Q4 2024 Group 1 Automotive Inc Earnings Call
Speaker Change: Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's fourth quarter and full year 2024 financial results conference call.
Please be advised that this call is being recorded.
Pete DeLongshaw: I would now like to turn the call over to Mr. Pete DeLongshaw, Group 1 Senior Vice President, Manufacture Relations and Financial Services. Please go ahead, Mr. DeLongshaw.
Speaker Change: Thank you, Betsy. Good morning, everyone, and welcome to today's call, the earnings release we issued this morning and a related slide presentation.
that include reconciliations related to the adjusted results.
Speaker Change: that we will refer to on the call this morning for comparison purposes have been posted to the Group 1's website.
Speaker Change: Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures.
Speaker Change: Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Speaker Change: Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing,
Speaker Change: volume, inventory supply, condition of markets, successful integration of acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services.
Speaker Change: Those and other risks are described in the company's filings with the Security and Exchange Commission. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call.
Speaker Change: As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website.
Pete DeLongshaw: Participating with me on today's call, Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl. Thank you, Pete. Good morning, everyone.
Daryl Kenningham: Our U.S. team delivered outstanding results in the fourth quarter and our UK team has been hard at work integrating the operations of our growing UK footprint. I'll start with an update on the integration of our UK business and the broader UK market dynamics.
Daryl Kenningham: We continue to be pleased with the acquisition of Inch Capes Retail Dealerships.
Daryl Kenningham: I believe we're better positioned in the UK market than we've been at any point in our history.
Daryl Kenningham: We're poised to capitalize on the additional scale, geographic diversification, and an outstanding brand portfolio. Integrating 54 stores and two corporate organizations has been a huge effort.
Daryl Kenningham: We carried some incremental SG&A through the fourth quarter in the UK, and we've completed many of the difficult tasks and expect others will finalize in the first quarter and throughout 2025.
Daryl Kenningham: And, as always, based on business conditions, we will continue to refine and adjust as needed on a real-time basis.
Daryl Kenningham: Our integration work included the initiation of a UK-wide restructuring plan.
Daryl Kenningham: This plan consists of workforce realignment, strategic closing of certain facilities, systems integrations and other efforts.
Daryl Kenningham: Our systems integration included a conversion of the legacy Inchcape dealer management system to our existing UK DMS.
Daryl Kenningham: The in-store portion of the conversion did disrupt our operations for a period of time while being completed. It impacted results for those acquired stores.
Daryl Kenningham: We've installed a leadership team steeped in the UK motor trade.
Daryl Kenningham: and are extremely focused on performance. We've made a number of process changes to focus on just that. A couple of examples. In the Inchcape retail stores, Technician Productivity was significantly behind our legacy Group 1 stores.
So we modified compensation plans to focus and reward throughput.
Daryl Kenningham: We move decision-making on many day-to-day activities from the Corporate Office to the Inchcage Stores.
Daryl Kenningham: Shop Equipment Procurement and Technician Hiring. This will allow the Inchcape retail stores to be more nimble and responsive to the marketplace, an absolute must in today's UK environment.
Daryl Kenningham: Now, we certainly have guidelines, technology, and training in place to help them with that transition.
Turning to the broader UK market.
We continue to see a challenged macroeconomic backdrop.
Daryl Kenningham: Government imposed zero emissions vehicle mandates have proven difficult to achieve and are expected to further challenge new vehicle sales in 2025.
Daryl Kenningham: The overall market fell short of the 2024 mandated goal of 22% BevMix.
Daryl Kenningham: The market will need to see a further shift toward EVs in order to achieve 2025's target of 28%. And currently, lower margin fleet sales in the UK account for a majority of EV sales.
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Daryl Kenningham: Because of our size now in the UK, we've been able to significantly strengthen our presence with great brands like BMW, Volkswagen, Audi, Porsche, Mercedes-Benz, Toyota, Land Rover, and Ford.
Daryl Kenningham: A close relationship with those OEM partners based on performance and commitment is critical to our growth focus and ability to overcome the broader UK market challenges.
