AutoNation Q4 2025 AutoNation Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 AutoNation Inc Earnings Call
Operator: Our conference call. Leading our call today will be Mike Manley, our Chief Executive Officer, and Tom Szlosek, our Chief Financial Officer. Following the remarks, we will open the call to questions, and I'll now hand the call over to Derek Fiebig, Vice President of Investor Relations, to begin.
Operator: Our conference call. Leading our call today will be Mike Manley, our Chief Executive Officer, and Tom Szlosek, our Chief Financial Officer. Following the remarks, we will open the call to questions, and I'll now hand the call over to Derek Fiebig, Vice President of Investor Relations, to begin.
Speaker #1: Conference call. Leading our call today will be Mike Manley, our Chief Executive Officer, and Thomas Szlosek, our Chief Financial Officer. Following the remarks, we will open the call to questions.
Speaker #1: And I'll now hand the call over to Derek Fiebig, Vice President of Investor Relations, to begin.
Speaker #2: Thanks, Adam. And good morning, everyone. Welcome to AUTONATION's fourth quarter conference call. Before we begin, I'd like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995.
Derek Fiebig: Thanks, Adam, and good morning, everyone. Welcome to AutoNation's Fourth Quarter Conference Call. Before we begin, I'd like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued today and in our filings with the SEC. Certain non-GAAP financial measures, as defined under SEC rules, will be discussed on this call. Reconciliation reports are available on the website located at investors.autonation.com. With that, I'll turn the call over to Mike.
Derek Fiebig: Thanks, Adam, and good morning, everyone. Welcome to AutoNation's Fourth Quarter Conference Call. Before we begin, I'd like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued today and in our filings with the SEC. Certain non-GAAP financial measures, as defined under SEC rules, will be discussed on this call. Reconciliation reports are available on the website located at investors.autonation.com. With that, I'll turn the call over to Mike.
Speaker #2: Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Factors that could cause our actual results to differ materially are contained in our press release issued today and in our filings with the SEC.
Speaker #2: Certain non-GAAP financial measures, as defined under SEC rules, will be discussed on this call. the website located at investors.autonation.com. With that, I'll turn the call over to
Speaker #2: Mike. Yeah, thank you,
Michael Manley: Yeah, thank you, Derek. Good morning, everybody, and thank you for joining us today. I'm on the third slide. We're pleased to report a solid fourth quarter and full-year results for AutoNation. During a turbulent year, we delivered 3% revenue growth and 8% adjusted net income growth, and four consecutive quarters of year-over-year EPS growth, ultimately leading to an increase in adjusted earnings per share of 16%. Adjusted free cash flow exceeded $1 billion, up approximately 39% from 2025, and we deployed over $1.5 billion in capital, half of which went to share repurchases, which resulted in a 10% reduction of the shares in circulation, with the remainder invested in the business, including $460 million in M&A to acquire some strong brand assets. Our balance sheet remains extremely healthy, with year-end leverage largely unchanged from the prior year.
Mike Manley: Yeah, thank you, Derek. Good morning, everybody, and thank you for joining us today. I'm on the third slide. We're pleased to report a solid fourth quarter and full-year results for AutoNation. During a turbulent year, we delivered 3% revenue growth and 8% adjusted net income growth, and four consecutive quarters of year-over-year EPS growth, ultimately leading to an increase in adjusted earnings per share of 16%. Adjusted free cash flow exceeded $1 billion, up approximately 39% from 2025, and we deployed over $1.5 billion in capital, half of which went to share repurchases, which resulted in a 10% reduction of the shares in circulation, with the remainder invested in the business, including $460 million in M&A to acquire some strong brand assets. Our balance sheet remains extremely healthy, with year-end leverage largely unchanged from the prior year.
Speaker #3: Derek. Good morning, everybody. And thank you for joining us today. I'm on the third slide. We're pleased to report a solid fourth quarter and full-year results for AUTONATION.
Speaker #3: During a turbulent year, we delivered 3% revenue growth and 8% adjusted net income growth and four consecutive quarters of year-over-year EPS growth. Ultimately leading to an increase in adjusted earnings per share of 16%.
Speaker #3: Adjusted free cash flow exceeded $1 billion. Up approximately 39% from 2025. And we deployed over $1.5 billion in capital—half of which went to share repurchases—which resulted in a 10% reduction of the shares in circulation with the remainder invested in the business, including $460 million in M&A to acquire some strong brand assets.
Speaker #3: Our balance sheet remains extremely healthy with year-end leverage largely unchanged from the prior year. 2025 was the first year that AUTONATION delivered earnings and EPS growth since 2022.
Michael Manley: 2025 was the first year that AutoNation delivered earnings and EPS growth since 2022, and as I said, it was a solid year of growth and performance by the group. Relative to the fourth quarter, the industry faced tougher sales comparisons to last year when post-election sales surged, driving a Q4 2024 light vehicle SAR of 16.7 million. Also, sales in this year's fourth quarter were negatively impacted by the strong pull-ahead earlier in the year as consumers reacted to the tariff announcements and purchased vehicles prior to the expiration of government incentives for electric-related powertrains. We felt these impacts across most brands were the biggest impact in premium luxury. In the fourth quarter, our same-store unit sales of new vehicles decreased by 10%, including declines of 60% in battery electric vehicles and 10% in hybrid powertrain vehicles.
Mike Manley: 2025 was the first year that AutoNation delivered earnings and EPS growth since 2022, and as I said, it was a solid year of growth and performance by the group. Relative to the fourth quarter, the industry faced tougher sales comparisons to last year when post-election sales surged, driving a Q4 2024 light vehicle SAR of 16.7 million. Also, sales in this year's fourth quarter were negatively impacted by the strong pull-ahead earlier in the year as consumers reacted to the tariff announcements and purchased vehicles prior to the expiration of government incentives for electric-related powertrains. We felt these impacts across most brands were the biggest impact in premium luxury. In the fourth quarter, our same-store unit sales of new vehicles decreased by 10%, including declines of 60% in battery electric vehicles and 10% in hybrid powertrain vehicles.
Speaker #3: a solid year of growth and performance by the And as I said, it was group. Relative to the fourth quarter, the industry faced tougher sales comparisons to last year.
Speaker #3: When post-election sales surged, driving a Q4 2024 light vehicle size of 16.7 million. Also, sales in this year's fourth quarter were negatively impacted by the strong pull ahead earlier in the year as consumers reacted to the tariff announcements of government incentives for electric-related powertrains.
Speaker #3: We felt these impacts across most brands, with the biggest impact in premium luxury. In the fourth quarter, our same-store unit sales of new vehicles decreased by 10%, including declines of 60% in battery electric vehicles and 10% in hybrid powertrain vehicles.
Speaker #3: For the year, however, our new unit growth was 2%, largely in line with the overall industry. With regard to new unit profitability, we delivered a sequential increase from Q3 to Q4 and ended up at approximately $2,400 per unit.
Michael Manley: For the year, however, our new unit growth was 2%, largely in line with the overall industry. With regard to new unit profitability, we delivered a sequential increase from Q3 to Q4 and ended up approximately $2,400 per unit. In the fourth quarter, we improved our used-to-new ratio from a year ago as used sales tracked more favorably than new, although used unit sales decreased 5% from 2024 on a same-store basis, with growth in units higher in the $40,000 price point, more than offset by declines in lower-priced units, yet used unit sales increased by 1%. Used selling prices held up well in 2025 across all price bands. For the full year, our used vehicle gross profit increased 5%, reflecting improved gross profit on the retail side and strong results in used vehicle wholesale.
Mike Manley: For the year, however, our new unit growth was 2%, largely in line with the overall industry. With regard to new unit profitability, we delivered a sequential increase from Q3 to Q4 and ended up approximately $2,400 per unit. In the fourth quarter, we improved our used-to-new ratio from a year ago as used sales tracked more favorably than new, although used unit sales decreased 5% from 2024 on a same-store basis, with growth in units higher in the $40,000 price point, more than offset by declines in lower-priced units, yet used unit sales increased by 1%. Used selling prices held up well in 2025 across all price bands. For the full year, our used vehicle gross profit increased 5%, reflecting improved gross profit on the retail side and strong results in used vehicle wholesale.
Speaker #3: In the fourth quarter, we improved our use-to-new ratio from a year ago as used sales tracked more favorably than new. Although used unit sales decreased 5% from 2024 on the same store basis, with growth in units higher in the 40,000 price point, more than offset by declines in lower-priced units.
Speaker #3: Used unit sales increased by 1%. Used selling prices held up well in 2025 across all price bands. For the full year, our used vehicle gross profit increased 5%, reflecting improved gross profit on the retail side and strong results in used vehicle wholesale.
Speaker #3: Retail profitability per unit for the year was in line with 2024, but modestly lower in the fourth quarter, reflecting a tightening supply market. Notwithstanding this, our team continued to demonstrate strong performance in acquiring vehicles through trade-ins and directly from the consumer through our We Buy Your Car efforts, with more than 90% of our sourcing of vehicles through internal channels.
Michael Manley: Retail profitability per unit for the year was in line with 2024 but modestly lower in the fourth quarter, reflecting a tightening supply market. Notwithstanding this, our team continued to demonstrate strong performance in acquiring vehicles through trade-ins and directly from the consumer through our We Buy Your Car efforts, with more than 90% of our sourcing of vehicles through internal channels. Naturally, we're focused on continuing this discipline but also improving our purchase and sales unit pricing discipline and cycle times. We ended December with 25,700 used vehicles in inventory and expect this number to increase as we progress towards a stronger March and summer selling periods. Customer Financial Services had an excellent quarter, growing unit profitability by 8% from the prior year and 4% sequentially. Fourth quarter and full-year gross profit per unit for CFS were the highest we have had in the history of AutoNation.
Mike Manley: Retail profitability per unit for the year was in line with 2024 but modestly lower in the fourth quarter, reflecting a tightening supply market. Notwithstanding this, our team continued to demonstrate strong performance in acquiring vehicles through trade-ins and directly from the consumer through our We Buy Your Car efforts, with more than 90% of our sourcing of vehicles through internal channels. Naturally, we're focused on continuing this discipline but also improving our purchase and sales unit pricing discipline and cycle times. We ended December with 25,700 used vehicles in inventory and expect this number to increase as we progress towards a stronger March and summer selling periods. Customer Financial Services had an excellent quarter, growing unit profitability by 8% from the prior year and 4% sequentially. Fourth quarter and full-year gross profit per unit for CFS were the highest we have had in the history of AutoNation.
Speaker #3: And naturally, we're focused on continuing this discipline but also improving our purchase and sales unit pricing discipline and cycle times. We ended December with 25,700 used vehicles in inventory and expect this number to increase as we progress towards a stronger March and summer selling periods.
Speaker #3: Customer financial services had an excellent quarter, growing unit profitability by 8% from the prior year and 4% sequentially. Fourth quarter and full-year gross profit per unit for CFS were the highest we have had in the history of AUTONATION.
Speaker #3: Our customers continue to purchase more than two products per vehicle, with extended service contracts continuing to be the top offering, which is, of course, fantastic for our future after-sales revenue and customer retention.
Michael Manley: Our customers continue to purchase more than 2 products per vehicle, with extended service contracts continuing to be the top offering, which is, of course, fantastic for our future after-sales revenue and customer retention. Our finance penetration continues to grow, with around 3/4 of units being sold with financing. The momentum in after-sales maintained, and we delivered record Q4 and full-year revenue and gross profit. For the quarter, total gross profit increased by 6%, or 4%, on a same-store basis. Our growth was led by customer pay, which increased 8% on a same-store basis, and warranty, which increased 6% on a same-store basis. Improvements in our after-sales performance were not restricted to just revenue. We also improved our total gross margin for the year by 80 basis points to 48.7%.
Mike Manley: Our customers continue to purchase more than 2 products per vehicle, with extended service contracts continuing to be the top offering, which is, of course, fantastic for our future after-sales revenue and customer retention. Our finance penetration continues to grow, with around 3/4 of units being sold with financing. The momentum in after-sales maintained, and we delivered record Q4 and full-year revenue and gross profit. For the quarter, total gross profit increased by 6%, or 4%, on a same-store basis. Our growth was led by customer pay, which increased 8% on a same-store basis, and warranty, which increased 6% on a same-store basis. Improvements in our after-sales performance were not restricted to just revenue. We also improved our total gross margin for the year by 80 basis points to 48.7%.
Speaker #3: Our finance penetration continues to grow, with around three-quarters of units being sold with financing. The momentum in after-sales maintained, and we delivered record fourth quarter and full-year revenue and gross profit.
Speaker #3: For the quarter, total gross profit increased by 6% or 4% on the same store basis. Our growth was led by customer pay, which increased 8% on the same store basis and warranty, which increased 6% on the same store basis.
Speaker #3: Improvements in our after-sales performance were not restricted to just revenue. We also improved our total gross margin for the year by 80 basis points, to 48.7%.
Speaker #3: We continue to focus on our technician workforce by recruiting, retaining, and developing our technicians and, I think, the efforts are certainly paying off. Turnovers decreased, franchise technician headcount increased more than 3% from a year ago on the same store basis, and it is up more than 5% on a total store basis.
Michael Manley: We continue to focus on our technician workforce by recruiting, retaining, and developing our technicians, and I think the efforts are certainly paying off. Turnovers decreased. Franchise technician headcount increased more than 3% from a year ago on a same-store basis and is up more than 5% on a total store basis. The strong momentum at AM Finance was maintained, including a $19 million year-over-year swing in profitability to $10 million. Originations for the year increased by $700 million from 2024, with the portfolio now exceeding $2.2 billion. The portfolio continues to perform in line with our expectations from a delinquency and a loss perspective, and the business's base costs have remained stable, enabling attractive profit scaling from portfolio growth. As I mentioned earlier, this was the fourth consecutive quarter of year-over-year increases in adjusted EPS, with our full-year adjusted EPS growing by 16% from 2024.
Mike Manley: We continue to focus on our technician workforce by recruiting, retaining, and developing our technicians, and I think the efforts are certainly paying off. Turnovers decreased. Franchise technician headcount increased more than 3% from a year ago on a same-store basis and is up more than 5% on a total store basis. The strong momentum at AM Finance was maintained, including a $19 million year-over-year swing in profitability to $10 million. Originations for the year increased by $700 million from 2024, with the portfolio now exceeding $2.2 billion. The portfolio continues to perform in line with our expectations from a delinquency and a loss perspective, and the business's base costs have remained stable, enabling attractive profit scaling from portfolio growth. As I mentioned earlier, this was the fourth consecutive quarter of year-over-year increases in adjusted EPS, with our full-year adjusted EPS growing by 16% from 2024.
Speaker #3: The strong momentum in finance was maintained, including a $19 million year-over-year swing in profitability to $10 million. Originations for the year increased by $700 million, from 2024, with a portfolio now exceeding $2.2 billion.
Speaker #3: The portfolio continues to perform in line with our expectations from a delinquency and a loss perspective. The business base costs have remained stable, enabling attractive profit scaling from portfolio growth.
Speaker #3: As I mentioned earlier, this was the fourth consecutive quarter of year-over-year increases in adjusted EPS, with our full-year adjusted EPS growing by 16% from 2024.
Speaker #3: Cash flow for the quarter and the full year was also strong. Full-year adjusted free cash flow was up 39% from 2024, and our investment-grade credit rating and balance sheet, anchored on a low net capital/high free cash flow model, enabled us to once again deploy significant capital for CapEx, M&A, and share repurchases.
