Q3 2021 AutoNation Inc Earnings Call

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[music].

Good morning, My name is Katie and I'll be your conference operator today.

Tom I'd like to welcome everyone to the auto nation third quarter 2021 earnings conference call all.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by one on your telephone keypad now.

If you'd like to withdraw your question. Please press star followed by the number two thank you.

To turn the call over to roll Qatari Vice President of Investor Relations you May now begin your conference.

For 2021 conference call and webcast.

Please ensure that Europe.

Leading.

Like today will be Mike Jackson, our Chief Executive Officer, and Joe Lower our Chief Financial Officer.

Following their remarks, we will open up the call for questions I will be available by phone 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.

Fitments 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 1995.

Such forward looking statements involve known and unknown risks that may cause our actual results or performance to.

Differ materially from such forward looking statements.

Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued earlier today and 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'll turn the call over to Autonation, Chief Executive Officer, Mike Jackson.

Good morning, and thank you for joining us.

Today, we reported all time record quarterly results with earnings per share of $5 12.

An increase of 115% compared to adjusted EPS of $2 38.

Late last year.

This marks on our nations sixth consecutive all time record quarter, driven by strong performance across both variable and fixed operations.

Our third quarter same store revenue of $6 4 billion was up 18% compared to the prior year.

<unk> as well as the third quarter of 2019.

Consumer demand continues to outpace supply driven by consumer desire for personal transportation and ongoing manufacturer supply chain disruption.

We expect this to continue well into 2022.

New vehicle sales occur.

Constrained by reduced production volume low inventory levels, leading to even more of a pent up demand that should support sales for the foreseeable future.

And our used vehicle business, our strong self source sourcing capabilities digital tools and customer focused sales processes.

As our competitive advantage that has allowed us to outperform our peers and the broader used vehicle market in the third quarter, we self source, 90% of our pre owned vehicle retail sales and our same store used vehicle revenue increased 53% year over year.

We see additional opportunity to capture used vehicle market share through our Autonation USA expansion.

This week, we opened our eighth Autonation USA store and our second store in the Denver market and we expect to open two additional stores in Phoenix and Charlotte before year end.

Our rollout schedule remains on track with 12 additional stores planned for 2022 and over 130 stores by the end of 'twenty 'twenty six.

Today, we announced that we signed an agreement to acquire priority, one automotive group, adding $420 million in annual revenue.

Together with our previously announced acquisition from the Peacock Automotive group Autonation has announced 800 billion in annual revenue from acquisitions this year.

We also continue to buyback our shares during the third quarter.

Over the last 12 months through the end of the third quarter, we repurchased.

Is 27% of our shares outstanding from September 30 last year.

Our strong execution and cash flows have positioned us well to continue our disciplined opportunistic capital allocation strategy.

I now turn the call over to Joe and our our Chief financial.

Thank you, Mike and good morning to everyone.

I'm going to start the same places Mike opened today, we reported net income of $362 million or $5 12 per share versus <unk> versus adjusted net income of $212 million or $2 38 per share during the third quarter.

Order of 2020.

This represents our sixth consecutive all time high quarterly EPS, and a 115% increase year over year.

As Mike mentioned consumer demand for personal transportation remained strong while new vehicle inventory is at historically low levels.

<unk>.

We continue to focus on optimizing new vehicle margins and procuring used vehicle inventory to support sales.

We expect these trends with demand exceeding supply to continue well into 2022.

For the quarter same store variable gross profit increased 42% year over year.

And by an increase in total combined units of 4% and an increase in total variable PBR of 1700, $9 or 39% a.

A decline in new units of 11% was more than offset by growth in used units of 20%.

Our customer care business.

<unk> has recovered with same store customer care gross profit, increasing 8% on a year over year basis, and 6% compared to the third quarter of 2019.

Taken together our same store total gross profit increased 29% compared to the prior year and 40.

Dress per cent compared to the third quarter of 2019.

We also continued to deliver significant SG&A leverage due to strong cost discipline and robust vehicle margins third quarter SG&A as a percentage of gross profit was 56, 9% a 700.

Hundred 50.

45 basis point improvement compared to the year ago period on an adjusted basis.

As measured against gross profit on an adjusted basis, our metrics improved across all key categories with overhead decreasing 390 basis points compensation, decreasing 290 basis points and Apple sizing decreasing 70.

