Q4 2021 Sonic Automotive Inc Earnings Call

Good morning and welcome to the Sonic Automotive fourth quarter 2021 earnings conference call. The conference is being recorded today, Wednesday, February 16th, 2022.

Good morning, and welcome to the Sonic automotive fourth quarter 2021 earnings Conference call. The conference is being recorded today Wednesday February 16th 2022 presents.

Presentation materials accompanying the management's discussion on the conference call can be accessed at the company's website ir.sonicautomotive.com. At this time, I would like to refer to the Safe Harbor Statement under Private Securities and Litigation Reform Act of 1995.

Presentation materials accompanying managements discussion on the conference call can be accessed at the company's website Oh, yeah. So sonic automotive took hold.

At this time I would like to refer to the Safe Harbor statements under private Securities Litigation Reform Act of 95.

During this conference call, management may discuss financial projections, information, or expectations about the company's products or market, or otherwise make statements about the future.

Jimmy This called critical management may discuss financial projections information or expectations of the company's products or market or otherwise make statements about the future.

Such statements are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made.

Such statements are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made.

These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission.

These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission.

In addition management may discuss certain non GAA financial measures as defined by the securities and exchange.

Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8K filed by the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

Please refer to the non GAA P reconciliation tables in the company's current report on form 8-K filed by the Securities and Exchange Commission earlier today.

I would now like to introduce Mr. David Smith, Chief Executive Officer of Sonic Automotive's. Mr. Smith, you May begin your conference.

Alright, Thank you very much and good morning, everyone and welcome to Sonic Automotive's fourth quarter and full year 2021 earnings call. As he said this is David Smith, the company's CEO .

Great Thank you very much. Good morning everyone and welcome to talkck automo's fourth quarter and full year 2021 earnings call. As he said this David Smith, the company CEO .

Joining me on the call today are Sonic President Jeff Dyke, our CFO Heath Byrd, our Chief Digital Retail Officer Steve Whitman, and our Vice President of Investor Relations.

Joining me on the call today, our President Jeff Dyke, our CFO Heath Byrd, our Chief Digital retail officer, Steve Whitman.

Our vice President of Investor Relations Danny Weiland.

Also joining us is Mr. Tim Keene, who was recently promoted to Echo Park Automotive Chief Operating Officer.

Also joining us is Mr. Tim Kaine, who was recently promoted to Echo Park automotive Chief operating officer.

Today's Sonic automotive reported all time record results delivering all time record revenues for both the fourth quarter and the full year of 2021.

Today, Sonic Automotive reported all-time record results, delivering all-time record revenues for both the fourth quarter and the full year 2021.

We're very proud of our team's performance for the quarter, which capped off a year of significant growth for our company.

We are very proud of our team's performance for the quarter, which capped off a year of significant growth for our company.

Yeah. In addition to our record financial performance, we achieved several important milestones that position Sonic for continued growth in 2022 and beyond.

In addition to our record financial performance, we achieved several important milestones. That position Sonic for continued growth in 2022. N B.

On a consolidated basis Sonic delivered record revenues of $3 $2 billion for the fourth quarter of 2021 and $12 $4 billion for the full year.

On a consolidated basis, Sonic delivered record revenues of $3.2 billion for the fourth quarter of 2021 and $12.4 billion for the full year.

up 14% and 27% respectively.

Up 14% and 27% respectively.

We continue to see increased customer traffic at our stores and robust consumer demand, which combined with our sales and marketing activities and improved digital channels drove our strong sales growth during the quarter.

We continue to see increased customer traffic at our stores and robust consumer demand which, combined with our sales and marketing activities and improve digital channels, drove our strong sales growth during the quarter.

This was achieved despite the challenging conditions which have persisted throughout the industry, including inventory constraints and supply chain.

This was achieved despite the challenging conditions, which have persisted throughout the industry, including inventory constraints and supply chain issues.

At the same time, we continued to see benefits from the steps we took in about 2020 and 2021 to permanently reduce our expense structure enhancing operating efficiency throughout the organization.

At the same time, we continue to see benefits from the steps we took in both 2020 and 2021 to permanently reduce our expense structure, enhancing operating efficiency throughout organizations.

For the fourth quarter adjusted SG&A expenses as a percentage of gross profit was 63, 3%.

For the fourth quarter, adjusted SG&A expenses as a percentage of gross profit were 63.3%, a 480 basis point improvement year over year.

A 480 basis point improvement year over year.

This contributed to fourth quarter, adjusted EPS of $2.66 per diluted share compared to fourth quarter 2020, adjusted EPS of $1 50 per diluted share a 77% increase.

This contributed to fourth quarter adjusted EPS of $2.66 per diluted share, compared to fourth quarter 2020 adjusted EPS of $1.50 per diluted share. A 77% increase.

This represents our 12th consecutive quarter of year over year EPS growth.

This represents our 12th consecutive quarter of year-over-year EPS growth.

For the full year, we delivered adjusted EPS of $8.46 per diluted share compared to adjusted EPS of 385.

For the full year. We delivered adjusted e P's of $8 and 46 cents per diluted share, compared to adjusted e P's of 385 per diluted share in 2020, a 120% increase and our third consecutive year of record setting adjusted.

For diluted share in 2020.

A 120% increase and our third consecutive year of record setting adjusted EPS.

In the fourth quarter, we took significant measures to continue the strategic expansion of our nationwide footprint.

In the fourth quarter, we took significant measures to continue the strategic expansion of our nationwide footprint.

Our landmark acquisition of RF J order one of the largest transactions in automotive retail history is.

Our landmark acquisition of RFJ Auto, one of the largest transactions in automotive retail history.

It's projected to add $3.2 billion in 2022 revenue.

Projected to add $3 $2 billion in 2022 revenues.

which are incremental to Sonic's previously stated target of $25 billion in total revenues by 2025.

Which are incremental to Sonics previously stated target of $25 billion in total revenues by 2025.

With 33 locations in seven states and a portfolio of 16 automotive brands. This strategic acquisition has added six incremental states to Sonics geographic coverage and five additional brands to our portfolio, including the highest volume Chrysler Jeep Dodge Ram dealer in the World and David Smith Motors.

With 33 locations in seven states and a portfolio of 16 automotive brands, this strategic acquisition has added six incremental states to SONIC's geographic coverage and five additional brands to our portfolio, including the highest volume Chrysler Jeep Dodge Ram dealer in the world and Dave Smith Motors.

Through this single transaction, we have substantially increased our geographic footprint.

Through this single transaction, we have substantially increased our geographic footprint, brand presence, and added considerable upside to our growth trajectory.

Brand presence and added considerable upside to our growth trajectory.

In addition to RFA auto we also completed several other strategic acquisitions to drive further growth in our franchise dealership segment.

In addition to RFJ Auto, we also completed several other strategic acquisitions to drive further growth in our franchise dealership segment.

We would like to welcome our newest teammates at momentum Chrysler Dodge Jeep Ram in the greater Houston market.

We would like to welcome our newest teammates at Momentum Chrysler Dodge Jeep Ram in the greater Houston market, Volkswagen of Faulston in Maryland, and Sun Chevrolet in upstate New York.

Volkswagen Falsone in Maryland.

And Sun Chevrolet in Upstate New York.

This fall our earlier acquisitions of four Audi Subaru and Volkswagen franchises in Colorado during the previous year.

These follow our earlier acquisitions of four Audi, Subaru, and Volkswagen franchises in Colorado during the previous year.

Our previous quarter, rather with the strategic additions, we have significantly enhanced our geographic coverage and brand portfolio, while ensuring that we remain disciplined in investing in the right businesses at the right return.

our previous quarter, rather. With these strategic additions, we have significantly enhanced our geographic coverage and brand portfolio, while ensuring that we remain disciplined in investing in the right businesses at the right return.

We wanted to take this opportunity to sincerely. Thank all of our manufacturer partners for their amazing support.

We want to take this opportunity to sincerely thank all of our manufacturer partners for their amazing support and dedication to our industry.

And dedication to our industry.

Without which we couldn't have achieved a record growth in 2021.

without which we couldn't have achieved our record growth in 2021.

Turning now to our Echo Park business.

In the fourth quarter, we continued the nationwide expansion of our unique pre-owned vehicle concept, adding five locations in four states, bringing our Echo Park brand to over 30 percent of the U.S. population.

In the fourth quarter, we continued the nationwide expansion of our unique pre owned vehicle concept, adding five locations in four states, bringing our Echo Park branch over 30% of the U S population.

which is ahead of our target of 25% reach by the end of 2021.

Which is ahead of our target of 25% reached by the end of 2021.

With our progress to date and growing our Echo Park distribution and digital network, we are well positioned to achieve our previously stated goal of 90% U S population coverage by 2025.

With our progress to date in growing our ecopark distribution and digital network, we are well positioned to achieve our previously stated goal of 90% U.S. population coverage by 2025.

In the interim, we have continued to invest in the human capital necessary to support the long-term success of Echo Park.

In the interim we've continued to invest in the human capital necessary to support the long term success of Echo Park with.

with the promotion of Tim Keen to Chief Operating Officer of Echo Park, and the addition of Tim Trong, Chief Revenue Officer, Dino Bernacchi, Chief Marketing Officer, Steve Whitman, Chief Digital Retail Officer.

With the promotion of Tim came to Chief operating Officer of Echo Park, and the addition of Jim Truong, Chief Revenue Officer, Dino Bernacki, Chief Marketing Officer, Steve Whitman.

Digital retail officer.

And a chief Technology Officer officer, which will be appointed shortly.

and a Chief Technology Officer, which will be appointed.

As an update on the development and launch of our proprietary E Commerce platform at Echo Park Dot com.