Michael Manley: Cash flow for the quarter and the full year was also strong. Fully adjusted free cash flow was up 39% from 2024, and our investment-grade credit rating and balance sheet, anchored on a low-net-capital, high-free cash flow model, enabled us to once again deploy significant capital for CapEx, M&A, and share repurchases. During 2025, we expanded our presence in three key markets, including acquisition of a Ford and Mazda store in Denver, as well as an Audi and Mercedes store in Chicago, and a Toyota store in Baltimore. All in all, great results, I think good progress, and a solid performance by the AutoNation team. Now, Tom, I'm going to hand the call over to you to take, everyone's results in a bit.
Mike Manley: Cash flow for the quarter and the full year was also strong. Fully adjusted free cash flow was up 39% from 2024, and our investment-grade credit rating and balance sheet, anchored on a low-net-capital, high-free cash flow model, enabled us to once again deploy significant capital for CapEx, M&A, and share repurchases. During 2025, we expanded our presence in three key markets, including acquisition of a Ford and Mazda store in Denver, as well as an Audi and Mercedes store in Chicago, and a Toyota store in Baltimore. All in all, great results, I think good progress, and a solid performance by the AutoNation team. Now, Tom, I'm going to hand the call over to you to take, everyone's results in a bit.
Speaker #3: During 2025, we expanded our presence in three key markets, including acquisition of a Ford and Mazda store in Denver, as well as an Audi and Mercedes store in Chicago, and a Toyota store in Baltimore.
Speaker #3: All in all, great results. I think good progress and a team. Now, Tom, I'm going to hand the call over to you to take.
Speaker #2: Sure. Thanks, Mike.
Derek Fiebig: All right. Thanks, Mike. I'm turning the slide forward to discuss our third quarter P&L. Mike explained the factors that impacted our fourth quarter vehicle unit sales and revenues. Total revenue for the quarter was $6.9 billion compared to $7.2 billion a year ago, driven by a decline in revenues from new vehicle sales of approximately 9%. New revenue per unit retail was stable year over year. As Mike mentioned, our CFS and after-sales businesses delivered strong top-line results, with a highlight being the 6% growth in after-sales. Fourth quarter revenues from sales of used vehicles were essentially flat year over year. For the full year, revenue increased 3% to $27.6 billion, including our CFS and after-sales, which were up 8% and 5% respectively from 2024. Revenue for new vehicles was up approximately 3% and for used vehicles, 1%.
Tom Szlosek: All right. Thanks, Mike. I'm turning the slide forward to discuss our third quarter P&L. Mike explained the factors that impacted our fourth quarter vehicle unit sales and revenues. Total revenue for the quarter was $6.9 billion compared to $7.2 billion a year ago, driven by a decline in revenues from new vehicle sales of approximately 9%. New revenue per unit retail was stable year over year. As Mike mentioned, our CFS and after-sales businesses delivered strong top-line results, with a highlight being the 6% growth in after-sales. Fourth quarter revenues from sales of used vehicles were essentially flat year over year. For the full year, revenue increased 3% to $27.6 billion, including our CFS and after-sales, which were up 8% and 5% respectively from 2024. Revenue for new vehicles was up approximately 3% and for used vehicles, 1%.
Speaker #2: I'm turning the slide forward to discuss our third everyone through the results and the data. quarter P&L. explained the factors that impacted Mike our fourth quarter vehicle unit sales and revenues.
Speaker #2: Total revenue for the quarter was $6.9 billion, compared to $7.2 billion a year ago. Driven by a decline in revenues from new vehicle sales of approximately 9%.
Speaker #2: New revenue per unit retailed was stable year-over-year. As Mike mentioned, our CFS and after-sales business has delivered strong top-line results with a highlight being the 6% growth in after-sales.
Speaker #2: Fourth quarter revenues from sales of used vehicles were essentially flat year-over-year. For the full year, revenue increased 3% to $27.6 billion, including our CFS and after-sales, which were up 8% and 5%, respectively, from 2024.
Speaker #2: Revenue for new vehicles was up approximately 3%, and for used vehicles, 1%. Revenue per unit retailed increased modestly year-over-year for both new and used.
Derek Fiebig: Revenue per unit retailed increased modestly year-over-year for both new and used. Fourth quarter gross profit of $1.2 billion increased by or decreased by 2% from a year ago for the quarter, so only half of the rate, decline in revenue. The positive outcome reflects declines in new vehicle gross profit being significantly offset by 6% growth in after-sales. For the year, gross profit was up 3%, led by our CFS and after-sales, which were up 8% and 7% respectively from 2024. Our adjusted SG&A expenses were flat in the quarter and 68% of gross profit. During the quarter, we increased our advertising expenditures, specifically targeting upper-funnel demand creation activities, and had higher expenses for our service loaner fleet to support the growth in our after-sales business. This also will help bolster used inventory levels. Full-year SG&A was 67.3% of gross profit.
Tom Szlosek: Revenue per unit retailed increased modestly year-over-year for both new and used. Fourth quarter gross profit of $1.2 billion increased by or decreased by 2% from a year ago for the quarter, so only half of the rate, decline in revenue. The positive outcome reflects declines in new vehicle gross profit being significantly offset by 6% growth in after-sales. For the year, gross profit was up 3%, led by our CFS and after-sales, which were up 8% and 7% respectively from 2024. Our adjusted SG&A expenses were flat in the quarter and 68% of gross profit. During the quarter, we increased our advertising expenditures, specifically targeting upper-funnel demand creation activities, and had higher expenses for our service loaner fleet to support the growth in our after-sales business. This also will help bolster used inventory levels. Full-year SG&A was 67.3% of gross profit.
Speaker #2: Fourth quarter gross profit of $1.2 billion increased by decreased by 2% from a year ago for the quarter, so only half of the decline in revenue.
Speaker #2: The positive outcome reflects declines in new vehicle gross profit, being significantly offset by 6% growth in after-sales. For the year, gross profit was up 3%, led by our CFS and after-sales, which were up 8% and 7%, respectively, from 2024.
Speaker #2: Our adjusted SG&A expenses were flat in the quarter and 68% of gross profit. During the quarter, we increased our advertising expenditures specifically targeting upper-funnel demand creation activities and had higher expenses for our service loaner fleet to support the growth in our after-sales business.
Speaker #2: This also will help bolster used inventory levels. Full-year SG&A was 67.3% of gross profit. Absent the fourth quarter investments I just would have been in line with our targeted range, for both the quarter and the full year.
Derek Fiebig: Absent the fourth quarter investments I just mentioned, our SG&A as percentage of gross profit would have been in line with our targeted range for both the quarter and the full year. Adjusted operating income, which decreased 7% from the fourth quarter last year, increased 3% for the full year. Below the operating line, the fourth quarter floor plan interest expense decreased by $6 million, or 10% from a year ago, as our disciplines around inventory continued and average interest rates moderated, reflecting the movement in short-term interest rates in 2025. For the full year, floor plan interest expense decreased by $30 million, or 14%, reflecting the same factors. Fourth quarter non-vehicle interest expense increased $3 million, or 7%, from a year ago, reflecting higher average balances and slightly higher blended interest rates stemming from our debt refinancings in 2025.
Tom Szlosek: Absent the fourth quarter investments I just mentioned, our SG&A as percentage of gross profit would have been in line with our targeted range for both the quarter and the full year. Adjusted operating income, which decreased 7% from the fourth quarter last year, increased 3% for the full year. Below the operating line, the fourth quarter floor plan interest expense decreased by $6 million, or 10% from a year ago, as our disciplines around inventory continued and average interest rates moderated, reflecting the movement in short-term interest rates in 2025. For the full year, floor plan interest expense decreased by $30 million, or 14%, reflecting the same factors. Fourth quarter non-vehicle interest expense increased $3 million, or 7%, from a year ago, reflecting higher average balances and slightly higher blended interest rates stemming from our debt refinancings in 2025.
Speaker #2: which decreased 7% from the fourth Adjusted operating income, quarter last year, increased 3% for the full year. Below the operating line, the fourth quarter floor plan interest expense decreased by $6 million, or 10% from a year ago, as our disciplines around inventory continued and average interest rates moderated, reflecting the movement in short-term interest rates in 2025.
Speaker #2: For the full year, floor plan interest expense decreased by $30 million, or 14%, reflecting the same factors. Fourth quarter non-vehicle interest expense increased $3 million, or 7%, from a year ago, reflecting higher average balances and slightly higher blended interest rates, stemming from our debt refinancings in 2025.
Speaker #2: Now, as a reminder, we reflect floor plan assistance received from OEMs in gross margin. This assistance totaled $35 million in line with a year ago, net of these OEM incentives, the net new vehicle floor plan expense for the fourth quarter totaled $13 million, down from $18 million a year ago.
Derek Fiebig: Now, as a reminder, we reflect floor plan assistance received from OEMs in gross margin. This assistance totaled $35 million in line with a year ago. Net of these OEM incentives, the net new vehicle floor plan expense for Q4 totaled $13 million, down from $18 million a year ago. For the full year, new vehicle floor plan expense totaled $46 million, down from $74 million in 2024. In all, this resulted in Q4 adjusted net income of $186 million compared to $199 million a year ago. For the full year, adjusted net income increased 8% to $707 million. I'll get into the details in a bit, but adjusted free cash flow for the year was outstanding, as Mike mentioned, and enabled share repurchases that reduced share count by 10% year-over-year.
Tom Szlosek: Now, as a reminder, we reflect floor plan assistance received from OEMs in gross margin. This assistance totaled $35 million in line with a year ago. Net of these OEM incentives, the net new vehicle floor plan expense for Q4 totaled $13 million, down from $18 million a year ago. For the full year, new vehicle floor plan expense totaled $46 million, down from $74 million in 2024. In all, this resulted in Q4 adjusted net income of $186 million compared to $199 million a year ago. For the full year, adjusted net income increased 8% to $707 million. I'll get into the details in a bit, but adjusted free cash flow for the year was outstanding, as Mike mentioned, and enabled share repurchases that reduced share count by 10% year-over-year.
Speaker #2: For the full year, new vehicle floor plan expense totaled $46 million, down $74 down from $74 million in 2024. In all, this resulted in fourth quarter adjusted net income of $186 million, compared to $199 million a year ago, for the full year adjusted net income increased 8% to $700 million.
Speaker #2: I'll get into the details in a bit, but adjusted free cash flow for the year was outstanding, as Mike mentioned. And enabled share repurchases that reduced share count by 10% year-over-year.
Speaker #2: Adjusted EPS was $5.08 for the quarter and increased 2% from a year ago. And was $20.22 for the full year and increased 16% from 2024.
Derek Fiebig: Adjusted EPS was $5.08 for the quarter, an increase of 2% from a year ago, and was $20.22 for the full year, an increase of 16% from 2024. Adjusted earnings per share excludes the business interruption insurance recoveries related to the Q2 2024 CDK business incident. This amounted to $40 million on a pre-tax basis for the quarter and $80 million for the full year. Adjusted earnings per share also excludes charges for severance expenses and asset impairments. Slide 5 provides some color for new vehicle performance. We've covered the market conditions leading to the Q4's new unit sales decline of 9% or 10% on a same-store basis for the quarter. The decline in sales of electric vehicles contributed half of the unit sales decline. Sequentially, internal combustion engines were up 8% from the Q3, which is in line with historical norms.
Tom Szlosek: Adjusted EPS was $5.08 for the quarter, an increase of 2% from a year ago, and was $20.22 for the full year, an increase of 16% from 2024. Adjusted earnings per share excludes the business interruption insurance recoveries related to the Q2 2024 CDK business incident. This amounted to $40 million on a pre-tax basis for the quarter and $80 million for the full year. Adjusted earnings per share also excludes charges for severance expenses and asset impairments. Slide 5 provides some color for new vehicle performance. We've covered the market conditions leading to the Q4's new unit sales decline of 9% or 10% on a same-store basis for the quarter. The decline in sales of electric vehicles contributed half of the unit sales decline. Sequentially, internal combustion engines were up 8% from the Q3, which is in line with historical norms.
Speaker #2: Adjusted earnings per share excludes the business interruption insurance recoveries related to the second quarter 2024 CDK business incident. This amounted to $40 million on a pre-tax basis for the quarter and $80 million for the full year.
Speaker #2: Adjusted earnings per share also excludes charges for severance expenses and asset impairments. Slide 5 provides some color for vehicle performance. We've covered the market conditions leading to the fourth quarter's new unit sales decline of 9% or 10% on the same store basis for the quarter, the decline in sales of electric vehicles contributed half of the unit sales decline.
Speaker #2: Sequentially, internal combustion engines were up is in line with historical norms. Our market share also improved from the third quarter. For the year, unit sales were up 2%, as I mentioned, average sales prices were stable for the quarter and the year.
Derek Fiebig: Our market share also improved from the third quarter. For the year, unit sales were up 2%. As I mentioned, average sales prices were stable for the quarter and the year. New vehicle unit profitability averaged approximately $2,400 for the quarter, increasing more than $100 or 5% from the third quarter. This sequential increase was consistent with prior years and reflects strong commercial performance in the face of declining OEM dealer incentives. New vehicle inventory amounted to 45 days of supply, up 6 days from the fourth quarter of last year and down from 2 days at the end of September. Turning to slide 6, used vehicle fourth quarter retail unit sales decreased by 5% on a same-store basis and 3% on a total store basis. Average retail prices were up about 3% for the quarter and 1% for the year.
Tom Szlosek: Our market share also improved from the third quarter. For the year, unit sales were up 2%. As I mentioned, average sales prices were stable for the quarter and the year. New vehicle unit profitability averaged approximately $2,400 for the quarter, increasing more than $100 or 5% from the third quarter. This sequential increase was consistent with prior years and reflects strong commercial performance in the face of declining OEM dealer incentives. New vehicle inventory amounted to 45 days of supply, up 6 days from the fourth quarter of last year and down from 2 days at the end of September. Turning to slide 6, used vehicle fourth quarter retail unit sales decreased by 5% on a same-store basis and 3% on a total store basis. Average retail prices were up about 3% for the quarter and 1% for the year.
Speaker #2: New vehicle unit profitability averaged approximately $2,400 for the quarter, increasing more than $100 or 5% from the third quarter. This sequential increase was consistent with prior years and reflects strong commercial performance in the face of declining OEM dealer incentives.
Speaker #2: New vehicle inventory amounted to 45 days of supply, up 6 days from the fourth quarter of last year and down from 2 days at the end of September.
Speaker #2: Turning to slide 6, used vehicle fourth quarter retail unit sales decreased by 5% on a same store basis and 3% on a total store basis.
Speaker #2: Average retail prices were up about 3% for the quarter and 1% for the year. And for the full year, used unit sales increased by 1%.
Derek Fiebig: For the full year, used unit sales increased by 1%. Overall, used vehicle profit was down 6% for the quarter but up 5% for the year, reflecting increases in used retail and used wholesale. Q4 used vehicle profit per unit of $1,438 was lower than a year ago, reflecting higher acquisition costs, as Mike mentioned. For the full year, used profit per unit of $1,555 was flat from a year ago. We remain focused on optimizing vehicle acquisition, reconditioning, inventory velocity, and acquisition pricing, and we're also investing in creating a better customer experience. Overall, industry supply of used vehicles remains tight. We continue to be competitive in securing used vehicles from our own retail operations, including trade-ins, We Buy Your Car, services loaner conversions, and lease returns, and we continue to source more than 90% of our vehicles through these internal sources.
Tom Szlosek: For the full year, used unit sales increased by 1%. Overall, used vehicle profit was down 6% for the quarter but up 5% for the year, reflecting increases in used retail and used wholesale. Q4 used vehicle profit per unit of $1,438 was lower than a year ago, reflecting higher acquisition costs, as Mike mentioned. For the full year, used profit per unit of $1,555 was flat from a year ago. We remain focused on optimizing vehicle acquisition, reconditioning, inventory velocity, and acquisition pricing, and we're also investing in creating a better customer experience. Overall, industry supply of used vehicles remains tight. We continue to be competitive in securing used vehicles from our own retail operations, including trade-ins, We Buy Your Car, services loaner conversions, and lease returns, and we continue to source more than 90% of our vehicles through these internal sources.
