Q2 2023 AutoNation Inc Earnings Call

Speaker 1: Their households and there is a very significant opportunity set of customers who really only transact the alternation once or twice or have become active over the years and we are commencing a much more targeted effort to engage with this customer base. I think it's an asset that we don't talk enough about, certainly externally, but very focused on internally.

There is a very significant opportunity set of customers, who really only transact with autonation once or twice or become active over the years and we are commencing a much more targeted efforts to engage with this customer base I think it's an asset that we don't talk enough about certainly externally, but very focused on intently.

When you had a business that over many years is not only build up some phenomenal franchise assets in great locations.

Speaker 1: When you had a business that over many years, has not only buildil up some phenomenal franchise assets in great locations with what I think is great density in our operations, those 11 million plus households and customers that we've intercted with represent increasingly, with technology, a very, very valuable source for the company.

But I think it's great density in our operations.

11 million plus households, and customers that we've interacted with represent increasingly with technology.

Very very valuable source for the company.

Speaker 1: And rich LENx, our CMO, joined us from mes, as you know, bring substantial nonautomotive retail experience, So he is already looking at both lifetime value and customer loyalty with his team and I'm really excited about what I D expect to come from that area.

And rich Lennox, our CMO, who joined us from Macys as you know bring substantial non automotive retail experience.

He is already looking at lifetime value and customer loyalty with his team and I'm really excited about what I asked.

Got to come from that area.

Speaker 1: Because if we can extend our core business, increase the depth and breadth of our product and services offer, that will deepen and lengthen our relationship with our customers, as well as continuing to variety convenient, trusted and transparent customer experience, which I think is vital to be successful in the marketplace.

Because if we can extend our core business and increase the depth and breadth of our product and services offer that will deepen and lengthen our relationship with our customers as well as continuing to provide a convenient.

Rusty and transparent customer experience, which I think is vital to be successful in the marketplace.

Speaker 1: And we VE put a lot of time in, obviously as an organization, as a group of people, on those customer-centric actions and I'm very pleased to see that it hasn't been lost on some industry service. And this may, 100 and fory-three of our storesstores were certified as 2023 alers of excellence by J power. So shout out to those stores. Well done, guys.

And we've put a lot of time and effort, obviously as an organization as a group of people when those customer centric actions and I'm very pleased to say that it hasn't been lost on some industry observers and this is my 143 of our stores are certified as 2023 days of excellence by J D power, So a shout out to the stores well done guys and that.

Speaker 1: And that recognized a dealdealers for exceptional customer service. Now 100 and fory-three storesthis year. That up from 1, 29 last year and 78 in 2021- So great progress.

Recognizes datas for exceptional customer service now 143 stores. This year, that's up from 129 last year and 78 in 2000 and.

'twenty, one so great progress.

Speaker 2: I'm also very pleased with the performmance today and finan. The group continues to expand. As Joe often said, we're taking a meter approach and place to make sure that we can progressively increase the penetration of this business with the vehicle sold ire and U oace stores. And they are doing that and they're also navigating, as you can imagine, quite an interesting, a sometimes challengic, challenging environment with all of the rate rises.

I'm also very pleased with performance of Ion finance as the group continues to expand as Joe has often said, we're taking a measured approach in place to make sure that we can progressively increase the penetration of this business with the vehicle soda I am USA stores and they are doing that and they're also navigating as you can imagine quite an interesting and sometimes challenging challenging.

With all of the rate rises.

With asthma I think has extended the reach of the brand of our after sales business and we began to integrate this mobile service and repair business into Autonation ecosystem I'm one of the things that I think will become increasingly obvious is as we continue to grow I am USA is the elderly.

Standalone used car dedicated business that has one of the most convenient service and warranty.

Provision.

Our marketplace imagine that not only do you have phenomenal selection of used vehicles, great transparent pricing great preparation good quality vehicles, but then you also get the best convenience.

Of your vehicles serviced and repaired by mobile by mobile well qualified technician. So.

Really pleased about how that business is coming together a lot of work to do obviously, but I think it's going to be a complement to the other things that we're doing and talking about used car business is obviously growing substantially from a pre pandemic levels, both our franchise stores and to write in USA now 16 locations with the addition of Colorado Springs.

Increases our footprint density in that area, which is another important strategy that we're focused on to drive market efficiency and economics.

Over time, we expect our actions and initiatives will garner a larger share of wallet from from consumers, which will reduce our relative exposure to the more cyclical parts of the business and that approach is really centered onto that customer base, I mentioned and talked a little bit about earlier.

And the 11 million households that we serve.

Now during the second quarter, we built on more customers. Thank you Juan has now added more than 400000, new customers for the year.

We're focused on enhancing our relationship with active customers, but as I mentioned really gone back in and reactivating lapsed customers, adding products and services to our base. So that we can really be that comprehensive provider to all of those customers that either are part of our active customer base or hopefully will be reactivated through the work in the <unk>.

And services that were added and we think that these actions will add to the structural changes that we spoke to the business over the past few years now that said I have decided we are very focused.

On the franchise business and supporting our vehicle manufacturer partners.

We are in.

Privileged position to have a lot of great relationships with some of the best automotive brands in the World and I'm pleased to say in June we added to our franchise density in southern California with the purchase of bulk Michael will take root in Carlsbad welcome everybody really pleased to have you on board now you guys are going to bring.

Hopefully more of annual revenue and five <unk> stores, and obviously help us with building our customer base as I said and with that John I'm going to add over to you to take us through the detail. Thank you. Thank you, Mike and good morning, everyone.

I'd like to describe this quarter's results were really driven by healthy margins record after sales performance record and CFS <unk> disciplined expense management, and our balanced capital deployment strategy, which largely offset used unit sales and lower gross <unk> and higher financing costs.

Speaker 3: The results was: second quarter adjusted EPS of $6 in 29 cents per share, just below last year's record EPS of $6 and 48 cents and above the $6 and seven cents we reported in the first quarter of this year.

Also a second quarter adjusted EPS of $6 29 per share just below last year's record EPS of $6 48.

And above the $6 seven.

Sorted in the first quarter of this year.

Speaker 3: Second quarter total revenue of $6.9 billion was essentially flat from a year ago, as increases in new vehicle volume and the continued growth of our after sales business offset lower used vehicle sales.

Second quarter total revenue of $6 9 billion was essentially flat from a year ago as increases in new vehicle volume and the continued growth of our after sales business offset lower used vehicle sales.

Speaker 3: automations's new unit sales increased by 8% in the quarter which, as Mike mentioned, was largely in line with the overall industry, were adjusted for brand mix.

Autonation is new unit sales increased by 8% in the quarter, which as Mike mentioned was largely in line with the overall industry when adjusted for brand mix.

Speaker 3: This increase in volume partially offset lower new vehicle PBR margins which, although moderating, still remained healthy at fortythousand-six hundred dollars.

This increase in volume, partially offset lower new vehicle PBR margins, which although moderating still remained healthy at $4600.

Speaker 3: Inventory for new vehicles increased by one day from the first quarter to 26 days. As is the case with the overall industry, we have a wide dispersion of inventory levels by brand and model. In court brands are generally below the company average, domestic brands generally above and premium luxury generally and it's generally in line with the average.

Inventory for new vehicles increased by one day from the first quarter to 26 days as is the case with the overall industry, we have a wide dispersion of inventory levels by brand and model.

Core brands are generally below the company average domestic brands generally above and premium luxury general and it's generally in line with the average.

Speaker 3: The overall new vehicle market remained healthy during the quarter as almost 40% of our vehicles were sold at MSRP which continues to be far higher than three pandemic levels this is down from aboutve 45% in Q1 and.

The overall new vehicle market remained healthy during the quarter as almost 40% of our vehicles were sold at MSRP, which continues to be far higher than pre pandemic levels. This is down from about 45% in Q1.

Speaker 3: Our total used vehicle gross profit decreased by 14% from a year ago, reflecting lower unit sales and used PBR margins, which declined slightly from a year ago. We continued to support our used vehicle economics to effective self sourcing, which was above 90% during the quarter.

Our total used vehicle gross profit decreased by 14% from a year ago, reflecting lower unit sales and used PBR margins, which declined slightly from a year ago.

We continue to support our used vehicle economics to effective self sourcing, which was above 90% during the quarter.