The basis points.

We expect SG&A as a percentage of gross profit to remain below 60% for the fourth quarter and the full year 2021.

Floorplan interest expense decreased to 5 million in the third quarter of 2021, due primarily to lower average floor plan balances there.

70, <unk> bind with a lower effective tax rate and fewer and fewer shares outstanding generated a record EPS.

Turning to the balance sheet and liquidity, our cash balance at quarter end was $72 million, which combined with our additional borrowing capacity resulted in total liquidity of approximately $1 8 billion.

We continue to leverage our strong balance sheet and robust cash flows to invest in our business as Mike mentioned this week, we opened our eighth Autonation USA store in Denver, Colorado, We remain on track to open two additional stores in the fourth quarter and 12 more in 2022.

Again, Mike mentioned longer term, we continue to target over.

130 stores by the end of 2026.

In addition to organic growth initiatives today, we announced the acquisition of priority. One automotive group, we will continue to look for additional acquisitions that complement our portfolio and meet our return thresholds.

We have also continued to repurchase our own shares.

In the third quarter repurchased seven 9 million shares for an aggregate purchase price of $879 million.

This represents an 11% reduction in shares outstanding for the fourth quarter alone today, we announced that our board has authorized an additional $1 billion for share repurchase with this increase.

<unk> the company has approximately $1 3 billion available for additional share repurchase.

As of October 19th there were approximately $60 million 66 million shares outstanding.

Despite our significant capital deployment, we maintain ample capacity on our balance sheet at the end of the third quarter our <unk>.

<unk> leverage ratio of debt to EBITDA was one four times up slightly from $1. Two at the end of the second quarter, but still well below our historical range of 2.0 to 3.0 debt to EBITDA.

We continue to demonstrate strong operational execution and disciplined capital allocation.

Patients go.

Going forward, we will remain focused on leveraging our balance sheet and strong cash flows to drive long term shareholder value.

With that I will turn the call back over to Mike.

Thank you Jim.

It's been my honor to serve with the leadership position of Autonation for the past 22 years, we built an exceptional.

We are America's most admired and respected automotive retailer, we provide a peerless customer experience from coast to coast.

And we have made a difference in People's lives drive pink and our efforts to beat cancer.

I am forever grateful to all the associates of Autonation for these achievements.

No break in for all of their efforts, especially through this pandemic.

And I'm thrilled to welcome Mike Nally as the next CEO of Autonation. He is one of the world's most respected admire automotive executives.

And we are thrilled to have them as our.

Sure.

<unk>.

And autonation at an even brighter future.

With this I'm happy to take your questions.

Okay.

At this time I would like to remind everyone in order to ask a question.

The press Star then the number one on your telephone keypad.

Well pause for just a moment to compile the Q&A roster.

Okay.

Yeah.

Your first question comes from the line of John Murphy from Bank of America.

John Please go ahead.

Good morning, guys and Mike Congratulations again on a fantastic long run into good to go out on top although I think that Tom is going to keep going up so I think your legacy will be.

Well heeled here and I'd say goodbye, but I'm sure we'll stay in touch and you never know when you're going to pop back up again, Mike So.

Thanks for everything.

Question here.

You alluded to the supply demand imbalance lasting well into 2022, I mean from what we're hearing and modeling that's going to last at least through the first half of next year and probably well into the second half and maybe even 2023, so you're going to have this high class issue of.

Hi, Gpus.

Presumably continued good performance here and youre going to generate a boatload of cash.

How do you think about cap allocation I mean, you are turning the tap back on a little bit here more on acquisitions.

You are buying back shares Youre opening autonation USA stores.

Youre structurally growing the footprint of this company and it's still being underappreciated by.

The market I mean, how do you.

Think about this.

I mean has anything change and as we fast forward the clock.

Simple dumb Guy's stuff like I say, you bought back 11% of the shares in your acquired revenue of 4% of the company. So 15% higher EPS go forward just on those cap allocation.

Simple thought process, there, but youre going to do a whole lot more of this at least over the next year or so I mean is anything changing in how should we think about that capital being deployed because it's pretty aggressive but not wild at the moment.

Yeah.

Yeah, two things.

Hello.

More demand.

Supply.