Speaker #2: Overall, used vehicle profit was down 6% for the quarter, but up 5% for the year, reflecting increases in used retail and used wholesale. Q4 used vehicle profit per unit of $1,438 was lower than a year ago, reflecting higher acquisition costs, as Mike mentioned.
Speaker #2: For the full year, used profit per unit of $1,555 was flat from a year ago. We remain focused on optimizing vehicle acquisition, reconditioning, inventory velocity, and acquisition pricing, and we're also investing in creating a better customer experience.
Speaker #2: Overall, industry supply of used vehicles remains tight. We continue to be competitive in securing used vehicles from our own retail operations, including trade-ins, will-buy-your-car, services loaner conversions, and lease returns.
Speaker #2: And we continue to source more than 90% of our vehicles through these internal sources. Let me move to slide 7 on customer financial services.
Derek Fiebig: When I move to slide 7 on customer financial services, the momentum in CFS performance continues. Unit profitability was up 8% in the fourth quarter and 6% for the full year, reflecting improved margins on vehicle service contracts, consistent product attachment, and higher penetration of finance products. The continued strong unit profitability performance at CFS is even more impressive considering the growth of AM Finance, which, while superior in long-term profitability, diluted our CFS PBR unit profitability in the fourth quarter by approximately $130 per unit. Absent this impact, our CFS unit profitability of $2,891 that you see on the slide for the fourth quarter would have been greater than $3,000. CFS total profit grew at a rate lower than our historical norms in the fourth quarter, given the new and used volumes, but was still up 8% for the full year.
Tom Szlosek: When I move to slide 7 on customer financial services, the momentum in CFS performance continues. Unit profitability was up 8% in the fourth quarter and 6% for the full year, reflecting improved margins on vehicle service contracts, consistent product attachment, and higher penetration of finance products. The continued strong unit profitability performance at CFS is even more impressive considering the growth of AM Finance, which, while superior in long-term profitability, diluted our CFS PBR unit profitability in the fourth quarter by approximately $130 per unit. Absent this impact, our CFS unit profitability of $2,891 that you see on the slide for the fourth quarter would have been greater than $3,000. CFS total profit grew at a rate lower than our historical norms in the fourth quarter, given the new and used volumes, but was still up 8% for the full year.
Speaker #2: The momentum in CFS performance continues. Unit profitability was up 8% in the fourth quarter and 6% for the full year, reflecting improved margins on vehicle service contracts, consistent product attachment, and higher penetration of finance products.
Speaker #2: The continued strong unit profitability performance at CFS is even more impressive, considering the growth of AN Finance, which, while superior in long-term profitability, diluted our CFS PBR unit profitability in the fourth quarter by approximately $130 per unit.
Speaker #2: Absent this impact, our CFS unit profitability of $28.91 that you see on the slide for the fourth quarter would have been greater than $3,000.
Speaker #2: CFS total profit grew at a rate lower than our historical norms in the fourth quarter, given the new and used volumes, but was still up 8% for the full year.
Speaker #2: Slide 8 provides an update on AN Finance, our captive finance company, and its excellent performance. As expected, the profitability of AN Finance is gaining meaningful traction as the portfolio matures.
Derek Fiebig: Slide eight provides an update on AM Finance, our captive finance company, and its excellent performance. As expected, the profitability of AM Finance is gaining meaningful traction as the portfolio matures, and we get leverage of the fixed cost structure from the outstanding growth. For the full year, we improved from $9 million operating loss in 2024 to a $10 million operating profit, including $6 million profit in Q4. During the quarter, we originated $400 million in loans, bringing the full year originations to $1.76 billion, up from $1.06 billion in 2024. We had approximately $170 million in customer repayments in the quarter. The AM Finance portfolio ended the year at $2.2 billion and has more than doubled since last year. The quality of the portfolio continues to improve.
Tom Szlosek: Slide eight provides an update on AM Finance, our captive finance company, and its excellent performance. As expected, the profitability of AM Finance is gaining meaningful traction as the portfolio matures, and we get leverage of the fixed cost structure from the outstanding growth. For the full year, we improved from $9 million operating loss in 2024 to a $10 million operating profit, including $6 million profit in Q4. During the quarter, we originated $400 million in loans, bringing the full year originations to $1.76 billion, up from $1.06 billion in 2024. We had approximately $170 million in customer repayments in the quarter. The AM Finance portfolio ended the year at $2.2 billion and has more than doubled since last year. The quality of the portfolio continues to improve.
Speaker #2: And we get leverage of the fixed cost structure from the outstanding growth. For the full year, we improved from $9 million operating loss in 2024 to a $10 million operating profit, including $6 million profit in the fourth quarter.
Speaker #2: During the quarter, we originated $400 million in loans, bringing the full year originations to $1.76 billion. Up from $1.06 billion in 2024. We had approximately $170 million in customer repayments in the quarter.
Speaker #2: The AN Finance portfolio ended the year at $2.2 billion and has more than doubled since last year. The quality of the portfolio continues to improve.
Speaker #2: Our credit and performance metrics are improving, with average FICO scores on originations of 696 for the full year of 2025, compared to 678 a year ago and 623 in 2023.
Derek Fiebig: Our credit and performance metrics are improving, with average FICO scores on originations of 696 for the full year of 2025 compared to 678 a year ago, and 623 in 2023. Thirty-day delinquency rate per end of 2.7% were largely stable as a percentage of the portfolio, and in line with our expectations. As we've discussed in the past, we do expect delinquency rates to continue to normalize as the portfolio continues toward full maturity, with delinquency rates migrating to the 3% range. Our loss-preserving methodology incorporates this expectation. The non-recourse debt-funded status of the portfolio also continued to improve, as we have improved advance rates for our warehouse facilities and are benefiting from higher non-recourse debt funding levels from our $700 million ABS issuance completed during the second quarter.
Tom Szlosek: Our credit and performance metrics are improving, with average FICO scores on originations of 696 for the full year of 2025 compared to 678 a year ago, and 623 in 2023. Thirty-day delinquency rate per end of 2.7% were largely stable as a percentage of the portfolio, and in line with our expectations. As we've discussed in the past, we do expect delinquency rates to continue to normalize as the portfolio continues toward full maturity, with delinquency rates migrating to the 3% range. Our loss-preserving methodology incorporates this expectation. The non-recourse debt-funded status of the portfolio also continued to improve, as we have improved advance rates for our warehouse facilities and are benefiting from higher non-recourse debt funding levels from our $700 million ABS issuance completed during the second quarter.
Speaker #2: The 30-day linkage paper ended at 2.7%. We're largely stable as a percentage of the portfolio and in line with our expectations. And as we've discussed in the past, we do expect the delinquency rate to continue to normalize as the portfolio continues toward full maturity.
Speaker #2: With delinquency rates migrating to the 3 percentage range. Our loss-preserving methodology incorporates this expectation. The non-recourse debt-funded status of the portfolio also continued to improve.
Speaker #2: As we have improved advance rates for our warehouse facilities and are benefiting from higher non-recourse debt-funding levels from our $700 million ABS issuance completed during the second quarter.
Speaker #2: Our debt-funded status at December was 88%, compared to 75% a year ago and 59% in 2023. This improved funding has freed up over $140 million of equity funding that we have used for other capital allocation opportunities.
Derek Fiebig: Our debt-funded status at December was 88% compared to 75% a year ago and 59% in 2023, and this improved funding has freed up over $140 million of equity funding that we have used for other capital allocation opportunities. In January of this year, we completed our second ABS offering for AM Finance for just under $750 million at a blended interest rate of 4.25% with an advance rate of 98.7%, both improvements from our Q2 2025 ABS offering. On a pro forma basis, this new offer will increase the funded status of the portfolio to more than 90%. Closing off on AM Finance, the business's attractive offerings are driving strong customer takeup, and we continue to expect attractive ROEs in the business, driven by profitability growth and moderating equity requirements.
Tom Szlosek: Our debt-funded status at December was 88% compared to 75% a year ago and 59% in 2023, and this improved funding has freed up over $140 million of equity funding that we have used for other capital allocation opportunities. In January of this year, we completed our second ABS offering for AM Finance for just under $750 million at a blended interest rate of 4.25% with an advance rate of 98.7%, both improvements from our Q2 2025 ABS offering. On a pro forma basis, this new offer will increase the funded status of the portfolio to more than 90%. Closing off on AM Finance, the business's attractive offerings are driving strong customer takeup, and we continue to expect attractive ROEs in the business, driven by profitability growth and moderating equity requirements.
Speaker #2: In January of this year, we completed our second ABS offering for AN Finance. We're just under $750 million at a blended interest rate of 4.25% with an advance rate of 98.7%, both improvements from our second quarter of 2025 ABS offering.
Speaker #2: On a pro forma basis, this new offer will increase the funded status of the portfolio to more than 90%. Closing off on AN Finance, the business is attractive, offerings are driving strong customer take-up, and we continue to expect attractive ROEs in the business driven by profitability growth and moderating equity requirements.
Speaker #2: Moving to slide 9, after-sales represents nearly one-half of our gross profits and continued its impressive revenue and gross profit momentum. Gross profit for the quarter of close to $600 million was an AutoNation record.
Derek Fiebig: Moving to slide 9, after-sales represents nearly one-half of our gross profits and continued its impressive revenue and gross profit momentum. Gross profit for the quarter of close to $600 million was an AutoNation record. Our results reflect higher repair order count, higher value repair order, and improved labor productivity. For the quarter, same-store revenue increased 5% and gross profit was up 4%, and for the full year, same-store revenue increased 6% and gross profit increased 7%. The improvement in fourth quarter's gross profit was led by customer pay, which increased by 8%, and warranty, which increased 6%. Internal reconditioning was modestly lower in the quarter, reflecting lower used vehicle sales, as we've discussed. Our fourth quarter gross margin was stable versus 2024 at 48.3%.
Tom Szlosek: Moving to slide 9, after-sales represents nearly one-half of our gross profits and continued its impressive revenue and gross profit momentum. Gross profit for the quarter of close to $600 million was an AutoNation record. Our results reflect higher repair order count, higher value repair order, and improved labor productivity. For the quarter, same-store revenue increased 5% and gross profit was up 4%, and for the full year, same-store revenue increased 6% and gross profit increased 7%. The improvement in fourth quarter's gross profit was led by customer pay, which increased by 8%, and warranty, which increased 6%. Internal reconditioning was modestly lower in the quarter, reflecting lower used vehicle sales, as we've discussed. Our fourth quarter gross margin was stable versus 2024 at 48.3%.
Speaker #2: Our results reflect higher repair order count, higher value repair orders, and improved labor productivity. For the quarter, same-store revenue increased 5%, and gross profit was up 4%.
Speaker #2: And for the full year, same store revenue increased 6% and gross profit increased 7%. The improvement in fourth quarter's gross profit was led by customer pay which increased by 8% and warranty which increased 6%.
Speaker #2: Internal reconditioning was modestly lower in the quarter, reflecting lower used vehicle sales as we've discussed. Our fourth quarter gross margin was stable versus 2024 at 48.3%.
Speaker #2: Now, this reflects higher growth in the wholesale parts business, which has more modest margins than the rest of the after-sales business. But it was offset by improvements in growth rates in customer pay, which were up 70 basis points.
Derek Fiebig: Now, this reflects higher growth in the wholesale parts business, which has more modest margins than the rest of the after-sales business, but was offset by improvements in growth rates and customer pay, which we're up 70 basis points. We remain focused on deploying technology to drive additional volume and productivity and on hiring, developing, and retaining our technicians. As Mike mentioned, these efforts have helped to increase our franchise technician headcount by more than 3% from a year ago on a same-store basis, reflecting better technician retention. The increased technician workforce is key to consistently delivering mid-single-digit growth in after-sales gross profit. To slide ten, adjusted free cash flow for the year was $1.05 billion, or 125% of our adjusted net income. Adjusted free cash flow increased by nearly $300 million a year ago, and free cash flow conversion improved by 20 basis points.
Tom Szlosek: Now, this reflects higher growth in the wholesale parts business, which has more modest margins than the rest of the after-sales business, but was offset by improvements in growth rates and customer pay, which we're up 70 basis points. We remain focused on deploying technology to drive additional volume and productivity and on hiring, developing, and retaining our technicians. As Mike mentioned, these efforts have helped to increase our franchise technician headcount by more than 3% from a year ago on a same-store basis, reflecting better technician retention. The increased technician workforce is key to consistently delivering mid-single-digit growth in after-sales gross profit. To slide ten, adjusted free cash flow for the year was $1.05 billion, or 125% of our adjusted net income. Adjusted free cash flow increased by nearly $300 million a year ago, and free cash flow conversion improved by 20 basis points.
Speaker #2: We remain focused on deploying technology to drive additional volume and productivity on hiring, developing, and retaining our technicians. As Mike mentioned, these efforts have helped to increase our franchise technician headcount by more than 3% from a year ago.
Speaker #2: On the same store basis, reflecting better technician retention. The increased technician workforce is key to consistently delivering mid-single-digit growth in after sales gross profit.
Speaker #2: To slide 10, adjusted free cash flow for the year was $1.05 billion, or 125% of our adjusted net income. Adjusted free cash flow increased by nearly $300 million from a year ago, and free cash flow conversion improved by 20 basis points.
Speaker #2: The increased cash flow represents stronger operational performance, including our continued focus on working capital and cycle times. CapEx management and prioritization resulting in $20 million less CapEx in 2025.
Derek Fiebig: The increased cash flow represents stronger operational performance, including our continued focus on working capital and cycle times, CapEx management and prioritization, resulting in $20 million less CapEx in 2025, and the recovery from the CDK outage, including the $80 million in business interruption-related insurance receipts I mentioned earlier. We excluded the CDK recovery from the 125% free cash flow conversion calculation. Our capital expenditures depreciation ratio was 1.25 compared to 1.4 a year ago. We continue to focus on driving free cash flow to improve, to provide maximum capital deployment capacity. Turning to slide 11, for the full year, we deployed over $1.5 billion in capital, with half of it being reinvested in the business in the form of CapEx and M&A and half returned to our shareholders. We remain prudent in our CapEx methodology, which is mostly maintenance-related compulsory spending, and totaled $309 million for 2025.
Tom Szlosek: The increased cash flow represents stronger operational performance, including our continued focus on working capital and cycle times, CapEx management and prioritization, resulting in $20 million less CapEx in 2025, and the recovery from the CDK outage, including the $80 million in business interruption-related insurance receipts I mentioned earlier. We excluded the CDK recovery from the 125% free cash flow conversion calculation. Our capital expenditures depreciation ratio was 1.25 compared to 1.4 a year ago. We continue to focus on driving free cash flow to improve, to provide maximum capital deployment capacity. Turning to slide 11, for the full year, we deployed over $1.5 billion in capital, with half of it being reinvested in the business in the form of CapEx and M&A and half returned to our shareholders. We remain prudent in our CapEx methodology, which is mostly maintenance-related compulsory spending, and totaled $309 million for 2025.
Speaker #2: And the recovery from the CDK outage, including the $80 million in business interruption related insurance receipts I mentioned earlier. We excluded the CDK recovery from the $125% free cash flow conversion calculation.
Speaker #2: Our capital expenditures depreciation ratio was 1.25 compared to 1.4 a year ago. We continued to focus on driving free cash flow to improve to provide maximum capital deployment capacity.