After sales gross profit grew 13% year over year as we continued to drive strong performance in this key area of our business customer pay warranty internal and collision all experienced double digit growth year over year.

Speaker 3: After sales gross profit grew 13% year-over-year as we continue to drive strong performance in this key area of our business.

Speaker 4: Customer pay warranty, internals and collision all experienced double-digit growth year-over-year.

Speaker 3: The recurring revenue stream from afterter sales continues to grow with our trailing 12 -month gross profit of nearly $4 million or more than 24% since 2019 the.

The recurring revenue stream for Master sales continues to grow with our trailing 12 month gross profit up nearly $400 million or more than 44% since 2019.

Speaker 5: Cfs performance also remained very strong and we continue to lead the sector with pbrs exceeding $2.8 thousand for the quarter.

CFS performance also remains very strong and we continue to lead the sector with PBR is exceeding $2800 for the quarter.

Speaker 3: We are pleased that our product penetration of more than two contract per vehicle pushed the percentage of CFS profit from products above 70% and.

We are pleased that our product penetration of more than two contracts per vehicle push the percentage of CFS profit from products above 70%.

Speaker 3: And outpaced lower profits associated with the finance portion of our service offerings.

Outpaced lower profits associated with the finance portion of our service offerings.

Speaker 3: Customers continue to invest in products which will protect both the performance and appearance of their vehicles.

Customers continue to invest in products, which will protect both the performance and appearance of their vehicles.

Speaker 3: As Mike mentioned, we're very pleased with the performance of AutoNation finance and the progress we have made integrating the business into our operations.

As Mike mentioned, we're very pleased with the performance of Autonation finance and the progress we have made integrating the business into our operations.

Speaker 3: We will continue to grow this business in a measured manner, supporting our automation stores. Automation finance represented over 20% of new loans originated in our automation USA stores in the month of June , which is facilitating our shift to a higher tired credit customer.

We will continue to grow this business in a measured manner supporting our autonation stores.

Autonation finance represented over 20% of new loans originated at our Autonation USA stores in the month of June which is facilitating our shift to a higher tiered critical customer.

Moving to costs SG&A as a percentage of growth was 61, 9% for the quarter remained significantly below pre pandemic levels and reflecting permanent structural changes to our cost basis.

Speaker 6: Moving to costs's C as a percentage of growth was 62% for the quarter, remaining significantly below three pandemic levels and reflecting permanent structural changes to our cost basis.

Speaker 6: ncna as a percentage of gross profit was slightly higher than recent periods, reflecting investments in technology and new business initiatives as we expand our offerings to customers, as well as additional advertising support for a worldbuyyour car program, as Mike referenced earlier.

SG&A as a percentage of gross profit was slightly higher than recent periods, reflecting investments in technology and new business initiatives.

And our offerings to customers as well as additional advertising support for our worldwide. Your car program as Mike referenced earlier.

Speaker 6: As noted that in today's press release we excluded 12.4 million of aftertax expense from our second quarter results. These expenses are related to weather events, including major held SMS in the quarter that damaged more than 2800 vehicles. In comparison, there were no such weather-related losses last quarter or in the year ago quarterly period.

As noted in today's press release, we excluded $12 4 million of after tax expense from our second quarter results. These expenses are related to weather events, including major hailstorms in the quarter.

So much more than 2800 vehicles in comparison, there were no such weather related losses last quarter or in the year ago quarterly period.

Speaker 3: Second quarter four plan interest expense was 33 million, impacted by both higher rigates and increased inventory levels.

Second quarter Floorplan interest expense was 33 million impacted by both higher rates and increased inventory levels.

Speaker 5: This all culminated in adjusted net income of the second quarter of $285 million, or $6 in 29 cents per share.

All culminated in adjusted net income for the second quarter of $285 million.

Or $6 29 per share.

Speaker 3: As Mike reference, our cash generation remains robust and, combined with the strength of our balance sheet, provides us significant capacity to deploy capital into our businesses and return capital to our shareholders.

As Mike referenced our cash generation remains robust and combined with the strength of our balance sheet provides us significant capacity to.

Deploy capital into our businesses and return capital to our shareholders.

Speaker 3: Our cash flow from operations incorporating proceedins from additional floor plan was almost $24 million in the quarter, and that included cash tax payments of $19 million.

Our cash flow from operations incorporating proceeds from additional floor plan was almost $240 million in the quarter and that included cash tax payments of $190 million.

Speaker 3: During the quarter, we invested more than $18 million in our business operations, including the acquisitions of five new dealerships, as Mike mentioned, and over $1 million of a capital expenditure.

During the quarter, we invested more than $180 million and our business operations, including the acquisitions of five new dealerships as Mike mentioned and over $100 million of the capital expenditure.

Speaker 3: We also continue to expand our autoation oic footprint with our food new location this year, which increases our offerings in a key strategic market.

We also continue to expand our autonation USA footprint with our food new locations this year, which increases our offerings and a key strategic market.

Speaker 3: The autoation USA stores play an integral part in both our long-term growth plans and the achievement of scale, skcope and density that our markets to better serve our customers.

The Autonation USA stores play an integral part in both our long term growth plans and the achievement of scale scope and density in our markets to better serve our customers.

Speaker 3: We also continue to return capital to moder ation shareholders through share repurchase. Year-to-date we have now repurchased four million shares, or 8% of the shares up and at the beginning of the year. The pace of share repurchased down slightly from previous two years, but still very significant by any comparable measure. We currently have approximately 67 million of remaining authority per share repurchase.

We also continued to return capital to Autonation shareholders through share repurchase year to date, we have now repurchased 4 million shares or 8% of the shares outstanding at the beginning of the year.

The pace of share repurchase is down slightly from previous two years, but still very significant by any comparable measure. We currently have approximately $670 million of remaining authority for share repurchase.

Speaker 6: We ended the second quarter with total liquiding of approximately $1.4 billion. Our covenant leverage of debt to EBITDA was sfl in below two X or at the bottom of our historical two X to three X range.

We ended the second quarter with total liquidity of approximately $1 4 billion.

Our covenant leverage of debt to EBITDA was slightly below two times or at the bottom of our historical two times to three times range.

Speaker 3: And earlier this month we successfully amended and extended our credit facility. The new five -year facility has demomore pricing to the prior facility, while increase in our revolving borrowing capacity by $1 million to one point nine billion, an increasing the flexibility of our financial covenants.

And earlier this month, we successfully amended and extended our credit facility. The new five year facility has similar pricing to the prior facility, while increasing our revolving borrowing capacity by $100 million.

The $1 9 billion and increasing the flexibility of our financial covenants.

Speaker 6: Looking ahead, we will continue to focus on operational excellence and disciplined capital allocation, supporting growth to drive long-term shareholder value.

Looking ahead, we will continue to focus on operational excellence and disciplined capital allocation supported growth to drive long term shareholder value.

Speaker 3: With that, I will turn it back over to Mike.

With that I will turn it back over to Mike.

Speaker 7: Yes thanks, Joe. So before just taking your questions, obviously what I want to do to thank that people. Everything will they deliver results for us and that's our, our 24 thousand associates. Thank you for what's done in the quarter. Also, as you know, in May we announced that Joe will be moving into a newly create a role which is basically going to over see all of the business transformation initiatives for the company.

Yes, Thanks, Joe.

So before taking your questions obviously, one of those to find the people.

Every single day deliver results for us and that's all that's 24000 associates.

For what you've done in the quarter.

Also as you know in May we announced that Joe will be moving to a newly created role which is basically begin to oversee all of the business transformation initiatives for the company. Joe will continue to report directly to me and he's going to coordinate the execution and integration of our business transformation products really with a focus on process improvement operational efficiency.

Speaker 2: Joe will continue to report directly to me and he's to cordordin ATE execution and integration of our business transformation products, really with a focus on process improvement, operational efficiency, and I think as a result of that will help accelerate our growth. Now I can tell you that since I join the organization 21 Joe, in a very short basase of time and 'has been attracted rightves with me in business plan time, incredibly pleas excited as he moves into this new role, to be continue to work with him and I think he's done a tremendous job in the management of our balance sheet and guiding our capital deploment.

And I think as a result of that will help accelerate our growth now I can tell you that since I joined the organization late 'twenty one job in a very short space of time Theres been a trusted advisor to me and business partners on incredibly pleased and excited as he moves into this new role to be continuing to work with him and I think he's done a tremendous job.