Well into next year and as you said maybe.

'twenty 'twenty, three but like all about that today and we have a tremendous percentage of income pipeline.

Pretty small.

And I expect.

The production distortions and disruptions settle down.

We'll come in and go out they're not going to go to the inventory.

Long.

Is there already some more inventory, but I'm in Europe John.

So what as long as they're coming in and.

And our strategy.

Growing revenue by giving customers a choice with pre owned has obviously been very successful very compelling same time, we've been disciplined on the cost side and yes, we viewed.

Since we're bullish about Autonation and.

We viewed.

Every purchase.

As an opportunity.

We I see.

And if I go.

Back over the past 12 months, it's 27% of the shares outstanding.

Yeah.

Repurposed and.

And he outlined we announced the $1 billion of board.

Board authorization of share repurchase of course, that's a step by step opportunistic decision and on on that forward.

Issue.

And what it means what we've done in the past what it means Joe.

Jeff.

Mathematical calculation and how you think about capital going forward.

Thanks, Mike and thanks John.

John Let you play it starts with actually having capital and we have plenty.

Both from a robust cash flow and a strong balance sheet you know as you know we've demonstrated that through the pandemic.

Nick and prior and we are the only standalone auto retailer with investment grade ratings, so starting there.

Comes into an investment prioritization and really looking at after tax returns as we've indicated before for US. The highest return has been organic investments into any let's say we've laid out a plan I think we've.

So it's been pretty candid in saying so far we've actually exceeded our own plans I'm very pleased with that progress.

We'll continue to deploy capital along those lines.

We've said throughout Europe, where there are attractive opportunities for M&A, we will pursue them.

Year to date, we've announced two acquisitions of size eight.

$800 million of revenue acquired.

We also continue to search and assess.

And tried to identify those that both fit our strategic and financial returns.

And then their share repurchase and.

Particularly with our outlook combined with relatively attractive valuation given any historical perspective.

We've been extremely opportunistic and as we've done all of that and look forward. We realized we have significant capital to deploy and we'll use the same discipline and our balanced approach going forward.

Okay. Just a quick follow up on that I mean, I think it's pretty easy to understand buybacks have an immediate return acquisitions relatively quick.

Return when we think about the Autonation USA store in investment.

How fast do you think that return on investment turns positive, meaning how fast are these stores now that you are.

Running.

Not hot yet, but running more normally on store openings, how faster they become profitable.

And accretive.

Due to the equation because I think that's the only part of the equation, where theres a lag time on the return of this capital is mass capital Youre Youre generating in redeploying.

Coming in sort of at a later date I mean, how fast is that return.

Yeah, well, we want to do is.

Yes.

With the highest return.

And.

Being in control of our own destiny. So in many ways. The hard part is done.

Built the brand.

The digital platform we have.

Stores are.

How they operate as did.

Livery centers speaker market Reconditioning centers acquisition centers those are the three.

Principal activities that take place within the USA store, we've defined the footprint that it's a highly efficient and effective exactly what it needs to be.

And our speed to profitability has been even better.

Then our plan and really the critical path is.

How quickly we can develop.

The right sites and build the stores so.

Every year, we expect that to be more than that.

The number that we can build and nothing could.

I'd be more than a year before and as of today, we're declaring.

12 for next year, but I was wondering if you tell something about the return yes. So.

You recall, we when we rolled out the expansive I understand we gave a sample model at that time, we thought breakeven would occur within the first 12 months.

We're actually realizing that in the first if.

If not the second month. So the success of our model has proven to be very robust.

We mentioned that the monthly pretax on a full run rate would be up to $200000 of store per month.

We're seeing that being realized much more quickly than originally anticipated.

And the investments that we articulate.

Originally and intend to live an $11 million range, even in this environment, we're able to achieve that so we remain very optimistic.

Annualized eight stores in total contributed almost $5 million pre tax in the quarter. So again as Mike mentioned, we're very pleased with the progress we're exceeding their own plans and we will continue to evaluate.

Later, we will appropriately accelerate that going forward.

What's important within that John is we're now opening USA or in outside their traditional footprint of Autonation.

And that has gone extremely well launching the brand in new markets.

So we're very.

I'm very optimistic and confident about the future of Autonation USA.