Speaker #2: Turning to slide 11, for the full year, we deployed over $1.5 billion in capital with half of it being reinvested in the business in the form of CapEx and M&A.
Speaker #2: And half returned to our shareholders. We remain prudent in our CapEx methodology, which is mostly maintenance-related compulsory spending and total $309 million for 2025.
Speaker #2: We continue to actively explore M&A opportunities to add scale and density to our existing markets. In 2025, we invested $460 million closing on transactions in Baltimore, Denver, and Chicago as Mike discussed.
Derek Fiebig: We continue to actively explore M&A opportunities to add scale and density to our existing markets. In 2025, we invested $460 million, closing on transactions in Baltimore, Denver, and Chicago, as Mike discussed. Share repurchases are an important part of our playbook. For the full year, we repurchased $785 million, or 10% of shares outstanding at the beginning of the year, at an average price of $193 per share. In the last three years, we've repurchased a total of $2.1 billion, representing 36% share count reduction at an average price of $170 a share. In our capital allocation decisioning, we also consider our investment-grade balance sheet and the associated leverage levels.
Tom Szlosek: We continue to actively explore M&A opportunities to add scale and density to our existing markets. In 2025, we invested $460 million, closing on transactions in Baltimore, Denver, and Chicago, as Mike discussed. Share repurchases are an important part of our playbook. For the full year, we repurchased $785 million, or 10% of shares outstanding at the beginning of the year, at an average price of $193 per share. In the last three years, we've repurchased a total of $2.1 billion, representing 36% share count reduction at an average price of $170 a share. In our capital allocation decisioning, we also consider our investment-grade balance sheet and the associated leverage levels.
Speaker #2: Share repurchases are an important part of our playbook for the full year. We repurchased $785 million or $10% of shares at the beginning of the year at an average price of $193 per share.
Speaker #2: In the last three years, we've repurchased a total of $2.1 billion representing 36% share count reduction at an average price of $170 a share.
Speaker #2: In our capital allocation decisioning, we also consider our investment-grade balance sheet and the associated leverage levels. At quarter-end, our leverage was 2.44 times EBITDA, almost identical to the end of last year and well within our two to three times long-term target, at 2.45 times EBITDA. This gives us additional dry powder for capital allocation going forward.
Derek Fiebig: At quarter end, our leverage was 2.44 times EBITDA, almost identical with the 2.45 times EBITDA at the end of last year, and well within our two to three times long-term target, giving us additional dry powder for capital allocation going forward. Now, let me turn the call back to Mike before we go into question and answer. Yeah, thanks, Tom. So in summary, 2025 was a year of growth for AutoNation. Organic growth with volume up, revenue up, and after-sales margin up. Acquisition growth with the addition of five dealerships with great brands. Cash flow growth, as Tom mentioned, with adjusted free cash flow over $1 billion, up 39%.
Tom Szlosek: At quarter end, our leverage was 2.44 times EBITDA, almost identical with the 2.45 times EBITDA at the end of last year, and well within our two to three times long-term target, giving us additional dry powder for capital allocation going forward. Now, let me turn the call back to Mike before we go into question and answer.
Speaker #2: Now, let me turn the call back to Mike before we go into question and answer. Yeah, thanks, Tom. So, in summary, 2025 was a year of growth for AutoNation.
Mike Manley: Yeah, thanks, Tom. So in summary, 2025 was a year of growth for AutoNation. Organic growth with volume up, revenue up, and after-sales margin up. Acquisition growth with the addition of five dealerships with great brands. Cash flow growth, as Tom mentioned, with adjusted free cash flow over $1 billion, up 39%.
Speaker #2: Organic growth with volume up, revenue up, and after sales margin up. Acquisition growth with the addition of five dealerships with great brands. Cash flow growth, as Tom mentioned, with adjusted free cash flow over $1 billion.
Speaker #2: Up 39%. Capital allocation, I think, in the year was very balanced and disciplined, and all of this in combination resulted in the increase in adjusted net income and improvements in adjusted EPS of over 16%.
Derek Fiebig: Capital allocation, I think, in the year was very balanced and disciplined, and all of this in combination resulted in an increase in adjusted net income and improvements in adjusted EPS of over 16% that both Tom and I have been talking about, and I think capped off a very solid year of growth for AutoNation. I'd like to thank all of our colleagues and associates in the business for everything that they did in 2025. So just briefly turning and looking ahead to 2026 and just some of the commentary that we have, we obviously expect to move in line with the market, and we think the market will be slightly down in 2026 compared to 2025, but there could be some benefits from known tailwinds around withholding tax rates, refunds, and bonus depreciation. But that's our expectations as we sit here today.
Mike Manley: Capital allocation, I think, in the year was very balanced and disciplined, and all of this in combination resulted in an increase in adjusted net income and improvements in adjusted EPS of over 16% that both Tom and I have been talking about, and I think capped off a very solid year of growth for AutoNation. I'd like to thank all of our colleagues and associates in the business for everything that they did in 2025. So just briefly turning and looking ahead to 2026 and just some of the commentary that we have, we obviously expect to move in line with the market, and we think the market will be slightly down in 2026 compared to 2025, but there could be some benefits from known tailwinds around withholding tax rates, refunds, and bonus depreciation. But that's our expectations as we sit here today.
Speaker #2: They're both Tom and I have been talking about. And I think capital had a very solid year of growth for AutoNation. And I'd like to thank all of our colleagues and associates in the business for everything that they did in 2025.
Speaker #2: So just briefly, turning and looking ahead to 2026 and just some of the commentary that we have. We obviously expect to move in line with the market, and we think the market will be slightly down in 2026 compared to 2025.
Speaker #2: But there could be some benefits from known tailwinds around withholding tax rates, refunds, and bonus depreciation. But that's our expectations. We sit here today.
Speaker #2: From a new unit profitability, we think it will remain fairly stable with the second half of 2025 levels. That's our expectation at least for the coming few months.
Derek Fiebig: From new unit profitability, we think it will remain fairly stable with the second half of 2025 levels. That's our expectation, at least for the coming few months. We believe that the used vehicle market is going to still remain constrained, to some extent, but we think it will show improvements year-over-year. From our CFS business, we spent some time talking about that on the call, but what's important for us is to maintain the performance that we have, and that's a big, big focus for all of us, but being very aware of customer sensitivity to monthly payments, which clearly is a key topic for the business, and for us going forward. We're gonna continue to expand AM Finance portfolio and grow its profitability. That will drive more SG&A leverage that Tom mentioned in his commentary.
Mike Manley: From new unit profitability, we think it will remain fairly stable with the second half of 2025 levels. That's our expectation, at least for the coming few months. We believe that the used vehicle market is going to still remain constrained, to some extent, but we think it will show improvements year-over-year. From our CFS business, we spent some time talking about that on the call, but what's important for us is to maintain the performance that we have, and that's a big, big focus for all of us, but being very aware of customer sensitivity to monthly payments, which clearly is a key topic for the business, and for us going forward. We're gonna continue to expand AM Finance portfolio and grow its profitability. That will drive more SG&A leverage that Tom mentioned in his commentary.
Speaker #2: And we believe that the used vehicle market is going to still remain constrained to some extent but we think it will show improvements year over year.
Speaker #2: And from a CFS business, we spent some time talking about that on the call. What's important for us is to maintain the performance that we have.
Speaker #2: And that's a big, big focus for all of us. But being to monthly payments which clearly is a key topic for the business and for us going forward.
Speaker #2: We're going to continue to expand AM Finance's portfolio and grow its profitability. That will drive more SG&A leverage, which Tom mentioned in his commentary.
Speaker #2: And then just finally turning to after sales, I'd like to thank our after sales colleagues across the entire business for the record that they delivered in Q4.
Derek Fiebig: Then just finally turning to after-sales, I'd like to thank our after-sales colleagues across the entire business for the record that they delivered in Q4. We think we're well positioned, frankly, to continue that growth in mid-single-digit growth numbers, and I think we have believers, and we're certainly putting the resource in place to help facilitate that. I think all of that will enable us to continue to deliver strong cash flow and obviously be able to deploy significant capital. We've got a strong financial position. Tom mentioned our investment-grade balance sheet. I think our operations are disciplined. I think we can continue to do that and continue to improve productivity. Ultimately, the aim is to continue the growth that I mentioned before. So with that, I'm going to open it up for questions, Derek, if I may.
Mike Manley: Then just finally turning to after-sales, I'd like to thank our after-sales colleagues across the entire business for the record that they delivered in Q4. We think we're well positioned, frankly, to continue that growth in mid-single-digit growth numbers, and I think we have believers, and we're certainly putting the resource in place to help facilitate that. I think all of that will enable us to continue to deliver strong cash flow and obviously be able to deploy significant capital. We've got a strong financial position. Tom mentioned our investment-grade balance sheet. I think our operations are disciplined. I think we can continue to do that and continue to improve productivity. Ultimately, the aim is to continue the growth that I mentioned before. So with that, I'm going to open it up for questions, Derek, if I may.
Speaker #2: We think we're well-positioned, frankly, to continue that growth in mid-single-digit growth numbers. And I think we have believers, and we're certainly putting the resources in place to help facilitate that.
Speaker #2: I think all of that will enable us to continue to deliver strong cash flow, and obviously be able to deploy significant capital. We've got a strong financial position.
Speaker #2: Tom mentioned our investment-grade balance sheet. I think our operations are disciplined. I think we can continue to do that and continue to improve productivity.
Speaker #2: Ultimately, the aim is to continue the growth that I mentioned before. So with that, I'm going to open it up for questions if I may.
Speaker #3: Yeah, Adam, if you can, please remind the audience how to get in the queue.
Derek Fiebig: Yeah, Adam, if you can please remind the audience how to get in queue. Of course. If you'd like to ask a question today, please press star followed by one on your telephone keypad. If you find your question has been answered or you'd like to withdraw, please press star followed by two. Our first question today comes from Rajat Gupta from J.P. Morgan. Rajat, your line is open. Please go ahead. Great. Thanks for taking the question. Just had a couple, you know, just first on the new car business, the unit numbers seem a little weaker, you know, than some of the peers, you know, some of the industry metrics, although the profitability was better.
Derek Fiebig: Yeah, Adam, if you can please remind the audience how to get in queue.
Operator: Of course. If you'd like to ask a question today, please press star followed by one on your telephone keypad. If you find your question has been answered or you'd like to withdraw, please press star followed by two. Our first question today comes from Rajat Gupta from J.P. Morgan. Rajat, your line is open. Please go ahead.
Speaker #4: Of course. If you'd like to ask a question today, please press star followed by one on your telephone keypad. If you find your question has been answered or you'd like to withdraw, please press star followed by today comes from Rajat Gupta from JP two.
Speaker #4: Our first question, Morgan. Rajat, your line is open. Please go ahead.
Rajat Gupta: Great. Thanks for taking the question. Just had a couple, you know, just first on the new car business, the unit numbers seem a little weaker, you know, than some of the peers, you know, some of the industry metrics, although the profitability was better.
Speaker #5: Great.
Speaker #5: Thanks for taking the ahead. question. I just had a couple just first on the new car business. The unit numbers seem a little weaker.
Speaker #5: Then, some of the peers and some of the industry metrics—although the profitability was better. I'm curious, was there a temporary trade-off decision that you made in the quarter around profitability versus sales?
Derek Fiebig: I'm curious, was there a temporary trade-off decision that you made in the quarter, around, you know, profitability versus sales, or was it just a function of, you know, comparisons and just your regional and brand mix, that might have driven that 10% same-store decline? And I have a quick follow-up. Thanks. Yeah, Rajat, this is Mike. I think there were a number of things that we were taking into consideration. Firstly, we mentioned that we saw year-over-year and, in fact, quarter-over-quarter, a reduction in OEM dealer-facing incentives. We offset some of that with margin because obviously, it impacts net transaction price, but particularly year-over-year, that reduction in dealer-facing demand, we had to be very careful in our consideration and balance between volume and margin.
Rajat Gupta: I'm curious, was there a temporary trade-off decision that you made in the quarter, around, you know, profitability versus sales, or was it just a function of, you know, comparisons and just your regional and brand mix, that might have driven that 10% same-store decline? And I have a quick follow-up. Thanks.
Speaker #5: Or was it just a function of comparison and just your regional or brand mix that might have driven that 10% same-store decline? And I have a quick follow-up.
Speaker #5: Thanks.
Speaker #3: Yeah, Rajat, this is Mike. I think there are a number of things that we were taking into consideration. Firstly, we mentioned that we saw year-over-year and, in fact, quarter-over-quarter a reduction in OEM dealer-facing incentives.
Mike Manley: Yeah, Rajat, this is Mike. I think there were a number of things that we were taking into consideration. Firstly, we mentioned that we saw year-over-year and, in fact, quarter-over-quarter, a reduction in OEM dealer-facing incentives. We offset some of that with margin because obviously, it impacts net transaction price, but particularly year-over-year, that reduction in dealer-facing demand, we had to be very careful in our consideration and balance between volume and margin.
Speaker #3: We offset some of that with margin because obviously it impacts net transaction price. But particularly year-over-year, that reduction in dealer-facing demand, we had to be very careful in our consideration and balance between volume and margin.
Speaker #3: In fact, the largest drop, by the way, was dealer OEM dealer support for hybrid and battery electric vehicles, as you can imagine. So that was one dynamic that we saw in the quarter.
Derek Fiebig: In fact, the largest drop, by the way, was dealers' OEM support for hybrid and battery electric vehicles, as you can imagine. So that was one dynamic that we saw in the quarter. The second one was, if you think about where the real key reduction came from us, EVs and BEVs represented about 30% of our mix Q4 2024. That dropped to 20% in Q4 2025. That's a 60% reduction in EV volume. So the biggest impact on that 10% that you referenced by far came from electrified powertrains.
Mike Manley: In fact, the largest drop, by the way, was dealers' OEM support for hybrid and battery electric vehicles, as you can imagine. So that was one dynamic that we saw in the quarter. The second one was, if you think about where the real key reduction came from us, EVs and BEVs represented about 30% of our mix Q4 2024. That dropped to 20% in Q4 2025. That's a 60% reduction in EV volume. So the biggest impact on that 10% that you referenced by far came from electrified powertrains.
Speaker #3: The second one was if you think about where the key reduction came from, EVs and BEVs represented about 30% of our mix. Q4 2024, that dropped to 20% in Q4 2025.
Speaker #3: That's a 60% reduction in EV volume. So the biggest impact on that 10% that you referenced by far came from electrified powertrains. And I think the combination of those things, and the way that we were trying to make sure we had a good balance between our market share performance but also margin, led to what we delivered, which was, I think, a good sequential improvement in new vehicle margin.
Derek Fiebig: And I think the combination of those things and the way that we were trying to make sure we had a good balance between our market share performance but also margin led to what we delivered, which was, I think, a good sequential improvement in new vehicle margin, and also reflective of some of the things we were trying to do in the business. And it was those two things really that resulted in the position that we ended up with. Understood. Understood. That's helpful. And then just, you know, maybe for Tom, you know, on AutoNation Finance, really, really quick and, you know, good progress there in terms of the maturity of that portfolio.
Mike Manley: And I think the combination of those things and the way that we were trying to make sure we had a good balance between our market share performance but also margin led to what we delivered, which was, I think, a good sequential improvement in new vehicle margin, and also reflective of some of the things we were trying to do in the business. And it was those two things really that resulted in the position that we ended up with.
Speaker #3: And also reflective of some of the things we were trying to do in the business. And it was those two things really that resulted in the position that we ended up
Speaker #3: with. Understood.