And the management of our balance sheet and guiding our capital deployment, but you also need to look way below that and really look at the business and how the business was performing.

Speaker 1: But you also need to look the below that and and really look at what the business and how the business was performing in terms of some of the efficicies, some of the cost base and everything else and you can see the last in effect that him and his team in conjct for the operational people have valed to our bus and I think it's absolutely tremendous.

Some of the efficiencies some of the cost base and everything else and you can see the last and affect that him and his team in conjunction with the operational people have added to our business and I think it's absolutely tremendous now and <unk> will join us and replace Joe.

Speaker 1: Now in allaugust, Tom CLOs will join us and replac jo.and many of you know time need to have drive change in innoation across medical technology and manufacturing industry and thankankfully, like Joe, the best in class fourteening 500 to and Tom is going to be responsible for continue our focus and operational excellence, obviously the development of our company, as well as making sure we continue with a really balance but focus capital allocation approach.

Many of you know Tom He has helped drive change and innovation across medical technology and manufacturing industries and frankly like Joe is the best in class Fortune 500, CFO and.

And Tom is going to be responsible for continuing our focus on operational excellence, obviously, the development of our company as well as making sure. We continue with a really balanced with focused capital allocation approach. So just a quick update on those things and with that.

Speaker 1: So just quick update on those things and with that should we are that questquestionions? Yes, if you could please remain. People had to get, and you.

Should we open up to questions, Yes, Alan if you could please remind people how to get in queue.

Okay.

Speaker 8: Thank you at this time. I would like to remind you everyone, in order to ask the question, please press star followed by the number one on your telephone pad. Reports were just a moment to compila QA roster, but the first question comes from John merurphcy from Bank America. John , the line is now open. Please go ahead.

Thank you at this time I would like to remind everyone in order to work. The question. Please press star followed by the number one on your tenant. Thank you Pat well pause for just a moment to compile the Q&A roster.

The first question comes from John Murphy from Bank of America. John Your line is now open. Please go ahead.

Hi, good morning, everybody.

Speaker 9: Good good morning everybody. You know, in joking, grats on the, on the new role, and I'll start. I' start with that. You know, Mike and Joe, as you look at this, youknow there's incrementaldollars being spent here. Just curious if you could talk about what those were in the, in the quarter for these initiatives, but also maybe more more broadly. You, you got 11 million customers, you know, in your, in your, in the roll cks there, as we would exam the open days that you can really leverage and potentially engaged with for a longer period of time.

Joe Congrats on the on the new role.

And I'll start and I'll start with that.

No Mike and Joe.

You look at this.

Michael dollars being spent to Europe , just curious if you could talk about what those were in the in the quarter for these initiatives, but also maybe more more broadly I mean, you've got 11 million customers.

You know when you're in you're in a rolodex there as we'd say in the olden days.

That you can really leverage and potentially engage with for a longer period of time, you're going through this exercise.

Speaker 3: You know, as you're going through this, this exercise of transformation, you know what does it, what does that mean and and could mean that your, you know, holding on to these customers in that vehicle for 10 years as opposed to, you know, five years ERS and the a profit opportunity is to X or maybe maybe more. You know how are you? You kind of thinking about this holistically as the sort of the addressable market of what you can get after and it is it more traditional things like other use, vehicle sale and extend the parts and service, and then C I G and doing some, you know, more financing or there are other things that are potentially entering the equation as you look at the opportunities set.

Transformation.

What is it what does that mean.

Do you mean that you're holding on to these customers and that vehicle for 10 years as opposed to five years and the profit opportunity is to ask or maybe maybe more I mean, how are you kind of thinking about this holistically as the sort of the addressable market of what you could get out there and it is it more traditional thing.

Like another used vehicle sale.

And extend the parts and service.

And then <unk> and doing some more financing or are there other things that are potentially entering the equation as you look at the opportunity set.

Speaker 1: So again, I'm going to start with that, and then je can talk about the investments that we've made.

So John I'm going to start with that and then John can talk about the investments that we've made.

Speaker 6: So when you look at our customer vase that we have built up there are a number of things that.

So when when you look at our customer base that we have built up.

There are a number of things that I see.

Speaker 1: I think are really relevant. Firstly, the percentage of active customerswithin there, and we could define and active customer by somebody that has a transaction within a period of time. So if you took, if you took active customers, including service, the Act, a percent of active custom in the 11 million and is well be low 50%, well below 50%. So then you have to ask yourself, why do you get that level of attrition with the rest of it customers?

<unk> really relevant firstly, the percentage of active customers within that and we can define an active customer by somebody that has a.

Our transaction within a period of time. So if you took if you.

Sure.

<unk> customers, including service.

The actual percentage of active customers and the $11 million is well below 50% well below 50%. So then you have to ask yourself why do you get that level of attrition with the rest of the customers because if you look at our reputation scores and our customer satisfaction scores is purely not because of that and it's because circumstances and need.

Speaker 1: Because if you look at our reputation scores and our custom satisfaction scores, it's purely not because of that and it's because circumstances and needs changed within that customer base and that may well be their geographic, their geographic position to our dealerships is change their further away or, as a vehic' age that decided to take a non franchise solutions, service and repairs- all a whole host of different reasons.

<unk> change within that customer base and that may well be that the geographic.

The geographic positions of our dealerships as change that further away or as the vehicles age that decided to take a non franchise solution to service and repairs all a whole host of different reasons and as we've been as we've looked at that and spent time working with that customer base identifying.

Speaker 1: And, as we've been, as we've looked at that and spent time working with their customer base, identifying what is driving that we're adding and it building our business so that we can offer products and services that meet're changing the from when they may be originally bought thevehicle- more convenience in terms of service and repair So that, for example, if they are 2025 miles away from a dealership and just looking for a quick oil change, we can provide that a great level of convenience for them as well, as well as then build out different products.

What is driving that we're adding and building our business. So that we can offer products and services that meet their changing needs.

We originally bought the vehicle more convenience in terms of service and repair side of that for example, if they are 2025 miles away from a dealership and just looking for a quick oil change.

We can provide a great level of convenience for them as well as well as then build out different product suite. We've added the finance company that was really two fold one because it's a deep relationship with customers, obviously and secondly, it was a perfect match for the growth that we were trying to achieve in all achieving with eye on USA.

Speaker 1: we- you know we've added the finance company that was really to ofld 1, because it's a deep relationship with customers obviously and secondly, it was a perfect match for the growth that we were trying to achieve and are achieving with a and USA. So, without taking too much of the core, I think in the question itself you answered a lot of it and that is.

Without taking too much of the call.

Thank you.

And the question itself you answered a lot of it and that is.

A big percentage of those customers, a one and done.

Speaker 5: abig percentage of those customers are one and done.

And.

Speaker 10: And there's an opportunity for us there. A big percentage those customers have need outside of then selvess in their household, whether it is family members or whether it is relatives, and what we are striving to do through the expansion of our product and services is increased the average length of the relationship that we have and of all of the spend they make on transportational mobility.

There is an opportunity for us there.

A big percentage of those customers have needs outside of themselves in that household whether it is family members or whether it is relatives and what we are striving to do through the expansion of our products and services is increased the average length of the relationship that we have.

And although all of the spend down Mike on transportation mobility. However, you want to define it and I'm not too interested in what would you use that.

Speaker 2: However you want to define it and are'm not too interested in what were you use.

Speaker 11: Then we want more, or us that and earn more of that because of the quality of service, the price of our service and the transparency workking with alterternation. So a long answer to your question, but hopefully that'll let some color.

We want more of that.

One more is that because of the quality of service the price of our service and the transparency working with Autonation. So long answer to your question, but hopefully that will add some color.

Speaker 12: And then let me try to put some quantification behind that John So if you think about really what Mike was saying.

And then let me try to put some quantification behind that John So if you think about really what Mike was saying.

To deliver that as investments in technology.

Speaker 3: To deliver that, its investments in technology.

Speaker 3: It's investments in people.

Its investments in people.

Capabilities incubation of businesses and marketing and those are the kind of the buckets that we looked at as we are developing solutions.

Speaker 3: Capabilities, incubation of businesses and marketing. Those are the kind of the buckets that we look at as we are developing solutions.