And the returns it will reduce and the fact that we can grow this company in effect organically with a brand without paying goodwill and we control the pace of the growth.

Yes, it's a very exciting last question for me on customer.

Or care momentum seems to be building, obviously because of the shortage of inventory people are holding onto their cars longer.

And driving more so I mean, I think there's been an expectation that as the economy reopens people drive more you'll get you'll get a bump, but there hasnt been sort of that second thought process of people are holding their cars longer so they're willing to do more.

Maintenance or need to do more maintenance, not even willing but need to do more maintenance and how do we think about those.

Two factors benefiting same store sales on customer care.

Are we still at the early age of the Reacceleration there.

Well, we clearly have seen.

Real.

Recent acceleration with us now right exceeding 2019.

Strong areas, obviously being areas of customer pay have continued to perform well versus a low point in 2020 in 19.

The one area that continues to be just a little bit of a laggard.

This collision.

We do anticipate as miles continue to improve but that will fully recover.

But overall, we're very pleased with the progress we're seeing in the business.

And despite concerns about parts shortages.

And just demonstrate.

Growth over both nine.

In 2020, so we're cautiously optimistic that we'll continue to see those trends improve.

As we kind of proceed through this year and continuing to kind of see people increasingly returned to the roads.

Great. Thank you very much guys I appreciate it.

Great. Thank you.

Your next question comes from Rajat Gupta from Jpmorgan. Please go ahead.

Great. Thanks for taking the questions on my side I, just wanted to Echo John's comments as well.

So on a bridge carrier and best of luck going forward.

Yeah, just a couple of questions.

Starting with <unk>.

Really strong numbers here in the third quarter.

Despite.

The lower mix of nuclear Waco's, where some views.

Im sure <unk> had the benefit there but.

Just curious if there's anything else that's going on there maybe penetration or some new products, that's driving that number.

And just curious as to how we should think about the sustainability of that.

And I just have one follow up on SG&A yeah.

Thanks Roger.

To answer that so first of all your assumptions and observations are correct as far as the relative F&I, our CFS as we call it between.

Between new and used but the real driver for us has been increased penetration.

And as we continue to see that improve it obviously impacts whether it's new or used which has resulted again in very favorable trends are pretty consistently over the last several quarters and our expectation is that will continue.

The pace of improvement, we obviously watch closely but we don't see any significant threats to what we're doing in that part of the marketplace. Just given the fact that it really is driven by penetration rather than other factors.

Got it and the penetration is that across.

Both timelines on service contracts one versus the other.

Driving that just trying to think like which part of that might be more longer term if I may.

Maybe benefiting from like just the Isps in the win rates I guess, because the monthly payments are optimized.

I'm just curious if the service contracts.

Got it.

Well, it's more product or do you want to call. It service, it's really more driven by that is I think you know about two thirds of F&I for us it comes out of product versus financing.

We continue to see that area grow and the number of products and the number of customers that we're penetrating and so it's much more of that than it is a.

Financing a rate issue.

Got it got it.

And just on SG&A you are getting some good color.

Paths around like the sensitivity there and you know what your medium term targets are but.

How should we think about you know given like productivity continues to get better.

Every quarter.

Is there any change to how you're thinking about that ratio.

The term or maybe like just making changes in your incentive model within the store that could also lead to a more structural change in that number.

F&I is looking much higher than before I don't think that has more leverage.

So just curious any updated thoughts there and if we can get any updated sensitivities around SG&A to grow sources, you know just gpus.

Once you're back to a more normal.

Supply demand environment.

Yeah sure the way.

I think about it we always talk about the three buckets.

We talked about compensation.

So when you talk about advertising, we've talked about our store and corporate overhead.

As I look at those items, let's start with store and corporate overhead from a dollar standpoint flat year over year. So obviously maintaining that discipline through the increased activity of the business is very important.

I anticipate that we will continue.

Does it mean that strong discipline within the store and corporate overhead line.

Advertising.

Modest increase in total dollars year over year in part driven by rates.

But again very modest we will continue to watch that closely.

It also improve though as a percentage of.

Gross and then you get the.

Comp and compensation increased about $83 million.

$81 million of that was variable comp in the stores, which candidly is the model you want which is obviously record gross profit.

That's being generated in the stores and that's going to translate into the compensation and obviously that will.

Very as does.