Rajat Gupta: Understood. Understood. That's helpful. And then just, you know, maybe for Tom, you know, on AutoNation Finance, really, really quick and, you know, good progress there in terms of the maturity of that portfolio.
Speaker #5: Understood. That's helpful. And then just maybe for Tom, on AUTONATION Finance, really quick and good progress there in terms of the maturity of that portfolio.
Speaker #5: I'm curious, how should we think about the cadence of profitability here over the next year or maybe the year beyond? I mean, are we at a point in your trade-off between penetration pace versus portfolio maturity that it's safe to expect a continued inflection in the profitability here?
Derek Fiebig: I'm curious, you know, how should we think about, you know, the cadence of profitability here over the next year or maybe, you know, the year beyond? I mean, are we at a point in your trade-off between penetration pace versus portfolio maturity that it's safe to expect a continued inflection in the profitability here? I'm curious, like, how you plan to balance that. You know, any guardrails you can give us, you know, maybe even around net interest margin or loss ratios also would be helpful. Thanks. Thanks, Rajat. Yeah, we're really happy with the growth that we're seeing in the portfolio. I mean, the growth rates I mean, let's put it this way. The doubling of the portfolio, you know, ha-ha is a real harbinger for the future.
Derek Fiebig: I'm curious, you know, how should we think about, you know, the cadence of profitability here over the next year or maybe, you know, the year beyond? I mean, are we at a point in your trade-off between penetration pace versus portfolio maturity that it's safe to expect a continued inflection in the profitability here? I'm curious, like, how you plan to balance that. You know, any guardrails you can give us, you know, maybe even around net interest margin or loss ratios also would be helpful. Thanks.
Speaker #5: I'm curious, how you plan to balance that? Any guardrails you can give us maybe even around net interest margin or loss ratios also would be helpful.
Speaker #5: Thanks.
Tom Szlosek: Thanks, Rajat. Yeah, we're really happy with the growth that we're seeing in the portfolio. I mean, the growth rates I mean, let's put it this way. The doubling of the portfolio, you know, ha-ha is a real harbinger for the future.
Speaker #3: Thanks, Rajat. Yeah,
Speaker #3: we're really happy with the growth that we're seeing in the portfolio. I mean, the growth rates I mean, let's put it this way. The doubling of the portfolio is a real harbinger for the future.
Speaker #3: And we don't realize all those benefits in the year it doubles, as you realize, because of the charges—the upfront charges for seasonal and so forth.
Derek Fiebig: You know, we don't realize all those benefits in the year it doubles, as you realize, because of the, you know, the charges, the upfront charges for seasonal and so forth. As we mentioned, $6 million we achieved in the fourth quarter. I think that's probably a decent starting point as you look, you know, on a quarterly basis through 2026. So that, you know, will give you some, you know, a nice starting point for what the P&L will look like for A&F. I think we're reasonably confident on net interest margin. The portfolio, from a delinquency perspective and risk perspective, is well managed by the team.
Tom Szlosek: You know, we don't realize all those benefits in the year it doubles, as you realize, because of the, you know, the charges, the upfront charges for seasonal and so forth. As we mentioned, $6 million we achieved in the fourth quarter. I think that's probably a decent starting point as you look, you know, on a quarterly basis through 2026. So that, you know, will give you some, you know, a nice starting point for what the P&L will look like for A&F. I think we're reasonably confident on net interest margin. The portfolio, from a delinquency perspective and risk perspective, is well managed by the team.
Speaker #3: As we mentioned, $6 million we achieved in the fourth quarter. And I think that's probably a decent starting point as you look on a quarterly basis through 2026.
Speaker #3: So that will give you some a nice starting point for what the P&L will look like for A&F. I think we're reasonably confident on net interest margin.
Speaker #3: The portfolio from a delinquency perspective and risk perspective is well managed by the team. The delinquencies, as I said, will grow as it's mostly a brand new portfolio.
Derek Fiebig: The delinquencies, I said, will grow, as you know. It's mostly a brand new portfolio, so you start to see, you know, delinquencies as it matures, but we've got that factored in. So I believe that our performance, trajectory, and the income improvement will continue. We'll be in a good position throughout, you know, 2026. Got it? Do you expect to maintain these? What's the upper end you have in mind on penetration for the portfolio, like medium to long term? I think it's, I mean, it's really strong on the used side, as you know. I mean, on the new side, we, you know, we're partnering with our OEMs as well, you know, from a financing perspective.
Tom Szlosek: The delinquencies, I said, will grow, as you know. It's mostly a brand new portfolio, so you start to see, you know, delinquencies as it matures, but we've got that factored in. So I believe that our performance, trajectory, and the income improvement will continue. We'll be in a good position throughout, you know, 2026. Got it? Do you expect to maintain these? What's the upper end you have in mind on penetration for the portfolio, like medium to long term? I think it's, I mean, it's really strong on the used side, as you know. I mean, on the new side, we, you know, we're partnering with our OEMs as well, you know, from a financing perspective.
Speaker #3: So you start to see delinquencies as it matures. But we've got that factored in, so I believe that our performance trajectory and the income improvement will continue.
Speaker #3: We'll be in a good position throughout
Speaker #3: 2026. Got it.
Speaker #5: Do you expect to maintain these what's the upper end you have in mind on penetration? For the portfolio?
Speaker #3: I think it's I mean, it's really strong on the used side, as you know. I mean, on the new side, we're partnering with our OEMs as well from a financing perspective.
Derek Fiebig: You know, so as we grow, continue to grow our used business, we do see opportunity to drive further penetration. We've got great partnerships. Some great programs with our lending partners outside of A&F that I think are gonna, you know, help continue this trajectory. Well, let me just add some color to it, if I may, Tom. I think Tom's exactly right. There are a few things that are important to us. One is, we work in partnership with all of our OEM captives, which means we're very, very clear with our teams about that relationship. And frankly, we cannot compete with an OEM captive because of the way that they subsidize, either their leases, obviously, or their finance rates. And that is not our job to do.
Tom Szlosek: You know, so as we grow, continue to grow our used business, we do see opportunity to drive further penetration. We've got great partnerships. Some great programs with our lending partners outside of A&F that I think are gonna, you know, help continue this trajectory.
Speaker #3: So, as we grow and continue to grow our used business, we do see opportunity to drive further penetration. We've got great partnerships, some great programs with our lending partners outside of A&F that I think are going to help.
Speaker #3: continue to trajectory. Well, let me
Mike Manley: Well, let me just add some color to it, if I may, Tom. I think Tom's exactly right. There are a few things that are important to us. One is, we work in partnership with all of our OEM captives, which means we're very, very clear with our teams about that relationship. And frankly, we cannot compete with an OEM captive because of the way that they subsidize, either their leases, obviously, or their finance rates. And that is not our job to do.
Speaker #4: Just to add some color to it, if I may, Tom. I think Tom's exactly right. There are a few things that are important to us.
Speaker #4: One is we work in partnership with all of our OEM captives, which means we're very, very clear with our teams about that relationship. And frankly, we cannot compete with an OEM captive because of the way that they subsidize either their leases, obviously, or their finance rates.
Speaker #4: And that is not our job to do. We've improved our penetration in what we call the market that is open for us to be competitive in.
Derek Fiebig: We've improved our penetration in what we call the market that is open for us to be competitive in, and that is those new vehicles, those few new vehicles that don't qualify or wouldn't benefit our customers from subsidized finance, and obviously, all of our used vehicle volume that falls within the buy box that we've established for the company. We're very, very disciplined in that buy box, and our penetration has improved over the years, but we still have headroom to improve even further. The constraint, really, on our growth, even though it was very good, was well balanced between Jeff Butler, who's our CEO of that business, and Tom, to make sure that in terms of the way we're thinking about allocation of resources in the business, we had balance.
Mike Manley: We've improved our penetration in what we call the market that is open for us to be competitive in, and that is those new vehicles, those few new vehicles that don't qualify or wouldn't benefit our customers from subsidized finance, and obviously, all of our used vehicle volume that falls within the buy box that we've established for the company. We're very, very disciplined in that buy box, and our penetration has improved over the years, but we still have headroom to improve even further. The constraint, really, on our growth, even though it was very good, was well balanced between Jeff Butler, who's our CEO of that business, and Tom, to make sure that in terms of the way we're thinking about allocation of resources in the business, we had balance.
Speaker #4: And that is those new vehicles, those few new vehicles that don't qualify or wouldn't benefit our customers, wouldn't benefit from subsidized finance. And obviously, all of our used vehicle volume that falls within the buy box that we've established for the company.
Speaker #4: We're very, very disciplined in that buy box. And our penetration has improved over the years, but we still have headroom to improve even further.
Speaker #4: The constraint really on our growth, even though it was very good, was well balanced between Jeff Butler, who's our CEO of that business, and Tom, to make sure that in terms of the way we're thinking about allocation of resources in the business, we had balance.
Speaker #4: But it could have grown. It could have grown faster than it did. But I was very pleased with the discipline that they set. So I do think that there is opportunity from a penetration point of view.
Derek Fiebig: But it could have grown it could have grown faster than it did, but I was very pleased with the discipline that they said. So I do think that there is opportunity from a penetration point of view. And as we mentioned earlier, our penetration mainly is coming from the used car market, and as I said, we think there will be some stability and volumes in that area. Understood. Understood. Great. Thanks for all the color, and good luck. The next question comes from John Babcock at Barclays. John, please go ahead. Your line is open. Hey, Gordon, and thanks for taking my questions. I guess just quickly, just on capital spending, is there any reason to think that 2026 would be any different from 2025?
Mike Manley: But it could have grown it could have grown faster than it did, but I was very pleased with the discipline that they said. So I do think that there is opportunity from a penetration point of view. And as we mentioned earlier, our penetration mainly is coming from the used car market, and as I said, we think there will be some stability and volumes in that area.
Speaker #4: And as we mentioned earlier, our penetration mainly is coming from the used car market. And as I said, we think there will be some stability in volumes in that
Speaker #4: area. Understood.
Rajat Gupta: Understood. Understood. Great. Thanks for all the color, and good luck.
Speaker #5: Understood. Great. Thanks for all the color, and good luck.
Operator: The next question comes from John Babcock at Barclays. John, please go ahead. Your line is open.
Speaker #1: The next question comes from John Babcock at Barclays. John, please go ahead. Your line is
Speaker #1: Open. Hey, Gordon, and thanks for
John Babcock: Hey, Gordon, and thanks for taking my questions. I guess just quickly, just on capital spending, is there any reason to think that 2026 would be any different from 2025?
Speaker #6: just on capital spending, is there any reason to think that '26 would be taking my questions. I guess just quickly, any different from '25?
Speaker #6: And then also, if you could just talk about the M&A market, how that looks right now, and how you plan to balance out with share buybacks near ahead, that would be great.
Speaker #6: And then also, if you could just talk about the M&A market—how that looks right now—and how you plan to balance that with share buybacks near ahead, that would be great.
Derek Fiebig: And then also, if you could just talk about the M&A market, how that looks right now, and how you plan to balance out with share buybacks near term, that'd be great. Yeah, thanks, John. Thanks for the question. From a capex perspective, I think we're, I think the 2025 levels are a reasonable starting point for 2026. I mean, it's pretty locked down in terms of the spending that we do. As you know, it's mostly, you know, maintaining our properties and keeping up with OEM requirements on, you know, the latest, you know, models to the stores. We've got some service growth as well that we're, you know, supporting. But I think the levels that we spent at in 2025 are sustainable for 2026.
John Babcock: And then also, if you could just talk about the M&A market, how that looks right now, and how you plan to balance out with share buybacks near term, that'd be great.
Tom Szlosek: Yeah, thanks, John. Thanks for the question. From a capex perspective, I think we're, I think the 2025 levels are a reasonable starting point for 2026. I mean, it's pretty locked down in terms of the spending that we do. As you know, it's mostly, you know, maintaining our properties and keeping up with OEM requirements on, you know, the latest, you know, models to the stores. We've got some service growth as well that we're, you know, supporting. But I think the levels that we spent at in 2025 are sustainable for 2026.
Speaker #5: Yeah, thanks, John. Thanks for the question. From a CapEx perspective, I think we're I think 2025 levels are a reasonable starting point for 2026.
Speaker #5: I mean, it's pretty locked down in terms of the spending that we do, as you know. It's mostly maintaining our properties and keeping up with OEM requirements on the latest models at the stores.
Speaker #5: We've got some service growth as well that we're supporting. But I think the levels that we spent at in '25 are sustainable for 2026.
Speaker #5: In terms of M&A and Mike's involved in this as I am, so it'd be good to hear his commentary as well. But we had a really strong year.
Derek Fiebig: In terms of M&A, and Mike's as involved in this as I am, so it'd be good to hear his commentary as well. But, you know, we had a really strong year. We saw a number of opportunities across, you know, all four quarters in 2025 in terms of, you know, opportunities. I think we were selective. I think you saw where we spent our money in terms of regions and brands. And as Mike said, you know, we've got, you know, we ended up with some very high-quality brands in, you know, in territories where we have density and where we think we can create operating synergies. And I'm confident that, you know, 2026, there'll be, you know, continued opportunities for us in the dealership space. And we'll remain disciplined.
Tom Szlosek: In terms of M&A, and Mike's as involved in this as I am, so it'd be good to hear his commentary as well. But, you know, we had a really strong year. We saw a number of opportunities across, you know, all four quarters in 2025 in terms of, you know, opportunities. I think we were selective. I think you saw where we spent our money in terms of regions and brands. And as Mike said, you know, we've got, you know, we ended up with some very high-quality brands in, you know, in territories where we have density and where we think we can create operating synergies. And I'm confident that, you know, 2026, there'll be, you know, continued opportunities for us in the dealership space. And we'll remain disciplined.
Speaker #5: We saw a number of opportunities across all four quarters in 2025 in terms of opportunities. I think we were selective you saw where we spent our money in terms of regions and brands and, as Mike said, we've got we ended up with some very high-quality brands.
Speaker #5: density, where we think we can And in territories where we have create operating synergies, and I'm 2026, there will be confident that continued opportunities for us in the dealership space.
Speaker #5: And we'll remain disciplined. I mean, we'll go for the ones that pencil out for us, and that allow us to take advantage of where we're present and where we can drive operating.
Derek Fiebig: I mean, we'll go for the ones that, you know, pencil out for us, and then allow us to take advantage of, you know, where we're present and where we can drive operating synergies. Well, I think it was pretty complete answer, but just add some color on the process that we have. Like all organizations, when we think about the capital deployed, we have a number of hurdle rates, but the key one for us is on a share on a per-shareholder basis. And what are we able to return, thinking about it from individual shareholder perspective, which to a large extent can be an interesting hurdle to have when you think about M&A. The good news is there are opportunities where not only does the business that we're interested in deliver reasonably bit, we can bring significant synergies to it.
Tom Szlosek: I mean, we'll go for the ones that, you know, pencil out for us, and then allow us to take advantage of, you know, where we're present and where we can drive operating synergies.
Speaker #5: synergies. Well, I think it was pretty
Mike Manley: Well, I think it was pretty complete answer, but just add some color on the process that we have. Like all organizations, when we think about the capital deployed, we have a number of hurdle rates, but the key one for us is on a share on a per-shareholder basis. And what are we able to return, thinking about it from individual shareholder perspective, which to a large extent can be an interesting hurdle to have when you think about M&A. The good news is there are opportunities where not only does the business that we're interested in deliver reasonably bit, we can bring significant synergies to it.
Speaker #4: complete answer, but just add some color on the process that we have. Like all organizations, when we think about the capital deployed, we have a number of hurdle rates, but the key one for us is on a per-shareholder basis.
Speaker #4: And what are we able to return, thinking about it from an individual shareholder perspective? Which, to a large extent, can be an interesting hurdle to have when you think about M&A.