Speaker 3: Developing capabilities, developing businesses. The cost of that, as I indicated last quarter is tracking basically between 100 to 200 basis points as a percentage of growth.

Developing capabilities developing businesses the cost of that as I indicated last quarter is tracking basically between 100 to 200 basis points as a percentage of gross.

Speaker 6: In this quarter it was about 150 basis point to when you look at our 61, nine as a percent. About 150 basis points of that are those types costs that I track, that we kind of deemed the support of these critical initiatives, which I think will, as M reference position, a fundamentally different going forward.

And this quarter. It was about 150 basis points. So when you look at our 61 nine as a percent about 150 basis points of that are those types of costs that I've tracked.

We kind of deemed the support of these critical initiatives, which I think will as Mike referenced physician is fundamentally different going forward.

Okay.

Speaker 1: yesthank. So I Jo just could to have like one of what.

Yeah, I think so that's all I got.

John I just wanted to go.

Speaker 5: So I don't go another infrrcture where we say.

Sorry, it sounds but were not immune to uptick, but what you're saying.

Speaker 1: No no no no, no finish up. I'm sorry' had put what colother ones.

No no go no finish up I'm, sorry, I just had one quick other ones.

Speaker 1: Yes what I think is important what I think is important is that.

Yes.

What I think is important what I think is important is that.

Speaker 5: What we're talking about is a progressive expansion of our business this isn't a light switch because.

What we're talking about is a progressive expansion of our business. This isn't a light switch because.

Those customers that have become inactive obviously transacting with someone else.

Speaker 13: Those customers that have become inactive are obviously transacting with someone else.

Speaker 3: Or a different obviously with someone else in a different way maybe they're getting a service all part now from a nonfranchised family owned store but the reality is they are continuing to strend Act So this is not a lights SW all of us no you know what come back to us and everything changes So you will see you will see a progressive development of's a part of the business but I think what's really important is it han't just begun if you look at the Investors auterination pre me have've been making for example in their afterselles business and the development of their technicians all of that type of business I think and.

Or different obviously with someone else or a different way.

Maybe they're getting service will pass now from a non franchised family owned store, but the reality is they are continuing to to transact. So this is not a light switch all of a sudden okay.

Come back to us and everything changes so you will say.

You will see a progressive development of this part of the business, but I think what's really important is it hasnt just begun if you look at the investments Autonation pre me I've been making for example in their after sales business and the development of their technicians all of that type of business. So I think as.

Speaker 3: Stability in times where new vehiclelessales are up and down and margin are really in the hands as someone else, and continues to lay down a base of profitability that enables us to develop great cash flows So that we can invest in these businesses. So it is not a short quick burn Flashes, it's a longer be one part of the business John , So I think that's important for me to say that as well.

Stability in times, when new vehicle sales are up or down and margins are really in the hands of someone else and continues to lay down our base of profitability that enables us to develop.

Great cash flow so that we can invest in these businesses. So it is not a short quick burn flashes along the bottom part of the business. John So I think that's important for me to say that as well.

Okay.

Speaker 1: That's very helpful. Just real, real quickly, on inventory levels, and you know the potential for a? U, a strike, which seems like it's fairly likely. You know M I mean iobvious LY, your former life. You're close to this U iwouldn' say youknow itsprobably near your heart at not be to it. This is situation is going to be pretty difficult and it sounds like we're to have some level of unexptended strike.

That's very helpful. Just real quickly on inventory levels and the potential.

For our UAW strike, which seems like it's fairly likely.

Mike I mean, obviously your former life Youre close to this stuff I wouldn't say, it's probably near your heart, but not erode away.

This is <unk>.

Tuitions can be pretty difficult and it sounds like we're going to have some level of unexpected strike yet at one if model.

Speaker 14: Get 1, if's not all it of the D three you know how are you setting up to handle that and what kind of implications might that have as we go through the end of the year for the business?

Of the <unk> III.

How are you setting up to handle that.

And what kind of implications might that have as we go through the end of the year for the business.

Speaker 2: Yes obviously, John . Watching it very close is I' sure a lot of people are, I think.'. I think your overview of the situation is probably right. What, having having been on one side of that table, I think ultimately what needs, what needs to prevail, is the fact that the interest needs to be balanced and- and I ultimately airline Now whether that is a strile prolonged rike, they get to an agreement beforehand.

Yeah, obviously jamba watching it very closely as I'm sure a lot of people I think I think your overview of the situation is probably right.

I haven't been on.

One side of that table I think ultimately what needs to what needs to provide is the fact that the interests needs to be balanced and.

And ultimately get aligned now whether that is a striking prolonged strike when they get to an agreement beforehand.

Speaker 10: I don't know what. What I can tell youis if you look at the inventory development and the biggest growth ventory that we've had in our domestics.

I don't know, but what I can tell you is if you look at the inventory development the biggest growth in inventory that we've had it in our domestics.

That to me gives me a level of comfort. We know we can survive on inventory levels way below the ones that we have today and it looks as if it will continue to build as we get through the summer before the summer shutdowns and the plants I think you need to look at that so the distribution of our day supply is is is much lower than other.

Speaker 3: That to me gives me a level of compfort, but we know we can survive on inventory levels way below the ones that we have today and it looks as it will continue to build it. We get through the farmmerup before the summer shut down in the plant. So I think you need to look at that. So the distribution of our dayase supply is is much lower in otherin other of our divisions.

And the other divisions.

Speaker 3: The second thing, and I touched on this before, the good news about our balanced business, the really good news about our balanced businesses. We have different sourcesand, as I mentioned, we came out the first quarter as pleased with the efficiency of our stock town on our used vehicles. But I did think in the team felt that we probably constrained ourselves.

Second thing and I've touched on this before the good news about our balanced business is really good news about a balanced businesses, we have different sources.

And as I mentioned, we came out the first quarter I was pleased with the efficiency of our stock turn on our used vehicles, but I did think and the team felt that we are probably constrained ourselves. So we spent a lot of time rebuilding that and you will see quite a change in our used vehicle inventory from the end of Q1 through to the end of Q2 that processes and finished because I still think that we can put more inventory and maybe because I think that.

Speaker 2: So we spend a lot of time. We RE building that and you'll see quite a change in our ushle inventory from the end of Q1 through to the end of Q2. That process is and finished because I still think that we can put more inventory and there because I think the market's robust than obviously if we do see a shortfall in terms of our domestic businessesis on new vehicle selves.

Market is robust and obviously, if we do see.

A shortfall in terms of.

Our domestic businesses on new vehicle sales, because we get to a level of inventory that that really is constraining sales to a large extent we will have.

Speaker 2: Because we get to a level of inventory that ter that really is constrained in selveses to a large extent, we will have the ability to switch on and we focus on our use selves as well as that increase and our ourselves that we're seeing my. But I would tell you, I think it's going to be an interest in some.

<unk> ability to switch on and refocus on our used sales as well as the increase in oftentimes, what we're saying Mark but I would tell you I think it's going to be an interesting summer.

Yeah.

Speaker 7: Nothing now that I pupular. Thank very much.

Okay.

Great. Thank you very much.

Yes. Thank you very much guys I appreciate it.

Speaker 1: Yes Thank you very much, I appreciate it.

Speaker 8: Thank you. Our next question is from Daniel embroken deon. Daniel, your L is no open. Please go ahead.

Thank you. Our next question is from Daniel <unk> Stephens Daniel Your line is now open. Please go ahead.

Speaker 15: nogood MOR.

Yeah. Good morning, everybody. Thanks for taking my questions.

Speaker 2: Thanks to ions.

Speaker 16: Like old proble.

Mike.

Last question around the youth business.

Speaker 17: Around the youth.

Speaker 18: Obviously end. Market demand is chopping. You guys are moving your inventory.

End market demand is choppy and you guys are moving their inventory around to address it I guess two questions on my side I guess, one what is your outlook on when that affordability as you start to get fixed or we're seeing lenders extending terms any further I'm just curious kind of how you position the inventory if you could expand on that if there's any assumption there.

Speaker 18: To address it. I guess two questions on that side? I guess one just what is your outlook home when that affordability is? You start to getfied to receive.

Speaker 2: Lenders extending terms any further. I'm just just curious kind of how you position the.

Speaker 2: invento you guys. Ban on that any.

Speaker 2: Assumption there.

Speaker 2: And then strategically last quarter you guys felt it fo cus more.