As an update on the development and launch of our proprietary e-commerce platform at EchoPark.com

Starting late in 2021, we have now gone live with a percentage of web traffic in select markets.

starting late in 2021. We have now gone live with a percentage of web traffic in select market.

Early results are very positive with a 68% increase in website car sold conversion rate, which the overwhelmingly positive feedback from our guests and better than expected F&I sales via the new platform.

Early results are very positive with a 68% increase in website car sold conversion rate, which is overwhelmingly positive feedback from our guests and better than expected F&I sales via the new platform.

To date over 90% of the end to end online transaction were out of market sales and were completed in as little as 10 minutes.

To date, over 90% of the end-to-end online transaction were out-of-market sales and were completed in as little as 10 minutes.

Our rollout continues to progress and we expect to roll out our new digital platform to our entire Echo Park network later this year, allowing us to market our entire Echo Park inventory nationwide.

Our rollout continues to progress and we expect to rollout our new digital platform to our entire Echo Park network later this year.

Allowing us to market, our entire Echo park inventory nationwide.

Turning now to our balance sheet.

During the fourth quarter, we continued to strengthen SONIC's balance sheet and liquidity resources, including an amendment to increase the total capacity of our credit facilities to 2.9%.

During the fourth quarter, we continued to strengthen <unk> balance sheet and liquidity resources, including an amendment to increase the total capacity of our credit facilities.

$2 $95 billion.

We also took advantage of attractive capital markets conditions and a corporate credit rating upgrade to refinance our existing debt maturities at favorable terms.

We also took advantage of attractive capital markets conditions, and a corporate credit credit rating upgrade to refinance our existing debt maturities at favorable terms.

Lowering our borrowing costs and supporting our long term growth plan with the issuance of 1.15 billion of unsecured senior notes to complete the RFA auto acquisition and for other general corporate purposes.

Lowering our borrowing costs and supporting our long-term growth plan with the issuance of $1.15 billion of unsecured senior notes to complete the RFJ auto acquisition and for other general corporate purposes, including the repayment of debt.

<unk> the repayment of debt.

We ended the year with over $700 million in available liquidity, including approximately $400 million in cash and deposits on hand.

We ended the year with over $700 million in available liquidity, including approximately $400 million in cash and deposits.

As part of our balanced capital allocation strategy since the end of the third quarter of 2021, we purchased over 1 million shares of class a common stock for an aggregate purchase price of $50.4 million.

As part of our balanced capital allocation strategy, since the end of the third quarter of 2021, we purchased over 1 million shares of Class A common stock for an aggregate purchase price of $50.4 million.

In addition, I am pleased to report that our board of directors approved a quarterly cash dividend of 25 per share.

In addition, I'm pleased to report that our Board of Directors approved a quarterly cash dividend of $0.25 per share.

which is a 108% increase from its previous level of 12 cents per share, payable on April 14th, 2022 to all stockholders of record on March 15th, 2022.

Which is a 108% increase from its previous level of <unk> 12 per share payable on April 14th 2022 to all stockholders of record on March 15th 2022.

This dividend increase reflects the strong performance in cash flow generation of our business our positive outlook for the future and our commitment to delivering returns to our stockholders.

This dividend increase reflects the strong performance and cash flow generation of our business, our positive outlook for the future, and our commitment to delivering returns to our soccer.

Our fourth quarter and full year 2021 results demonstrate the strong consumer demand we've continued to experience despite pandemic related headwinds.

Our fourth quarter and full year 2021 results demonstrate the strong consumer demand we've continued to experience despite pandemic-related headwinds.

Our success in maximizing operating efficiencies at our franchise dealership.

Our success in maximizing operating efficiencies at our franchise dealerships continued to expansion of the <unk> brand and the constant commitment and diligence of our valued team members.

continued expansion of the Echo Park brand, and the constant commitment and diligence of our valued teammates.

We are especially grateful to our teammates for their continued dedication and commitment to Sonic and Echo Park, which ultra ultimately makes our success possible.

We are especially grateful to our teammates for their continued dedication and commitment to Sonic and Echo Park, which ultimately makes our success possible.

Our distinctive guest centric culture that is at the heart of everything we do.

Our distinctive gas centric culture that is at the heart of everything we do.

Combined with our enhanced operating model has enabled us to post another year of record results in 2021.

combined with our enhanced operating model has enabled us to post another year of record results in 2021.

Looking ahead, we remain focused on implementing our strategic plans to fuel further expansion throughout our franchise dealerships as well as Echo Park.

Looking ahead, we remain focused on implementing our strategic plans to fuel further expansion throughout our franchise dealerships, as well as Echo Park.

We are very excited to enter 2022 with a strong foundation to increase profitability and drive our future growth. We look forward to effectively executing our roadmap to deliver long-term value for our guests, our teammates, and stockholders alike.

We're very excited to enter 2022 with a strong foundation to increase profitability and drive our future growth. We look forward to effectively executing on our roadmap to deliver long term value for our guests our teammates and stockholders alike.

This concludes our opening remarks, and we look forward to answering any questions. You may have thank you.

This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you.

If you would like to ask a question. Please press star followed by one.

If you would like to ask a question, please press star followed by one on your screen.

On your telephone keypad.

Yeah.

Yes.

Our first question today comes.

Our first question today comes from Rick Nelson at Stephens. Rick, please go ahead. Your line is now open.

<unk> from Rick Nelson Stephens Rick. Please go ahead. Your line is now open.

Sure.

Kurt Thanks, a lot.

Thanks a lot, good morning, and great quarter.

Right.

Alright, great quarter.

I'd like to start by asking about inventory supplies on the new car side. When do you think the challenges will abate and is there any visibility into when inventory might start to normalize? Maybe you could speak to BMW and Honda, two big brands of yours, what you're hearing from them.

Thank you.

Hi, guys.

Start by asking about.

Inventory supply.

Car side when you trade the challenge here is what were buried.

Is there any visibility there.

Inventory.

Mike started to normalize.

If you could speak to BMW Honda.

Big Brian careers.

Hum.

Hey, Rick It's Jeff Dyke. Thanks for the question look new car inventories from our perspective, we're going to continue to be tight we ended the quarter at about 11 day supply that's where we are right now got some unfortunate news yesterday from some of the manufacturers Toyota Lexus BMW included that Theyre cutting back.

Hey, Rick, it's Jeff Dyke. Thanks for the question. Look, new car inventories, from our perspective, are going to continue to be tight. We ended the quarter at about 11 day supply. That's where we are right now.

Got some unfortunate news yesterday from some of the manufacturers, Toyota, Lexus, BMW included, that they're cutting back.

uh... some of the allocation for February march due to uh... chips microchip shortages

Some of the allocation for February and March due to chips from Microchip shortages. So we expect this to kind of ebb and flow as we move through the first and second quarter, but all indications are that as we move towards the end of the year things are going to start to get better.

So, we expect this to kind of ebb and flow as we move through the first and second quarter. But all indications are that as we move towards the end of the year, things are going to start to get better. That's with all of our brands, including BMW, including Honda. Yesterday was a bit of a surprise, to be quite honest with you. We were not expecting that.

That's with all of our brands, including BMW.

<unk> Honda yesterday was a bit of a surprise to be quite honest with you we were not expecting that.

Um, but so it goes, you know, we've dealt with that for the last couple of quarters.

But.

So it goes we've dealt with that for the last couple of quarters and as you can see what happened in the fourth quarter. We've made adjustments obviously, our SG&A is in great shape, we've moved our margins up we had record.

And as you can see, what happened in the fourth quarter, we've made adjustments. Obviously, our SG&A is in great shape. We've moved our margins up. We had record front-end margins, over $6,500 a copy and new car for the quarter or for December . And we see that continuing. We had a great January . The margins are still high. And that's going to persist on as long as the day supply is going to stay tight.

Front end margins over $6500, a copy in new car for the quarter or for December .

And we see that continuing we had a great January .

The margins are still are still high and that is going to persist on as long as the day supply is going to stay tight I've said this before I don't think new car supply is going to come back ever to where it was.

said this before, I don't think new car supply is going to come back ever to where it was, you know, prior to the pandemic starting.

Prior to the pandemic starting.

I look for B&W to get to a 16 to 20 day supply. For us, they're at about a 10 day supply now as we move towards the summer. Hopefully without any more of the announcements that we had yesterday. But new inventory is gonna be tight. We think it's gonna get better as the year goes on and then progressively get better as we move into 23.

I look for BMW to get to a 16% to 20 day supply for US there at about a 10 day supply now.

We move towards the summer.

Hopefully with that anymore.

Announcements that we had that we had yesterday, but new inventory is going to be tight.

We think it's going to get better as the year goes on and then progressively get better as we move into the into 'twenty three.

Thanks, Jeremy.

Thanks, Jeff. Where do you think GPUs settle once inventories do recover? Do we go back to pre-pandemic levels or do you think, you know, OEMs will...

Where do you think.

Got it all what inventory do recover.

Can we go back to pre pandemic levels or sorry.

Hum.

Managed.

manage things tighter and some of those elevated GPU can carry on.

Sure.

Hello <unk>.

Thank you Eric.

Yeah, I'm the biggest cheerleader sitting on as many brand meetings as I can, and we're pressing very hard for them not to bring inventory levels back to pre-pandemic levels, and so margins are going to stay high. The margins prior to the pandemic are low. We should be selling cars at MSRP. I mean, this industry needs to get away from doing all the negotiating. It's a hell of a lot less complex.

Yes.

I'm the biggest cheerleader sitting on as many.

Brand meetings as I can.

We are pressing very hard for them not to bring inventory levels back to pre pandemic levels and so.

