Q4 2022 AutoNation Inc Earnings Call
Got it.
Okay.
Good morning, My name is breaker and I will be your Coke FEMSA right that first day.
At this time I would like to welcome everyone to the Autonation fourth quarter 2022 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question. Please press Star then two a new telephone keypad. Thank you.
I would now like to tell me, who leads to Derek Fiebig, Vice President Investor Relations you May begin your conference.
Thanks, Pat and good morning, everyone I'd like to welcome you to the Autonation fourth quarter 2020 conference call and webcast.
Cleaner on our call today will be Mike Manley, our Chief Executive Officer, and Joe lower our CFO .
Following their remarks, we will open up the call for questions.
Before beginning I would like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives constitute forward looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1095.
Such forward looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward looking statements.
Additional discussion of factors that could cause our actual results to differ materially are contained in our press release issued today and in our SEC filings.
Certain non-GAAP financial measures as defined under SEC rules will be discussed on this call.
Reconciliations are provided in our press release and on our website loaded located at investors Autonation Dot com with that I'll turn the call over to Mike.
Yeah, Thanks, Eric and good morning, everyone. Thank you for joining us.
22 was a great year for Autonation.
Four consecutive record quarter.
This results driven by the entire <unk> team and I know many of you on the call. So my personal congratulations to Oregon, Joe is going to take you through the results in detail, but I'm going to just touch on some of the headline numbers.
He is full of new vehicle retail industry was up 2% with us posting assigned so 4% increase over prior year.
<unk> industry declined by 6%, which in my view was significantly driven by constrained used vehicle inventory, which also was a key driver of our used vehicle sales being down 11% in the quarter total revenue up year over year in the quarter to $6 7 billion, bringing our full year revenue and at 27 billion up four 4%.
So notwithstanding the increased availability of new vehicle inventory and a somewhat choppy used vehicle market.
So on the retail and wholesale side, our continued disciplined approach to new unit margin can be seen in the quarter, particularly in our used vehicle margins.
This combined with another strong performance from our customer financial services team delivered the total variable per unit margin of more than $6300, which despite being down from peak levels. A year ago was essentially flat sequentially and an acceptable result in my view given the market conditions.
Now coming into the year, we challenged our office does teams to consistently grow their business and that performance and I'm pleased to report that they are making excellent progress as they delivered double digit sales growth combined with margin expansion.
Now with well controlled expenses, which John will expand on in more detail. We delivered $1 4 billion of adjusted net income for the year with a margin of five 2%.
So when I look back at 2022, I think you can now consistently see as we've discussed before the business drivers that I consider a structural improvements compared to pre pandemic levels. These are clearly CFA, which is driven by our focus on product penetration.
<unk> focus on sales effectiveness, our drive for operational improvements in our after sales business and finally, our SG&A control all of which have contributed to our record results for the year.
Now with a focus on cash conversion, which remained at nearly 100% we generated strong free cash flow for EBITDA in excess of $1 3 billion and this guy is a significant flexibility to allocate capital in a disciplined way.
During the year, we generated $1 7 billion in cash from operations, we invested more than half a billion dollars in our business, which included maintenance projects to ensure continued underlying performance from our core business organic growth investments, which obviously included the addition of Autonation USA stores and the acquisition of key assets to expand our business.
In addition in the year, we returned $1 7 billion to our shareholders.
Now that returns to shareholders within the form of share repurchases and during the year. We bought back 15 6 million shares at an average price of $110 per share, which I think is an excellent investment in ourselves.
Yeah.
And given all the activity in our operational performance, we are able to deliver an adjusted EPS result of $6 37 for the fourth quarter up over 10% year over year.
We often on these calls talk about the future and I think for the foreseeable future. The retail industry will continue to evolve, including how customers approach faithful ownership and usage.
It's an exciting time frankly to be in this segment and we believe the evolving landscape offers many opportunities.
<unk> already has some excellent assets first and foremost of course is our privilege of representing great OEM brands and strong territories, which has enabled us to transact with over 11 million unique customers from nearly 9 million households, another significant undervalued strength of our company and notwithstanding the fact that we typically add around 300.
1000, additional customers per year to our database, we know that within our existing customer base, which as I've already pointed out is extensive and significant opportunities to grow our business by covering a broader part of the automotive value chain, giving us an enhanced opportunity to reactivate inactive customers improve our retention of new customers.
Significantly expand the products and services, we offer and increase the frequency with which we interact with our customers.
So as a result in addition to requiring a select number of additional dealerships. We made three key acquisitions that were focused on expanding and extending the reach of the Autonation brand.
Last fall, we acquired CLG financial creating Autonation finance and establishing an enhanced CFS solution for current and future customers.