And then strategically last quarter, you guys felt like focus more oriented or per unit profitability, maybe less focused on unit growth G.

Speaker 18: That a per UN of profitability may maybe let's focus on.

Gpus that down a bit.

This quarter it just kind of any change in your strategic thinking there around market share versus profitability per unit and then how do you weigh those two factors in this current backdrop.

Speaker 2: Your strategic thinking there around Marcus share verse profitable.

Speaker 18: Per unit, and how do you weigh those two factors in this current backdrop?

Speaker 5: Anything it will firstly.

Well firstly.

On the affordability, what we're seeing is.

Speaker 5: On the affordability. What we're seeing is.

Speaker 19: That.

That.

Speaker 7: Mix is changing So.

Mix is changing.

So.

Speaker 3: You saw the average price of used retail coming down. That's pure mix change. We're seeing prices wholesale price of mitigating they picked in March.

So the average process use retail coming down Thats pure mix change, we're seeing prices wholesale parts of mitigating they peaked in March.

Speaker 3: The last few months. They're trending down much more normal depreciation pattern, which is bring down net prices are used as well. Our terms, our periods are remaining solid.

The last few months are trending down much more normal.

Depreciation patent, which is bringing down net process used as well.

Tons off periods, all remaining solid.

Speaker 11: But we do know that we are competing against lenders that have increased the term that are prepared to offer in the marketplace to keep them balance that monthly payment So at the end of the day the equation and whether it'sprice whether it's whether it's whether it's successories the reality of what's not changing is not changonly very much is the monthly payment available and as always.

But we do know that we are competing against lenders that have increased 10% compared to us in the marketplace to keep a balance that monthly payments. So at the end of the day the equation, whether it's products or whether it's time, whether its accessories.

Reality of what's not changing is it not changing very much as a monthly payment available and as always.

We're finding ways to still be able to maintain nothing I think that will continue.

Secondly.

Speaker 6: Secondly: no, I still think we've got a very robust.

No.

I still think we've got a very robust.

Margin not a change in how it's not a change in our focus of tool, but even with that I still think it's important that we balance the volume that we want to achieve.

As well as taking I think a very deliberate approach to maintaining used margins. So I was pleased with the margin I think that the there was more volume without an impact on a significant impact on margin but.

We are in a period now where we are seeing as I said, a return to what we would consider more traditional.

Depreciation in the used market and we just have to stay very agile with pricing. So youre going to say as you always do fluctuations in margin, but we wont quality business, but we want our fair share of business and I don't want a constraint there.

The fact that.

We don't have enough used vehicles to meet the demand.

Always a balance, but it's not a change in strategy.

Speaker 2: Perfect that' helppeful color, then maybe' followup on the on the new side inventory obviously still tight at's 26 days.

Perfect. That's helpful color and then maybe as a follow up on the on the new side inventory. Obviously, you still tight in 2006 days Gpus were under a bit more pressure than expected is that just a certain brand mix issue that kind of pulled down the sequential step down of Gpus relative to the one day and inventory just trying to help them better understand.

Speaker 2: Just trying to help but better understand the sensitivity of maybe how quickly G P will compressive inventory build from here, given that move this.

Sensitivity and maybe how quickly gpus more comparative inventory build from here.

Given that moved this quarter sequentially.

Speaker 20: Sequentially.

Speaker 6: No I don't think that. What a number of things they happen on they. So you talked about affordability on news vehicles. You have the same impact on new vehicles and as, as availability pickkes up, obviously mainlyany momentum in the new vehicle market is important, So net transaction prices are clearly coming down. Some of that was expected from a margin compression and frankly I think where with that is probably better margin then I expect of coming into the year, which is why I make the statement that I think margin compression will continue, but one which the levels, certainly this year, in my opinion, that we saw prepandemic.

No I don't think that was a number of things are happening on <unk> you talked about affordability on used vehicles you have the same impact on new vehicles.

And as as availability picks up obviously.

Hany momentum in the new vehicle market is important so net transaction prices are clearly coming down some of that was expected.

From a margin compression and frankly, I think we have with that is probably a better margin than when I expected coming into the year, which is why I make the statement that.

Margin compression will continue but one reach the levels.

Certainly this year in my opinion that we saw pre pandemic.

So what I would what I would say is that and by the way that's also.

Speaker 21: So what I I would say is that- and by the way, that's also on the OEM side, the increase we saw an incentive, the move, the leasing, all about affordability issues, all about maintaining momentum in the new vehicle market. I think that there is, I think that there are plenty of tools that I able able to maintain that going forward. But it's driven by not just improved supply of inventribut, it's also, it's also driven by making sure that some of the issues and pressure on affordability and mitigated in certain ways.

On the OEM side.

The increase we saw in incentives to move the leasing all about affordability. She was all about maintaining momentum in the new vehicle market I think that there is I think that there are plenty of tools available to maintain that going forward, but it's driven by not just.

Employee supply of inventory, but it's also it's also driven by making sure that some of the issues and pressure on affordability and mitigated in certain way. So as I said, we expect to see ongoing mitigation of margin enough where levels yet we saw pre pandemic.

Speaker 5: So, as I said, we expect to see ongoing mitigation of margin, the number thosels, yet that we saw prepandemic.

Speaker 2: Perfect per color and best OK.

Perfect I appreciate all the color and best of luck.

Okay.

Okay.

Thank you. Our next question comes from Rajat Gupta from Jpmorgan. Your line is now open. Please go ahead.

Speaker 8: Thank you. Our next question comes from roj kbston and JP Morgan marj. Your line is my open. Please go ahead.

Great. Good morning, Thanks for taking the question.

Speaker 22: Great good morning. Thanks for taking the question. Con CT jre of the J roll had had a first question on bots and servicees.

And Jeremy on the new role.

I had a question on parts and service.

Speaker 23: Thank you. And the first question: in parts and services, you know the growth there accelerated, you know from one K to two Q. you know both revenue and gross profit. Are there any specific areas you would attribute that to? Is it just broader industri, friendren now, was there anything automation specific? You know, perhaps repairment, because begin to contribute.

Thank you Adam first question in parts and services.

The growth there accelerated.

From <unk>.

Revenue and gross profit.

Are there any specific areas you would attribute that to is it just broader industry trend or was there anything automation specific you know perhaps repairs method.

Beginning to contribute.

Speaker 24: If you could just get a little more granularity there would be helpful and helpfulall up.

Just got a little more granularity there would be helpful and I have a follow up thanks.

Okay.

Speaker 3: Yes Mike ban.

Yes, it's Mike.

Speaker 3: I think there are really three things I think there are really three things that in play the first thing goes back to some of the things that we're talking about before and that's being.

I think there are really three things I think there are really three things are in play. The first thing goes back to some of the things that we're talking about before and that's that's being.

Speaker 25: Really looking at the penetration of our franchise businesses in the areas that are're responsible forand recognizing that is the branded vehicle partk, which is is the primary, primary target for a franchiseed dealership, offers a lot of opportunity in it. Exactly the same way, on market, you can ider the market share. So it's really the teams focused very much on where is our serv in part market share, where we want to take it.

Really looking at the penetration of our franchise businesses in the areas that they're responsible for.

And recognizing that.

<unk> is the branded vehicle Park, which is is the primary primary target for our franchise dealership offers a lot of opportunity in exactly the same way Mark you consider market share. So it's really the team's focus is very much on whereas in.

In past market share, where do we want to take it leads you to the second part.

Speaker 3: That leades of the second part and that is: you have the capacity. We certainly have the physical capacity because OEM for many many many, many years oversizeed their dealerships, which means that we have physiical capity already paid for and installed and we've been very focused on increasing our human capacity to be able to take vantage of improvements in penetration.

That is do you have the capacity, we certainly have the physical capacity because Oems.

For many many many many years over size their dealerships.

Which means that we have physical capacity already paid for and installed and we've been very focused on increasing our human capacity to be able to take advantages of improvement St penetration, but the real.

In fact that were seeing I think is a return to obviously, you've got more miles driven and you've got longer ownership of vehicles and therefore, there is more work being done on a per vehicle basis. So it's a combination of those things that has delivered the result.

Speaker 5: But the real I fect that we're seeing, I think, is a return to obviously got more MIL RI. youve got longer ownership of vehicles and therefore there is more work being done on a per vehicle basis. So it's a combination of those things that have delivered the result. You're not seeing the effect of repair Smith yet. That will take some time to be integrated into the inesses we've said on many occasions.

