Q3 2023 Sonic Automotive Inc Earnings Call
Good morning, and welcome to the Sonic Automotive third quarter 2020 earnings Conference call. This conference call is being recorded today Thursday October 26 2022.
Presentation materials, which accompany managements discussion on the conference call can be accessed at the company's website.
Hard to Sonic Automotives dotcom.
This time I would like to refer to the Safe Harbor statement under the private Securities Litigation Reform Act of 90 95.
During this conference call management may discuss financial projections information or expectations about the company's products or market or otherwise make statements about the future such statements are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made.
These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission and in addition management may discuss certain non-GAAP financial measures as defined by Securities and Exchange Commission. Please.
Please refer to the non-GAAP reconciliation tables in the company's current report on form 8-K filed.
<unk> filed with the Securities and Exchange Commission earlier today.
I would now like to introduce Mr. David Smith, Chief Executive Officer of Sonic automotive.
Smith you may begin your conference.
Thank you very much and good morning, everyone and welcome to Sock automotive third quarter 2023 earnings call as he said I'm, David Smith, the company's chairman and CEO.
Joining me on today's call is our president Jeff Dyke, our CFO Heath Byrd, Our Echo Park, Chief operating Officer, Tim Kaine.
And our vice President of Investor Relations Daniel Island.
Earlier this morning, Sonic automotive reported third quarter financial results, including record third quarter total revenues of $3 $6 billion, a 6% increase from last year.
Third quarter EPS was $1 92 per share, which includes the effect of certain charges related to the previously announced store closures in the second quarter.
Excluding these items adjusted EPS was.
$2 <unk> per share a decrease from $2 23 in the prior year due primarily to normalizing new vehicle margins and.
Higher floorplan interest rates.
We're very proud of our team's performance in the third quarter and we remain focused on leveraging our diversified business model to adapt to changing market dynamics in the near term, while positioning sonic to achieve our long term strategic goals.
We believe our strong relationships with our teammates manufacturer and lending partners and guests are key to our future success I would like to thank them all for their continued support.
Yeah.
Turning now to third quarter trends.
We continue to see improvement in new vehicle production and inventory levels across our brand portfolio, despite headline risk related to the UAW strike.
As expected <unk>.
Vehicle gross profit per unit declined sequentially to 4600 $78 per unit on a same store basis.
In line with our projection to exit 2023 in the low to mid $4000 range.
This steady decline in new vehicle Gpus should continue into 2024.
We continue to believe the normal level of new vehicle GPU will remain structurally higher than pre pandemic levels in the $2000 range.
Furthermore, our luxury weighted portfolio.
Generally runs a lower enjoyed inventory day supply.
Our luxury manufacturer partners have been disciplined and inventory production to date potentially minimizing new GPU compression relative to industry trends.
Which would continue to benefit the earnings power of our franchise business.
In the used vehicle business wholesale auction prices for three year old vehicles decreased 5% in the third quarter following a 6% decline in the second quarter.
October to date.
The three year old Manheim index declined another three 6%.
Despite headlines, indicating that blended used car prices across all age and mileage bans have begun to rise again.
Well it used to be well.
Used retail prices remain elevated.
Treating to affordability concerns amid the high interest rate environment, the downward trends, we're seeing in used vehicles and you usually have a wholesale pricing are positive for our business.
And in the fourth for the fourth quarter and beyond.
Fewer lease turn ins at our franchise dealerships continued to limit our used vehicle volume in the third quarter, but we were able to maintain higher than expected use gpus at $668 per unit on a same store basis to somewhat offset the effects of lower volume.
Our team remains focused on driving incremental inventory acquisition and retail sales opportunities in the fourth quarter and into 2024 driving upside in this line of the business alongside the expected normalization of used car pricing and volumes over time.
Despite an elevated consumer interest rate environment, our F&I performance continues to be a strained.
Our franchise dealerships F&I penetration rates were stable quarter to quarter, and we reiterate our previously issued guidance for full year 2023, franchised F&I GPU at or above $2400 per unit.
Our parts and service or fixed operations business remained strong.
With record third quarter fixed ops gross profit or a franchise dealerships.
8% year over year on a same store basis drill.
Driven by 10% growth in our customer pay business.
We're very proud of the success. Our team has had in this area and we believe there are remaining opportunities to optimize our fixed ops business as we progress through the fourth quarter and into 2024.
Turning now to the Echo Park segment as discussed on our second quarter earnings call, we made the difficult but necessary decision to suspend operations at 50% of our Echo Park segment locations back in June and July.