Margins are going to stay high the margins prior to the pandemic or Hello, we should be selling cars at MSRP I mean, this industry needs to get away from doing all the negotiating it's a hell of a lot less complex much easier and it brings the right value for the vehicles. So.

much easier, and it brings the right value for the vehicle. So I think that prior to the pandemic, you saw Sonic Automotive somewhere in the $2,000 to $2,300 range in terms of front-end margin. That number's got to stay north of $4,000, if not higher, as we move forward. And I would work that into all the models. I just don't see margins going back to pre-pandemic levels ever. I certainly don't see them coming back in 22 or 23. And that's great. It's great for the industry. It keeps us healthy. It puts lots of cash in the bank.

I think that prior to the pandemic you saw sonic automotive somewhere in the 2000 $2300 range in terms of front end margin that number is going to stay north of 4000, if not higher as we move forward.

And I would work that into all the models just don't see margins coming back going back to pre pandemic levels ever I, certainly don't see them coming back in 'twenty two 'twenty three.

And and that's great. It's great for the industry. It keeps the southeast puts a lot of cash in the bank lets us make investments like we did in RJ and make investments in Echo Park and.

make investments like we did in RFJ and make investments in Echo Park and continue to what we're doing. So, as David said in his opening, with the permanent reduction of SG&A, it just makes up for a really great run here these next few years if we can keep our manufacturers partners in line with day supply, which we're all working on. I think that's the only thing that can screw this up is if they bring day supply back to the 60, 70, 80 day levels that we used to see. I just don't see that happening.

Continue to what we're doing so with the as David said in his opening with the permanent reduction of SG&A.

Just makes up for a really great run here. These next few years, if we can keep our manufacturers partners in line with our day supply, which we're all working on.

I think that's the only thing that can screw. This up is if they if they bring days' supply back to the 60 70 80 day levels that we used to see I, just don't see that happening and Greg. This is Doug is that if you look at Sonic specifically.

And Rick, this is Heath. I'll just add to, you know, if you look at Sonic specifically, you know, I, you know, all of our models indicate the same thing that they, that Jeff is saying that, you know, it's going to stay well over 4,000.

All of our models indicate the same thing to date and that Jeff is saying that it's going to stay well over 4000.

at least in 2022, but some of it's going to be impacted by RFJ's mix. Their mix is a little bit different than ours, so that brings the GPU down a bit, so it's going to be a combination of that lower inventory driving the higher GPU, maintaining it higher, and a little bit of an impact of RFJ's mix that reduces.

At least in 2022.

But some of it is going to be impacted by <unk> mix mix is a little bit different and honestly that brings the GPU down a bit.

So there's going to be a combination of that.

Lower inventory driving the higher GPU, maintaining at higher and a little bit of an impact of our case mix that reduces hours.

Okay.

Speaking of RFJ, I'd like to hear about any early learnings, any positive or negative surprises.

Eric.

Yeah.

Yeah.

You hear about.

Or what you're learning.

Positive or negative surprises so far.

Curt.

Could come about pur.

Yeah.

Yeah, fortunately, this is David Smith. Fortunately, everything has been very, very smooth. We've, so far, been very pleased with the team, and Rick Ford and his leadership team are still in place, and everything has been going very smoothly.

Fortunately this is David so unfortunately, everything has been very very smoothly.

So far I've been very pleased with what the team and Rick <unk> and his leadership team are still in place and everything has been going very smoothly, yes. The only thing I would add to that is I think that we can learn a lot from each other they do a fantastic job running smaller stores in mid to small markets.

Yeah, the only thing I would add to that is I think that we, you know, we can learn a lot from each other. They do a fantastic job, you know, running smaller stores and mid to small markets.

And so they've got a lot to offer there. Also might open the door for us to do some tuck-in acquisitions of those type of stores that really have not been on our radar in the past that might be on our radar now. But overall, as David said, you know.

And so they've got a lot to offer there also might open the door for us to do some tuck in acquisitions of those type of stores that really has not been on our radar in the past that might be on our radar now, but overall as David said.

Then coming into our culture of the cultures are so similar already Rick forward Myron Herronimo and that whole team are doing a fantastic job running their platform early results have been fantastic beat our expectations. So we're very very excited and bullish on this acquisition. It was a fantastic acquisition for our organization.

them coming into our culture. The cultures were so similar already. Rick Ford, Myron, Geronimo, and that whole team are doing a fantastic job running their platform. Early results have been fantastic, beat our expectations. So we're very, very excited and bullish on this acquisition. It was a fantastic acquisition for our organization at this time. Just an absolute great addition to the family at Sonic Automotive.

At this time, just just an absolute Great addition to the to the family at Sonic automotive.

Good to hear. I'm curious also on your appetite for additional acquisitions. Do you go slower now while you integrate RFJ or are you in the market to do more deals?

Hi, Terry.

Your appetite.

For Vishal <unk>, you build slower narrow why you ran pretty great or ups.

Are you in the market to do more deals.

Yeah, Rick this is David.

This is David. We are very focused on integrating RFJ and also focused on Echo Park and continue our growth there. And so, we're going to be very disciplined on further acquisitions. That's not to say that if something came along that we wouldn't take a look at it because that's really what happened.

Yeah, we are very focused on integrating <unk> and also <unk>.

Focus on Echo Park and continue our growth there and so we're going to be very disciplined on on further acquisitions thats not to say that if something came along that we wouldn't take a look at it because that's really what happened with with RFK in that deal came together in record time over only about a three month period. So it was but it was a.

with RFJ, and that deal came together in record time over only about a three-month period. So it was a great deal.

Great.

team and we knew a lot of those people and so it was a very special deal, but I think barring something like that, I think you're going to see us really focused on driving the growth of our existing businesses and continuing on the growth path.

Team and we knew a lot of those people and so it was a very special deals so, but so I think barring something like that I think youre going to see us really focused on on driving our growth of our existing businesses.

On the on the growth path that we've already announced.

Great.

Thanks for that, David. Finally, if I could ask on Echo Park, I believe you previously had targeted profitability in late 2022. I'm curious if that expectation has changed. I don't see it in your slide deck.

You'll probably get a scan.

Oh part.

Believe you previously targeted profitability.

Profitability in late 'twenty to 'twenty, two I'm curious from tie backs Creditcards com.

And I don't see it in your slide deck.

Yes.

This is Jeff in our mature stores, that's true obviously with the used car market.

This is Jeff. In our mature stores, that's true. Obviously, with the used car market right now, the margins are really difficult. The average retail selling price has moved from about $21,000 to about $29,000, which is moving the average payment for the customer up from $400 to call it $500.

Right now the margins are really difficult the average retail selling prices moved from about 21000 to about 29000, which is moving the average payment for the customer up from 400 to call. It 500, and that's been a bit of a challenge, but as the new car inventory levels begin to come back the prices ease we've seen prices ease about too.

And that's been a bit of a challenge. But as the new car inventory levels begin to come back, the price has eased. We've seen prices ease about $2,000 a car over the last six weeks. And what we've been able to buy, if the auto

Dollars a car over the last six weeks and what we've been able to buy at the auctions.

You know, we're going to see our stores that are three to five years old begin to get profitable. Our five-year-old plus stores certainly do that as we move towards the end of the year in us getting sort of the EBITDA back on track. I do think that the first quarter and the second quarter are going to continue to be tough.

We're going to see our stores that are three to five years old begin to get profitable our five year old plus store certainly do that as we move towards the end of the year in us getting sort of the EBITDA back on track I do think that the first quarter in the second quarter, we're going to continue to be tough we're looking we've already.

We're looking, we've already started a little bit with the five-year-old model car at Echo Park. There's some requests from our consumers for us to sell more than the one- to four-year-old model. So we're looking at five- and six- and seven-year-old cars. We do that in a handful of stores now.

Started a little bit with the five year old model car at Echo Park there.

Yeah.

Request from our consumers for us to sell more than the 1% to four year old model. So we're looking at 5%, 6% and seven year old cars, we do that in a handful of stores now.

We'll see how that goes. We've got some retooling to do because of the complexities and reconditioning in order to do that. But we're taking it one quarter at a time here. We'll see how things progress.

We'll see how that goes we got some retooling to do because of the complexities and reconditioning in order to do that but we're taking it one quarter at a time here, we'll see how things progress as we go through the year and if we need to make some adjustments like that.

We will do that we are going to expand continue to expand Echo park will reach 50% of the nation by the end of the year. We're also introducing with Dino Bernacki, joining our team will start our marketing and branding campaigns. This summer.

So you can expect a drag on the stores and the marketing spend somewhere in the $40 million to $50 million range for the year. When you combine those two things added into our plan as we move forward and Thats, what we have in our forecast internally here.

uh... uh... but yeah but you know if the if the the markets continue to come down like we think they're going to from a pre-owned perspective we can get that average retail selling price at least below twenty five thousand dollars it really puts a lot of wind in our sales uh... for echo park and we're just one quarter of the time watching that we need to add another year or two to drop the average retail selling price we will uh... uh... but it's a it's a quarter by quarter watch here before we start making some of those moves

But yes.

If the if the markets continue to come down like we think they are going to from a pre owned perspective, and we can get that average retail selling price at least below $25000. It really puts a lot of wind in our sails for Echo Park and we're just one quarter at a time watching that we need to add another year or two to drop the average retail selling price we will.

<unk>.

But its a quarter by quarter watch here before we start making some of those moves.

Yes.

Yeah, and this is David Smith, and some of our teammates may want to chime in on this, but we achieved the number one position in our reputation.com surveys from our verbatims from our customers, and as Jeff said, our customers are telling us what they want, and they want more than just the one- to four-year-old cars in many markets.

Similar may want to chime in on this but we achieved the number one.

<unk> in our in our reputation dot com.

Surveys from our verbatim from our customers and as Jeff said, where there are cuts.