You're not seeing any effect to really pass smiths, yet that will take some time to be integrated into the business. As we've said on many occasions, but I'll focus on those three areas that I touched on is what's driving it and hopefully we will continue to drive it for a little while yet.

Speaker 5: But our focused on those three areas that are touched on is what's driving and hopefully will continue to drive it for a little while yet.

Okay.

Got it.

Speaker 26: Got it.

Speaker 24: Got it that's helpful maybe of all upon in finance the loss rate there it seemed like it improved quite a bit from one K to two Q and it just patertotal contribution from that time missing anything else and the other line item there but what's curious if you could clarify that and then any color you could share on how delinquencies or charge-offs.

Got it that's helpful.

Maybe a follow up on you know and finance.

The loss rate there.

It seemed like it improved quite a bit from <unk>, just the total contribution from that unless I'm missing anything else in the other line item there.

But I'm just curious.

To clarify that and then any color you could share on how delinquencies or charge offs.

Speaker 22: Track sequentially in that portfolio any near-term trends. Change your view around the ramp-up of that business and how do view penetration they progressing through the course of the year?

Track sequentially.

Portfolio.

And any near term trends have changed your view around the ramp up.

Of that business and how do you view penetration there.

Progressing through the course of the year.

Just one or two questions.

Speaker 6: Just want two questions a restaurant.

I'm happy to talk about and finance so.

Speaker 27: I'm happy to talk about and finance. So it is. It is progressing. You know we kind of stepped into some headwinds but it's progressing with a lot of attention in a very positive direction. We are very deliberately increasing the penetration within the automation U USA stores. As I mentioned and know, 20% of the loans now our company of the automation stores are through finance.

It is it is progressing.

As you know, we kind of stepped into some headwinds but.

But it is progressing with a lot of attention.

Very.

Positive direction.

We are very deliberately.

Increasing the penetration within the Autonation USA stores as I mentioned in 'twenty.

20% of the loans now are coming off the internet.

<unk> stores or through AA and finance that.

Speaker 6: That's allowed us to drive down cost. That's allowed us to improve credit quality in a market marketplace that generally don't delinquence. We has been a challenge with the industry, continue to be a challenge, but we've mitigated that by expense discipline. We've mitigated that by portfolio of truning and being very deliberate in you know how we continue to build the book.

Allowed us to drive down our cost.

Allowed us to improve credit quality.

In a marketplace that generally don't delinquencies has been a challenge for the industry continues to be a challenge, but we've mitigated that by <unk>.

Hence discipline, we've mitigated that by portfolio pruning.

And being very deliberate in how we continue to build the book that book is very.

Speaker 14: That book is very rapidly be coming, a finance dominateor and automation dominated book which will continue as that really is obviously aligned with our strategy of penetration of the customers. So from a contribution standpoint, your correct- and then it's had sequential improvement each of the quarters. I expect that to continue But as we've indigated, it will be at a very governed pace given the environment and given kind of our strategic initiatives.

Rapidly, becoming a and finance dominator and Autonation dominated book, which will continue.

Is that really is obviously aligned with our strategy of penetration of the customers. So.

From a contribution standpoint, you are correct in that it's had sequential improvement in each of the quarters I expect that to continue but as we've indicated it will be at a very governed pace.

Given the environment and given kind of our strategic initiatives.

Speaker 6: So is there anything else on automation finance I can address for you?

Is there anything else on.

While recent finance I can address for you.

Speaker 23: No I think it, but that's very clear. I appreciate it. Then I'll get back in you, Thank you.

Nope I think that's very clear I appreciate it I'll get back in queue. Thank you.

Okay.

Thanks.

Speaker 28: Thank you, goodbye.

Our next question comes from Michael Ward with Benchmark Michael. Please go ahead. Your line is now open.

Speaker 8: Our next question comes from Michael Ward benchmark. Michael, Please go ahead. Your line is now open.

Thanks, Good morning, everyone.

Speaker 29: Thanks good morning everyone.

First off on.

Speaker 30: First off, mikeyou mentioned that you thought maybe the vehicle manufacturers might turn a little bit more interest rate or lease incentives. Certainly you're down at lows and we'll see that increase. Does that have any impact, positive or negative, on your FI or variable gross margins on the new?

Mike You mentioned that you thought maybe the vehicle manufacturers might turn a little bit more of the interest rate or lease incentives.

Certainly youre down at Lowe's, and we'll see that increase does that have any impact positive or negative on your F&I, our variable gross margins on the new.

Speaker 19: Oems are very, very adept and well practiced of making sure that the pressure is equally born. Unfortunately.

Oems are very very adept and well practiced at making sure that the pressure is equally born unfortunately.

Okay.

Okay.

Speaker 31: Okay no joege, you mentioned, if you talked about operating cash flow being 24 million. I think, from what I can tell, most of the inventory increase was on the U side and that's probably largely financed by nontrade F plan which is below the operating line. Are you including any of that increase in flo plan in your operating cash flow number of Q hundred and forty?

Joe You mentioned, you talked about operating cash flow being $240 million.

I think from what I can tell most of the inventory increase was on the used side.

That's probably largely financed by non treat more plant, which is below the operating line are you, including any of that increase in four clean in your operating cash flow number of 340.

Speaker 19: Now when we talk about So, if you are correct and if you understand the nuances of the accounting dissociated with trade and nontrade. So when we talk about it we're going to try to make sure we clarify this further. When we talk about the 230, that does have used fourlo plan in it and that is the benefit of the increase of the use fourloor plan.

So when we talk about so you are correct and I do understand the nuances of the accounting associated with trade and non trade.

So when we when we talk about it and we're going to try to make sure. We clarify this further when we talk about.

The $2 30 that does have used floor planning on it and that is the benefit of the increase or the used floorplan.

Speaker 6: And so it's really a matter of tracking both what seills up in operations on the cash flow atement and effectively pid low the cash flow which is the financing activity. So you are correct.

So it's really a matter of tracking both what shows up in operations on the cash flow statement and effectively page two of the cash flow, which is the financing activity. So you are correct.

Okay. So and then you also have the seasonal $190 million.

Speaker 31: Okay So that. And then you also have the seasonal 19 million in the cash side.

Can I start.

Yes, yes, Unfortunately, the way that the.

Speaker 12: Yes that's on. That mean the way that, the way that the tax payments go. Q2 is an opportunity to contribute to our government, So that is always going to be the quarter we have a substantial tax payments.

Yes, as you know the way that the tax payments go Q2 is an opportunity to contribute to our government. So that is always going to be the quarter, where we have there's a substantial tax payments.

Speaker 31: Okay So the operating cash flow number we see is from a seasonal standpoint and then from the F point standpoint is going to be lower than we thought when the CQ comes out later today. But all things being equal, it's normal course of operations.

Okay. So the operating cash flow number we see is.

From a seasonal standpoint, and then from the <unk> standpoint is going to be lower than we thought when the Q comes out later today, but all things being equal it's normal course of operations.

That's definitely normal course, and you can see then the $2 36. It does include the tax payments right. That's buried in the operating cash flows. Okay. So I think pretty clearly when I look at with reported free cash from ops and you look at new and used floor plan I think you'll pretty quickly get to the $2 36 number.

Speaker 6: It's definite normal course and you can see in the 236 that does include the tax payments right, that's buried in the operating cash flows, okay. So I think pretty clearly when you look at what's reported from cash relllapse and you look at new and use forlo plan, I think you pretty quickly get to the 236 number.

Speaker 31: Okay and then just one last thing on the off-lease. I think we're anniversaried up with three -year type period with COVID, minus nineteen where you probably have no vehicles coming back off lease or very little. Was that one of the things that contributed to the, when you look at the retail on the you side, underperforming the overall market?

Okay, and then just one last thing on the off lease I think more anniversaried up with three year type period with Covid.

You probably have new vehicles coming back off lease for very little.

One of the things that contributed to the when you look at the retail on the used side underperforming the overall market.

Yes, they were a couple of things to happen for us to your point. They will have many vehicles that were on lease and then secondly, because of the appreciation of used vehicles. Many customers for one of two reasons.