Speaker #4: The good news is, there are opportunities where not only does the business that we're interested in deliver reasonably bit, we can bring significant synergies to it.
Speaker #4: And obviously, that's not something that is usually or very easily apparent when you first think about purchase prices of some of these assets. But it is clearly a big consideration for us, because we have significant invested resources and capabilities that we obviously get leverage in the businesses that we're adding, so long as we're adding them into geographies and densities that make sense.
Derek Fiebig: And obviously, that's not something that is usually or very easily apparent when you first think about purchase prices of some of these assets, but it is clearly a big consideration for us because we have significant invested resources and capabilities that we obviously get leverage in the businesses that we're adding so long as we're adding them into geographies and densities that make sense. And that is a big part of the calculation. We're also thinking about the incremental EBITDA that is delivered from these acquisitions and how we can leverage that in the business for further return to our shareholders, whether it is through revenue or net income growth or whether it is in terms of share repurchases. So I think there are opportunities that are coming to the market. It is reasonably buoyant, in my view.
Mike Manley: And obviously, that's not something that is usually or very easily apparent when you first think about purchase prices of some of these assets, but it is clearly a big consideration for us because we have significant invested resources and capabilities that we obviously get leverage in the businesses that we're adding so long as we're adding them into geographies and densities that make sense. And that is a big part of the calculation. We're also thinking about the incremental EBITDA that is delivered from these acquisitions and how we can leverage that in the business for further return to our shareholders, whether it is through revenue or net income growth or whether it is in terms of share repurchases. So I think there are opportunities that are coming to the market. It is reasonably buoyant, in my view.
Speaker #4: And that is a big part of the calculation. We're also thinking about the incremental EBITDA that is delivered from these acquisitions and how we can leverage that in the business for further return to our shareholders, whether it is through revenue or net income growth, or whether it is in terms of share repurchases.
Speaker #4: So I think there are opportunities that are coming to the market. It is reasonably buoyant in my view like everybody would tell you. Very selective.
Derek Fiebig: We are, like everybody would tell you, very selective, and very clear on the hurdles of what makes an attractive target or not. I think that's the best I can add to what Tom said. All right. Thanks for that color. And then just one follow-on. I am just kind of curious. How did hybrid GPUs trend in the quarter? And then also, what are your expectations on when EV, electric vehicle GPUs might start to normalize with typical combustion engine vehicles? Any color on that would be helpful. Yeah. Well, as I already mentioned on comments, we saw quite a significant growth pullback in terms of incentive contribution from our OEMs in terms of dealer support incentives. So let me get the exact numbers for you so that I can be completely accurate with you.
Mike Manley: We are, like everybody would tell you, very selective, and very clear on the hurdles of what makes an attractive target or not. I think that's the best I can add to what Tom said.
Speaker #4: And very clear on the hurdles of what makes an attractive target or not. I think that's the best I can add to what Tom said.
Speaker #6: All right. Thanks for that color. And then just one follow-on: I am just kind of curious, how did hybrid GPUs trend in the quarter?
John Babcock: All right. Thanks for that color. And then just one follow-on. I am just kind of curious. How did hybrid GPUs trend in the quarter? And then also, what are your expectations on when EV, electric vehicle GPUs might start to normalize with typical combustion engine vehicles? Any color on that would be helpful.
Speaker #6: And then also, what are your expectations on when EV—electric vehicle—GPU levels might start to normalize with typical combustion engine vehicles? Any color on that would be helpful.
Mike Manley: Yeah. Well, as I already mentioned on comments, we saw quite a significant growth pullback in terms of incentive contribution from our OEMs in terms of dealer support incentives. So let me get the exact numbers for you so that I can be completely accurate with you.
Speaker #4: Yeah. Well, as I already mentioned in the comments, we saw quite a significant draw or pullback in terms of incentive contribution from our OEMs in terms of dealer support incentives.
Speaker #4: So let me get the exact numbers for you so that I can be completely accurate with you. So, overall, GPUs on hybrids reduced on battery electric vehicles in Q4 and were largely flat.
Derek Fiebig: So, overall, GPUs on hybrids reduced on battery electric vehicles in Q4 and were largely flat. Tom checked my numbers on that on HEVs. But we obviously benefited from a very significant mix change in the quarter. From a stabilization of margins, I think if the industry stabilizes around 2 to 3% penetration, that will be based upon a proper demand and supply balance. Then I think you will begin to see some improvement in margins both on battery electric vehicles in particular, but that, in my view, is not gonna happen in 2026. I think it will take longer for that, but I do think you will see improvement in hybrid margins throughout 2026 with a better balance because many people find that a much more attractive powertrain combination than just battery electric vehicles. Tom, just yeah, just yeah. Yeah.
Mike Manley: So, overall, GPUs on hybrids reduced on battery electric vehicles in Q4 and were largely flat. Tom checked my numbers on that on HEVs. But we obviously benefited from a very significant mix change in the quarter. From a stabilization of margins, I think if the industry stabilizes around 2 to 3% penetration, that will be based upon a proper demand and supply balance. Then I think you will begin to see some improvement in margins both on battery electric vehicles in particular, but that, in my view, is not gonna happen in 2026. I think it will take longer for that, but I do think you will see improvement in hybrid margins throughout 2026 with a better balance because many people find that a much more attractive powertrain combination than just battery electric vehicles.Tom, just yeah, just yeah. Yeah.
Speaker #4: Tom, check my numbers on that on ATVs. But we obviously benefited from a very significant mix change in the quarter. From a stabilization of demands, I think if the industry stabilizes around 2 to 3 percent penetration, that will be based upon a proper demand and supply balance.
Speaker #4: Then I think you will begin to see some improvement in margins, both on battery electric vehicles in particular, but that, in my view, is not going to happen in 2026.
Speaker #4: I think it will take longer for in-hybrid margins throughout that. But I do think you will see improvement in 2026 with a better balance, because many people find that a much more attractive powertrain combination than just battery electric vehicles.
Speaker #4: Tom, just.
Speaker #5: Yeah, in the sequentials, we've been very stable in terms of hybrid electrics as a relative to total revenues or total unit sales on new—roughly 20% a quarter.
Derek Fiebig: On the sequentials, you know, we've been very stable in terms of hybrid electrics as relative to total revenues or total unit sales on new, roughly 20% a quarter, and that has remained very stable. We have seen a decline in BEVs themselves, in favor of ICE engines, probably to the extent of 5% to 6% from Q1 to Q4. Okay. Thanks. I'll get back in queue. The next question comes from Jeff Lick at Stephens. Jeff, please go ahead. Your line is open. Good morning. Thanks for taking my question. Mike, as you point out in your several times in the prepared remarks, obviously, there was a lot of extraordinary items this year in terms of pull forwards and obviously to compare from last year after the election.
Tom Szlosek: On the sequentials, you know, we've been very stable in terms of hybrid electrics as relative to total revenues or total unit sales on new, roughly 20% a quarter, and that has remained very stable. We have seen a decline in BEVs themselves, in favor of ICE engines, probably to the extent of 5% to 6% from Q1 to Q4.
Speaker #5: And that has remained very stable. You have seen a decline in BEVs themselves in favor of ICE engines, probably to the extent of 5 to 6 percent from first quarter to fourth.
Speaker #5: quarter. Okay.
John Babcock: Okay. Thanks. I'll get back in queue.
Speaker #6: Thanks. I'll get back in Q.
Operator: The next question comes from Jeff Lick at Stephens. Jeff, please go ahead. Your line is open.
Speaker #7: The next question comes from Jeff Lick at Stevens. Jeff, please go ahead. Joelan is open.
Jeff Lick: Good morning. Thanks for taking my question. Mike, as you point out in your several times in the prepared remarks, obviously, there was a lot of extraordinary items this year in terms of pull forwards and obviously to compare from last year after the election.
Speaker #8: Good morning. Thanks for taking my question. Mike, as you point out several times in the prepared remarks, obviously there were a lot of extraordinary items this year in terms of pull-forwards and, obviously, the compare from last year.
Speaker #8: After the you're, as you go in, is there any particular just break down the year thinking of parts of the year or election, I was just wondering if you could items that you would kind of call out, "Hey, this is going to be a particularly more challenging compare," or, "Hey, things get a little easier here or there," just wondering your perspective there, just kind of thinking of an extraordinary year of 2025 is not what you're comparing against.
Derek Fiebig: I was just wondering if you could just break down the year, you know, thinking of 2025 as the base and now you're as you go in, is there any particular callouts, in terms of parts of the year or items that you would kind of call out, "Hey, this is gonna be a particularly more challenging compare," or, "Hey, things get a little easier here or there"? Just wondering, you know, your perspective there, just kind of thinking of, you know, an extraordinary year of 2025 is not what you're comparing against. Yeah, I think it's a great question. You know, we obviously saw the dynamics of various different announcements impact in March, April, for example, when tariffs really became very much front of mind.
Jeff Lick: I was just wondering if you could just break down the year, you know, thinking of 2025 as the base and now you're as you go in, is there any particular callouts, in terms of parts of the year or items that you would kind of call out, "Hey, this is gonna be a particularly more challenging compare," or, "Hey, things get a little easier here or there"? Just wondering, you know, your perspective there, just kind of thinking of, you know, an extraordinary year of 2025 is not what you're comparing against.
Speaker #4: Yeah, I think it's a great question. We obviously saw the dynamics of various different announcements impacting March and April, for example, when tariffs really became very much front of mind.
Mike Manley: Yeah, I think it's a great question. You know, we obviously saw the dynamics of various different announcements impact in March, April, for example, when tariffs really became very much front of mind.
Speaker #4: And then as we approached for those electrified powertrains, the end, where I think when we think about needing to be mindful of comps, we just need to be mindful.
Derek Fiebig: And then as we approached for those electrified powertrains, the end of incentives, there are two key points where I think when we think about comms, we just need to be mindful of that. I do think that there's a, when I review the year, what I feel we did well was really to navigate those events. Obviously, you feel good when you're in a period of pullback, but when that goes away, you try and make sure that you fill that vacuum as effectively as you can to continue the performance and the momentum in the business. And I think the demonstration from us and our results over the full year showed that even in a turbulent year, we can continue to perform at a reasonable level and deliver the results to our shareholders.
Mike Manley: And then as we approached for those electrified powertrains, the end of incentives, there are two key points where I think when we think about comms, we just need to be mindful of that. I do think that there's a, when I review the year, what I feel we did well was really to navigate those events. Obviously, you feel good when you're in a period of pullback, but when that goes away, you try and make sure that you fill that vacuum as effectively as you can to continue the performance and the momentum in the business. And I think the demonstration from us and our results over the full year showed that even in a turbulent year, we can continue to perform at a reasonable level and deliver the results to our shareholders.
Speaker #4: We just, that when I review that, I do think this year, what I feel we did well was really to navigate those events. Obviously, you feel good when you're in a period of pullback.
Speaker #4: But when that goes away, you try and make sure that you fill that vacuum as effectively as you can to continue the performance and the momentum in the business.
Speaker #4: And I think that the full year showed demonstration from us and our results, that even in a turbulent year, we can continue to perform at a reasonable level.
Speaker #4: And deliver the results to our shareholders. And I'm pleased about came into 2025, I think none of us had the expectations of how it would actually play out.
Derek Fiebig: I'm pleased about that because, you know, as we came into 2025, I think none of us had the expectations of how it would actually play out. We obviously think 2026 will be more stable, but I am, there's no way I can call that. What I can tell you is that we have a business model that's, that I think is robust, a business model that is disciplined. And what gets thrown at us will not only navigate, but we'll try and find those areas where we can maximize the opportunities that come. I think this year, we're gonna be, as we have always done, focused on affordability, frankly. You know, we all know what's happened with net transaction prices over the last few years and how that's impacted monthly payments.
Mike Manley: I'm pleased about that because, you know, as we came into 2025, I think none of us had the expectations of how it would actually play out. We obviously think 2026 will be more stable, but I am, there's no way I can call that. What I can tell you is that we have a business model that's, that I think is robust, a business model that is disciplined. And what gets thrown at us will not only navigate, but we'll try and find those areas where we can maximize the opportunities that come. I think this year, we're gonna be, as we have always done, focused on affordability, frankly. You know, we all know what's happened with net transaction prices over the last few years and how that's impacted monthly payments.
Speaker #4: We obviously think 2026 will be more stable, but I am—there's no way I can call that. What I can tell you is that we have a business model that I think is robust—a business model thrown at us will not only navigate, but we'll try and find those areas where we can maximize. This year, we're going to be, as we have always done, focused on affordability and opportunities that come, frankly.
Speaker #4: We obviously think 2026 will be more stable, but I'm—there's no way I can call that. What I can tell you is that we have a business model that I think is robust—a business model thrown at us will not only navigate, but we'll try and find those areas where we can maximize. This year we're going to be, as we have always done, focused on affordability and opportunities that come.
Speaker #4: That's impacted monthly payments. And it's been a topic of discussion both, I think, on our calls but also on other people's calls as well. And I think we're going to be—everybody will be very mindful of that and seeing how that may move through the year.
Derek Fiebig: It's been a topic of discussion both on our calls but with other people's calls as well. I think we're gonna be everybody will be very mindful of that and seeing how that may move through the year, as really an indicator of whatever strength is in the new retail market and used market as well. So that's kind of my top-of-mind thoughts in response to your question. Then just a quick follow-up. I was wondering maybe you could put your OEM hat back on, you know, as we get into the second half of this year, there's gonna be a, you know, a sizable year-over-year increase in lease returns, just thinking about what that, how that might impact, you know, the dealership business, but also some of these lease returns are gonna be deeply underwater, specifically the EV ones.
Mike Manley: It's been a topic of discussion both on our calls but with other people's calls as well. I think we're gonna be everybody will be very mindful of that and seeing how that may move through the year, as really an indicator of whatever strength is in the new retail market and used market as well. So that's kind of my top-of-mind thoughts in response to your question.
Speaker #4: As really an indicator of whatever strength is in the new retail market, and used market as well. So, in response to your—that's kind of my top-of-mind thoughts.
Speaker #4: Question. And then just a quick
Jeff Lick: Then just a quick follow-up. I was wondering maybe you could put your OEM hat back on, you know, as we get into the second half of this year, there's gonna be a, you know, a sizable year-over-year increase in lease returns, just thinking about what that, how that might impact, you know, the dealership business, but also some of these lease returns are gonna be deeply underwater, specifically the EV ones.
Speaker #8: Follow-up. I was wondering, maybe you could put your OEM hat back on. As we get into the second half of this year, there's going to be a sizable year-over-year increase in lease returns. Just thinking about that, how might that impact the dealership business, but also, some of these lease returns are going to be deeply underwater, specifically the EV ones.
Speaker #8: Just wondering how you see that dynamic of how the OEMs will handle that, and how that'll affect the franchise.
Derek Fiebig: Just wondering how you see that dynamic of how the OEMs will handle that and how that'll affect the franchise business. Well, I would imagine every single OEM is already provided for that, frankly, because I don't think it's, you know, we don't need to get there and it suddenly be a surprise. I think it is very well forecasted, and I think it's very evident from some of the early signs that we are seeing. Any OEM should have assessed that in their portfolio and should have provided for it. There have been a number of very large provisions that have been announced, and I'm sure it also would cover forward-looking liabilities such as residual values. I think increased lease returns into the business is a very, very good thing.
Jeff Lick: Just wondering how you see that dynamic of how the OEMs will handle that and how that'll affect the franchise business.