They are telling us what they want and they want more than just the one to four year old cars and in many markets. So I don't know if you guys wanted to touch on that but that was just incredible.

and they want more than just the one- to four-year-old cars in many markets. So I don't know if you guys want to touch on that, but that was just an incredible performance to be able to open as many additional stores as we did and still achieve that number one spot and be able to deliver that guest experience to all of our customers is absolutely incredible. I guess the only thing I would add is it's becoming more than just about price. That's how we really drove a lot of our traffic, and now the guest experience is really taking hold. The rest of the nation, or half the nation this year, will be able to experience Echo

So I don't know if you guys want to touch on that, but that was just an incredible performance to be able to open as many additional stores as we did and still achieve that number one spot and be able to deliver that guest experience to all of our customers.

<unk> performance to be able to open as many additional stores as we did and still achieve that number one spot in being able to deliver that guest experience to all of our customers.

Absolutely incredible.

I guess the only thing I would add is it's becoming more than just about price. That's how we really drove a lot of our traffic, and now the guest experience is really taking hold. The rest of the nation, or half the nation this year, will be able to experience Echo Park by the end of the year.

I guess, the only thing I would add is it's becoming more than just about price I'd say, we really drove a lot of our traffic and now the guest experience is really taking hold the rest of the nation or half the nation. This year, we'll be able to experience Echo park by the end of the year.

uh... when you combine all that echo parks is getting stronger and stronger and stronger uh... and that that's what we projected we we think the margins continue to improve

When you combine all that Echo park is just getting stronger and stronger and stronger.

That's what we had projected we think the margins continue to improve inventory levels continue to improve although it's going to be slow until those new car inventory levels come back in the rental car companies get out of the auction lanes for buying cars to start selling cars again.

Just going to be a little bit of a of a <unk>.

Slow drag here for the next few months, but it's nothing it's short term used cars are not going to continue to appreciate that's just not typical will.

We'll be in a depreciating market if we're not already in it as we move forward here over the next couple of quarters and we look for things to get back to normal from an EBIT perspective at Echo Park. And Rick, this is Heath. I'll just add, you know, I view 2022 as really the coming out party for Echo Park. We've got, you know, as Jeff mentioned and David mentioned, our branding has begun with We're building the infrastructure to make that happen. And we're also getting the digital retail platform being rolled out this year.

We will be in a depreciating market, if we're not already in it.

As we move forward here over the next couple of quarters, and we look things should get back to normal from an EBIT perspective in Echo Park.

And Rick, this is Heath, I'll just add it, you know, I view 2022 as really the

Rick This is heath I'll just add.

2022 is really the.

coming out party for Echo Park. We've got, as Jeff mentioned and David mentioned, our branding has begun with Beano. We're building the infrastructure to make that happen. And we're also getting the digital retail platform being rolled out this year. And so once you combine that branding and it becomes a household name, coupled with the ability to buy online, that's gonna be a tipping point for us.

Coming out party Branco products, we've got.

Jeff mentioned and David mentioned.

Branding has begun with Dino.

In the infrastructure to make that happen.

And we're also getting the digital retail platform being rolled out this year.

Once you combine that branding and it becomes a household name coupled with the ability to buy online.

That's going to be a tipping point for us.

And so this is, from my perspective, this is really a coming out year for 2022. And Steve Whitman, I think, needs to comment here on where we are from an e-commerce perspective, Rick, for you guys in our digital retailing platform. Steve? Yeah, sure. So as David mentioned in his opening comments,

This is my perspective, this is really a coming out year for 2022, and Steve Steve Whitman.

It needs to comment here on where we are from an ecommerce perspective on a rig for you guys in our digital retailing platform, Steve Yes, sure. So as David mentioned in his opening comments, we've launched a website and proprietary digital retailing tool in North Carolina, we've expanded to the South Carolina recently as well.

We've launched a website and proprietary digital retailing tool in North Carolina. We've expanded to South Carolina recently as well. Overall, the results are very positive. The new site is driving 68% incremental cars versus the old site, cars sold versus the old site.

Overall the results are very positive the new site is driving 68% incremental cars versus the old set car sold versus the old site.

Of those cars sold and online financing penetration is 100% and extended warranty penetration is 50%.

Of those cars sold end-to-end online, financing penetration is 100%, and extended warranty penetration is 50%.

Additionally, we've enabled nationwide shipping on our new website, so the consumer can go onto our website, find a car in Long Beach, and have it shipped to Charlotte, and we enable the consumer to do that. And that's really interesting. What we've seen is that 90% of the cars we've sold online have been shipped from outside of North Carolina. So that new ability to shop nationwide inventory is really driving incremental volume for us.

Additionally, we've enabled nationwide shipping on on our new web site. So the consumer can go onto our website find the car in long beach and have it shipped to Charlotte.

We enable the consumer to do that and that's really interesting what we've seen is that 90% of the cars. We sold online had been shipped from outside of North Carolina, So that new ability to shop nationwide inventories really driving incremental volume for us.

Additionally, we're seeing very strong internals, technical internals on the website. It's 30% faster than the old site, bounce rate is down 70%, and time on site is up 75%.

Additionally, we are seeing very strong internal technical internals on the website, it's 30% faster than the old site bounce rate, they're down 70% and time on site is up 75%.

Lastly, we've talked to consumers who have used the new tool. They love it. They talk about the simplicity of it, the ability to go end-to-end online in an automated way with no human interaction, and also the transparency. We're very transparent about the price, the payments, the products we sell the consumer, and we're getting great feedback from them early on here. So it's going to be a huge enhancement to our overall business.

Lastly, we've talked to consumers who have used the new tool.

Love It they talk about the simplicity of it the ability to go end to end online.

<unk> way with no human interaction and also the transparency, we're very transparent about the price the payments the products, we sell the consumer and we're getting great feedback from them early on here. So it's going to be a huge enhancement to our overall business.

Okay. Thanks, a lot of public commentary there much I appreciate it.

Thanks a lot for all the commentary there. Much appreciated and good luck.

Good luck.

Thank you. Thank you thanks Craig.

Yeah.

Thank you Rick. The next question comes from John Murphy from Bank of America. John . Please go ahead. Your line is open.

Thank you, Rick. The next question comes from John Murphy from Bank of America. John , please go ahead, your line is open.

Good morning, guys. I just wanted to follow up on on used and Echo parts specifically I mean Jeff as you look at this I mean, I think your target is that the vehicle sold here would be basically 40% less or 60% of the value of a new or the pricing would be sort of that kind of a gap Which is kind of more, you know normal I mean, where would you say that that relative gap is right now? Is it like half that or maybe even less in the in the used market on used to new price? No, I mean

Hi, Good morning, guys I just wanted to follow up on used in Echo Park, specifically I mean, Jeff as you look at it I mean I think your target is that the vehicles sold here would be basically 40% less over 60% of the value of a deal where the pricing would be sort of that kind of a gap, which is kind of more normal where would you.

You say that relative gap is right now is it like half that or maybe even worse in the end.

The used market on used to new price, though I mean.

Yeah, that's a great question.

That's a great question, but that's the big issue, is the new car prices are budding up closer and closer to new car prices. So it ticks...

That's the big issue is the new car prices are butting up closer and closer to new car prices.

So it typically runs in the 50% range, 55% range, it's now pushing up towards 70%, 67% I think is the automotive number that's just a that's too high and so what happens is as the new the used car customer can switch off and buy a new car.

In the 50% range, 55% range, it's now pushing up towards 70%.

67%, I think, is the COTS automotive number. That's just a, that's too high. And so what happens is, is the used car customer can switch off and buy a new car a lot easier, in particular if there was inventory out there. I think it would even be tougher. But we've gotta get back down in that 55% range and bring that monthly payment down closer to $400. That's where Echo Park and the wind really kicks in. And we're in such really good shape with our day supply. You know, we don't have a lot of inventory. This is on the franchise side and the Echo Park side.

Lot easier in particular, if there was inventory out there I think it would even be tougher.

But we've got to get back down to that 55% range.

And bring that monthly payment down closer to $400, that's where echo park and the wind really kicks in.

We're in such really good shape with our day supply.

We don't have a lot of inventory. This is on the franchise side and the Echo Park side.

We're sitting at a 36-day supply, something like that, a little higher maybe at Echo Park for store openings. But we're in really good shape with the inventory. What you worry about is the rest of the market out there that might have a 60-, 80-, 90-day supply, they're still sitting on cars that they paid at the height of the market. They're going to have issues.

Sitting at a 36 day supply something like that a little higher maybe echo Parker store openings, but we're in really good shape with the inventory what you worry about is the rest of the market out there that might have a 60 80 90 day supply they're still sitting on cars that they paid at the height of the market theyre going to have issues and.

So all of that inventory needs to bleed through in that average cost of sale needs to come down on pre owned that's going to put us back closer to that 55% level, that's going to drive the big Big volumes that we're very accustomed to at Echo Park, So we're being very patient.

So all that inventory needs to bleed through, and that average cost of sale needs to come down on pre-owned. That's going to put us back closer to that 55% level. That's going to drive the big, big volumes that we're very accustomed to at Echo Park. So we're being very patient. We've got this great franchise business that's spending a lot of money. It gives us a lot of flexibility. And so we're being real patient with Echo Park.

We've got this great franchise business is spending a lot of money. It gives us a lot of flexibility and so we're being real patient with Echo Park I don't want to go change the model given.

Given what's going on in this appreciating used car environment, but if we have to win and we're being asked to by our customers as David said, Hey could you guys start selling some five and six and seven year old cars, we're looking at it we put.

We put that inventory into the Tampa market and that store took off we put it in Birmingham and that store is taking off so we're going to play around with a little bit that will drop that average retail selling price and it needs to get below 25000, and really get the 'twenty two 'twenty three that's when we really start seeing the volumes come back.