This business. In addition to legacy relationships is currently focused on servicing used vehicle buyers at our Autonation USA stores, but we'll expand to a franchise stores later this year.
Obviously as this business grows we will have an increasing more of a kind of a recurring revenue stream now.
Now this January we acquired <unk>, a mobile automatic repair and maintenance solutions.
The acquisition expands our range of services and creates meaningful loss of sales business opportunities, including utilizing another channel to provide service towards our nation's existing customer base and introducing additional vehicle owners that have purchased vehicles outside the alternation dealer network.
We passed with also gives I am USA brand, a unique service proposition and customer experience offering a range of off the sales products and services that are stand alone used car sales competitors frankly, just do not have.
As you know we've consistently growing our after sales business, which is more recurring revenue stream with a high percentage of customers bring their vehicles into service under warranty.
Decreases rapidly after the warranty period ends and we passed now expands our reach and provides a very convenient means for customers to service their off warranty vehicles.
Finally, we also improved our digital retailing experience with an enhanced digital storefront and our collaboration with Truecar.
All of these activities are targeted and focused to create a stronger more competitive business that is less exposed to the cyclical nature of the automotive industry and places us in more control of our destiny.
As I said at the beginning what a great time to be in this sector and with that I'll hand over to John will take you through the details of our results.
Thank you, Mike and good morning to everyone.
Today, we reported fourth quarter total revenue of $6 7 billion in.
An increase of 2% year over year.
Auto nation, New unit sales increased by 4% in the quarter compared to a 2% increase in the retail Saar.
Strong performance in our higher margin premium luxury brands helped support our new unit PBR, which was over $5600 for the quarter.
Overall, new market remained very healthy during the quarter as more than half of our vehicles.
<unk> at or above MSRP.
Trended down, but it's still far higher than historical levels.
Total used unit sales were down 9% in the fourth quarter Pgi remained fairly constant from the third quarter reflected discipline at our pricing strategy.
Continue to focus on self sourcing our used vehicle inventory, which represented 94% of our vehicle acquisitions in the fourth quarter. While good this needs to increase and we have ramped up our we'll buy your car efforts to fuel greater used unit sales.
After sales gross profit grew 12% year over year on both higher revenue and increased margins as we continued to drive strong performance in this area of our business.
While underappreciated underappreciated by some of the recurring revenue stream from after sales alone increased full year gross profit by more than $225 million to $1 9 billion in 2022 with a strong outlook for the future.
GFS CFS performance was also very strong and we continue to lead the sector with PBR is consistently above $2700.
Moving to costs.
SG&A as a percentage of gross profit on an adjusted basis was 59, 2% for the quarter significantly below pre pandemic levels, reflecting permanent structural changes to our cost basis.
Year over year SG&A increased by only one 5%.
As expected in the fourth quarter SG&A as a percentage of gross profit was slightly higher than recent periods, reflecting the investments in technology and new business initiatives.
Fourth quarter Floorplan interest expense of $20 million was impacted primarily by rate and counted compounded by increased inventory levels. The quarterly expense increase from $11 million in the third quarter and $5 million a year ago.
Reported net income for the quarter was 286 billion.
Or $5 72 per share adjusted.
Adjusted EPS of $6 37.
It was a record for the fourth quarter, and an 11% increase compared to EPS of $5 76, a year ago.
The adjustments to this year's EPS include acquisition related expenses, including upfront not a cash reserve recorded at the time of the acquisition of the <unk> loan portfolio.
Our operating performance and cash flow generation remained very strong with record cash from operations totaling $1 7 billion for the year.
This provides a significant capacity to deploy capital into our businesses and return capital to our shareholders.
As Mike mentioned for the full year 2022, we invested more than a half a billion dollars to expand our business. This included the acquisition of <unk> financial and the Moreland dealerships in Colorado.
Spansion of the USA used retail footprint and meaningful investments to enhance and expand our digital capabilities.
We further expanded our business with the acquisition of <unk>.
Repair Smith, which closed last month.
We also continue to expand our autonation USA footprint, adding stores in St. Louis in November as well as Austin in Albuquerque last month, bringing the current store count to 15.
The Autonation USA stores play an integral part of both our long term growth plans and the achievement of scale scope and density in our markets to better serve and meet the needs of our customers.
We have more than 20 additional facilities currently under development with an expectation that we will open 10, new stores over the next 12 months.
We also returned significant capital to our shareholders via share repurchase as Mike mentioned during.
During 2022, and we invested $1 7 billion.
Reducing our share count by 25% to 47 6 million shares at year end.
Full year share repurchases totaled 15 6 million shares.
$4 6 million of which were repurchased in the fourth quarter alone.
Thus far in 2023, we have purchased an additional 800000 shares with more than $1 billion of remaining share repurchase authority.