Speaker 19: Yes I mean there were a couple of things to happen. First, to your point, there weren many vehicles that were put on lease and then secondly, because of the appreciation of these vehicles, many customers, for one of two reasons, were buy in their own vehic off the end of the lease, either because they didn't want to step into the market and Ed the market that mitigate from a price point of view.

Bye and around vehicle off the end of the lease either because they didn't want to step into the market on one is the market to mitigate from a price point of view.

Speaker 11: For secondly, they didn't want to step into the market and see they could maximize the margin on their own vehle. I think some of those things are now dissipating and we will see. But the reality is there is that shortfall in the marketplace of those vehicles now AG one to 3, four years old and and you've seen all of the retailers step up their activity to Sou source those vehiclesto fill the wholele, and ithinkwe'vedone agreatjob in Q2 continue to be a focus.

Secondly, they didnt want to step into the market and then save that could maximize the margin on their own vehicle I think some of those things are now dissipating.

We will see but the reality is there is that shortfall.

That in the marketplace of those vehicles now eight 1% to three four years out.

And you've seen all of the retailers stepped up their activity to south full sized vehicles to fill the hole and I think we've done a great job in Q2 and that will continue to be a focus it does come with some incremental costs from our marketing and development perspective, but I think that is an investment well worth making and as I've said.

Speaker 5: It does come with some incremental cost from a marketing and development perspective, but I think that is an investment well worth making in, as I said, those you get through in the summer months. Who knows what's going to happen? We touched on. We touched on substantial headwind in terms of the negotiations. We want to make sure that we have things that we can turn to and sell effectively.

Yet through late in the summer months, who knows what's going to happen we touched on we touched on a potential headwind in terms of the negotiations we wanted to make sure that we have things that we can turn to install effectively so it's always a balance.

Speaker 5: So So always a balance.

Speaker 31: Thank you very much.

Thank you very much.

Speaker 8: Thank you. Our next question comes from colllin and Wells bargo. Colin, do like now open. Please go ahead.

Thank you. Our next question comes from Colin Langan from violence, Okay. Colin Your line is now open. Please go ahead.

Thanks for taking my questions.

Speaker 31: So thanks for partictakeular. My questions just public. In the commentary you mentioned's GA was impacted by investments in technology and new business initiative and any sizing of the impact and is that sort of in a go-forward rate or is that more of a one time sort of cost?

Just wanted to follow up on the commentary you mentioned.

G&A was impacted by investments in technology, and new business initiatives any sizing of the impact and is that sort of in the go forward rate or is that more of a one time sort of.

Cost.

Speaker 6: Yes as I mentioned- and we just had this kind of earlier question on the nature of it- is people, it's technology, it's capability, it's businessas we've indicated previously, it's 100 to 200 basis points as a percentage of gross.

Yes, as I mentioned.

And we just had this kind of earlier question on the nature of it. It is people it's technology, it's capability its business.

As we've indicated previously it's 100 to 200 basis points as a percentage of gross.

Speaker 6: In this quarter it was about 150 basis points as a percentage of growth and that's we track that way and it will track it that way going forward.

And this quarter it was about 150 basis points as a percentage of growth.

We track it that way and it will traffic that way going forward.

Speaker 32: Got it ear, I RIS.

Got it alright I appreciate it.

Speaker 33: And then in the past you've talked about I think this to be very your nation you to.

And then in the past you've talked about.

And just to be fair you in Asia.

Sure.

Speaker 6: I was just going to say, just to be clear: we anticipate that spend will continue. We're going to continue to invest in the business. What I did- reference a reference earlier and referencing my comments- was the one element of sdna that was higher than I anticipate. That going forward was advertising.

I was just going to say just to be clear, we anticipate that trend will continue.

We're going to continue to invest in the business.

What I did reference referenced earlier I referenced in my comments was the one element of SG&A that was higher than anticipated going forward was advertising.

Speaker 6: That was 75 basis points or so higher than you would expect from us on a going-forward basis, really associated with some of the unique things you did in the quarter and that I would not expect to continue with that level of going forward.

That was 75 basis points or so higher than you would expect from us on a going forward basis really associated with some of the unique things we did in the quarter.

And that I would not expect to continue with that level going forward.

Got it okay. Thank you.

Speaker 32: Got it okay, Thank you. And then in the past I think you put out up by 2026 per autoternation, us a 130 stores.

And then in the past I think you've put out by 2026 for Autonation USA 130 stores.

Speaker 31: I mean I think you're at 16 now. I mean any color on how we should be thinking about it and when maybe the ramp will start to reaccelerate.

I mean, I think you're at 16 now I mean any color on how we should be thinking about it and when maybe the ramp.

Start to Reaccelerate.

Yes.

Speaker 12: Yes I tou of this down somem last year and earlier.

I touched on this.

Some last year and earlier.

Speaker 5: And what I said wouldn't night and maybe I was a clear enough night. I apologize for that.

And what I said was.

Maybe I wasn't clear enough I apologize for that.

Speaker 5: We will get random dty are'm not going to be governed by a timeline that, as things develop in the marketplace.

We will get to 130.

Im now going to be governed by a timeline that as things develop in the marketplace.

Speaker 3: Make that 1: 30 the wrong thing to do for the business.

Make that one say the wrong thing to do for the business. We're very clear on the locations. We want to be we have a fantastic strategy and team working on it. We're very clear now have an open 16 as these that we've learned a lot frankly from opening 16, both on the size of the footprint of capital involved but also the cadence of opening and one of them.

Speaker 11: We're very clear on the locations we want to be on. We have a fantastic strategy team working on it. We're very clear, now having open' 16 of these, that we've learned a lot frankly, from open in' 16, both on the side of the footprint, the capital involved, but also the cadence of opening. And one of the things I said was that you'll see a mitigation in terms of the speed opening our N?

Things I said was that you'll see a mitigation in terms of the stage, we're opening and USA. So that what we don't do is disrupt the existing growth and development of the ISI USA stores.

Speaker 5: U ussa, So that what we don't do is disrupting existing growth and development of the a? U Sa stores number one and two we don't force a bad decision, a bad location because of some aspirational timeline to achieve one hundred and 30. So we will achieve 1- 30. you'll probably see seven more through the balance of this year. We you see an acceleration only if I believe in the team, believe operationally we can cope with it and that it is the right location at the right capital cost.

Number one and two we don't force.

A bad decision a bad location because of some aspirational timeline to achieve one therapy. So we will achieve our 30 youll probably see seven more through the balance of this year when you say an acceleration.

Only if I believe in the team believe operationally, we can cope with it and that is the right location at the right capital cost.

Okay.

Speaker 31: Got an ear. Thank for TA the question.

Got it alright, thanks for taking my questions.

Thank you. Our next question comes from Bret Jordan from Jefferies. Your line is now open. Please go ahead.

Speaker 8: Thank you. My next questionion comes from Bret jordon and Jeffrey. Bret line is now open. ple go ahead.

Hey, good morning, guys.

Speaker 2: Head good morning guys.

Speaker 19: On the automation USA service penetration. I guess how does that compare to the huge car slow out of the franchise stores? I mean at the MO vanss are still ramping, but are you seeing those customers coming back after the purchase at the rate you see them at the legacy bust?

On the Autonation USA service penetration I guess, how does that compare to the used car slope out of the franchise stores I mean, the mobile vans are still ramping but are you seeing those customers coming back after the purchase at the right Youll see them at the legacy business.

Speaker 8: No no.

No no.

Speaker 7: We do have a penetration depends on the dification that we have, all the density we have as other businesses in the marketplace, because if we have appropriate franchise businesses then we we maintain or hand off the service work effectively. But there is an important percentage of customers that bind have historically found an alternative to look out to their servicing and warranty needs.

We do have a penetration it depends on the Densification that we have all the density we have with other businesses in the marketplace because if we have appropriate franchise businesses than we are.

We maintain I'll hand off to service work effectively but there is.

An important percentage of customers that find.

<unk> historically found an alternative.

To look after their servicing and warranty needs.

Speaker 3: Progressively going forward. They won't need to do that because they'll have access to repair Smith and repairments will effectively become.

Progressively going forward they won't need to do that because they don't have access to with past masonry passengers will effective they become <unk>.

Increasingly become the service and Pos for Autonation USA.

Speaker 3: Increasingly become the service and part arm for automation Y ane.