Yes, when we think about the the <unk>.

Jeff, when we think about the 2021-22 new vehicle sales, our estimate for 2022 is $14,500, so we're lower than most folks. But let's say we're going to have three years of

2021, 22, new vehicle sales I mean, Arthur for 'twenty. Two is it's 14 five so I mean were lower than most folks, but let's say, we're going to have three years.

pretty depressed by supply constraint, volume years, in the next few years, there's not going to be...

Pretty depressed by supply constraint volume years.

The next few years theres not going to be that many young used vehicles available because they just wouldn't have been made and sold so I mean don't you have to kind of push into sort of 4% to five to six to seven year old vehicles in the coming years, just because the vehicles won't be there right in the one to three year old bucket. So just curious.

young use vehicles available because they just wouldn't have been made and sold. So, I mean, don't you have to, you know, kind of push into a sort of four to five to six to seven year old vehicles?

in the coming years, just because, I mean, the vehicles won't be there, right, in the one to three year old bucket. So I'm just curious, you know, how do you, I mean, what did that change in your model? I mean, you were talking about sort of on the production side.

How do you I mean, what did that change in your model I mean, you were talking about sort of the on the production side, there might be some changes, but other than that.

you know, there might be some changes, but I mean, other than that, is it really just

But, I mean, other than that, is it really just getting good vehicles at lower price points that just happen to be a year or two older? You can deliver a good product at that age. I'm just curious, what's the difference in what you need to run in the business model? Yeah. It's real simple. We've got to retool our reconditioning system. One to four-year-old cars are a lot easier to recondition than a five-, six-, and seven-year-old car in the parts availability issue that's out there. So, we've got to have a different level of tech. And we can retool very quickly to do that. It would take us 90 to 120 days.

Just.

you know, getting, you know, good vehicles, lower price points. It just happened to be a year or two older. I mean, you can deliver a good product at that age. I'm just curious, what's the difference in what you need to run in the business model?

Getting good vehicles at lower price points I, just happened to be a year or two older. You can deliver a good product at that age I'm just I'm just curious what's the difference.

And what you need to run in the business model.

Yes, it's real simple we've got to retool, our reconditioning system in one to four year old cars, a lot easier to recondition than a five six and seven year old car and the parts availability issue that's out there so.

Yeah, it's real simple. We've got to retool our reconditioning system and one to four year old cars a lot easier to recondition than a five, six and seven year old car and the parts availability issue that's out there. So we've got to have a different level.

We've got to have a different level tech.

And we can retool very quickly to do that. It would take us 90 to 120 days.

And we can retool very quickly to do that it would take US 90 to 120 days to begin to sell that 678 year old car.

uh... to begin to sell that six seven eight-year-old car uh... that's not something that we can't do but i i'll tell you there are a lot there more off-lease cars coming back this year than last about twenty five to thirty percent more and you might think that next year they're not but

That's not something that we can't do but I'll tell you. There are there more off lease cars coming back this year than last about 25% to 30% more than you might think that next year theyre, not but theres a lot of customers that stayed in their leases they bought their leases out so the cars coming back in a different way theyre not going to come back through the traditional lease lanes theyre going to come back.

<unk>.

Our swim lanes theyre going to come back from the customer returning that car via us buying the car off the street. We've also been we've been able to increase Echo parks purchases off the street from call. It in the fourth quarter around 10, 11, and 12% were pushing January February in the 18% range. We think we can get that number up to 30%, but John .

But John , if you're being logical, yes, the answer is yes.

If youre being logical yes. The answer is yes, we can retool and sell that 567 year old car, it's a lot easier and a lot less complex. If we can just sell one to four but you're probably right. We're probably you're probably going to see us move maybe talk a little more in the second quarter about selling some of that 678 year old.

being logical, yes, the answer is yes. We can retool and sell that five, six, seven-year-old car. It's a lot easier and a lot less complex if we can just sell one to four. But you're probably right. You're probably going to see us move, maybe talk a little more in the second quarter about selling some of that six, seven, eight-year-old inventory and buying those cars off the street. They're a lot easier to buy off the street. We do it every day at our franchise stores. And we can also leverage our franchise stores to buy more of those cars.

We can retool and sell that five, six, seven-year-old car. It's a lot easier and a lot less complex if we can just sell one to four. But you're probably right, you're probably gonna see us move, maybe talk a little more in the second quarter about selling some of that six, seven, eight-year-old inventory and buying those cars off the street. They're a lot easier to buy off the street. We do it every day at our franchise stores.

Sorry.

And buying those cars off the street there are a lot easier to buy off the street, we do it every day at our franchise stores.

And we can also leverage our franchise stores to buy more of those cars off the street to feed Echo Park, something we've never done before. But the inventory is there for us to do that. Customers are coming in every day for us to do that. We can utilize our service lanes. We can utilize our service lanes.

And we can also leverage our franchise stores to buy more of those cars off the street to feed Echo Park, something we've never done before but the inventory is there for us to do that customers are coming in every day for us to do that we can utilize our service lines to buy more and more cars and so logically probably yes, as we move into the middle of the summer and into the third quarter.

Youll see us, making some of those moves and John This is heath just to add a couple of them.

And John , this is Heath. Just to add a couple of the differences in that model is basically the way you make, when you look at the unit economics, the way you make money on a one to four compared to

That model.

Basically the way you make when you look at the unit economics, the way you make money on our one to four compared to a five to eight will be different you would see us on the five to eight you would be seeing a higher front end GPU and less F&I because the underwriting obviously is different for those five to eight year old for warranties.

Got it Okay, and then just to put them back to the franchise side I mean, the parts and service recovery is pretty good but it seems like there's a lot of legs.

Got it. Okay. And then just flipping back to the franchise side, I mean, the park and service recovery is pretty good, but it seems like there's a lot of legs left there. I mean, how do you see that progressing through 22 and maybe even 23 is the world? Um, you know, knock on wood, hopefully normalizes. I mean, it just seems like there's a huge opportunity still there in the backlog.

There I mean, how do you see that progressing through 'twenty, two and maybe even in 'twenty three as the world knock on wood, hopefully normalizes I mean, it just seems like there's a huge opportunity is still there in the backlog.

Yeah, we agree 100%. Our customer pay grew over 18% in the fourth quarter, which is great, really can't control warranty. That's down, I think it was 11%, if I'm not mistaken. But we agree with you 1000%. There's a lot of room there. We're hiring technicians left and right, right now, adding capacity into several of our brands. And there's a lot of upside in particular on the West

Yes, we agree 100% of our customer pay grew over 18% in the fourth quarter, which is great really can't control warranty.

It's down I think it was 11% if I'm if I'm not mistaken.

But we agree with you a 1000% theres a lot of room there.

We're hiring technicians left and right right now adding capacity.

Enter into several of our brands.

And Theres a lot of upside in particular on the West coast.

They were sort of first in and last out of all of this, so there's certainly opportunity to grow there, and we're budgeting that way. As the supply chain improves, we're going to see a lot more growth there.

They were sort of first in last out of all of this.

There's certainly opportunity to grow there.

And we're budgeting that way.

As the supply chain.

<unk>, we're going to see a lot more growth there there's been.

you know, historically high work in process in our, you know, leadership. So, and it's really been a

Historically high.

Work in process.

So it's really been a.

Not really the parts with the shipping of those parts.

not only the parts, but the shipping of those parts that has been the issue. But has that cleared up, which we think it will over time.

Then the issue, but as that cleanup or should we think it will over time that that will improve and.

Yeah, and we we did. We got hit and in the quarter we had a ton of attacks that were out sick with COVID-19 that it really smacked us around a bit. So there's plenty of upside in the fix.

We did we got hit and then we had a heart attack they were out sick because it really smacked us around a bit so there's plenty of upside in the fixed business.

Okay, and then just lastly, real quick on rising rates I mean is this an issue I mean, it's not a one for one just give the duration of our loans and leases Youll go up one for one with fed funds rate. So I'm just curious how you think about rising rates and any and you just gauge the backlog in both new and used it. It's just so strong and not supplied at the moment like this is going to be.

Okay, and then just lastly, real quick on rising rates. I mean, is this an issue? I mean, it's not a one-for-one, just give the duration of the loans and leases. You know, you don't go up one-for-one with said funds rate. So I'm just curious how you think about rising rates. And I mean, if you just gauge the backlog in both new and used, it's just so strong and not supplied at the moment that like this is gonna be largely subsumed or overwhelmed with the backlog of demand. I mean, how do you think the balance of power is there?

Largely subsumed are overwhelmed with the backlog of demand I mean, how do you how do you think the balance of power there.

Well from a demand perspective, you know I think we budgeted in for <unk>.

Well, from a demand perspective, you know, I think that, you know, we budgeted in for rate hikes for the year, and, you know, as long as those are moderate, we don't think that it's going to become an affordability issue. Actually, the actual

Hikes for the year and.

As long as those are moderate we don't think that it's going to become an affordability issue you actually the actual.

Vehicle prices becoming more of an affordability issue than the financing.

Vehicle prices, becoming more of a poorly affordability issued in the financing.

And from a standpoint of, you know, expenses from our perspective, obviously we factored in those increases if it impacts our floor plan, etc. But at this point, you know, we think the demand is so high and the supply is so low.

And from a standpoint of expenses from our perspective, obviously, we factored in those <unk>.

Increases if it impacts our floor plan.

Sandra but at this point.

We think the demand is so high and the supply is so low that rate increases are not going to impact the demand to the point that is material for the industry.

that rate increases are not going to impact the demand to the point that it's material for the industry.

Great. Thank you very much guys I appreciate it.