We ended the fourth quarter with total liquidity of approximately $1 8 billion, our current leverage ratio of debt to EBITDA of one six times remains well below our historical two times to three times range and looking ahead, we will continue to focus on operational excellence and disciplined capital allocation.
Supporting growth to drive long term shareholder value.
With that I will turn the call back over to Mike.
Yes, Thank you Jeff.
Doug would you like to take questions.
Yes, I think that we got.
Yes.
Operator can you remind the audience how to queue up for questions. Please.
Thank you.
If you would like to ask a question.
During the Q&A session. Please.
Please press Star then one on your Tencent Keybanc.
We'll pause for a moment to compile the Q&A Northstar.
Yeah.
Hello are you there.
We have our first question from.
John Murphy with Bank of America.
Great. Good morning, guys can you hear me.
We can good morning.
Good morning.
Just maybe a first question on the inventory front.
Things are slowly returning to normal.
Maybe in aggregate, but are still a bit tight but there is some pretty big dispersion between the <unk> getting closer to normal and the <unk> hundred 80 being very tight I'm. Just curious if you can kind of comment where that stands did inventory level stand for you and what you think the implications maybe for for Gpus as well.
Go forward, and maybe sort of dispersion in Gpus and the different brands.
Yes, good morning, John .
Thanks, Dave and Joe can jump in as well.
Exactly right. If you look at our overall inventory levels on our days of supply still very very low. Obviously, we are doing is we attracted by all of the Oems.
Across all of our brands that we represent.
Inventory levels.
Percentage of National is still below.
Sales as a percentage of national sales from.
If you look from a balance perspective.
Even those that have been able to replenish inventory faster than other Oems, we're still in a good shape and Joe and I were talking over the last few days, obviously as we.
We prepared for this and really lifted in detail at our inventory.
I think the key for us is not absolute numbers of inventory, but how that translates into dire supply as we go through the year and that obviously brings you to one of the key questions in that quarter. We think is going to happen with new vehicle volumes. So as I sit and look at this year I think there's strong potential for.
New vehicle volume under the right circumstances today.
$15 million and I think we'll end the year with continues.
<unk>.
Relatively low very relatively low frankly, when you look back at some of the previous year's inventory levels on a day supply basis.
And.
As a result of that I think there will be some continued mitigation on new vehicle.
Margin.
But frankly, if you say if you look at what happened.
Period of 2022.
We had as I said, a continuation continuation of that but somewhat compensated by volume increases across the brands.
Alright for wandering answer, but obviously these things are all tied together.
Joe do you want to add anything.
Yes.
To elaborate on the same theme.
John If you look the days I hope of 75 to 90 days of inventory are long in the past I also think periods of nine days are unsustainable.
At <unk> 19.
With cooperation from our partners at a 30% to 45 day type normal.
As a pretty healthy place for everyone to operate and so whether we get to that by the end of this year I don't know, but to me that would be a nice level that would serve everyone's interest I think exceptionally well and thats kind of how we're thinking about the business right now.
Okay. Thank you. Okay. That's helpful. And then just a second question.
Slightly multi pronged on cap allocation.
And human capital allocation.
The finance business is going to grow.
I'm, just kind of want to understand where that goes and exactly what you really are intending to do their repair Smith.
Another sort of leg of the stool.
That is new and might augment our should augment.
The after sales business and Mike you were.
Thanks, I think very interesting about reactivating customers, which I would love to hear what that means in the prepared from it helps there and then obviously, there's the share buybacks. So if you think about and Autonation USA. If you think about sort of the flow.
<unk>.
Cap.
And free cash flow to the finance business to the after sales and the extension Autonation USA and then buybacks.
I mean, how should we think about this going forward because there are new businesses that are kind of.
Jason businesses, they are popping up.
There might be a draw on capital or may not even be that they could draw capital may be incremental on their own just how do you think about that.
Just the very first thing that we think about is what is the best use of capital for our shareholders perspective and.
Clearly you have seen over the last two years, given the market conditions and valuation of assets out there. The best return was to return it to our shareholders.
We are very clear on that and that will continue our discipline will continue to be with that in mind.
Now I'm going to expand on some of the things that that.
You talked about.
Yes.
There are a lot of.
Really our approach is to maximize the assets that we have in place.
And in appropriate circumstances to add to that that will it will broaden our geographical coverage, but very deliberate.
We have an embedded asset in the organization are very significant customer.
Bye.
Along parity is as now.
Significantly because the reality is that not all of those customers are active and our share of their wallet is relatively narrow.
Use it service, but that total that total spend on transportation mobility whichever buzzwords you want to use is very very broad. So our approach really is to expand our business on geographical range. So that we can continue to add more customers to our base.
I understand why customers over time.
Become inactive and Thats typically because the age of the vehicles that they have gets beyond seven or eight years and they therefore believe it's the right thing to do for them to move out of our franchise environment.