Speaker #8: Business. Well, I would imagine every
Mike Manley: Well, I would imagine every single OEM is already provided for that, frankly, because I don't think it's, you know, we don't need to get there and it suddenly be a surprise. I think it is very well forecasted, and I think it's very evident from some of the early signs that we are seeing. Any OEM should have assessed that in their portfolio and should have provided for it. There have been a number of very large provisions that have been announced, and I'm sure it also would cover forward-looking liabilities such as residual values. I think increased lease returns into the business is a very, very good thing.
Speaker #4: A single OEM is already provided for that. Frankly, because I don't think we need to get there and it suddenly be a surprise.
Speaker #4: I think it is very well forecasted. I think it's very evident from some of the early signs that we are seeing. And any OEM should have assessed that in their portfolio and should have provided for it.
Speaker #4: There have been a number of very large provisions that have been announced. And I'm sure it also would cover forward-looking liabilities such as residual values.
Speaker #4: I think increased lease returns into the business is a very, very good thing. I think the important part of that is that they return to market at a correct market price.
Derek Fiebig: I think the important part of that is that they return to market at a correct market price and that the OEMs work with the dealers to try and make sure that that is a stable price in the marketplace and not transfer some of the liability that may be there in terms of actual residual values onto the dealers and ultimately, to some extent, onto consumers. So, firstly, in summary, it's well known that there are certain models, certain powertrains, where the original residual value estimates are incorrect. I think they're well known. They should be provided for. And I think the dealers will benefit from those lease returns and work with their OEMs to try and get a reasonable, fair price for those vehicles in the marketplace. We're certainly looking forward to the benefits that come from improved lease returns in our business.
Mike Manley: I think the important part of that is that they return to market at a correct market price and that the OEMs work with the dealers to try and make sure that that is a stable price in the marketplace and not transfer some of the liability that may be there in terms of actual residual values onto the dealers and ultimately, to some extent, onto consumers. So, firstly, in summary, it's well known that there are certain models, certain powertrains, where the original residual value estimates are incorrect. I think they're well known. They should be provided for. And I think the dealers will benefit from those lease returns and work with their OEMs to try and get a reasonable, fair price for those vehicles in the marketplace. We're certainly looking forward to the benefits that come from improved lease returns in our business.
Speaker #4: And that the OEMs work with the dealers to try and make sure that that is a stable price in the marketplace, and not transfer some of the liability that may be there in terms of actual residual values onto the dealers and ultimately, to some extent, onto consumers.
Speaker #4: So, firstly, in summary, it's well known that there are certain models and powertrains where the original residual value estimates are incorrect. I think they're well known.
Speaker #4: They should be provided for. And I think the dealers will benefit from those lease returns and work with their OEMs to try and get a reasonable, fair price for those vehicles in the marketplace.
Speaker #4: We're certainly looking forward to the benefits that come from improved lease returns in our U.R.
Speaker #4: your business. Thanks very much for
Derek Fiebig: Thanks very much for the question, answers, and best of luck on 2026. The next question comes from Daniela Hagen from Morgan Stanley. Daniela, please go ahead. Your line is open. Thank you. Good morning, everyone. So you touched on this a little bit in the prior question, but how are you viewing affordability pressures as it relates to consumer credit availability as we enter this new year? You also mentioned consumer sensitivity to monthly payments. Have you seen any change in consumer behavior in the after-sales business, whether it's willingness to pay for certain repair orders or otherwise? Yeah. I as I said earlier, obviously, it depends how far you wanna go back, but people still referring back six years now to pre-pandemic.
Jeff Lick: Thanks very much for the question, answers, and best of luck on 2026.
Speaker #8: the answers, and best of luck on
Speaker #7: The next
Operator: The next question comes from Daniela Hagen from Morgan Stanley. Daniela, please go ahead. Your line is open.
Speaker #7: The question comes from Daniela Hagian from Morgan Stanley, 2026. Daniela, please go ahead. Your line is open.
Speaker #1: Thank you. Good morning, everyone. So, you touched on this a little bit in the prior question, but how are you viewing affordability pressures as it relates to consumer credit availability? You mentioned consumer sensitivity to consumer behavior as we enter this new year.
Daniela Haigian: Thank you. Good morning, everyone. So you touched on this a little bit in the prior question, but how are you viewing affordability pressures as it relates to consumer credit availability as we enter this new year? You also mentioned consumer sensitivity to monthly payments. Have you seen any change in consumer behavior in the after-sales business, whether it's willingness to pay for certain repair orders or otherwise?
Speaker #1: You also have after-sales business, whether it's willingness to pay for certain repair orders or otherwise?
Speaker #4: Yeah. It depends how far you want to go back, but people are still referring back six years now to pre-pandemic. But we've seen significant—there's basically been transaction price, but also some differences in charged APR.
Mike Manley: Yeah. I as I said earlier, obviously, it depends how far you wanna go back, but people still referring back six years now to pre-pandemic.
Derek Fiebig: But we've seen significant compound growth in monthly payments that have basically been driven by a combination of average transaction price, but also some differences in charged APR. I think there will be some relief in charged APR as we get into this year, further into this year, particularly towards the back end. But there's no doubt that affordability is front of mind. I think the OEMs are going to look at how they can provide more affordable models in the marketplace, either through decontenting, because they are also absorbing, as you know, whatever the residual tariff impact will be on their cost of goods sold as well. So I think that they're gonna try and manage that without significantly impacting net transaction price and maybe with some repackaging.
Mike Manley: But we've seen significant compound growth in monthly payments that have basically been driven by a combination of average transaction price, but also some differences in charged APR. I think there will be some relief in charged APR as we get into this year, further into this year, particularly towards the back end. But there's no doubt that affordability is front of mind. I think the OEMs are going to look at how they can provide more affordable models in the marketplace, either through decontenting, because they are also absorbing, as you know, whatever the residual tariff impact will be on their cost of goods sold as well. So I think that they're gonna try and manage that without significantly impacting net transaction price and maybe with some repackaging.
Speaker #4: I think there will be some relief in charged APR as we get into this year, further into this year, particularly towards the back end.
Speaker #4: But there's no doubt that affordability is front of mind, driven by a combination of average compound growth in monthly payments. I think the OEMs are going to look at how they can provide more affordable models in the marketplace, either through decontenting, because they are also absorbing, as you know, whatever the residual tariff impact will be on their cost of goods sold as well.
Speaker #4: So, I think that they're going to try and manage that without significantly impacting net transaction price, and maybe with some repackaging. I think, as a result of that, that's one of the reasons why we think the new car market, in particular, will probably be down somewhere between 2% and 5% for the year.
Derek Fiebig: But, I think as a result of that, that's one of the reasons why we think the new car market in particular will probably be down somewhere between 2% and 5% for the year. We anticipate that. That's in our view. We think that we will perform at a minimum in line with that, maybe slightly better. But we think that there is pent-up demand that will hold the used car market relatively stable, albeit there may well be some shifting down to slightly lower prices in there. In terms of consumer behavior, we haven't really seen much behavior in the after-sales business. It's very competitive. We have seen over the last few years, and Christian tracks this religiously with his team, we have seen much, much more attention to the cost and pricing of service and parts within the business.
Mike Manley: But, I think as a result of that, that's one of the reasons why we think the new car market in particular will probably be down somewhere between 2% and 5% for the year. We anticipate that. That's in our view. We think that we will perform at a minimum in line with that, maybe slightly better. But we think that there is pent-up demand that will hold the used car market relatively stable, albeit there may well be some shifting down to slightly lower prices in there. In terms of consumer behavior, we haven't really seen much behavior in the after-sales business. It's very competitive. We have seen over the last few years, and Christian tracks this religiously with his team, we have seen much, much more attention to the cost and pricing of service and parts within the business.
Speaker #4: We anticipate that. That's in our view. We think that we will perform at a minimum in line with that, maybe slightly better. But we think that there is pent-up demand that will hold the used car market relatively stable.
Speaker #4: Albeit there may well be some shifting down to slightly lower prices in there. In terms of consumer behavior, we haven't really seen much behavior in the after-sales business.
Speaker #4: It's very competitive. We have seen, over the last few years—and Christian tracks this religiously with his team—we have seen much, much more attention to the cost and pricing of service and parts within the business.
Speaker #4: And we know we compete with non-franchise providers of service and parts, because our growth really is targeted on improving our penetration in the three-year-old-plus after-sales market.
Derek Fiebig: We know we compete with non-franchise providers of service and parts because our growth really is targeted on improving our penetration in the three-year-old-plus after-sales market. And to do that, you obviously have to provide great convenience, great service, but you've gotta be very competitive on price. So we can achieve that without an impact on our margin. And the after-sales team, I think, did a good job. We talked about the improvement in after-sales margin. We just gotta keep doing that. There is no right to that business. We have to conquest it. And to do that, it's the combination of price and service. So they're much more price sensitive, particularly as the vehicle gets a bit older, and you just have to be aware of it and respond accordingly. That's helpful.
Mike Manley: We know we compete with non-franchise providers of service and parts because our growth really is targeted on improving our penetration in the three-year-old-plus after-sales market. And to do that, you obviously have to provide great convenience, great service, but you've gotta be very competitive on price. So we can achieve that without an impact on our margin. And the after-sales team, I think, did a good job. We talked about the improvement in after-sales margin. We just gotta keep doing that. There is no right to that business. We have to conquest it. And to do that, it's the combination of price and service. So they're much more price sensitive, particularly as the vehicle gets a bit older, and you just have to be aware of it and respond accordingly.
Speaker #4: And to do that, you obviously have to provide great convenience, great service, but you've got to be very competitive on price. So, where we can achieve that without an impact on our margin.
Speaker #4: And the after-sales team, I think, did a good job. We talked about the improvement in after-sales margin. We just have to keep doing that.
Speaker #4: There is no right to that business. We have to conquest it. And to do that, it's the combination of price and service. So they're much, much more price-sensitive particularly as the vehicle gets a bit older and you just have to be aware of it and respond
Speaker #4: accordingly. That's helpful.
Daniela Haigian: That's helpful. And then digging more into the used market, have you seen any mix shift, or do you expect to see your strategy evolve in terms of older or newer, within that segment, especially as off-lease volumes begin to return later this year? And then you also spoke to an opportunity to acquire more competitively in that market. So any commentary or color there would be helpful. Thank you.
Speaker #1: And then, digging more into the used market, have you seen any mixed shifts, or do you expect to see your strategy evolve in terms of older or newer within that segment, especially as off-lease small units begin to return later this year?
Derek Fiebig: And then digging more into the used market, have you seen any mix shift, or do you expect to see your strategy evolve in terms of older or newer, within that segment, especially as off-lease volumes begin to return later this year? And then you also spoke to an opportunity to acquire more competitively in that market. So any commentary or color there would be helpful. Thank you. Yeah. So firstly, if you just take our results, I think we performed really well in $40,000-plus vehicles. We saw growth in that segment, and it's a segment that I think we're very strong in. Where we did not perform really to market was in that particularly sub-$20,000 price range.
Speaker #1: And then you also spoke to an opportunity to acquire more competitively in that market. So any commentary or color there would be helpful. Thank you.
Mike Manley: Yeah. So firstly, if you just take our results, I think we performed really well in $40,000-plus vehicles. We saw growth in that segment, and it's a segment that I think we're very strong in. Where we did not perform really to market was in that particularly sub-$20,000 price range.
Speaker #4: Yeah. So firstly, if you just take our results, I think we performed really well in 40,000-plus vehicles. We saw growth in that segment, and it's a segment that I think we're very strong in.
Speaker #4: Where we did not perform really to market was in that, particularly, that sub-$20,000 price range. And some of that is because when we think about vehicles we want to sell to our customers, many of those vehicles don't fit the profile that we want to put in the marketplace.
Derek Fiebig: Some of that is because when we think about vehicles we want to sell to our customers, many of those vehicles don't fit the profile that we wanna put in the marketplace. And I think chasing volume of a poor used car is not what we wanna do for the brand. But notwithstanding that, we are looking very, very carefully at how we can achieve a slightly different balance in terms of price segments if our used vehicles, which would naturally mean stocking vehicles of a lower price band, say sub $30,000, for the purpose of this discussion. But how do we do that and get the right inventory? That is a very, very competitive marketplace, as you can imagine. And this is where we've got to leverage our scale and our reach.
Mike Manley: Some of that is because when we think about vehicles we want to sell to our customers, many of those vehicles don't fit the profile that we wanna put in the marketplace. And I think chasing volume of a poor used car is not what we wanna do for the brand. But notwithstanding that, we are looking very, very carefully at how we can achieve a slightly different balance in terms of price segments if our used vehicles, which would naturally mean stocking vehicles of a lower price band, say sub $30,000, for the purpose of this discussion. But how do we do that and get the right inventory? That is a very, very competitive marketplace, as you can imagine. And this is where we've got to leverage our scale and our reach.
Speaker #4: And I think chasing volume of a poor used car is not what we want to do for the brand, but notwithstanding that, we are looking very, very carefully at how we can achieve a slightly different balance in terms of price segments of our used vehicles, which would naturally mean stocking vehicles of a lower price band, say sub, for the purpose of this discussion, $30,000. But how do we do that and get the right inventory?
Speaker #4: That is a very, very competitive—that's a very, very competitive marketplace, as you can imagine. And this is where we've got to leverage our scale and our reach, and the way we would do that is our ability to respond to customers very quickly when they're looking for values, our ability to be flexible in terms of how we can go and get those vehicles or have those vehicles dropped off, the vehicle to automation—you're selling it. Speed of our payment and the fact that when you sell to an investment-grade company, you get certainty with that.
Derek Fiebig: The way we would do that is our ability to respond to customers very quickly when they're looking for values, our ability to be flexible in terms of how we can go and get those vehicles or have those vehicles dropped off, the speed of our payment, and the fact that when you sell a vehicle to AutoNation, you're selling it to an investment-grade company, and you get certainty with that. So, I think we got to leverage the infrastructure and the teams we have. So in summary, I think, there is mix shifting that we should be aware of, and we should also make sure that we are playing in that, which is, say, sub-$30,000 vehicles. And we've got to leverage our strengths to be more successful at acquiring inventory in that area.
Mike Manley: The way we would do that is our ability to respond to customers very quickly when they're looking for values, our ability to be flexible in terms of how we can go and get those vehicles or have those vehicles dropped off, the speed of our payment, and the fact that when you sell a vehicle to AutoNation, you're selling it to an investment-grade company, and you get certainty with that. So, I think we got to leverage the infrastructure and the teams we have. So in summary, I think, there is mix shifting that we should be aware of, and we should also make sure that we are playing in that, which is, say, sub-$30,000 vehicles. And we've got to leverage our strengths to be more successful at acquiring inventory in that area.
Speaker #4: So, I think we've got to leverage the infrastructure and the teams we have. I think there is mixed shifting that we should be aware of, and we should also make sure that we are playing in that, which is, say, sub-30,000 vehicles, and we've got to leverage our strengths to be more successful at acquiring inventory in that area.
Speaker #4: And that's what Chris and the team are focused on.
Derek Fiebig: That's what Chris and team is focused on. Thank you. The next question comes from John Saager at Evercore ISI. John, please go ahead. Your line is open. Hey, guys. Thanks for taking my call. Good morning. I was hoping you could discuss some of the, dig deeper into the used market. The GPUs in the second half were down, versus the previous six quarters, more at the 1,600 level. Do you think this is more of a demand or a supply issue? And how should we think about that heading into 2026? So, Tom, you wanna answer this, and then I'll add some color, or would you like me to answer? Yes, sure. No, happy to do it. I'll build off of what you said earlier. I mean, you know, you're right, John.
Mike Manley: That's what Chris and team is focused on.
Daniela Haigian: Thank you.
Speaker #1: you.
Operator: The next question comes from John Saager at Evercore ISI. John, please go ahead. Your line is open.