You bet. Thank you Jeff.

Thank you John the next question today comes from Rajat Gupta of Jpmorgan. Please go ahead. Your line is now open.

Thank you, John . The next question today comes from Rajat Gupta of JP Morgan. Rajat, please go ahead. Your line is now open.

Great. Thanks for taking the questions.

Great. Thanks for taking the question. I just wanted to follow up again, you know, on the used car market, you know, you're hearing some mixed commentary there around demand and growth. You know, industry data continues to suggest a pretty bleak picture, you know, year-to-date.

Just wanted to follow up again on the <unk>.

Car market.

Yeah.

The mixed commentary there around demand.

And grow industrial data continues to suggest a pretty bleak picture more to date.

Can we get a sense of what you're seeing at your franchise stores on the used car side? You know, maybe quality date, you know, what the demand backdrop really looks like, particularly as we head into the tax season here.

Can you get a sense of what you are seeing at your franchise stores.

The used car side will be quality data.

Demand backdrop and it looks like.

Particularly as we head into the tax season, and maybe Relatedly any views on pricing I mean, you did suggest earlier that do you expect it to correct over the next couple of quarters.

And maybe relatedly, any views on pricing? I mean, you did suggest earlier that you do expect it to correct over the next couple of quarters, but.

Do we see another leg up here into the tax season? Before we start to see the leg down, just curious how you view that dynamic here in the near term.

Do you see another leg up here.

The dock season before we start to see the leg down just curious how.

You view that guidance. Thank you.

And then I have a follow up.

Yes, certainly the used car volume is going to pick up in March and April and May from where it was in January and what we're seeing in February as it always does.

Yeah, certainly the used car volume is going to pick up in March and April and May from where it was in January and what we're seeing in February as it always does.

The demand is there I mean, we're going to sell 40 million used cars in this country. This year and that's 36% to $40 million is pretty consistent for.

uh... the demand is there and we're gonna sell forty million used cars in this country this year and that's you know thirty six to forty million is pretty consistent uh... for the last decade

For the last decade.

uh... it's the price point right and you know that's pushing demand up for new cars really because the use of our price points are are so high and that's gotta give uh... it's got a gift that i mean that that that's going to happen used cars are not like i said earlier are not going to continue to appreciate we do believe we're starting to see the depreciation cycle start

It's the price point right.

Pushing demand up for new cars really because the used car price points or are so high and that's got to give and it's got a gift.

Going to happen in used cars are not like I said earlier are not going to continue to appreciate we do believe we're starting to see the depreciation cycle start.

uh... if the last six weeks or any indication of that uh... and so that the used car demand is there it's still very strong uh... it's just a matter of providing the inventory at the right price payment that you can get for the consumer because most of our consumers are payment buyers

The last six weeks or any indication of that.

And so the used car demand is there it's still very strong.

A matter of providing the inventory at the right price payment that you can get for the consumer because most of our consumers are payment buyers.

And both on the <unk> side and the franchise side.

And we've got to hit that right price point that you know are our stores have literally gone from selling an average retail selling price of $23000 on the franchise side to $30000 or $31000 and its just too high its budding up to close to the new car pricing in.

And the payment.

You can get on a new car. So we're gonna battle that headwind here for the next couple of quarters for sure first quarter second quarter, maybe even into the third quarter, but it is going to slowly and progressively get better and that's the message.

uh... uh... that that week that would be good to get the message we've been getting from the manufacturers that's what our economist teammates are for telling us uh... and that that's what we budgeted

But that's what we've been the message we've been getting from the manufacturers. That's what are economists teammates are telling us and that's what we budgeted for.

That's the message we've been getting from the manufacturers. That's what our economist teammates are telling us, and that's what we've budgeted for. And, Rajat, this is David. As you can imagine, as the new car they supply is, you know, 10, 15 days, you know, naturally customers who can't get a new car are going to buy, you know, a car from our franchise stores that's a, you know, two- or three-year-old, you know, pre-owned car that's in great shape because that's just the only thing they can get. You know, so it may be closer to the price of new.

And this is David, as you can imagine, as the new car they supply is 10, 15 days, naturally customers who can't get a new car are going to buy a car from our franchise stores that's a two or three year old pre-owned car that's in great shape because that's just the only thing they can get. And so it may be closer to the price of a new vehicle, but they need a new vehicle. So they're going to go for the two or three year old.

This is David as you can imagine as the new car.

They supply is 10 15 days naturally customers, who can't get a new card willing to buy.

But car from our franchise stores Thats, a two or three year old.

Pre owned car that's in great shape, because that's just the only thing that can get in there. So it may be closer to the price of a new vehicle, but theyre still going on.

They need they need a new vehicles, so they're going to go for them.

Yeah, two or three on pre owned vehicle.

Got it.

Got it. Great. And then maybe just to follow up on Echo Park and maybe do like the full year puts and takes, you mentioned that you expect this kind of like, you know, reduced, you know, unit volume, you know, metering to continue here for the next couple of quarters. I mean, any numbers you could put around that, you know, in terms of like volume expectations, or, you know, just EBITDA losses, you know, have we

Great.

Then maybe just a follow up on a go forward, but maybe you can do like the full year.

Thanks.

You mentioned that you expect this kind of like.

Reduced unit volume metering to continue here for the next couple of quarters.

Any numbers you could put around that.

Worldwide volume expectations or just EBITDA losses.

We.

Are we going to see a continued improvement on that EBITDA loss or, you know?

Are we going to see a continued improvement on that EBITDA loss or no.

Should stay in this kind of level for some time, just maybe some numbers around how the Echo Park.

should stay at this kind of level for some time. Just maybe some numbers around how the Echo Park volume and loss trajectory could play out this year. And maybe if you could tie that into just some other puts and takes for the full year, for the overall.

<unk> and launch trajectory.

Sure.

And maybe if you could dive into like just some other puts and takes for the full year.

Overall business as well.

Yes, so, let's just call depending on what happens with inventory. This is a little bit of a guess, but 110000 to 120000 car somewhere in that ballpark for Echo Park. This year EBITDA progressively getting better as each quarter goes through the year.

Yeah, so let's just call depending on what happens with the inventory. This is a little bit of a guess, but 110,000 to 120,000 cars somewhere in that ballpark for Echo Park this year.

EBITDA progressively getting better as each quarter goes through the year and we get to the fourth quarter, positive EBITDA, maybe even in the third quarter. I think the first quarter is going to be tough.

And we get to the fourth quarter are positive EBITDA, probably maybe even in the third quarter I think the first quarter is going to be tough.

uh... certainly going to be tough uh... just because of where the inventory levels are right now uh... progress getting a little better in the second quarter progressively getting better in the third

That's certainly going to be tough just because of where the inventory levels are right now.

Getting a little better in the second quarter progressively getting better in the third and then in the fourth quarter, but some of the EBITDA is drag from moving to 50% coverage in the country. So drag from opening the stores that that 10% to $15 million range. We've been talking about on an annualized basis and then the investment of that 30% to 35, maybe even 40.

We'll see how it goes in our marketing and branding campaigns that Dino is working on that will launch. This summer. So this is as he said earlier, our coming out party kind of year for Echo Park, we're very very bullish.

knows working on that we'll launch this summer. So this is, as he said earlier, a coming out party kind of year for Echo Park. We're very, very bullish on what our customers are telling us. Our reputation.com scores, as David said earlier, we rank number one in the nation for a pre-owned dealership group in those reputation.com scores. And so when you add it all together, this is just a great year. It's going to be a great year for Echo Park. We're going to increase our revenue, increase our volume. EBITDA is going to continue to improve as we move through the year. Inventory is going to get better. It's going to roll us in.

On what our customers are telling us and our reputation dotcom scores as David said earlier, we ranked number one in the nation.

uh... reputation dot com scores as david said earlier we break number one in the nation uh... for a pre-owned dealership group

For a pretty owned dealership group in those reputation dotcom scores and so.

in those reputation.com scores. And so when you add it all together, this is just a great year. It's gonna be a great year for Echo Park. We're gonna increase our revenue, increase our volume. EBITDA's gonna continue to improve as we move through the year. Inventory's gonna get better. It's gonna roll us into being in an even better position when we roll to 23 as inventories come back to hopefully a 25 to 30 day supply level. So hopefully that gives you enough insight on what Echo Park's gonna look like as we move forward. Yeah, and this is David.

When you add it all together this is just a great year, it's going to be a great year for Echo Park are and increase our revenue increase our volume EBITDA is going to continue to improve as we move through the year inventory is going to get better it's going to roll us into.

Being an even better position when we rolled the 'twenty three as inventories come back to hopefully a 25% to 30 day supply level. So hopefully that gives you enough insight on what Echo Park is going to look like as we move forward.

This is David.

As Jeff was talking about earlier.

As Jeff was talking about earlier, the fact that we've kept our day supply in line and been disciplined about that, it's sure a whole lot easier to crank up the volume as the market does.

The fact that we've kept our day supply in line and being disciplined about that and share a whole lot easier to crank up the volume as the market drops as the market value of the pre owned vehicles drops we can crank up that volume rather quickly versus if we were carrying a large day supply going into that situation.

market value of these pre-owned vehicles drops, we can crank up that volume rather quickly, versus if we were carrying a large day supply going into that situation, it's a real drag on.

It's a real drag on performance, yes, sorry, I mean, we could have sold more cars in the fourth quarter on pre owned.

That's right. I mean, we could have sold more cars in the fourth quarter on pre-owned. There's no question about that. But we had no idea from September through December or January what the appreciation issue was going to be as new car inventories were tighter and tighter. So we maxed out our gross profit, had the biggest grossing quarter, fourth quarter we've ever had in pre-owned, and the biggest grossing year we've ever had in pre-owned, and took advantage of the market. We can do that because our day supply is so nimble. We carry 10 days in the pipeline, 20 days on the front line, and we can move very, very quickly to adjust for the market versus some of those competitors that are out there that are sitting at 70, 80, 90 day supply of product.