We believe that the decision to suspend operations at these stores would substantially improve our near term financial performance without sacrificing our long term strategic plan for Echo Park.
In the third quarter, our financial results reflect the expected initial benefits of these strategic adjustments to our Echo Park business model.
We reported revenues.
Integral part of $627 million up 6% from the prior year and all time record Echo Park gross profit of $53 million up 22% from the prior year.
Echo Park segment retail unit sales volume for the quarter was 19050 units up 25% year over year.
And up 12% from the second quarter.
As discussed on our July earnings call, reducing our store footprint allowed us to better allocate inventory.
Across our platform driving higher unit sales volume better GPU and significantly lower operating losses.
Third quarter Echo Park segment, adjusted EBITDA was a loss of $5 $2 million compared to an adjusted EBITDA loss of $31.8 million in the second quarter and $23 $3 million in the third quarter of 2022.
Based on recent on recent market trends, we remain confident in our path to breakeven adjusted EBITDA in the first quarter of 2024 and look forward to resume or resuming our disciplined long term growth plans for Echo park as used vehicle market conditions continue to improve.
Turning now to our power sports segment.
The third quarter is the peak seasonal sales period for our power sports portfolio highlighted by the Sturgis motorcycle rally in August.
Our team welcomed over 150000 rally attendees to our Black Hills, Harley Davidson locations, selling 550, new and used motorcycles during the rally, making it one of the highest volume of events in the dealerships history.
Combined with our Texas power sports stores. This drove seven $9 million and adjusted EBITDA from our power sports segment in the third quarter.
We are continuing to identify operational synergies within our growing power sports network and remain optimistic about the future growth opportunities in this adjacent retail sector.
Finally, turning to our balance sheet.
We ended the third quarter was $797 million in available liquidity, including $335 million in combined cash and floorplan deposits on hand.
The strength of our balance sheet allowed us to repurchase one 7 million shares of our class a common stock in.
In the third quarter for nearly $87 million.
Bringing our year to date share repurchase total to three 3 million shares or 9% of shares outstanding at the beginning of the year.
At the end of the third quarter, our remaining share repurchase authorization was $287 million reps.
Representing over 15% of today's equity market cap.
Share repurchases are an important part of our capital allocation strategy and we remain focused on opportunistic share repurchases.
As our liquidity allows.
Additionally, I'm pleased to report today that our board of Directors has approved a three 4% increase to our quarterly cash dividend to <unk> 30 cents per share.
Payable on January 12, 2024 to all stockholders of record.
On December 15th 2023.
In closing our team remains focused on our near term execution and adapting to changes in the automotive retail environment and macroeconomic backdrop, while making strategic decisions to maximize long term returns.
Furthermore, we continue to believe our diversified business model provides earnings growth opportunities in our Echo Park and power sports segments.
That may offset any industry driven margin headwinds, we may face in our franchise business.
<unk> the earnings downside to consolidated Sonic results overtime.
We remain confident that we have the right strategy, the right people and culture to grow our business and create long term value for our key stakeholders.
This concludes our opening remarks, and we look forward to answering any questions. You may have thank you very much.
Thank you and at this time well be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove it.
Questions from the queue for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
Our first question comes from the line of Daniel <unk> with Stephens, Inc.
Please proceed with your question.
Hey, guys. This is Joe <unk> on for Daniel Thanks for taking the question.
Hey, Joe.
Hey, so at Echo Park, Youre, calling for Monkey EBITA profitability, but seasonally <unk> is the biggest quarter for used dealers.
Is that comment just about the seasonality or is the message that we're flipping to positive EBITDA and that should continue for the rest of the 'twenty 'twenty four.
Yeah, the messages that we're flipping to positive EBITDA and that should continue from here on out.
If you look at the second quarter and the decisions that we made.
That certainly helped bolster the bottom line increased volume because our great barring team different by you know the right mix, where the smaller number of stores.
Youre going to see improvement from the third quarter to the fourth quarter Bogging, maybe about the same but EBITDA should continue to improve them as more of the SG&A moves that we've made since then and.
We should be EBITDA positive in the first quarter and then from here on out as we move.
The rest of 'twenty.
Five and you know the used car market is going to continue to get better prices are going to drop new car inventories as we can all see your building and that's going to make a difference in used car valuations right now we're buying cars between 24520, $5000, we think that that needs to sink below 23000 before the real big volume.
We're used to at Echo Park returns.