Daryl Kenningham: While we're not pleased with our UK results in the quarter, we are confident that the leadership, process, and integration actions that we've taken will result in improved performance in the year ahead.
Now turning to our U.S. business.
Daryl Kenningham: We saw record new vehicle units sold and a sequential improvement in PRU. New vehicle volumes outpaced the industry and same store use volumes were up 5% in a quarter that is traditionally new car focused.
RF&I business performed well in the quarter.
Up $109 PRU as new vehicle finance penetration improved.
Daryl Kenningham: Used vehicle finance penetration held steady and combined with improved product penetrations that resulted in a $27 increase in UV PRU, a positive change from previous trends.
Daryl Kenningham: Parts and Service revenues reached a record for the quarter, with same store growth of nearly 9% and customer pay same store growth up more than 8%.
Daryl Kenningham: We also saw a nice increase in customer counts in the quarter. We continue to view after-sales as a differentiator at Group 1. We believe it is the most under-invested area of our business, and adding human capacity is the critical leverage in performance.
Daryl Kenningham: In 2024, we increased our technician headcount on a same store basis by 7% in the U.S.
Daryl Kenningham: And due to our creative scheduling and productivity, we have plenty of physical capacity to continue adding technicians well into the future.
Daryl Kenningham: We will continue to invest in after sales. An example is our capital program to install air conditioning in nearly all of our US shops and it's on track to be completed by the end of 2025.
Daryl Kenningham: As we've previously discussed, shops with air conditioning have much higher technician retention.
and the other two of us.
Now shifting to capital allocation.
Daryl Kenningham: Properly allocating capital will always be our highest priority, while we regularly evaluate other business adjacencies.
Daryl Kenningham: In this environment, we believe staying focused on the new vehicle retail franchise business is the best use of our shareholders' capital.
Daryl Kenningham: Part of that is certainly the return profile, but part of it is also being a great partner to our most important partners, the OEMs.
Daryl Kenningham: They need their networks more than ever, and in turn, we need them more than ever.
Daryl Kenningham: So, we don't compete with them, and we intensely focus on driving performance metrics that determine acquisition eligibility, such as sales effectiveness and customer retention.
Daryl Kenningham: As a result, our approvability is quite strong across nearly all of our OEMs.
Daryl Kenningham: That allows us to engage in acquisition discussions on nearly any brand with the confidence that we will be approved.
Daryl Kenningham: The diversity of acquisitions in 2024 with brands like Lexus, Honda, Mercedes, BMW, Toyota, Porsche, Land Rover, and Audi are all examples of our ability to acquire outstanding brands in desirable markets.
because we perform well on the OEM eligibility metrics.
Daryl Kenningham: And we will continue to balance acquisitions, dispositions, with repurchasing our shares.
Daryl Kenningham: In 2024, while we grew the company 24%, due primarily to acquisitions, over the past three years, we've repurchased 25% of our stock.
Daryl Kenningham: and we will continue to focus on balancing those capital opportunities.
David Whiston, Michael Ward, Peter DeLongchamps, Michael Ward, Peter
Speaker Change: Lastly, a few thoughts on the evolving U.S. landscape. There's a great deal of conjecture at the moment about Washington and the impact the new administration's policies will have on retailers and OEMs.
Speaker Change: While we don't know the outcome of the impact on changes in things like EV subsidies, taxes, tariffs or interest rates, we feel the best way to capitalize is to ensure that Group One stays nimble and focused on execution.
Speaker Change: We have to be ready to compete on whatever playing field exists with whatever set of variables were presented.
Speaker Change: Over the past several years, I believe Group One has demonstrated the agility and flexibility that will allow us to win.
in any competitive environment.
Speaker Change: Now I'll turn the call over to our CFO, Daniel McHenry, for an operating and financial overview. Thank you, Daryl, and good morning, everyone.
Speaker Change: Quarterly adjusted diluted earnings per share from continuing operations of $10.02.
Speaker Change: Current quarter total revenues of $5.5 billion, an all-time quarterly record.