Profitability. So I feel like we are maintaining the discipline, we need despite always looking for ways to continue to drive out cost and.

And acknowledge that variable comp will fluctuate as it should with a.

A model that really is predicated upon.

Production and so that's kind of I think about the Mylan and why I feel pretty good about where we are and why I feel confident.

As I look out the next couple of quarters.

Seeing the success, we're having and maintaining the discipline on controllable cost.

And recognizing the only real fluctuations are variable.

It was compensation in the stores.

Yeah.

Got it got it but there's no change to like just long term.

Gross level, you indicated like 65, 66% so just that.

Is that still on pretty much on track right now for a normalized number.

Yeah, it's gonna be at a.

Long term thing, but I clearly think we've demonstrated that we can operate the business at a lower relative cost and was done historically in large part by the deployment of digital tools.

That are making in our sales and service associates far more effective.

And that's translating into the fact that we've been able to continue.

To operate with.

3000, plus fewer has within the store environment on a same store basis year over year.

Understood.

Thanks for all the color and I'll get back with Europe.

Thank you. Thank you.

We take our next question from Rick Nelson.

From Stephens. Please go ahead.

Hi, Thanks, Good morning, Mike.

That's on a great career.

Been a pleasure.

I remember it.

Uh huh.

Thank you Ed.

400 million shares outstanding.

Incredible.

So I guess you know could start.

If you could provide.

Provide some color around that.

The environment up there.

Announced a new deal today priority one.

Just curious about that pet acquisition.

You could come out and kind of multiples that you're seeing out there that would be helpful.

Yeah.

We honestly.

I'm thrilled with the M&A, we did this year.

And no we.

Having a broad view of the opportunity on capital and.

We look at the returns across all capital opportunity.

And as you know.

Share repurchase as an opportunity to buy Autonation are.

So, but theres certainly our acquisition.

We're just thrilled to have and on the new vehicle franchise, absolutely fit into our footprint and our operating structure.

And the.

Uh huh.

But at the same time, we intend to grow.

Autonation USA I mean, you can do invest in our existing stores Nintendo.

Additional capability.

And we're in a position of doing all of the above.

When we see an acquisition that the returns look very good to us.

And from a cultural and operating.

Point of view.

It fits with US we will not hesitate to make acquisition.

So that also that would carry over.

Inventory sitting about 10 days.

Fly here at the end of the quarter.

New cars.

Okay, Kerry that's where you pick we go from here or do things get tighter over the near term or are you starting to get better from a production standpoint.

Do tank cars are starting to ramp up production and which ones are coming slower.

On the production side, it's been a unpredictable journey.

Almost every forecast or information we were getting from manufacturers.

There's been no surprises and twists and turns.

And here, we are in the fourth quarter of 2020.

And hipsher.

Skip shortage and component shortages remains.

Theory is.

Disruption to the production of new vehicles.

My feeling is that if you look at the history I have actually.

<unk> always been reticent to say.

Stay well.

He won't happen because of that unpredictability.

My sense is that.

Sometime in the first half.

Our next year production will begin to return to a trend line.

It is more recognizable.

But I don't think that that will show.

I think it's going in inventory. So then theoretically.

You know and there can be distortions when the numbers get these extreme you know the the day.

They supply number could move but.

We don't really focus on it at that point.

Our inventory is.

Maybe about as low as we.

<unk> taken considering the friction of cars actually arriving Heath Byrd and going out the door were down to 506000 units.

So.

But that's we've demonstrated the ability to manage the situation very well and we saw the opportunity with.

Pre owned nearly.

We continue to have aggressively been out there purchasing them and have been able to sell them and just look at the.

Phenomenal growth in our pre owned business with that with the revenue improvement.

57% so.

And we have adjusted pricing.

Two.

New electric energy supply and demand situation that exists in the marketplace and we have consumers that are basically choosing to do one of three things. They say, yes that vehicles are close enough to what I want and I understand the pricing situation.

And they purchased the vehicle when they buy something yearly new or they pick something that's.

The pipeline or they tell us they're going to see US next year, and then that last category, we count that as pent up demand because the new vehicle business is running.

Below any sort of trend that you can think of so I'm.

Hopefully.

This is.

On the bottom of where production is and that we see gradual improvement inventory are about as low in my opinion as we can physically take them.