And we think that's 18 to 24 months or kind of choppy water.
And those who have standing at the end of all of that I think will enjoy.
You know and and reap the rewards of the hard work and the dedication and we certainly plan on attending to being one of those as we move forward. So.
Bluer skies ahead from an Echo Park perspective, we're very excited about that.
Yeah.
Got it that's helpful. Thank you for the clarification, there look more Echo park, just as a follow up with the increase in unit sales, but despite the footprint moderation.
Does this kind of change your long term view of Echo Park and the build out opportunity do you think you might want larger selling hubs just in the biggest metros.
Are you sticking to the original plan how are you thinking about the footprint. After you've made these changes in that it's been such positive results. Yeah. We've learned a lot there, it's Jeff again and more than likely will have the larger hubs as we move forward in markets, but we're gonna be very disciplined about opening the next doors and I think that's an incredibly important point here.
We're gonna open stores 23 in fact.
When the pricing is back and we can in a disciplined way and in a profitable way open locations in markets that'll get us to the 90% coverage of the country, we still reiterate that to them.
Still focused on that but it's got to be done in a disciplined way the used car market and the inventories to topsy turvy, we've learned that over the last couple of years and who knows what happens next but we're prepared for it but right now we're very comfortable with our 17 stores that are open from a macro perspective, we know we can get those EBITDA positive and we will grow in a disciplined.
Wei and approach as the market allows us to do so.
This is David something to highlight it doesn't make sure that the.
The point that that our team once we decided to do the restructuring Rec and park.
We knew that the market will allow us to buy only a certain number of cars at the right prices that fit the Echo Park model. So it was no surprise to us that once we did the restructuring that we can stop the remaining stores properly and that sales would go up but the results really for our team we're not surprising so I think that's important.
We know the model and we will as we said, we'll we'll roll it out in a disciplined way as the market allows us to do that and this is heath you want to add one more point I think we all believe that it's going to be an 18 to 24 months to get back to what we used to see pre COVID-19.
But we all believe and I think everyone understands that that used market will come back and we see that and as Jeff mentioned, our growth plan will be disciplined and will open when the market dictates a thon to open new.
New stores.
Got it that is all for us. Thank you guys for the color. Thank.
Thank you. Thank you.
Our next question comes from the line of Rajeev.
J P. Morgan. Please proceed with your question.
You may be on mute.
Yeah.
Hi, sorry.
Okay.
Yeah, we can hear you betcha.
Great sorry about that yeah could you just have a follow up on Echo Park can you give us a sense though.
How you plan to navigate.
Some of the shortages around the later model used vehicles.
You did talk about.
You know trying to increase their mix and somebody who can go where it goes but.
How do you navigate the challenge you know when it comes to.
You know just just training are your salespeople you know changing the reconditioning practices.
Because.
It feels like you would need to meaningfully.
Take share in that cohort of the older Waco like greater than five give and takes there already girl.
Did you meet some of these targets, including getting to profitability and I have a follow up thanks.
Yeah. This is Tim gain you know, we made that move to higher mileage and longer year, probably starting at the beginning of the year. That's one of the reasons, we've been able to grow the volume.
With the shortage in you know one to five in one three year old cars and we've perfected some of it.
There's different models. So we will continue to take share.
Where we can.
This is Jeff, it's it's 15% to 20% of our overall volume right now I think that it's going to stay in that range it might get to 25%, but I don't think it's gonna being any more than that because it's the prices began to drop our Echo Park model is one to five year old cars under 50000 miles and selling those cars at a gray.
Price in the marketplace are.
Where you can buy the car and by warranty for basically the same price or less then you can buy it at our competitors, which drives the real high volume and our ability to market that lower price. So we certainly have looked at it adds complexity. There. It's a good question because it does add complexity, but.
But I think Tim and the team have done an amazing job of teaching the team. We've got the experience on the franchise side, because the 30% of our business on the franchise side.
So we've been able to leverage our experience.
On the Echo on the franchise side into Echo Park, and take advantage of that and thinking and team are the best in the country at it too.
That's something that we'll continue to leverage as we move forward, but I want to make sure that everybody understands that not more than 25% of the total mix I think it'll be lucky if we get there.
Got it got it no that's helpful.
A follow up was just on parts and services you have a lot of California exposure, which obviously I was greater in electric vehicle adoption.
You had some really good growth in your service business overall I'm.
Curious you know if you could share any insights on how the service activity has been on some of you know.
Earlier electric vehicles.
Ah you're servicing.