All bank moved outside of the 25 mile radius of our stores and therefore, our penetration in the off the shelf Park drops off we passed with is an ideal solution for that because not only have a incredibly convenient and overcome that geography limitation. They were also able to package also able.
Packaged their services in a way that they.
Understanding that services, but when you value. The convenience of then coming to you. It means our customers are likely to think about them as well.
The other consequence of repair space frankly, as it provides for our Autonation USA stores at great USP, because it matched now not only being able to buy a phenomenal years vehicle backed by auto nation. You now have access to a team of professional service providers.
<unk> that will give you the most convenient service option in the used car business in our opinion. So when we think about the businesses that we buy but we're thinking about really the needs of our existing customers.
If you imagine the aten, including they sometimes up to 300000 customers that were added to our base each year. So our approach really is to reactivate those customers that.
Looking for a different type of service that has not traditionally provided by franchise store and we're adding businesses and driving us internally growing them as well.
And that will help that to make sure that we can reactivate those customers and nimble necessity as we offer it.
But hopefully that's relatively clear in terms of what we're doing and I think the acquisitions that we've made in the businesses that we're trying to grow internally I'm really directed at that.
Yes.
On the financing side.
Well let.
Let me just add a I'll call a boring finance answer to some of this.
Strategically Michael is I think very clear and articulate what were trying to do when you match that with the financial or capital strategy.
On a first class problem, we have robust cash flow and a very strong balance sheet. So then the question is how do we utilize that and maximize the benefit of it.
It's not surprising to most as an IRR driven approach and we look at what the return is on each opportunity.
We have obviously as Mike mentioned in the recent past viewed share repurchases at extremely attractive opportunity.
As we look forward, we have found some opportunities that offered very very compelling returns.
And as we think about capital going forward, we will deploy it in a similar fashion and identifying where there really is truly incremental value and.
And I think we're going to ask about the finance business and I think we've been very clear.
One we're going to be delivered on its growth and we will utilize facilities that we are not funding all of that directly from our balance sheet.
As is typical in some ways similar to the way you think about floor plan. So we're not going to be putting dollar for dollar behind the capital business at the expense of other opportunities.
And let me just follow up on that.
I think Joe in the past John last year.
<unk> was was it was clear that we.
We are going to grow that business that business has been around for 35 years.
And it has been successful during that period and our intention is to grow that business at a speed that we believe is very manageable.
With the growth of our ion USA businesses predominantly.
Have those relationships and our franchise businesses with our OEM captives and that will continue so we really wanted to focus on the growth of Anda. So it's kind of grow slowly.
Growth differently and it will grow in a way that we think is manageable with asthma is a phenomenon star businesses, a much younger business full of dynamic people really trying to forge a new <unk>.
Trying to provide convenience and great service to their customers.
There are startup business that Brian well I think <unk> been very deliberate in terms of that growth.
There's a lot of there's a lot of things that need to continue to happen to make that business grow to scale. So again I would expect we're past that and of course over the next 234 quarters to starting to become a dominant a dominant force is about a deliberate progressive approach to growing our business in ways that lease.
<unk> will deliver over time, a really good balanced result.
Yeah.
Mike just real quick a follow up it's fair to say that these are good incremental opportunities that are not going to be.
Very material calls on capital that would crowd out share buybacks that had been a big part of this story and there's probably room for everything is that is that a fair way.
To think about this.
Actually I think that's a more adequate way, they're not going to put it to thank you for your answer.
Okay. Thank you very much guys.
Thank you John Thank you.
Your next question comes from the line of Daniel <unk> with Stephens.
Your line is open.
Yeah.
Yes, Hey, good morning, guys. Thanks for taking my questions.
Joe I wanted to follow up on one of the answers and the last question I think you talked about confidence in the OEM partners and then maybe just the high 30% to 40 days and I'm. Just curious what gives you guys. The confidence of the OEM partners are going to be disciplined in this cycle historically, maybe they've been a little less disciplined as supply comes back online so cure.
Maybe what's changing in the conversation what gives you confidence in that and then to dovetail onto it and that is what you expect kind of where would you expect new GPU to shake out maybe for the year, what's the exit rate you're planning on for 2023.
Just on that the days of the outlook you provided.
Yeah.
Okay.
Okay.
You might think it but we actually John that daily weekly monthly conversations with the Oems.
This complexity of inventory levels, we talked to them periodically. So we can understand what theyre Hudson aspiration.
<unk> volume market share, but also then the production drove our prices.
As anyone.
Are those back what I think has been really interesting is.
Nobody knew what would happen.
Over the second there was an industry wide correction of inventory now.
A noteworthy.
Nobody had any clue everybody was too scared to do it because if you do it as an individual Oems to get crushed.