Speaker Change: and all-time quarterly records across multiple business lines, including new vehicle sales of $2.9 billion, parts and service revenues of $680 million, and F&I of $226 million.
Speaker Change: Fourth quarter adjusted net income and adjusted diluted earnings per share from continuing operations excluded 33 million of impairment charges primarily attributable to franchise rights intangible assets for four of our dealerships in the US.
Speaker Change: In the full quarter of 2024, we reported a just-at-net income of $530.6 million.
Speaker Change: Full year adjusted diluted earnings per share from continuing operations of $39.21.
Speaker Change: and full year total revenues of $19.9 billion, an all-time annual record.
Starting with our U.S. operations.
Speaker Change: We achieved all-time quarterly record on new vehicle revenues of $2.3 billion, with new vehicle units sold up 14% on a reported basis and over 8% from same store.
Speaker Change: This reflects the resiliency of demand and our operational effectiveness, as well as the value received from driving volume from our new dealership acquisitions.
Speaker Change: While Nubeql GPUs monitored from the prior year, we are pleased with the sequential quarter performance, increasing $55 on a reported basis.
Speaker Change: Use car volume in the fourth quarter grew by 7% and 5% year-over-year on an as-reported basis, respectively.
Speaker Change: TPUs held fairly consistent down only $40 and $39 on a reported and a same store basis respectively.
Speaker Change: Spicing increased in the fourth quarter versus comparable prior year and sequential quarters.
Speaker Change: We are pleased with our ability to maintain volume levels and whole pricing.
Speaker Change: We believe this is a testament to our processes, discipline, and use of technology with the pricing of used bagels.
Our F&I revenues of $196 million
We're also a quarterly record for the U.S.
Speaker Change: Our fourth quarter F&I GPU of $2,415 increased 3% on a sequential quarter basis and year over year respectively.
Speaker Change: The performance by our F&I professionals has been outstanding to maintain GPU discipline.
Shifting Gears to Aftersales
Speaker Change: Aftershell's fourth quarter revenues and gross profits outperformed sequentially and year-over-year.
Speaker Change: The fourth quarter saw a 6.5% increase in the number of repair orders.
Speaker Change: The only activity declined was our lower margin collision work, which was more than compensated for higher margin warranty and customer pay.
Speaker Change: The average Sam's Store dollars per repair order was up over 7% in the fourth quarter.
Speaker Change: These gains demonstrate our ability to add after-sales capacity on a same-store basis.
Speaker Change: However, our technician headcount is up 18% over that same period.
Thank you.
Wrapping up the U.S., let's shift to SG&A.
Speaker Change: U.S. suggests that SG&A as a percentage of gross profit increased 27 basis points sequentially to 64.6%.
demonstrating our continued focus on managing costs below pre-COVID levels.
Speaker Change: Our execution in the quarter was outstanding and we will remain laser focused on exploring operational efficiency gains to maintain this positioning.
Speaker Change: This amount was recognized as other income in the Statement of Operations.
Turning to the UK.
Speaker Change: In terms of headline results, acquisition activity fueled an all-time quarterly record in total revenues, leading to an 85.3% year-over-year increase.
Speaker Change: We were pleased to be able to maintain gross profit on a same-store basis thanks to improvements in after-sales year-over-year and used vehicles.
Speaker Change: Sequentially, new vehicle GPUs improved $348 on a reported basis, respectively.
Speaker Change: Same-store retail used vehicle units sold decreased 2% year-over-year. However, GPUs improved by almost 12%, leading to improved gross profit performance.
Speaker Change: Same storehold sale losses per unit improved compared to the prior year quarter, evidencing our efforts in 2024 to better manage our used car inventory in a tough UK market.
Speaker Change: The fourth quarter was a challenging quarter for the UK in terms of SG&A management.
Speaker Change: UK Sam's Store adjusted SG&A as a percentage of gross profit.
Speaker Change: and as reported adjusted SG&A as a percentage of gross profit worsened sequentially by 760 and 1100 basis points respectively.