Of course, and our operations are looking at every vehicle in Seattle.

We can take it lower but it can't be meaningful if we're down.

5000, 6000, new vehicles in stock.

Great Great color. Thanks, a lot.

Good luck to them.

So all of them staying in touch.

Thanks.

We'll take our next question from.

Jordan from Jefferies. Please go ahead.

Hey, good morning, guys.

Good morning.

On the AR on the Autonation USA side of the business is you've got a few more units that are you seeing you know attachment with customer pay service is that a is that a model that's going to build out as these people bring their cars back.

Brett and post purchase.

Yeah.

We don't really think so that was one of our learnings.

From the on the prototypes that we launched earlier.

And we modified the lay out of the facility and took cost out.

Because we didn't see that as an opportunity.

So now we have the cost of the store down to 10 to 11 million and if and.

The purpose of the facility.

India delivery center, and physical deliveries of a customer at a delivery center remains.

We're at 95% of the customers want to be absolutely.

Reconditioning to a high standard that it can be done cost effectively and quickly I can't emphasize that enough.

And acquisition center, where customers can.

Consumers can bring a vehicle and get a check for their vehicles.

That's the role of the Autonation USA store.

And we have modified the level of investment for us.

In fact that we don't see a big customer service component within that facility.

Okay, Great and then I guess on the collision side Youre, putting 17 of your stores to caliber.

Or is that something that you're starting to see strategically you're reducing collision exposure I mean, it's sort of talk about how you see that segment going forward.

Yeah that was it.

As a result of our strategic review of the business and looking at where we were generating the highest profitability. We are clearly not exiting the business.

Business.

But saw it as an opportunity where we could improve the returns on those facilities through a partnership.

As you saw in the recent acquisitions, we've actually through the two recent acquisitions added four additional collision centers. So we do see collision as a very complementary business.

But where it is not.

Not really complementary to our business are the relationship we established with caliber really is a higher return for us and that was the rationale behind the decision.

Okay, great. Thank you.

Alright.

Yes.

We take our next question from Stephanie.

Nemo from Janney. Please go ahead.

Oh.

Hi, good morning, and congrats on a great quarter.

Thank you.

You know I think we talked a lot about more on the supply side of the equation. This morning, I'd love to get your thoughts on just the overall strength of the consumer.

Consumer.

How much that consumers willing to pay down about payments anything there and you know it's interesting just given where we are with such high used vehicle pricing is the spear eventually have a negative equity coming through in the years ahead and kind of on your radar.

Love to get your thoughts.

Okay, and just the strength of the consumer and how we should think in the next coming years.

Excellent question.

Toyota because all these freedom of values.

It's not fully understood is that this is a huge win for consumers.

Consumers are very happy.

Yeah.

275 million vehicles on the road of America that they own.

I have appreciated in value.

And this is very meaningful to them and it's one of the.

Underpinning of why business remains in good customers.

Customers are.

Hi.

Really that's what they thought it's worth so much some years ago and it gives them confidence in their brand and their confidence that they're making good decisions and most of them are looking at trading value. Therefore, the difference between what their vehicles worth and what they're buying.

As a as a key component so.

So.

When it comes to.

The automobile the American consumer is looking at it as well Hey. This is my freedom. This is my independent to the horrible Covid area, I think where I'd want Kerr who's in the vehicle with me and Oh by the way I'm looking pretty smart because my.

Worth more and when I thought it was going to be at this point and maybe I can trade it for a reasonable difference on something that is a newer with your modeling it's completely new so one when do you see that in the behavior of the consumers and the attitude of the consumer it's a.

Be able to for the business in total.

Yeah.

Got it understood well thank you so much.

Alright.

Absolutely.

Hi, Ken if you would like to ask a question Press Star then the number one on your telephone keypad.

We take our next question from David Whiston from Morningstar. Please go ahead.

Oh.

Yeah.

Did I get the question, but I'm hearing you if your line is open.

Oh, sorry, guys can you hear me now.

We can do right now.

Okay, sorry about that.

Okay.

You were talking a few minutes ago about how consumers are basically in several buckets in terms of some of the buy close to what they want some will just use and we'll just see.

Your next year.

But compared to a few months ago are you seeing more people.

For more willing to buy not quite but they want are more arm.