One of the rental car companies hard. This morning made a comment that you know, they're having to spend twice as much you know to service to repair damage to electric vehicles, where it says I couldnt isolate call.
So curious if you're seeing something like that as well you know any more insight you can share would be helpful.
Yeah. Thanks, It's Jeff again, where exactly seeing that are having a R. O a dollars or gross dollars were up 30% on electric vehicle than a nice vehicle. That's a nice surprise for US yeah, we're all smiling.
Uh huh.
So I keep bringing that on the fixed operations business you know for us across the country is just fantastic we expect to see it continue to grow you'll see that in our numbers. We've had an amazing year and that's going to continue on into 'twenty four more cars on the road in and more customers using our service shops. So it's been a very nice surprise more electric vehicles coming through.
With higher grosses are in terms of our average are okay.
Got it got it great. Thanks for the color I'll jump back in queue.
Got it thank you.
Our next question comes from the line of John Murphy with Bank of America. Please proceed with your question.
Good morning, guys. Just a first question on on sort of timing and capital now that you're kind of.
Investing maybe a little bit less in Echo Park on time in capital do you see the opportunities for making.
Acquisitions on the new side.
Maybe at a higher priority and something that they might be more attractive now.
Yeah. John This is David Smith, Thanks for the question.
Yeah, we're as we've mentioned we're going to Opportunistically look at what's best for the overall business and you know and for all of our shareholders and so we're gonna be open minded about that but our.
As I mentioned in our opening comments, we certainly believe that our that our shares are a great value I think that the.
The opportunities in the franchise business.
<unk> stores out of the market are still extremely valuable and so.
We've seen some great opportunities in our power sports business to grow as we've talked about so.
Yeah, we're gonna be open minded on where we put our capital but it's.
It's with having in mind again that it's got to be great for the overall business as is the case that we're gonna.
Look at it from a total ROI perspective.
Yeah.
As part of our capital allocation you know one of the big pieces right now is investing back into our business.
We talked about EV, a little bit before you'd be shocked to the requirements and the capital that we have to spend to prepare for E D and manufacture our requirements.
That's gonna be a part of our capital allocation and technology. You know, we've just started a pat down AI and continuing our robotic process automation and there'll be huge efficiency gains from those two investments.
And as David said, returning capital to shareholders, we increased our dividend by 9% of the Allison any shares so far this year. So those are some of the main drivers, but I agree with David We will continue to look at the opportunities. The other thing that franchise and in power sports for good acquisitions.
It makes sense.
Okay.
The second question, maybe more for you Jeff on on an Echo Park and a long term you ebb and flow we're seeing in <unk>.
In new vehicles in the one to five year old category is something that is becoming more obviously, a cyclical phenomenon right I mean, you know yourself.
For the last five years, you know if you can hit a trough union plus vehicles, though to actually you know retail. So you know as you look at this you know that should improve in the next two years or so so hitting the accelerator again on Echo park at that point it seems like it could make sense, but at some point you know and this is long term stuff, but five to 10 years down the line you might be hitting.
Another air pocket again.
Vehicles could it make more sense.
To have this model much more flexible to operate you know more in the one to 10 year old category.
And flex up and down because you've got a good operator like carmax out there right now struggling with similar issues that you're facing that's you know that's much more established.
And they're just facing this have you seen some issue with the air pocket and he's one of five or six year old vehicles state they focus on and Theres not.
Even with their best efforts anything to really do much about it.
So I mean did you make it more flexible over time, so you're you're not running into these issues.
It's a great question, we have the conversation here all the time, yes, we can certainly we can adjust and move our margins up.
We would build stores differently.
Going forward because our stores are built for high volume if you remember pre pandemic Rab Gen 550 units a store rooftop right.
Now that number is in the 300 range in and we're on our way back to the 500, but yeah. We would built we're not structured for that type of lower volume were structured for the big heavy volume, but 100%. If we you know and work at like I said earlier, it's gonna be Todd.
He told me for the next 18 to 24 months. There's no question about that but new inventory is going to grow and electric vehicles are going to come into the market, which will start selling and that's going to bolster the used vehicle volume, but we're not gonna get fooled by that.
And so as we move forward and build stores.
Into consideration the flexibility that you're talking about we've pared down the stores now to where we know we can get that EBITDA positive moving forward and making good money.
Our Denver store for example, our Thornton stores backup, making 800000 Bucks a month and it's back in the.