Speaker Change: We recognize that we still have some challenges to overcome in the UK as a whole, and we will continue to focus on cost control and business process efficiencies as we execute our business integration activities.
Speaker Change: Our integration activities related to InScape have been ongoing and principally include efforts at workforce alignment, system conversions, and operational efficiency.
Speaker Change: We anticipate substantial completion of integration activities by the end of the first quarter.
Turning to our balance sheet on liquidity.
Speaker Change: Our strong balance sheet, cash flow generation, and leverage position will continue to support a flexible capital allocation approach.
Speaker Change: As of December 31st, our liquidity of $1.2 billion comprised of assessable cash of $323 million and $893 million available to borrow on our acquisition line.
Thank you.
Speaker Change: Our Rent Adjusted Leverage Ratio, as defined by our U.S. Syndicated Credit Facility, was 2.79 times at the end of December.
Speaker Change: Cash flow generation through the full year of 2024 yielded $683 million of adjusted operating cash flow and $504 million of free cash flow after backing out $179 million of CapEx.
Speaker Change: This capital was deployed in the same period through a combination of acquisitions, share repurchases and dividends, including the acquisition of $3.9 billion in revenues through December 31st.
Speaker Change: $162 million repurchasing approximately 518,000 shares at an average price of $311.67
Speaker Change: resulting in a 3.8% reduction in her share counts since January the 1st.
and $25.5 million in dividends to our shareholders.
Speaker Change: at an average price of $398.30 for a total cost of $32 million.
during the first quarter of 2025.
under a Rule 10b-5-1 trading plan.
Speaker Change: We repurchased 32,900 shares at an average price per common share of $419.30 for a total cost of $13.8 million.
Speaker Change: We currently have $462 million remaining on our board-authorized common share repurchase plan.
Speaker Change: As of December 31st, approximately 60% of our $5 billion in floor plan and other debt was fixed.
Speaker Change: resulting in an annual EPS impact of only about $1.15 for every 100 basis point increased in the secured overnight funding rate.
Speaker Change: For additional detail regarding our financial condition, please refer to the schedules of additional information attached to the news release, as well as our investor presentation posted on our website.
Speaker Change: I will now turn the call over to the operator to begin the question-and-answer session. Operator.
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We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touch-tone phone.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2.
Speaker Change: We ask that you please limit yourself to one question and one follow-up.
Thank you. Thank you.
Thank you.
Speaker Change: The first question today comes from David Whiston with Morningstar. Please go ahead.
David Whiston: Thanks. Good morning. I know there's a ton of uncertainty with what's going on with the Trump administration on tariffs right now.
David Whiston: Given what happened to GM stock yesterday, I think a lot of us watching you guys would appreciate if there's any kind of...
indication you can give on
Speaker Change: If such and such happens on tariffs, is there any kind of cooperation with the OEM? Or as you as the dealer, you're the importer, so you're going to bear the full cost of this normally. Is there any kind of arrangement being discussed even in terms of splitting the cost of any of these tariffs?
David, this is Daryl.
Speaker Change: You know, all the OEMs are talking about it, the impact, and they're all...
You know, I guess.
For lack of a better word, wargaming, potential outcomes.
Speaker Change: and what that means to their own sourcing and production plans. At this point, we haven't had any discussions with the OEMs around
Speaker Change: what kind of an impact that might look like on pricing or our costs as retailers. They are communicating regularly that they're looking at it and making adjustments, but nothing specific yet.
Thank you.
Okay, um...
Speaker Change: On new vehicle affordability, I'm just curious, as you know, that was a big concern last year. We had a big surge in December. I think a lot of people are probably relieved with the election over, but I'm just curious, going forward in 2025, do you think the affordability problem is lessened because the election is over, or is it still a really key concern for customers, especially in the U.S.?
Speaker Change: Well, I don't know if it's because of the election or not. I do know that our transaction price has held up and our grosses we were pleased with.
Speaker Change: and our same store sales growth we were pleased with. So our indication is, you know, the consumer's pretty healthy and
Speaker Change: You know we were pleased with those so I and I don't see anything that would lead me to believe it'll it'll get worse I think if anything it could potentially get better if there's some stimulation On tax rates or something like that so more interest rates for that matter
Thank you.
