit and then take delivery that's working very well.
Okay and.
And placed and Theres a lot of inflation chatter now and some say it's temporary.
And my math suggests the 100 best thinkers and rates generally roughly maybe $15 a month increase the monthly payment and how concerned are you about inflation that and do you see any of it this year and I'm sorry.
I'm pretty much of an agreement with the phone and reserved at the inflation and discussion sanction issue is transitory and you have to be too.
2 big factors and at 1 is you have the exceptional unemployment benefits.
And which where appropriate considering the circumstances of the pandemic and the shelter in place.
On that.
And and.
Theres been inflationary issues around that.
But that.
Those issues are going to be resolved before year end and of course, the big and the other big headlines as per young which of course and I got on the second quarter of 2019.
Pre owned at <unk>.
And in 'twenty pre owned the get out of that with the liquidation of the fleets.
There was pressure on premium value say youre comping against the downstroke on.
2 of them now.
The recovery with the unique situation of.
Production disruption on the new vehicle side, So I agree with the Federal Reserve I think inflation is in principle, we have of transitory situation.
Situation here and and things will look different by the end of the year.
Yes.
Okay, and finally for comments on should.
So at the by the Minister we should increase the federal tax rate could you give any rough estimate of what your on tax rate sensitivities for being for bringing hundreds of increase on the bottom right is the 1 for 1 or is it a little bit less.
So and so in general if you look I think the proposal out there had been about of 400 basis point increase.
So effectively if the.
And those were approved and we'd see about that through our tax rate, we try to find ways to mitigate it but as you know today, we're pretty effective if you look at our rate and state taxes.
On a whole lot more room there so.
Okay. Thank you.
Alright. Thank you everyone for joining us today. Thank you for your questions very grateful all the best.
This concludes today's conference you may now disconnect.
Yeah.
And.
On that.
For the.
And.
And.
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Okay.
And.
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