There is no question about that but we had no idea from September through December January with the appreciation issue is going to be is it new car inventories are tighter and tighter. So we maxed out our gross profit had the biggest grossing quarter four quarter, we've ever had in pre owned and the biggest grossing year, we've ever had in Korea and took advantage of the market. We can do that because our day supply so nimble.

We carry a 10 days in the pipeline 20 days on the frontline and we can move very very quickly to adjust for the market versus some of those competitors that are out there that are sitting at 70, 80, 90 day supply of product. There's a lot of water in that inventory theyre going to have to deal with.

There's a lot of water in that inventory that they're going to have to deal with.

Yes.

Yeah, and one of the things that's a big positive for Echo Park for this year is...

It's a big positive for Echo Park for this year is the.

The rollout of the digital retailing platform not only creates the incremental opportunity for consumers.

The rollout of the digital retailing platform not only creates the incremental opportunity for consumers, but the efficiencies are going to really do the SG&A because it truly is a human loss transaction. There is no one behind the scenes is doing paperwork in.

but the efficiencies are going to really show through the SG&A because it truly is a humanless transaction. There's no one behind the scenes that's doing paperwork and it is done completely automated. And so that will get us from.

It is done completely automated.

That will get us from 25 units per associate per month.

25 units per associate per month to, you know, higher, 30, 35, because the work is being done by the consumer online.

Two higher 30 35, because the work is being done by the consumer online.

We look forward, we will have a day when we get to really show the tool and we look forward to really rolling that out and showing everybody. It is a very special through of women and the team did a and bottle rocket our business partner just did a fantastic job with the development of the tool and when we get to the point, where we're ready to display it.

We look forward, we'll have a day where we get to really show the tool and we look forward to really rolling that out and showing everybody. It is a very special tool. Whitman and the team did a, and Bottle Rocket, our business partner, just did a fantastic job with the development of the tool. And when we get to the point where we're ready to display it, we'll put it out there for everybody to really see first time where you've got a tool that someone can buy a car online beginning to end with no human interaction.

We'll put it out there for everybody to really see first time, where you've got a tool that someone can back our online beginning to end with no human interaction.

robots, or bots as we call them, and a lot of great technology driving what is a fantastic guest experience. So we'll be excited to share that with you in the coming quarter or two. Yeah, and we will be setting up an analyst day to walk all of you through that.

Robots or boxes, we call them.

And a lot of great technology, driving what is a fantastic guest experience. It will be excited to share that with you in the coming quarter or two and we will be setting up an analyst day to work all of you do that as well.

Got it got it and maybe just to clarify the advertising number 30% to $50 million.

Got it. And maybe just to clarify the advertising number, you know, 30 to 50 million, that's, that's a year over year number. I think you spend like 36 million for the full year in Echo Park advertising in 21.

That's a year over year number I think you spent like $36 million for the full year, Michael Park advertising in 'twenty one.

Hum.

Um, so is that, yeah, that's totally incremental. Is that like a, yes, it is. That's all incremental. Okay. Yeah.

Yes, that's totally incremental.

Yes. It is.

All incremental okay, yes.

Yes.

Natalie a number on it.

Got it got it and just lastly, you gave us some color on the Echo Park EBITDA trajectory.

Got it, got it. And just lastly, you know, you gave us some color on the Echopora-Tibidaba trajectory.

You mentioned that you've mentioned like 4000, plus <unk> for the year.

You mentioned he mentioned like 4000 plus new GPU for the services continue to recover. I mean, where do you think, like, any range around what is GNA to gross might look like for the company for for 2022 in the ballpark, like, just for modeling?

Services continue to recover I mean, where do we think like any range around what SG&A to gross might look like for the company or for joining joining to any ballpark like just for modeling.

No I think if you if you do the modeling and look at the math.

You know, I think if you do the modeling and look at the math.

Understanding that there's a couple of things it's dragging on SG&A. If you look at our wages everyone's experiencing this but it's an incredible increase in wages from our standpoint.

I'm understanding that there's a couple of things that's dragging on SG&A, if you look at wages, you know, everyone's experiencing this, but it's an incredible increase in wages from a standpoint of merit increases and retaining good talent.

Merit increases and retaining good talent.

And so that's up about 6.4% from a corporate perspective.

That's up about six 4%.

From a corporate perspective.

So that's going to be a drag on your SG&A and then you add in the <unk>.

So that's going to be a drag on your SG&A, and then you add in the $50 million that Jeff was talking about, about the investments with that.

$50 million debt.

Jeff was talking about about the investments with Echo Park and then finally, we've got a little bit, it's probably $5 million to $10 million of what I would call RFG transition.

And then finally, we've got a little bit, it's probably 5 to 10 million of what I would call RFJ transition work that we need to do to run through SG&A. We've got a lot of opportunity for synergies with RFJ, but there needs to be some double work to get that in place.

Work that we need to do a run through SG&A, we've got a lot of opportunity with synergies with R. J, but there needs to be some double work to get that in place.

So they'll definitely have a return, but you'll have that drag in the SG&A as well. So you get a 6.4% increase in the wages.

So that will definitely have return, but you won't have that drag in the SG&A as well so you've got six 4% increase in wages.

That's not the total comp that you see in the reports, but that's our corporate team coupled with the investments that Jeff mentioned and 5 to 10 on expenses for RFJ transition and that gets you to the number that we're expecting.

That's not the total comp that you see in reports because thats our corporate team.

Coupled with the investments that Jeff mentioned and five to 10 on expenses J transmission.

And that gets you to the number of deaths.

We're expecting for 2022.

Yeah.

Got it okay. That's extremely helpful. Thanks, and good luck.

Got it. Okay. That's extremely helpful. Thanks and good luck. And one thing more just to be aware of, as you look at SG&A and overall, I think it's very important that everyone understands sort of the sequencing of our earnings. In Q1, it is always around 15%. It's never been more than 19% of the total year.

And one thing more just to be aware of as you look at SG&A overall.

Overall.

I think it's very important that everyone understands and sort of the sequencing of our earnings.

In Q1, it is always around 15% has never been more than 19% of the total year.

Second quarter and third quarter runs around 25% each quarter, and then the fourth quarter is the remaining profitability. We've run that type of percentages and cadence for the last 15 years. And so as you model, you know, our bottom line, that is typically the way that it is.

To the second quarter and third quarter runs around 25%.

Each quarter and in the fourth quarter is the remaining profits.

Profitability, we've run that type of percentages and cadence for the last 15 years and so as you model.

Our bottom line that is typically the way that it works and I think if you guys referred this is Jeff I think if you guys referred back to his comments last year. We gave the same kind of guidance if for whatever reason the third and fourth quarter always get tossed out there there are always wrong.

Yeah, and I think if you guys refer, this is Jeff, I think if you guys refer back to Heath's comments last year, we gave the same kind of guidance, and for whatever reason, the third and fourth quarter always get tossed up. They're always wrong.

uh... in it that you know i can't be made it any more clear here's the secret sauce it's fifteen percent the first quarter twenty five percent the second quarter twenty five percent in the third quarter thirty five percent or better in the fourth quarter that's our our our our profit works and we've we've been very very consistent in that over the years and it played out exactly like that in twenty one and guess what it's gonna play out like that in twenty

And I can't say it any more clear here's the secret sauce, it's 15% in the first quarter of 25% in the second quarter, 25% in the third quarter, and 35% or better in the fourth quarter. That's how our profit works and we've been very very consistent in that over the years and they played out exactly like that in 'twenty one.

And guess, what it's going to play out like that in 'twenty two.

Got it all going to depend a lot on led the new vehicle gross margin guidance I guess right I mean, it's such a big lever.

Got it. I mean, ultimately, it depends a lot on what the new vehicle gross margin cadence, I guess, right? I mean, it's such a big lever, but that's helpful.

Right.

Okay. That's helpful.

I'm, sorry, if I repeat that.

So I was just saying like the new vehicle gross GPU is such a big.

Yeah, I was just saying like, I mean, the new vehicle gross GPU is such a big, you know, unknown, or I would say, yeah, that has such a big influence on like the cadence or the seasonality of it, which just makes it a little difficult, but thanks so much.

Unknown.

I would say yes.

That has got a big influence on like the cadence or seasonality okay.

It just makes a little difficult but.

Yes.

Thanks, so much.

Yes, Sir.

Keeping in mind as the new vehicle GPU that we mentioned earlier is it is it decreases that we're also going to increase volume of new vehicle sales as well.

Keeping in mind is the new vehicle GPU that we mentioned earlier, if it decreases, we're also going to increase volume of new vehicle sales as well. Yeah, it's going to be 15, 25, 25, and 35, it's going to be right in that ballpark.

That's good it's going to be 15 to 2500 25 to 35, it's going to be right in that ballpark.

Okay. Thank you.

Right.

Thank you Ed as it.

Thank you, Rajat. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question comes from Brett Jordan from Jeffreys. Brett, your line is open, please go ahead.

And you if you would like to ask a question. Please press star followed by one on your telephone keypad.

The next question comes from Bret Jordan from Jefferies.

Your line is it good luck.

Hey, good morning, guys.

Did you say what percentage of your Echo Park product came from auction in the quarter?

If I missed this.

Did you say what percentage of your Echo Park product came from auction in the quarter.

Yes, so about 80, 283% somewhere in there that number is pushing up our pushing down and going into the first quarter, we're buying about 18% of our cars.