Speaker Change: The next question comes from Raja Gupta with J.P. Morgan. Please go ahead.
Raja Gupta: Great, thanks for taking the question. Just wanted to follow up on the UK comments, you know, earlier in the prepared remarks.
Raja Gupta: Just given some of the headwinds with respect to the EU mandates, it looks like it is beginning to worsen more here.
Raja Gupta: I'm just curious, what kind of expectation do you have for just new car or used car sales?
in the UK for 2025.
Speaker Change: and then what implications could this have for GPUs as well. And just relatedly on UK, I just have some follow-up as well. Given the restructuring actions that you've already executed on, there's more to come here in the first quarter.
Speaker Change: It seems like you're running at an annualized level of SG&A expenses of roughly $650 million. What should we expect the new run rate to be once those restructuring actions are completed? Thanks.
Daryl Kenningham: Hi Rajat, this is Daryl. I'm going to take your question on the vehicle demand and Daniel will take the SG&A question on
Most forecasts in the UK show growth in 2025.
Daryl Kenningham: and the underlying core retail business looks pretty good. There's, you know, EVs being forced through the fleet channel right now and that's...
Daryl Kenningham: creating margin pressure and total as a result. So, that has to get resolved, and I think it will get resolved, it really did. And when you just listen to some of the...
Daryl Kenningham: at least some of the political rhetoric in the UK. There's much more visibility around that issue and how they should address it and what that does to their industry. And so
Daryl Kenningham: of EVs. I don't know what that looks like yet, but we feel like there's enough commitment and discussion around it that something will happen. And I'll turn it over to Dana for the SG&A discussion.
Thank you.
Dana: Raj, I think as, you know, we discussed on our last earnings call, it should be no shock this quarter to have seen that our SG&A as a percent of growth was at a higher level. Some of that involved that, you know, we carried double cost in the quarter for some activities and and some of our headcounts as we
and exited some of the...
Dana: colleagues from the business. Equally so, Inchcape had a large outsourced accounting center that we onshored and we had some costs for the accounting center offshore and trying to employ employees in the UK to take those duties up on the 1st of January.
Dana: Our expectation is that we would take at least 300 basis points.
and Peter DeLongchamps.
Speaker Change: Great. Thanks for all the cover. I'll hold back in queue.
Speaker Change: The next question comes from Danielle Hajian with Morgan Stanley, please go ahead
Danielle Hajian: Thanks. Good morning. I just want to ask again about the trends in SGNA to growth. I know you discussed already in prepared remarks and just now about UK is higher as a result of the Inch Cave integration, but we also saw a sequential increase and year-over-year increase in the U.S.
Speaker Change: In what areas are you seeing the most cost inflation and what components do you feel there's opportunity to be more efficient?
Speaker Change: Daniel, this is Daniel. There was some increase in headcount SG&A as a percent of growth, small amount. Some of it was due to, you know, margin reduction in terms of the margin on new vehicles year-on-year as a percent of growth as opposed to absolute dollar.
Thank you.
Speaker Change: Got it. Okay. And then my second question is more so just about January trends thus far. What are you seeing new, used, and state of the consumer? Just to kick off 2025.
Speaker Change: Well, you know, January's not finished yet, and we'll be prepared to talk about that at the end of the quarter. And, you know, you've seen the industry kind of forecasts that have come out.
Speaker Change: The next question comes from John Murphy with Bank of America. Please go ahead.
John Murphy: Good morning, guys. You just had a first question, Daryl, on pricing and GPUs. I mean, we saw a, for the first time in a while, a sequential improvement in new GPUs. Obviously, fourth quarter has some relatively strong seasonality with Lux.
Daryl Kenningham, Daniel McHenry, Peter DeLongchamps
John Murphy: and or how much do you think we're kind of starting to scrape along the bottom here?