Circumstances created a situation where everybody got affected at the same rate and there was a reset across the industry.
Prior to that in my life anyway.
Im not.
I'm not the Best example, frankly.
But prior to that and monetize in a whole concept.
Profitability was <unk> chat and as hard and fast as efficient and as you can change on John John Shove It out shutdown whichever outlet yourselves guys.
Let your sales guys.
Sorry in the marketplace to share that with <unk> that was the predominant and again I have to speak for myself I can't speak for the Oems you guys towards.
So to those but those are the dominant if you on the future. So you get this opportunity to reset it right.
I'll now, Virginia competent people suddenly realize that yes. This whole concept of supply and demand actually may be coming in that we think may.
Work for everybody and I'll, let me think that people love and I wouldn't cite.
Confidence level, 100% Mark do you want to do when they go on to fine jewelry and take it back now.
I want to do that but I do believe that within the different pressures that Iran, and OEM and remember that very large union relationships very large investments.
Recognize that as a balance that's what I believe I think theyre all intelligent people they wouldn't be able to run less complex business.
And I'm, hoping that that provides.
Got it and then Joe any follow up question on kind of where you expect GPU to end this year given that inventory kind of expectation.
So obviously not going to predict an absolute level.
And obviously there is some talk about an expectation of some level of pressure as inventory builds but consistent with a view that the business can be run at 30% to 45 days, that's consistent with the expectation that <unk>, while moderating theyre going to be above pre pandemic levels and that should be a sustainable.
Model provided everyone cooperating in much the way that Mike alluded.
I alluded to.
So we're cautiously optimistic but also very pragmatic about the whole thing.
Yes.
Got it.
We are cautiously optimistic, but cautiously optimistic overhang of news about the <unk>.
Follow up on it.
Okay.
Got it it makes a lot of things maybe just to follow up on something more in your control on the used side of the business.
It does feel like you guys have improved your sourcing customer sourcing last few years, maintaining higher gpus.
Unit sales were a bit light there kind of relative to the group. So kind of curious is it becoming more difficult to buy from consumers as vehicle equity normalizes or what are your expectations. There around your ability to continue self sourcing enough units to drive.
Huge growth in the future.
I'll add on to the same confidence in our ability to self source because I think in Q4 generally is kind of about 94% South goes above 90% anyway, I have absolute confidence in that.
That's not the real answer to the question I don't thing first I do think youre going to see an increase in new vehicle in the industry as we talked about obviously as a large player in the franchise new vehicle.
Retail business, that's going to help us in terms of our sourcing and that's a competitive advantage against those standalone. These players, which I think has been pointed out multiple times.
The reality is that roughly 90% of all of the vehicles that are sold used days with us out either through franchise dealers will publicly traded used car dealers under 10 years old.
Roughly 90% of that 40% of those vehicles are sold between.
Two and three year old vehicles.
And those vehicles has to be put in the market two or three years.
Two years or three years ago to be available. So it's absolutely clear that unless the sales profile has been in the used car market in United States for years is going to dramatically change we are entering a period of tight supply on two three and four year old vehicles.
The majority of these cross out and Thats going to impact wholesale prices and ultimately retail prices margins I think we're going to be fine and they're going to bounce in and out through.
The bandwidth that they always bounce in and out because as wholesale prices move retail prices move you will know the dynamics, but the reality is that those vehicles are going to be in short supply for a period of time, which will impact those prices. So.
For us what we're going to do is we're going to obviously continue on our strength in <unk> continue to maximize the trading that we get through our franchise new vehicle sales.
And make sure that what we're doing is appropriately playing in that market to get what we hope is more than our fair share of those vehicles to maintain ourselves philosophy.
Over time, we will maintain elite 30 day ish, 35%, maybe 40 valuation supply on used vehicles. So that we can be reactive and what that may mean is that our volume may come down but in response to that our teams know that if your volume is coming down your margin better reflect that.
<unk> supplied so that's the dynamic that we're in it began I think.
Months ago, it's going to continue into this year that bad news, but I think it's bad news because.
If we see the same net price that we're seeing that transaction costs on new vehicles.
Solid used vehicle wholesale and retail prices is going to help bridge that balance to pay for our customers.
It's just the reality of the business and it's one that we'll be facing for the next six months, but it's not bad news is what it is you just react to it.
Okay.
Really helpful color I appreciate it and best of luck.
Thanks.
Your next question comes from.
Rajat Gupta of Jpmorgan.
I apologize.
Our next question comes from.
Bret Jordan with Jefferies.
Hey, good morning, guys.
Hey, Brett could you talk a little bit more about repair Smiths and maybe what the scope of services that you can offer on a remote basis are there any regional restrictions there you know as far as outdoor work her driveway repair how are you.