Yeah, so about 80 to 83% somewhere in there. That number is pushing up or pushing down and going into the first quarter. We're buying about 18% of our cars.

uh... off the street now uh... it keeping about eighteen percent of our cars trade-ins and and and vehicle purchases off the street so that's been a big focus for us a little harder to buy one to four-year-old cars off the street than it is to buy five six seven-year-old cars uh... off the street John murphy was talking about earlier from being

Off the street now.

Keeping about 18% of our cars with trade ins and vehicle purchases off the street. So that's been a big focus for US is little harder to buy one to four year old cars off the street than it is to buy 567 year old cars.

Off the Street is John Murphy was talking about earlier from Bofa. So.

uh... uh... but what we're going to we believe we can move that number up to about thirty percent

But we're going to we believe we can move that number up to about 30% of our overall inventory and we're working diligently on that we've launched our first marketing and branding plan around that.

of our overall inventory, and we're working diligently on that. We've launched our first marketing and branding plan around that. That went out sort of

That went out sort of December ish timeframe.

December-ish timeframe, and that continues to gain strength. We're getting a lot more traffic into our site to buy vehicles, so you can expect that number of purchases off the street and trades kept for Echo Park to grow to the 30% range. And then it'll grow even further as we expand the portfolio to selling five- and six- and seven-year-old.

And that continues to gain strength, we're getting a lot more traffic into our site to buy vehicles. So that you can expect that number of purchases off the street and trades kept for Echo park to grow 2% to 30% range.

Then it will grow even further as.

As we expand the portfolio to selling five and six and seven year old cars.

Okay and on pricing I mean, obviously your deck shows that you are selling three year old or a four year old cars at prices that would be comparable to five or six as you sell five to eight are you pricing more in line with the market or are you still trying to be below.

Okay, and on pricing, I mean, obviously your deck shows that you're selling three-year-old or four-year-old cars.

at prices that would be comparable to five or six as you sell five to eight.

Are you pricing more in line with the market or are you still trying to be below the competitive price significance? We'll still have a competitive price advantage, but we'll have positive margin on those vehicles. We see that right now in the stores that we're selling those vehicles at. Our margins are much better overall in the stores from a front-end perspective in the stores that we sell one to eight.

The competitive price significant that will still be below the competitor will still have a competitive price advantage, but we will have positive margin on those vehicles and we see that right now in the stores that were selling those vehicles that our margins are much better overall in the stores from a front end perspective in the stores that we sell 1% to eight than we do.

than we do the stores that sell one to four. It's just the one to four-year-old stores, the volume is significantly higher because the price advantage is so much greater in normal times.

Stores that sell one before its just the one to four year old stores the volume is significantly higher.

Because of the price advantage is so much greater in normal times.

The smaller front-end loss, but smaller F&I on the back-end is how to think about it. That's how you look at it. But for a blended number overall that's about that same 2,500 range.

So smaller front end loss.

But smaller F&I on the backend.

I would tell you to look at it but for a blended number overall, but it's about that same.

2500 range.

Okay, and as you could see more of the Echo Park online test market are you seeing the F&I attachment comparable to what you saw in the original larger in person Apple Echo Park stores.

Okay, and as you see more of the Echo Park online, you know, test market, are you seeing the F&I attachment comparable to what you saw in the original larger in-person Echo Park store?

Yeah, absolutely. We're seeing extended warranty penetration at over 50%, which is in line with what we're seeing in store. And what consumers are saying is they love the transparency and they love the value reframing we do with them online. We talk about how much the extended warranty costs, but versus repairs that they would potentially have to make down the road. So very positive feedback from consumers, and our F&I penetration has exceeded our expectations today.

Yeah, absolutely we are seeing our extended warranty penetration that over 50%, which is in line with what we're seeing in store.

What consumers are saying is they love the transparency and they love the value Reframing, we do with them online you talk about how much the extended warranty costs, but versus repairs that they would potentially have to make down the road. So very positive feedback from consumers and our F&I penetration has exceeded our expectations to date.

Yeah, that's been the best. That's been the best single, I mean, the performance of the website is fantastic from a metric perspective. But, man, it sure is a great relief given our model. We roll that site out and here comes our warranty penetration and here comes our finance penetration. And for those to really improve over what we've seen at the store level is just great. That's fantastic news for us. It gives us a lot of energy in rolling that site out everywhere. Yeah, and this is David Smith. And that's really...

That's been the best that's been the best singles I mean, the performance of the website, it's fantastic from a metric perspective, but it sure is a great relief given our model, we rolled that side out and here comes our warranty penetration and here comes our finance penetration and for those to really improve over what we've seen at the store level. It's just.

That's fantastic news for us it gives us a lot of energy and rolling that side out everywhere and this this is David Smith and Thats really to highlight that's our benchmark right. That's our benchmark for success.

to highlight that's our benchmark, right? That's our benchmark for success.

that thing that new website work in that way where we're making at least if not more than we are in a in person transaction. That's the key. And that's what we're saying. That's that's a big takeaway from from this call. Yep.

Saying that new website work in that way, we're making at least if not more than we are in person transaction. That's the key and that's what we're saying is that's a big takeaway from from this call.

Okay, and then I guess I might have missed this but I mean, obviously you talked a few quarters ago, a couple of quarters ago about sort of evaluating Echo park in alternatives is the disruption in the market and obviously the craziness around used vehicle sourcing and margin delaying that I mean is there any update on that strategy.

Okay. And then I guess I might have missed this, but I mean, obviously you talked a few quarters ago, a couple quarters ago about sort of evaluating Echo Park and alternatives is the disruption in the market. And obviously the craziness around use vehicle sourcing and margin delaying that. I mean, is there any update in that strategy?

This is David no. We don't have any additional comment on that from our <unk>. Please.

Uh, this is David. No, we don't have any additional comment on that from our, you know, we just please refer to our previous disclosure.

Please refer to our previous disclosure.

Okay great.

Okay, great. And then one last question, and this goes back to the prior as far as the breakout on a quarterly profit contribution, the 15, 25, 25, 35. Is your feeling, I guess, the read-through, and obviously GPUs at very high levels, is your feeling, I guess, on the full year that GPUs will stay relatively consistent in the sense that your outlook as far as the supply that we're going to be running these front ends that are still at very high levels and relatively stable?

And then one last question and this goes back to the prior as far as the breakout on a quarterly profit contribution of the 15 to 2500 $25 35, as Youre feeling I guess the read through.

Obviously gpus at very high levels as Youre, feeling I guess on the full year that Gpus will stay relatively consistent.

In the sense that your outlook as far as the supply that we're going to be running. These front ends that are still at very high levels and relatively stable.

Yes.

If you look at our internal models, it's basically flat across the board. Again, the RFJ impacts and their mix has a little bit of an impact. It's just going to be sort of the mirror image of 2021. We're going to end up, if you put them together, they're going to be sort of a mirror image for when it comes to new growth.

Andrew Your models there is basically flat across the board again, the RJ impact and their mix is a little bit of an impact is just going to be sort of the mirror image of 2021.

We're going to end up if you put them together they are going to be sort of a mirror image, if and when it comes to new growth and.

And, Brett, this is Danny. I mean, I think, to Heath's point, if you look at what the second quarter of last year looked like, when we were in the high 30-day supply, we were running just shy of 4,000 new GPU, but it was close to an 18 million SAR because we had the inventory to support that. And as GPUs come down, that's going to imply that inventory, or at least production, is increasing. And we believe, as David just said, that the volume could offset, from an overall earnings perspective, the volume could offset the GPU compression.

And Brad This is Danny I mean, I think it to heat point, if you look at what the second quarter of last year looked like when we were in the high 30 day supply we were running just shy of 4000, new GPU, but it was close to an 18 million Saar because we had the inventory to support that as Gpus come down and that's going to imply that inventory or at least production is increasing and we believe as David just said that the volume.

Could offset from an overall earnings perspective, the volume could offset the GPU compression to where it may affect the overall earnings level for next year, but it doesn't affect the cadence in our view from the quarter to quarter, Yes, Brett if you look at it if I don't care what brand. It is we are substantially sold through the pipeline and all new all new vehicles that we have it's on it is substantially sold through so.

to where it may affect the overall earnings level for next year, but it doesn't affect the cadence, in our view, from the quarter to quarter. Yeah. And, Brett, if you look at it, I don't care what brand it is, we are substantially sold through the pipeline on all new vehicles that we have at Sonic, just substantially sold through. So the demand is there, a little more inventory. I believe the margins may come level off a little bit.

The demand is there a little more inventory I believe the margins may level off a little bit.

But a lot of volume so.

uh... but a lot of volume so uh... you know we don't want sixty days supply inventory and we don't even want forty five days supply inventory

We don't want 60 day supply inventory, we don't even more of a 45 day supply of inventory.

They can just get it back to the 20% and 30 day supply you got great demand great margin and it sets up 22, and really 'twenty three for just to be fantastic years for the industry.

uh... they could just get it back to the twenty and thirty day supply

you got great demand, great margin, and it sets up 22 and really 23 for just to be fantastic years for the industry.

Okay, great. Thank you.

Thank you Brett. There are currently no further questions registered so I will now pass the conference back over to David Smith for his closing remarks. David please go ahead.

Thank you Brad.

No further questions registered so I will now pass the conference back over to David Smith.

Closing remarks. Please go ahead.

Thank you very much and thank you everyone.

Thank you very much, and thank you everyone, and y'all have a great rest of your week. We appreciate you attending the call.

Great rest of your week, we appreciate you attending the call.

Yes.

This concludes the Sonic automotive fourth quarter 2021 earnings conference. Thank you for your participation you may now disconnect.

This concludes the Sonic Automotive 4th Quarter 2021 Earnings Conference. Thank you for your participation. You may now disconnect.

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