Speaker 9: Okay and then a question: I guess the domestic inventory build. Given your background, do you think it's strategic that the big three or building given uaww risk, or are they building for the sake of building?

Okay, and then a question I guess the domestic inventory build.

And your background do you think it's strategic.

Big three are building.

Even UAW risk or are they building for the sake of building.

Speaker 7: I think have done.

I think that.

Speaker 34: Obviously I can't get into the account get into their minds But I will certainly be building in this way I think it's I think it's prudent built frankly and when I look at the mix of vehicles that are being produced and I think about the term rate that we're still able to achieve with those vehicles.

Obviously, I'll kind of get into the account get into them on but.

Certainly the building in this way I think it's I think it's prudent build frankly and when I look at the mix of vehicles that are that are being produced and I think about the turn rates that were still able to achieve with those vehicles.

Sure.

Yes.

Speaker 12: Are uncomfortable and I think is the right thing that's happening. It's still. Let me set of 43 days of the domestics.

Comfortable and I think it's the right thing that's happening we're still having sat at 43 days of the domestics.

Speaker 11: I mean- I have to say embarrassingly in my time- we're up at 130. So when we talk about the buildder, I think we still have to remind ourselves and ground ourselves that, particularly for the domestic high levels of inventory, spot deliveries is what most for the customers that used do and expect in those businesses. So yes, we are talking about a Bill, but we're only at 43 days.

I have to say embarrassingly in my time at <unk>.

30 so.

When we talk about <unk> I think we.

We still have to remind ourselves and ground ourselves that.

Particularly for the domestics high levels of inventory.

Spot deliveries is what most of the customers are used to and expect in those businesses. So yes, we are talking about a bill, but we're only at 43 days.

Okay. Thank you.

Speaker 35: Thank you.

Thank you. Our next question comes from Tanya Liston from Morningstar.

Speaker 8: Thank you. Next question comes from Daniel wiston, from morning Star andaniel. Will I now open? Please go ahead.

Your line is now open. Please go ahead.

Speaker 36: Thanks good morning. one of that: what your advertising spend. You've got a lot of mile out of it recently with the panther's making like the finalally one partnership and now messy at the dry pink stadium and particularly with the F one deal. Just that's a global sport, is you know? I'm just curious you're Ling the growout international expansion.

Thanks, Good morning.

I wanted to ask about your advertising spend you spent a lot of mileage out recently with the Panther is making anything like a final Europe one partnership.

And now messy at the drive Pink stadium, and particularly with the F. One deal that's <unk>.

Global sport as you know so I'm just curious if you're laying the ground for international expansion.

Okay.

Okay.

Lots of good questions.

Speaker 7: wellit's a good question. A week, you know, I've got to say you that, and again I did.

I'll go to tell you that and again.

If you look at the relationships built up over many years within auto nation and consider those assets I think attainment that a great job and you know occasionally trip over an.

Speaker 3: If you look at the relationships that been build up over many years within automation and consider those assets I think a team have done a great jorevenueyou you occasionally trick over an amazing opportunity as you've seen within to miamic and.

An amazing opportunity as you're seeing with into Miami and.

Speaker 5: I think at the end of the day, it's going to be fantastic for the sports going to befastic, for the region and obviously, with our name all over, it's going to have big benefits.

I think at the end of the day, it's going to be fantastic for the sports can be fantastic for the region and obviously with our 900 over is going to have big benefits.

Speaker 11: Big benefits were us, and we're already seeing quite a diverse change in some of the hits that we're achieving on our media channels.

<unk> benefits for us and we're already seeing a diverse change in some of the hits that we're achieving on a <unk>.

Via channels.

Speaker 37: As we've said. So you got to put into the category of what is.

As we've said.

So you've got to put it into the category of what it is.

Speaker 5: What is good luck and what is good strategy. Messy genuinely falls into the category. Good luck with think that's the best. Start running with good.

What is.

Good luck.

What is good strategy messy.

Genuinely falls into the category of good luck.

With.

The best thoughts on Google.

Okay.

Speaker 36: Okay and with the trade in values and everything else going on in the economy, I'm just curious: are you that all concerned that at some point trade and values- where consumers- are going to come down, while new vehicle pricing stays elevated to the point that it does hurt new vehicle affordability?

Okay and.

With the trade in values and everything else going on in the economy.

I'm just curious are you at all concerned that at some 0.8 trade in values for consumers are going to come down on new vehicle pricing stays elevated to the point that it does hurt new vehicle affordability.

Speaker 38: What trmany values, AV down now that have been headed down since febru March and they, I think they'll continue on on that normal pattern. For what's also happening is you're seeing increases in incentive rates, you're see mitigation in new vehicle margin. So you're seeing that you're seeing an offset and, as I said, that that's that's kind of the three legged stoall balance to get to a monthly pay and their customers are looking for.

We're talking about is I think down now that they netted out since February March and now I think they will continue on that on that normal pattern, but what's also happening is youre seeing increases in.

Incentive rates Youre seeing mitigation and new vehicle margins, so you're saying that you're seeing an offset and as I've said that.

That's kind of.

The three legged stool balance to get to a monthly payment that customers are looking for I still think if you look at pre pandemic levels purely on the on the new vehicle pricing and incentive side.

Speaker 11: I still think, if you look at prepandemic levels purely on the on the new vehicle pricing and incentive side, with a long, long way from that and there are a number of levers that can be pulled. So yes, I think you will continue to see tradeing values decline in a normal fashion. But I think there's plenty of tools, particularly with the OEMs, that they can deploy if they want to stimulate, maintain demand.

With a long long way from that and there are a number of lasers that can be pulled so yeah. I think you will continue to say trade in values decline in a normal fashion, but I think there's plenty of tools, particularly with the Oems that they can deploy if they want to stimulate and maintain the model.

And just one more question on the on Yuan's massive discounting of the model Y does that at all hurt any particular brand for you guys either on the premium side works.

Speaker 36: And just one more question on the? U on's massive discounting of the model wide. Does that it all hurt any particular brand for you guys, eitherthere on the premium side or volume brand?

<unk> brand.

Speaker 36: Anchor in your crossovers.

And your crossovers.

No I think there's some daily retrofit in the marketplace and that a big ripple effect I think one of the things.

Speaker 12: No I think there is undouarily ripple to the marketplace and that a big ripular effect. I think. one of the things it's some fluid, the dispent in time. You saw the announcement from Ford obviously, and there are other pricing adjustments. They're going on. They're don't necessarily get the headlines that those do. So I think I think what we, where we set right now, is as rightve to really trying to understand what is what is the right net price for those vehicles in the market at the volumes the o EM want to sell.

Some fluid at this point in time.

You saw the announcement from forward obviously.

There are other pricing adjustments that going on they don't necessarily get the headlines I thought it was too. So I think I think what we ran with that right now is a drive to really try and understand what is what is that.

Net price for those vehicles in the market at the volumes the Oems want to sell and I think as a result of that you will kind of stay constant.

Speaker 11: And I think, as a result of that, you're going to see constant adjustments, whether is headline adjustments within rb or less visible adjustments within invenis. I think what's important and where we're be an incredibble cautious in the use market, because whatever is adjusted M MSR P, that is on the front end, immediately impact the back end. So if you look at, look at our inventory, for example, one of the things that we are really focused on, it- if we have these in-in, st-g, which we do because the is the marketplace of those that were very, very FOC, from what price and what ter ATE.

<unk> weather is headline adjustments with MSR, Fannie or less visible adjustments with incentives I think what's important and where we have been incredibly cautious as in the used market.

Whatever is adjusted.

MSR payroll incentives on the front end immediately impacts the backend so have you looked at.

Our inventory for example, one of the things that we're.

We're really focused on is if we have these amazing stuff, which we do because you know there is a marketplace of those that we're very very focused on what price and what timeline.

Yeah.

Speaker 39: Right Thank you.

Alright, thank you.

Alright. Thank you Toni thanks, everyone for joining us on the call today I look forward to speaking with you after next quarter.

Speaker 40: All right and Y coun. Thanks to everyone for joining us on the call today. I look forward to speaking with you after next quarter.

Yeah.

Okay.

Speaker 8: This concludes day conference call. You may now disconnect your lines. Thank you for joining.

This concludes today's conference call you May now disconnect your lines. Thank you for joining.

Yeah.

Speaker 41: thir four four four 4, four four

[music].