Sort of envision that.
Yes, it's great question I mean, obviously, obviously there is a limited range of services and repairs that can be that can be carried out on someone's drive within a cop hospitals eyes.
Those elements and those that is.
But it's still incredibly broad if you think about it.
The thing oil changes fill a changed cabin change over those things they can do with a whole host of different repairs, which includes vehicle diagnostics.
They can also provide three theres a lot of business I'll give you one of the things that to me is always there is always that a great area. There is a lot of business private.
<unk>, one <unk> to another guy <unk> selling the car to another guy those private sales some of those people actually wouldn't mind the technician ton enough for a relatively competitive fee and doing a quick diagnostic on the call that by giving them a level of protection and that is in that.
See sustained market.
So there's a whole host of things that we've had estimates of exploring and working on they also have great relationships with fleet companies because its incredibly convenient for these large fleet operators. The half then that transport.
Air Transport vehicles serviced.
Right.
We're not using them. So I mean, the breadth of services that they can provide this phenomenon that add that to all of the physical infrastructure that we have.
All of the physical infrastructure that we have so at least you tell on that but Youll House for example, and you've asked us to come into the diagnosis and actually you need new transmission, we aren't going to do that and still have arrived was clear, but the vast mcnally of access to tens of thousands of reps around the country.
They can go and do that for you.
The benefit is if they are able to retire a dual with ICANN repair you don't like uncertainty diagnose it police and you know what your antibody that way if necessary, we can get you to ramp.
So.
I don't actually see much limitation based upon what you've said with the exception of obviously the further north you guys and waiting time.
The less the last I would say the less likely you are to do what I would call prolonged job, but again, if you look at the passenger count for footprint.
How are we going to grow together, that's obviously been part of the whole process.
Okay, Great and then one quick question you've commented that 50% of transactions were at or above MSRP could you give us the percent above MSRP and maybe what's the cadence in that mix.
Okay.
Bob MSRP has really not changed really through the entire evident that we need to clarify. This there is about 50% never hazard, 50% of transactions done above MSR at MSRP at MSRP.
Now you are calling for clarification of the app or above and I was trying to get the above.
Yes. So so good clarification minus speak very clear above MSRP through really the pandemic as never been much above three and today is slightly below 2% and that is really a company policy and approach, which we've maintained so.
50% or thereabouts, Adam SRP.
Less than 2% of book.
For clarifying that.
Perfect.
Alright, thank you.
Thank you Brett next question comes from.
London.
Wells Fargo. Your line is open.
Oh, great. Thanks for taking my questions.
Can you just go into what drove the new GPU decline I think it was down about $300 quarter over quarter is that customer mix, what is causing that decline and how should we think about that as we go forward. It's not rate can continue.
But I think the reality is that that new GP is never going to be sustained at that level and we've been talking about it for a long period of time that as new inventory levels begin to restore and <unk>.
Franchise networks that youre guiding to say.
Hum.
A better balance and I'll say it better because it brings some volume back in Gpus drop, but ultimately what you're trying to do is maintain a low level.
Profitability. So it was really driven by the fact that inventory levels across our manufacturers.
Began to recover and I would say while expected moderation of new Gpus.
That's how I would describe it and I think you will see that in this year as well and I don't think it should come as a surprise to anybody.
Okay.
Got it.
How should we think about F&I and there was some article about dealers getting concerned about with rising interest rates people, many scrutinize that line item.
Payments are.
Since so much pressure on the quarter I mean, how should we think about that as the year progresses.
Okay.
So.
I think what Youll see when you when you get a rise in interest rates and <unk> done sort of F&I rights with 10 staff and as penetration levels begin to drop a little bit because other providers become more attractive.
I think thats what happens.
Often it gets mitigated by an extension of the time.
All annual and increase in terms of deposit the good news for US is a big focus really has been.
Our focus on additional products within our CFS performance, so that we have a very balanced.
Performance.
As you've seen in our results consistently.
Consistently has been what I think is great levels. So as interest rates continue to gather youll see movement up the FICO range.
Away from deep subprime up through mid Prime.
You see obviously, the Reits Costco and I think there's lots of most of the industry I think of about 2% of rate is now embedded in all of the climate is written in the United States and you see a mitigation on penetration levels.
From tactical pseudo taxes Finance company. So that's how that's how you should think about it and that just says reinforces our focus on the additional products to add value to our customers that are not linked to an interest rate.
The only thing I would add just to further clarify.
More than 70% of.
Our CFS is actually coming from product rather than financing.
And as Mike indicated is a real focus on improved increasing penetration increasing profit per product.
Clearly our focus and I think underlies the confidence we have in being able to maintain that going forward.
Okay.
Okay.
Just to be clear on those products.
Those products. In addition to the financing those are still embedded into what the person pain, so and so on shopping that payment to.