John Murphy: Well, I think we're, generally I'd agree with you, John. I think we're, if we're not at the bottom, I think we're approaching it. I don't think the fourth quarter,
John Murphy: naturally buoyed GPUs. I mean, I think it was, you know, a little bit because of the big year end push with the luxuries.
John Murphy: going into the fourth quarter, kind of all over the map. Right? I mean, we have a few brands that were...
John Murphy: We're fairly heavy in stock, and then we had some that were very tight, and we were able to hold TRUs.
Daryl Kenningham, Daniel McHenry, Peter DeLongchamps
John Murphy: The content in the vehicle that the customers have, the transaction prices are much higher than they were pre-COVID, and a lot of it is due to the equipment on the vehicles. And I think we're seeing more rationalization with some of the brands on their production, which obviously helps that too.
Speaker Change: Got it. That's helpful. And then just a second question on parts and service. 7% tech growth, I think is what you guys said in 2024, which is pretty impressive to get that kind of hiring done. What are you thinking for
Speaker Change: the pipeline of hires for technicians because that seems like that is almost the only gating factor on growth on parts and service.
Speaker Change: We're not lowering our expectations, John. Our targets are the same in 2025 as they were in 2024, and they're probably more aggressive than the UK. And we feel like we have an opportunity to do that. We're trying to...
put some things in place.
You know, we're doing things like the air conditioning project.
Speaker Change: which we believe will lead to, you know, higher retention in those shops. It does in the rest of our shops. And we've got some other things that we're working on to try to improve retention in our higher defection brands and shops and experimenting with different kind of compensation plans and retention programs and recognition programs and mentoring programs.
Speaker Change: That's our focus, and that's what we're going to continue to do. One key to this is keeping your shops full. Techs want to work at places where they can get work, and we keep our shops full because of the way we schedule our customers. So that's a real key as well.
Speaker Change: The next question comes from Jeff Lick with Stephen. Please go ahead.
Jeff Lick: Good morning, guys. Thanks for taking the question. Congrats on a great quarter. You know, I hate to beat on the U.K. thing, obviously, especially with the U.S. results being as strong as they were. I think some of us were a little surprised at some of the...
Jeff Lick: line items in the UK. You know, you'd highlighted some pretty big things in terms of, you know, the DMS changeover, you know, the technician productivity pushing.
Jeff Lick: You know the decision-making process down to the dealerships. I was wondering if you could just elaborate more I mean, we obviously you've hit the SG&A point the 300 pips for next year but just maybe giving a little more color just in terms of
Jeff Lick: magnitude of just how kind of impacted negatively things are right now and and how you would see that go in the other direction and just you know how much opportunity is it to go the other direction in 2025?
Jeff Lick: Well, I think there's quite a bit of opportunity. The business we bought, the brands are terrific and they're in great...
geographies.
Jeff Lick: The way they managed their business was different than us. We tend to put more decision-making in the...
Jeff Lick: It soars because we feel like our general managers have to have flexibility to react to the marketplace.
Jeff Lick: That's a better way to serve customers. The Inchcape was more centralized. They had a lot more of their decisions centralized.
Jeff Lick: or hiring a technician had to go to the corporate office for approval. If you wanted to reprice a used car, you had to have approval in writing from the corporate office. We don't think that's the proper way to manage a retail business. We think putting guidelines and technology in place to help the retail business.
Jeff Lick: at the moment. And so we've moved all of that in the half of our business, the Finchcape, out to the stores. And, you know, they're not going to wake up day one and be great at it, but I can tell you just throughout the quarter, we saw improvements.
Jeff Lick: in those actions, that resulted from those actions. And I feel like we're gonna continue to see that.
Jeff Lick: So I think there's a significant opportunity there. I'm as convinced today that we've got a great business there that can...
Jeff Lick: really develop and produce good returns for our shareholders. I certainly believe that. It doesn't mean there's not work to do. There certainly is.
Pete DeLongshaw: And a quick follow-up for Pete, if I could, you know, relating the, you know, conversations that are always ongoing with the OEMs, obviously a lot's been going on in the back half stop sales, you know, inventory is normalizing as you talk, but it's not quite there yet, the EV mandates.