And I'll just wait till better.

Yeah.

It's really one of those all of the above.

Uh huh.

So.

Yeah.

Yeah.

You have consumers to say thats close enough and I understand the pricing in this environment and I want to move ahead.

With the purchase in the obviously the fact that.

It went down to 5000 vehicles in stock or 6000 vehicles in stock neither see needs to get demand there, but we have far more demand than we have shipments coming to us.

Inventory.

And so it's a significant number.

We give them a choice around the nearly new freedom, that's going very well, but I have to tell you.

The pent up demand is building.

And.

All of that.

Is awaiting into 'twenty, two and 23. So there is a bow wave of pent up demand that is building.

And even though we are growing our business and had an 18% increase in and revenue.

Not like were exhausting demand out there at all.

So I'm very pleased on the pre owned side for Autonation, We're clearly taking market share with a brand that's a acquisition.

Strategy, we're selling everything we can on the new side, where south deep into the pipeline consumers have shown.

That except waiting 30 to 60 days and they're not switching necessarily to build the order that they are definitely fine.

The pipeline and we're giving them visibility into what's coming and they make a preselection.

Comfortable waiting.

But at the end of the day.

That demand is building off the clock.

Okay, and do you believe GM and Ford will follow through and after the chips. The word has been run at lower inventory levels than pre pandemic.

Hi.

I couldn't hear the question.

Could.

Please bear with.

G M you said, Jim and afford.

Yeah, I was just saying do you believe that they will follow through after the chip shortage and run at lower inventory levels than before the pandemic like they're saying they well.

So this is I think.

God awful.

Could you repeat unbelievable pandemic.

No one in the history of many times I'd ever wish for.

There are learnings.

For the industry that have been.

Taken to heart.

I really believe that the.

Production push liquidation.

Gratification.

<unk> business model that has been corrosive for the for the auto industry is in the.

The dustbin of history.

And not that I believe.

The situation as we have it now where they can't even produce at.

Let's say trend to supply both.

The fleet business and the retail business at a reasonable run rate now I'm not saying, we're going to run here at this where we are today, but I think going back to the days of production push and liquidation and all of the destructive.

If behavior that comes with that include any damage to the consumer and the value of the automobile and value in the portfolio of the manufacturers in their finance company. I think there is an epiphany like why would we ever want to go back to that we have in our stores.

The opportunity to take deeply learn lessons here and find a new way forward. That's what's in discussion with every manufacturer and I think.

That paints a brighter future for our industry at every level.

Manufacturing supplier retailer and here's what everybody missed it it's better for them.

Consumer you're protecting what they what they invested and are behaving in a much more rational way.

I think that's the future of the auto industry. So how does every horrific thing you go through there should be and downloadable lessons that you don't forget and I think that's.

Sorry.

Where are the auto industry has concluded.

Yeah I agree with you and then last question are you worried about inflation next year impacting consumers' ability to buy a vehicle.

Yeah.

David.

What was the word you used a word about inflection.

Inflation generic.

Inflation I'm sorry.

This is a very good question. Thank you. Thank you for asking it so of course, we're watching inflation in the CPI and you see the big component that that pre owned is in that.

And everybody.

But oh my God, the sky falling inflation inflation inflation, what is missing is the consumer very happy with that premium valuation that they own. That's a 275 million vehicles on the road of America are worth more that has made the consumer happy not unhappy.

Everybody I own those.

None of those vehicles. So once you see the other side of the coin there that consumers are not unhappy about this they don't considering inflation and they say Oh I've made a pretty good investment here on this vehicle, it's worth more and if I wanted to sell it I can get a nice check and I probably want to trade it.

I have a reasonable different.

Did you realize that the consumer doesn't view that as inflation, but as a win for them and you understand our optimism and our confidence about the future of Guatemala.

Yeah.

Okay, Great that's helpful and Mike congratulations thank.

Thank you.

Again, if you would like to ask a question Press Star then the number one no type of thing keypad.

Uh huh.

Alright excellent I think we've answered every question today. Thank you.

All your questions I'm, not saying over the year listen I'm going to say over the decades past that first statement I'm very grateful for them.

And I wish you all nothing but the best Thank you for joining us today.

Oh.

Yeah.

This now concludes today's conference call you may now disconnect your lines.

Okay.

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