The upper echelon of our profits our stores across the entire company and we see that coming back, but it's a real good thought and it's a conversation we have around here. All the time is how do we need to expand the range. So that we don't get hit in case. There is another trough that you're talking about and that will happen as we.
We contemplate building or renovating stores in the future and Jonathan that's something to keep.
Keep in mind as we have evolved the Echo Park brand and model over the years, it's been 10 years and a lot of a lot of R&D and one of the things as you look down the road, Yeah, Jeff mentioned that the Colorado market.
The brand awareness in the Colorado market, because we've been there longer than anywhere else as.
Is far greater than anyone else in the country.
We've got our chief.
<unk> marketing officer, Dino, where Nokia here and.
It may want to chime in but I believe if you look down the road or brand awareness for Echo Park is going to be far greater that's going to help us.
Get into a lot of.
More areas and drive our revenue if.
If we do hit one of those air pockets you talked about when we started.
Branding in Houston in March of this year and our brand awareness there is growing like wildfire. So that's great.
But we haven't been unwilling given the current economic circumstances that pushed that'd be on the Houston market.
But as we get better and stronger from a P&L perspective, you're certainly going to find us expand that throughout all of Texas and in the rest of the country and Theres a lot of levers John that we can still pull.
But we are very focused in that one to five year old category, we will build stores in the future that will give us the flexibility to do it in different ways, if we need to.
I'm sorry, what.
So can I sneak in one last one on the on the inventory side I mean, some of your brands are still pretty inventory constrained.
Operating and you know I guess, you mean mid to mid single to maybe mid teen low day supply and I'm. Just curious you know how much of an impact do you think that's having on your new vehicle.
Sales here.
The short run it and do you see any relief on the horizon and we do the fourth quarter Youre going to see if we got a we haven't been over 10000 units in stock and since the 2019 and we hit that in this timeframe.
Where were really constrained as Honda and Toyota are the imports and the luxury manufacturers are doing a fantastic job BMW worried about 18.
They supply electric vehicles, where 26 mm for BMW. So we've got inventory to sell and I think you'd see that in our sales.
Hopefully the strike.
We're going to be solved last night with Forbes announcement, and they're like Lemmings I'll follow each other and hopefully get this handle by the end of the year and so I'm not too concerned inventory is going to continue to build that's why we're so excited about echo part because it's going to bring a used car valuations down and we're seeing no sales at the auctions down in the mid.
40% range, which is a big deal that means people are holding on for holding on they're going to have to start selling those cars, that's going to bring pricing down.
So we're excited about the new vehicle inventory coming back, but I don't think it's gonna come back too far I mean, I think when we get to the highs not including electric just looking at the ice.
You know maybe in the 30 to 35 day range versus pre pandemic and a 65 day range. So I think it'll stop there there's not a manufacturer out there, saying that theyre going to bring inventory day supply you know up to some crazy number which I think is healthy and it's good for the used car business that that's enough for us to get our job done for our freedom perspective, both at Echo Park on the Sonic side.
Leasing is coming back which is great and we're starting to see incentives there again, releasing a higher percentage of.
The portfolio now and of course, that's going to take 18 to 24 months and that that'll make a big difference, but inventory is getting better if.
If we had more houses in toys on the ground, we'd sell more homes as intuitive as Theres. No question about that those days supplies are still you know kind of stepped in for us, but but improving every month and I expect that to improve greatly in this quarter that we're in right now for those brands and others and we're seeing including BMW, which is a big part of our portfolio and we're gonna.
More ice vehicles more Suvs, that's going to make a difference in terms of our new car volume for the rest of this quarter and going into 'twenty four.
Got you. Thank you very much guys, yes, Sir.
Yeah.
And our next question comes from the line of Michael Ward with Benchmark company.
But to your question.
Thank you very much and good morning, everyone.
Hey, Michael things in the human and the inventory can you provide any details on the used vehicle inventory at both franchise and Echo Park.
In terms of day supply.
Yeah, where it sits there they're they're they're both in the 30 day range. We've tried to keep 20 day supply on on the lot and 10 days in the pipeline.
We're probably a little bit below that on the franchise side, maybe 27 28 days and were right at 30 in the Echo Park stores, only I'm, not including northwest motor sports or a car one and so we're in fantastic shape our.
Our inventories young margins are good and we're in we're in as good a shape as you know, it's probably anybody out there in terms of our used day supply and our inventory mix.
And on the franchise side with the inventory youre not forced to chase out on the outside to either take them on trade ins or you know the priority auctions is that what youre looking what kind of I.