Pete DeLongshaw: I'm just curious Pete how conversations with the OEMs are evolving as we get on to 2025 and you know what are they most focused on and vice versa?
Pete DeLongshaw: So I don't think you can broad brush the OEM focus, but I will tell you that when you take a look at day supply, I think that there's been a real balancing, especially with some of the higher.
Day Supply OEMs and you know we're still at
Pete DeLongshaw: low numbers with Toyota and Lexus. But I think, you know, going into this year, the OEMs are bullish on this year, to Daryl's earlier point, and just focusing on the relationships we have with them and the performance so we can continue to grow. But, you know, in talking with all the OEMs, it's...
it's a
The End of the World
Pete DeLongshaw: The next question comes from Brett Jordan with Jeffries. Please go ahead. Hey, good morning guys.
Could you give us a little bit more ad-hoc?
Pete DeLongshaw: Okay, thanks. Could you give us a little bit more color on the BEV impact in the UK, I guess, as you're forcing them through the fleet channel on the unit GPUs in BEV versus ICE over there, and maybe where you see that as the mandate is?
looking for six points higher in BEV this year.
Pete DeLongshaw: Well, you know, the margin impact is, and we can get you some detail on it, but the margin impact of sending them through the fleet channel, those go to corporate fleets in the UK. It's not like rental car fleets.
Pete DeLongshaw: and most companies have corporate fleet programs for their employees. But, you know, they tend to be subsidized and they tend to be lower priced and lower margin.
So, the incentives have been focused more on those.
to be able to do it.
That's the issue
Pete DeLongshaw: So that just makes it a much more difficult trading environment than what a standard retail deal would make.
Speaker Change: Okay, great. And then on parts and service, and I guess in the U.S., I mean, how much of that is, are you seeing benefit from things like the Toyota Tundra engine replacement yet, or is that still to come in 2025, and I guess what's the cadence? Seems like you'd have some seasonal tailwinds here into early 2025.
Speaker Change: We'll definitely see tailwind at 25 on all the warranty that's there. The warranty numbers are pretty high right now. And the good thing is one-third of...
Speaker Change: customers who come in on a warranty end up with some customer pay on their repair order. So, that high warranty
Speaker Change: trend also helps our CP business so you know that that's that and I think that's honestly one of the reasons we were up 8% in the in the quarter in customer pay but I expect a warranty to continue through the year
Speaker Change: The next question comes from Michael Ward with Freedom Capital. Please go ahead.
Thanks very much. Good morning, everyone.
Sorry Mic.
Just one more one more question on the UK there.
Speaker Change: If you take the Intricate business in the SG&A and it looks like it was like 96% in 4Q Is there anything structurally that prevents that business from getting down to the overall corporate average in the UK?
Speaker Change: Mike, it's Daniel. I don't think there's anything structurally that prevents that from happening. If anything, my expectation would be that the Inchcape group should be slightly better than the Legacy Group 1 stores. Now, the simple reason behind that is a big differentiator between the U.S. and the U.K. is the rents are structurally higher in the U.K. than they are in the U.S.
Speaker Change: The Inchcape business tends to be more in the north of England versus the Group One legacy business in the south.
Speaker Change: And rents in the south of England just are structurally higher than the north. So my expectation would be that it should be as good, if not better, than the legacy Group 1 businesses, as well as the brand mixes.
Speaker Change: of the Inchcape stores tend to be slightly higher gauge towards luxury than the Legacy. So, all in all, I would say absolutely as good as, if not better, than the Legacy UK business.
Speaker Change: Okay, so then, so therefore you had about 10 million dollars of redundant SG&A costs then in 4Q with Inchcape, and that affected your overall SG&A as well as the UK portion.
I think that's, I think that's paramount.
Speaker Change: Yeah, Mike, one of the ways we're thinking about the UK business is...
Speaker Change: You know, we feel like in total, group one had a really good fourth quarter.