To keep those products payment would still be higher rent.
And most in most cases, yes, I think the bond side alone.
Most places people are on a month devices as well.
Okay. Thanks for taking my questions.
Thank you.
Thank you.
Next question comes from the line of Daniel.
<unk> of Morgan Stanley .
Your line is now live.
Okay.
Hello, This is danielle on for Adam Jonas.
So we heard you talk about the dynamics that play in the used car market, we've heard similar things with our conversations and industry contacts and recent Mannheim trends, including the print from this morning.
You mentioned tighter supply is that the sole driver of this kind of 180 degree turn in these market are there other dynamics at play are you seeing anything on changes in consumer demand heading into kind of that.
Macro uncertainty this year. Thank you.
Thanks, Danielle firstly, Adam as well.
And then on.
Because these diseases, but when he saw it can given given molecules such as <unk>.
There is obviously as loans are things that.
Impact.
Is the availability and as you've seen we saw these crop prices began to drop.
Last year and that is now kind of mitigated.
But it's also being impacted on the demand side.
Depending on the age and the profile of the customers buying it.
No doubt that.
What we've seen in terms of interest rate increases.
Also effects.
The demand side of it so it's a combination of things I think when I my opening comments revenue when we look.
And obviously, we do it on a very regular basis, when we look at our performance.
Im trying to identify the key driver.
For us it was around that very tight supply and not wanting to buy deep hop.
<unk> expense per se.
Of drugs so.
That's an option.
Yes.
Thank you.
Thank you. Your next question comes from Rajat Gupta of Jpmorgan. Your line is open.
Great. Thanks for taking the question I had a question on SG&A going forward.
Obviously, the GPU traject.
Trajectory is a bit uncertain and hard to predict but.
How should we think about the SG&A drop through.
Gross profit dollars come down.
Over the next 12 to 18 months.
And maybe if you're willing to give us a range of <unk> gross profit.
Youre thinking about for 2023.
Thanks.
Sure good talking to you.
So SG&A.
As you kind of saw in the release and my comments.
Pain strict discipline as we think about it.
We have a fluctuation primarily in comp associated with Gpus.
Think of the flow through.
SG&A per dollar growth is somewhere between 25.
And <unk> 30 per dollar beyond that what we're trying to do is obviously be very efficient in our advertising and marketing and you can see relatively flat sequentially.
Then really controlling the store and corporate overhead, which again was essentially flat sequentially.
Result of that as you can see it's still below 60%.
I think there is some slight pressure on that going forward, but.
Our strong intent on maintaining our discipline.
And then I mentioned the investments.
Was maybe 100 basis points.
As a percentage of growth.
This quarter I don't see that getting much beyond 200 basis points and of course, the 2023 as we make what I think are absolutely essential investments to ensure the longevity and well positioning down the road.
And I can kind of give you a range I mean, we clearly intend to stay below 65% this year.
With a target to be at the lower end of kind of the 60% to $65 range and that will fluctuate somewhat with the Gpus.
But.
Other measures, including overhead and advertising are elements that we're going to maintain strict discipline on so.
I would think about it and that's how we manage it every day.
Got it got it.
That's helpful color and maybe just to follow up on the prior question.
Around like the Manhattan brand and like used car prices starting are you able to comment.
How first quarter or.
For January and February month to date has been in terms of demand or like just unit comps.
For you both union.
I will tell you the interest in <unk> is very strong that converting into styles is as I mentioned still and will continue to be impacted by availability of inventory, particularly in.
Those IH profiles that historically, it's been the bulk of these vehicles sales for franchise and company you're trying to dealers. So we're seeing that.
Joe mentioned in his in his opening remarks.
We like I think one of our competitors.
Recognizing this and we have redoubled our efforts at redoubling of assets means that prices.
That's for sure stabilized youll see some upward pressure on prices I think funding is going to necessarily impact margin because it's just a relatively short time before that hits retail.
But we so what we saw in Q4 continuing in Q1.
It's it's an area.
Great focus on with our teams focused on that every day, but that's how it started hopefully that helps.
No that's helpful great. Thanks.
Thanks for taking the question and then I'll get back in queue.
Thanks.
E.
We have time for one more question.
Our final question comes from David Whiston with Morningstar. Please go ahead. Your line is open.
Thanks, Good morning.
I guess first looking at the segment income.
Domestic with them, especially hard about 25% and I'm just wondering.
Kind of related to that you've done.
Largest Brian next decline from Ford than the overall segment level for domestic it was there just lack of inventory from Florida or others or is it more due to unfavorable pricing.
Yeah.
Well.
There is no doubt that you.
<unk> had some interesting movements.
From all of the domestic both up and down I think demonstrating that.
<unk> inventory.