I mean, we're buying more and more cars off the street that that percentage is growing with US every month, we're very very focused on that and like I said I'd Echo contract I think that those cars are going to be 25% of the mix. It's a much larger percentage of Mexico on the franchise side, we bought very few cars at auction if any at all so 90% of our cards are coming from purchase off the street or trade ins.
Okay, and you kind of alluded to it about the captive subs finance subs getting back into the game, a little bit subsidizing leases and it sounds like they're subsidizing loans as well just wondering if you can comment what that does for your business.
Both plus and minuses.
Yeah, I mean, they've really had to do it on the electric vehicle side right. So 90% of the electric vehicles. We're selling are all leases just because the MSR piece, we're too long I think customers want you know just don't see the value in paying a difference between electric and an ice vehicle, but certainly it's it's making a difference in the business you can see it in our new car volume at a great new car volume quarter, we intend to have another one in the fourth quarter moving forward.
And they are 100% back in the game, they're doing a great job really really good job for us and so we expect that to continue.
Okay.
Took the policing correct, yes, the incentives on the leasing front.
You have seen across the board.
Yeah.
You have a higher luxury mix. The most so what is the percentage of leasing on the new vehicle side.
Well when you bring when you the thing that's funny now is and we should all as an industry you start talking about this the difference between ice and leasing it.
Combustion engine and leasing an electric vehicle the percentage for electric vehicles 80, 590%.
Mercedes is above that.
And not short term I think that's going to continue on and it's in the 30 to its highest 50% range depending on the brand.
On the luxury side as well.
Perfect.
Thank you. Thank you very much.
Sure.
Okay.
And as a reminder, if anyone has any questions you May press star one on your telephone keypad to join the question and execute our next question comes from the line of Bret Jordan with Jefferies. Please proceed.
Hey, guys. This is Patrick Buckley on for Brent Thanks for taking our questions.
Taking a look at used Gpus and the strength. There was was there anything specific driving that it sounded like a sourcing has improved a bit as far as getting cars off the street, but anything else to call out there.
100 per cent, it's disciplined days' supply.
We have always had that in this kind of environment, that's going to show up for US we have a very very disciplined way that we manage inventory and as I said earlier 20 day supply of frontline 10 days in the pipeline, we don't go over that.
It might cost us some sales in some point in time, but but in this kind of a day and time it really does help and so that's that's keeping the margin strong for us on the franchise side.
And and on the Echo Park Center that discipline really does help and it's made a difference in our in our margins.
Got it that's helpful. And then we've also heard some talks of a bit of a mismatch between EV production and inventory levels and retail demand. There are you guys seeing the same thing and do you guys expect to see some some heavier discounting at the end of 'twenty four.
Yeah, it's actually it's very interesting this is David.
Depending on what part of the country you're in.
I got the chance to drive one of the new Mercedes Electric vehicles recently and it was fantastic vehicle, but the demand for that particular vehicle is certainly higher and you know as I'm sure you've seen out west and but in some areas of the country as Jeff said, you know you've got a discount that car heavily to get it to actually get it.
So 100%. This is Jeff 100% you know, there's a lot of discounts growing on and depending on the manufacturer remember were in its infancy right now so everybody's learning, including the manufacturers.
We've got a 26 day supply of BMW. These on the ground and we got to 58 days via Mercedes E vs. On the ground, where our margins are better on BMW right now than they are on Mercedes are there.
You're still in the same range as a nice vehicle Morgan. So I think they've done a really good job of managing that Mercedes got out a little bit ahead of themselves in terms of inventory products, great and we're selling a lot of it on the east coast I think among the largest networks in the country and maybe the world of Evs for both of those brands.
Hum, but there are still challenges ahead, the prices are too high the product's fantastic customers need to get used to the product. There's a lot of work to be done.
To get US there and we'll get there over time the manufacturer gonna be discounting. There's no question about that in the coming quarters and that's great for us with several cars drive more F&I and driving our profitability in the company.
This is heath you see probably a lot of manufacturers talk about the market for hybrid vehicles, and especially Toyota.
And that being the transition really from the listing agent to EV and hybrid so great for us we love the product and it's really to get the service. So we think that's going to be more of a oh the demand right now than EV.
Great very helpful. That's all from US thanks, guys.
Yeah.
And we have reached the end of the question and answer session I'll now turn the call back over to the CEO, David Smith for closing remarks.
Great. Thank you very much. Thank you everyone for joining us and have a great day talk next quarter.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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