Speaker Change: really good and when you come on almost any broad basis that you look at it on EPS growth and Performance versus expectations. We had a really really good quarter, and that's really without the UK contributing very much
Speaker Change: And so, we feel like as we get a lot of the major integration activities behind us...
and start to see the benefits of those.
and I'm inch cape sore.
Speaker Change: We have new technology today and we replaced all the networks and replaced the DMS You basically shut the store down for five days to do that when we did every store in late November and December, so
Speaker Change: It was, you know, it was a big impact and we expect that as we get further into 25 we'll see more and more good news out of our business there.
David Whiston: That's what it sounds like. Second question, on page 13 of your slide deck, Pete, your neck of the woods, the FNI side to it, it looks like you've had
steady improvements in a lot of the different take rates.
David Whiston: If I look at that, it seems to me that, you know, back about six months ago or so, there were some concerns that maybe FNI was gonna normalize a little bit.
David Whiston: Seems to me that you're at another high level and if anything as some of the captive finance comes back a little bit We might see that drift a little bit higher in 2025. Is that a fair assumption?
David Whiston: Well, I think the real opportunity, Mike, as we get lower rates, is to improve the used car penetrations because those have kind of bottomed out at 63%, up a traditional number of 68%. We've actually seen captive financing help the new vehicle finance pen.
up to 75, 76 percent.
David Whiston: We think that there's some opportunity there this coming year and then the, you know, we just executed on on our product offerings. We've talked about it for years. We've continued to have
David Whiston: The same products offered and our teams have done a great job of maintaining good product penetrations and increasing a couple of the products that we have. So we're pleased with our F&I performance this year.
Ron Jusakow: The next question comes from Ron Jusakow with Google Time Security. Please go ahead.
Yeah, good morning and thanks for taking my question.
Ron Jusakow: Is that just a sign of customer willingness to pay and your ability to pass through tech costs and general inflation?
Ron Jusakow: Well, I think some of it may be the latter. When you combine it, though, about half of our benefit and parts of service,
Ron Jusakow: because of higher customer counts in our stores. So we were pleased to see that on the specific...
Thank you.
Ron Jusakow: You know, the average mileage continues to go up across our service drives, and so...
Ron Jusakow: I believe that's what's driving it. We're not taking necessarily any meaningful pricing. That's largely behind us. And I don't think it's the environment to do it anyway.
Speaker Change: I think if we just look at some of your Titus supplied OEM brands and your partners.
Speaker Change: They build a large portion of their vehicles actually in the U.S.
Yeah, no, there's some truth to that. Absolutely, yeah.
Speaker Change: Okay, that's helpful. I'll hop back in the queue. Thanks for taking my questions.
Thank you.
Glenn Chin: The next question comes from Glenn Chin with Seaport Research Partners. Please go ahead.
Glenn Chin: Great, thank you for squeezing me in. Just a follow-on question related to after-sales. Daryl, you mentioned targets for 2025 or unchanged 2024. Can you just remind us what those targets were for last year?
Glenn Chin: Well, I think what I was specifically referring to, Glenn, was that this past year we grew our tech count by about 300 technicians in the U.S., and we're not
Glenn Chin: We're not lowering our expectations in the future on that. And we don't feel like physical limitations in terms of our stall count will limit us either because
a third of our stores in the U.S.
have more technicians than they do stalls in the dealership.
Glenn Chin: So just the physical open number of stalls is not what we look at in terms of what's our future run rate look like on being able to hire technicians. So we intend to keep hiring at the same rate we have been in the past.
Glenn Chin: So that's what I was referring to. I don't know if that answers your question or not.
Speaker Change: 67 days of use in the UK, does that need to come down?
Glenn, it's Daniel.
Speaker Change: It's January, it's the opposite to that. January tends to be a very buoyant month for used vehicle sales in the UK. Effectively what we've done is we've looked at our inventory levels at the end of December and effectively divided it by the number of vehicles that we sold in December. So that's artificially high for December.
Daryl Kenningham, Daniel McHenry, Peter DeLongchamps
Speaker Change: Seeing no further questions in the queue, this does conclude our question and answer session and concludes our conference call. Thank you for attending today's presentation. You may now disconnect.