How about that inventory sale was for the areas really that that mainstream brands I'm not talking about.
The premium parts of that Brian Lincoln, and Buick and Cadillac <unk>.
Main parts of the brand.
You add in the pockets of inventory that were not available yet movements in terms of net price position and it's incredibly competitive and so I think.
All of the Oems added towards the end of the year and with a lot of data will look today as the plan at the end of the year, how are they going to stop in and that has dynamics.
And what we saw.
We've already seen some of the Oems talk about how they finished off the year that will be wrapped up and then.
I don't want to comment for them on how the year.
The new year started that right.
The great thing is that invariably there is not just one silver bullet that data and that's why this business is beautifully complex.
Okay.
Okay and on service.
I'm a growth perspective.
A positive outlier and I'm just curious is that there's a lot of people are there I was just a lot of people coming back to the market now who have deferred for a long time.
And as is.
The growth, mostly customer pay or warranty.
Yes.
With regards to the pie, but it isn't about significant volumes of additional customers coming into your dealerships are the initiatives at least I think it really is a reflection of the fact that that the more miles driven is a direct correlation between miles driven and expense to keep their vehicles on the road in a safe fashion. So what you're actually seeing is youre seeing there.
Revenue in our growth, however, repair order actually drift up.
Largely stable number of customers that are coming in it's obviously varies dramatically Dana ship by Dana ship dependent on that penetration of that off the SaaS part, but broadly across the page Thats, what you are saying.
And.
Internal work as well, which obviously has an impact is continuing to continuing to improve.
As well some.
Currently as I said more miles driven.
More repair and maintenance.
Yeah.
And Mike just a higher level question, having worked at both Oems and dealers I'd love to hear your perspective on.
Contrasting the direct sale model VEB starts youre doing with the franchise model that you guys do.
In your opinion, whereas the key value for.
In having the dealer franchise model versus a direct sales model direct to consumer model.
Yeah.
Well when you buy them a full days and I'll give you announced was that question.
Because it's an incredibly complex question, but what I can tell you is that deal is an invaluable part of the supply chain not only are they connected to the community.
Reality is that customers given that the amount of money that they are spending on vehicles that prices going up and up either in a relationship that they can trust on a local level, where they know that their needs are going to be looked after whether there is an emergency service repair or something else.
<unk> value and at the end of the day each of these Oems are establishing their own individual brand position and those brand positions.
And Hans and developed by their dealer body, and therefore dealer body the dealers and how they work with their Oems and my opinion is invaluable and will always be invaluable and will not be with life with.
What is a cotton and up on the back of the truck.
I appreciate that and I have a bar in my living room Youre welcome anytime.
Thank you.
Adrian.
Sure.
Okay.
It's obviously.
Diana dominated except in it it's obviously a complex. So let me say a complex question, but I think.
There are lots and lots of Oems have talked about the variable nature of their dealer body and.
And working together.
Our ambition.
As partners.
Our Oems is to just make sure that the customer journey is as seamless as it can possibly be that it really does represent the brand at the OEM. We've spent billions of dollars to develop and it's done in a transparent way that means the customer feels that they continued to support not just through the purchase but through the after sales experience as well and as.
Always moving pieces, but thats my genuine view on it. So we've got I think we've done.
That was the last question right.
Hey, guys. Thank you. Thank you all for joining us.
Fourth quarter results as we've just discussed.
We're comping off of a record year for us and we've really focused this year.
Not just on our earnings but also our customer experience and I'd like to just say to our associates who are on the call. Thank you for the things that you have done.
There is no doubt we continue to perform in the current environment, but we are also taking the steps that I touched on at the beginning so that we can really be a big player in tank car. The industry transformation that is coming so the expansion of our footprint and additional transportation solutions and we thought about our cash flow and the investments that we've made.
Including return to shareholders I think early examples of that and what are the things that.
We launched in our organization last year with all of our people was a manager of that would be great and we like that because what it means.
It means <unk> be great whether that is in your performance in the business and the way that you deal with customers and also on how you get involved in the communities that we're in and that's a big strength for Autonation and I said very openly.
Joined this company know Neely.
Whereas maybe a year and a half maybe a bit longer than that.
Understanding the culture in the organization and how they constantly are lithium to give back to communities, whether it's through their drive pink.
Initiatives or whether it's just through the engagement that they have in each of the individual market it's been familiar fantastic.
If the organization and frankly last year I think.
The guys and girls and drive paying over $35 million and these things I think are important these things are important and notwithstanding the fact that this is a quarterly call I think it's important that we call those things out because it isn't Mike Manley doing that had nothing to do with May is grassroots from our people getting involved so thank you with that I will.
Have you or Dennis Thank you bye bye.
Yeah.
Thank you. This concludes today's conference call you may now disconnect.
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