Speaker #5: The next
Speaker #5: The question comes from John Sager at Evercore ISI. John, please go ahead. Your line is open.
Speaker #5: open. Hey,
John Saager: Hey, guys. Thanks for taking my call. Good morning. I was hoping you could discuss some of the, dig deeper into the used market. The GPUs in the second half were down, versus the previous six quarters, more at the 1,600 level. Do you think this is more of a demand or a supply issue? And how should we think about that heading into 2026?
Speaker #6: Guys, thanks for taking my call. Good morning. I was hoping you could discuss and dig a little deeper into the used market. The GPUs in the second half were...
Speaker #6: down versus the previous six quarters, more at the 1,600 level. Do you think this is more of a demand or a supply issue? And how should we think about that heading into
Mike Manley: So, Tom, you wanna answer this, and then I'll add some color, or would you like me to answer?
Speaker #4: So, Tom, you want to
Speaker #4: Answer this, and then I'll have some color, or would you like me to answer?
Tom Szlosek: Yes, sure. No, happy to do it. I'll build off of what you said earlier. I mean, you know, you're right, John.
Speaker #6: I'll you're right, John. The fourth quarter was a low mark for the year in terms of used GPU. We were disappointed. We know that some 2026?
Derek Fiebig: You know, the Q4 was the low mark for the year in terms of a used GPU. We were disappointed. We know that some actions that we can take will get us back to the norms that we had in the Q1 and Q2. You know, eventually, we expect to be targeting a longer-term basis, $2,000 per unit. Some of it is the basics Mike mentioned, acquiring at the right price, reconditioning properly, not excessively, and getting the, you know, day-one pricing correct. The market is tighter, so it's important to move with speed when, you know, when we're doing acquisitions. But we do have opportunity.
Tom Szlosek: You know, the Q4 was the low mark for the year in terms of a used GPU. We were disappointed. We know that some actions that we can take will get us back to the norms that we had in the Q1 and Q2. You know, eventually, we expect to be targeting a longer-term basis, $2,000 per unit. Some of it is the basics Mike mentioned, acquiring at the right price, reconditioning properly, not excessively, and getting the, you know, day-one pricing correct. The market is tighter, so it's important to move with speed when, you know, when we're doing acquisitions. But we do have opportunity.
Speaker #6: Actions that we can take will get us back to the norms that we had in the first and second quarters. Eventually, we expect to be in target on a longer-term basis, 2,000 per unit.
Speaker #6: Some of it is the basics: acquiring at the right price, reconditioning properly—non-excessively—and getting the day-one pricing correct. The market is tighter, so it's important to move with speed when we're doing acquisitions.
Speaker #6: But we do have Mike mentioned. Short-term, getting the right mix, as Mike mentioned—calibrating brands, price points, and the like. Aging. Managing our funnel, our commercial funnel of opportunities all the way through to closure, is the second shorter-term opportunity we have.
Derek Fiebig: I mean, the short term, getting the right mix, as Mike mentioned, you know, calibrating, brands, price points, and the like, aging, managing our funnel, our commercial funnel of opportunities all the way through to closure, the second, you know, shorter-term opportunity we have, and, you know, as we said, you know, doing reconditioning, you know, efficiently and quickly, and getting the vehicles out to the floor. Longer term, we're really, encouraged by the business. We'll be making some investments in it. We do wanna improve the, you know, customer journey. As you know, it's become much more virtual and digital, and, we're putting that capability in place, and we'll continue to work on that too. I mean, that's an investment we wanna make.
Tom Szlosek: I mean, the short term, getting the right mix, as Mike mentioned, you know, calibrating, brands, price points, and the like, aging, managing our funnel, our commercial funnel of opportunities all the way through to closure, the second, you know, shorter-term opportunity we have, and, you know, as we said, you know, doing reconditioning, you know, efficiently and quickly, and getting the vehicles out to the floor. Longer term, we're really, encouraged by the business. We'll be making some investments in it. We do wanna improve the, you know, customer journey. As you know, it's become much more virtual and digital, and, we're putting that capability in place, and we'll continue to work on that too. I mean, that's an investment we wanna make.
Speaker #6: And as we said, doing reconditioning efficiently and quickly, and getting the vehicles out to the floor. Longer term, we're really encouraged by the business. We'll be making some investments in it.
Speaker #6: We do want to improve the customer journey, as you know. It's become much more virtual and digital, and we're putting that capability in place.
Speaker #6: And we'll continue to work our way through. That's an investment we want to make. So, in summary, we're paying a lot of attention to the business and know that we'll be driving the unit profitability and overall profitability.
Derek Fiebig: So in summary, you know, we're paying a lot of attention to the business and, you know, know that we'll be driving unit profitability and overall profitability higher. You know, I think it was a really comprehensive answer. There's not much that I can add. But one thing I think that is going to show is the strength of being a new car retailer. And that is, if you look at sourcing channels, there has been increased competition, really, across all sourcing channels, not just trade-ins. We Buy Your Car, obviously, auctions. That's going to continue. We've been able to offset some of that cost pressure through mix changes as well in terms of how we've sourced vehicles. And I think that's something that we have the ability to do because we operate a very, very sizable new car sales organization.
Tom Szlosek: So in summary, you know, we're paying a lot of attention to the business and, you know, know that we'll be driving unit profitability and overall profitability higher.
Mike Manley: You know, I think it was a really comprehensive answer. There's not much that I can add. But one thing I think that is going to show is the strength of being a new car retailer. And that is, if you look at sourcing channels, there has been increased competition, really, across all sourcing channels, not just trade-ins. We Buy Your Car, obviously, auctions. That's going to continue. We've been able to offset some of that cost pressure through mix changes as well in terms of how we've sourced vehicles. And I think that's something that we have the ability to do because we operate a very, very sizable new car sales organization.
Speaker #4: I think I was really comprehensive in my answers.
Speaker #4: One thing I think that is going higher, which I want to show as a strength of being a new car retailer, is that if you look at sourcing channels, there has been increased competition really across all sourcing channels, not just trade-ins.
Speaker #4: We buy your car, obviously, auction—that's going to continue. We've been able to offset some of that cost pressure through mix changes as well.
Speaker #4: In terms of how we've sourced vehicles, and I think that's something that we have the ability to do because we operate a very, very sizable new car sales organization.
Speaker #4: And that is a great and often undervalued channel because it is still the best channel to source excellent used car vehicles. And I think it will—I think it will play—I think there’ll be more competition, and I think that will be part—that channel will partially offset that.
Derek Fiebig: And that is a great and often undervalued channel because it is still the best channel to source excellent used car vehicles. And I think it will play. I think there'll be more competition, and I think that will be part, that channel will partially offset that, partially, not completely, because you also get price pressure in that channel, which is knock-on price pressure from more visible channels. But it will partially offset some of that price pressure. And I think Tom answered the rest really well. Thanks, Tom. Okay. Great. Thanks for that. Really good answer. And then on new GPUs, can you give us a sense of what you're seeing in the marketplace?
Mike Manley: And that is a great and often undervalued channel because it is still the best channel to source excellent used car vehicles. And I think it will play. I think there'll be more competition, and I think that will be part, that channel will partially offset that, partially, not completely, because you also get price pressure in that channel, which is knock-on price pressure from more visible channels. But it will partially offset some of that price pressure. And I think Tom answered the rest really well. Thanks, Tom.
Speaker #4: Partially, not completely. Because you also get price pressure in that channel, which is not on price pressure from more visible channels, but it will partially offset some of that price pressure.
Speaker #4: And I think Tom answered the rest really well. Thanks, Tom.
John Saager: Okay. Great. Thanks for that. Really good answer. And then on new GPUs, can you give us a sense of what you're seeing in the marketplace?
Speaker #6: Okay, great. Thanks for that. Really good answer. And then, on new GPUs, can you give us a sense of what you're seeing in the marketplace?
Derek Fiebig: You mentioned that you're seeing sort of continued stabilization, and I think the market's gonna be very encouraged if we see that continue. Yeah. Thanks, John. I mean, the Q3 to Q4, Mike talked through the, you know, the improvement and the overall weighted GPU, notwithstanding the, you know, the pressure we've got on OEM dealer incentives. We're encouraged as we build our plan for 2026 that there are actions that we can take to continue that stabilization. So far so good. I mean, we haven't closed for January. I do expect to see stable December to January. So off to a good start, I'd say, you know, on that front. It takes, you know, it takes discipline to do this with the industry inventory levels also. Oh, apologies. Please stand by. Adam, can you hear us now?
Speaker #6: You mentioned that you're seeing sort of continued stabilization, and I think the market is going to be very encouraged if we see that continue.
Mike Manley: You mentioned that you're seeing sort of continued stabilization, and I think the market's gonna be very encouraged if we see that continue.
Tom Szlosek: Yeah. Thanks, John. I mean, the Q3 to Q4, Mike talked through the, you know, the improvement and the overall weighted GPU, notwithstanding the, you know, the pressure we've got on OEM dealer incentives. We're encouraged as we build our plan for 2026 that there are actions that we can take to continue that stabilization. So far so good. I mean, we haven't closed for January. I do expect to see stable December to January. So off to a good start, I'd say, you know, on that front. It takes, you know, it takes discipline to do this with the industry inventory levels also.
Speaker #4: I mean, the third quarter, fourth quarter—Mike talked through the improvement in the overall, the, yeah... the way the GPU, notwithstanding—thanks, John. The pressure we've got on OEM dealer incentives.
Speaker #4: We're encouraged as we build, take, to continue that stabilization. 2026, that there are actions that we can—so far, so good. I mean, we haven't closed for January.
Speaker #4: I do expect to see stable December to January. So off to a good start, I'd say, on that front. It takes discipline to do this with the industry inventory levels also.
Mike Manley: Oh, apologies. Please stand by. Adam, can you hear us now?
Speaker #5: Apologies, please stand by.
Speaker #4: Adam, can you hear us
Speaker #4: Now? We can hear you loud and—are we live with all of our—
Derek Fiebig: We can hear you loud and clear. Are we live with all of our guests? Yeah, we're good. We are. Good. Sorry about that, guys. I don't know what happened from a technology point of view, but I will just repeat what I said. I was referencing Rajesh's question right at the very beginning about the balance of the puts and takes in our business. And I think that's an important one to know as we get into this year. I think what we're trying to build is, obviously, a growing after-sales base, a pool of customers that we can continue to serve and drive up our loyalty. And that means that we want to make sure that we don't lose pace with the marketplace.
Operator: We can hear you loud and clear.
Speaker #5: clear. We
Tom Szlosek: Are we live with all of our guests?
Tom Szlosek: Yeah, we're good. We are. Good. Sorry about that, guys. I don't know what happened from a technology point of view, but I will just repeat what I said. I was referencing Rajesh's question right at the very beginning about the balance of the puts and takes in our business. And I think that's an important one to know as we get into this year. I think what we're trying to build is, obviously, a growing after-sales base, a pool of customers that we can continue to serve and drive up our loyalty. And that means that we want to make sure that we don't lose pace with the marketplace.
Speaker #6: Yeah, we're good.
Speaker #5: are. Good.
Speaker #4: Sorry about that, guys. I guess—I don't know what happened from a technology point of view, but I will just repeat what I said. I was referencing Rajat's question right at the very beginning about the balance, as it puts and takes in our business.
Speaker #4: And I think that’s an important one to know as we get into this year. I think what we’re trying to build is, obviously, a growing after-sales base—a pool of customers that we can continue to serve and drive up our loyalty.
Speaker #4: We want to make sure that we don't lose pace with the marketplace, and to do that—and that means that we obviously have to be competitive to make sure that we stay at a minimum and balance it where we can balance it.
Derek Fiebig: To do that, we obviously have to be competitive, to make sure that we stay at a minimum in line with market. We do try and balance it where we can balance it. So as that market develops and we see what happens, there may well be more or less pressure on margins. But as Tom said, we have seen stability from Q3 to Q4. Our expectation, particularly in H1, is that we think, to a large extent, that will continue in 2026. Yep. Okay. Thanks so much. Yep. Next question comes from Colin Langan from Wells Fargo. Colin, please go ahead. Your line is open. Oh, great. Thanks for taking my questions.
Tom Szlosek: To do that, we obviously have to be competitive, to make sure that we stay at a minimum in line with market. We do try and balance it where we can balance it. So as that market develops and we see what happens, there may well be more or less pressure on margins. But as Tom said, we have seen stability from Q3 to Q4. Our expectation, particularly in H1, is that we think, to a large extent, that will continue in 2026. Yep.
Speaker #4: So as that market develops, and we see what happens, there may well be more or less pressure on margins. But as Tom said, we have seen stability from third quarter to fourth quarter, and our expectation, particularly in H1, is that we think to a large extent that will continue in '26.
Speaker #4: Yep.
John Saager: Okay. Thanks so much. Yep.
Speaker #6: I think so
Speaker #6: much.
Speaker #4: Yep.
Operator: Next question comes from Colin Langan from Wells Fargo. Colin, please go ahead. Your line is open.
Speaker #5: Wells Fargo. Colin, please go ahead. Your line is open.
Speaker #2: Oh, great. Thanks for taking my questions. Just want to ask on—
Colin Langan: Oh, great. Thanks for taking my questions. Just wanna ask on after-sales. Growth was, you know, 6% on a same-store basis, which, you know, I think historically, it's you know, go back many years, it was 3% or 4%. I mean, should we think of that staying at the higher end of sort of mid-single, or do you think there's just some, you know, maybe good news this year, some catch-up this year from some of the issues last year? And then also on the margin there, margins also have been actually quite strong, you know, much higher than they were 5 years ago. Is that sustainable, or does that moderate a little bit into 2026?
Derek Fiebig: Just wanna ask on after-sales. Growth was, you know, 6% on a same-store basis, which, you know, I think historically, it's you know, go back many years, it was 3% or 4%. I mean, should we think of that staying at the higher end of sort of mid-single, or do you think there's just some, you know, maybe good news this year, some catch-up this year from some of the issues last year? And then also on the margin there, margins also have been actually quite strong, you know, much higher than they were 5 years ago. Is that sustainable, or does that moderate a little bit into 2026? So I'll give you my view on that. We talked about the competitive nature of after-sales and the fact that what we wanna do is to conquest, in particular, vehicle park of 3-year-old vehicles.
Speaker #2: After-sales growth was 6% on the same store basis, which I think, historically—if you go back many years—it was 3% or 4%. I mean, should we think of that staying at the higher end of sort of mid-single, or do you think there's just maybe some good news this year, some catch-up this year from some of the issues last year? The next question comes from Colin Langdon.
Speaker #2: And then also on the margin there, margins have actually been quite strong—much higher than they were five years ago. Is that sustainable, or does that moderate a little bit into—
Speaker #2: '26? So I'll give you
Mike Manley: So I'll give you my view on that. We talked about the competitive nature of after-sales and the fact that what we wanna do is to conquest, in particular, vehicle park of 3-year-old vehicles.
Speaker #4: About the competitive nature of my view: to do is to — we talked after-sales, and the fact that what we want is conquest, in particular, vehicle park of three-year-old vehicles.
Speaker #4: I think what that means is that hourly rate, obviously, needs to be competitive. So the fact that that buyer's very nature says that the margins that we deliver are going to be constrained to some extent—albeit still incredibly healthy—and we're very pleased with them.
Derek Fiebig: I think what that means is that our hourly rate, obviously, needs to be competitive. So the fact that, by its very nature, says that the margins that we delivered are going to be constrained to some extent, albeit still incredibly healthy, and we're very pleased with them. We do think that there's opportunity for us with different products that we can offer and different ways of communicating with the customer that we can provide more work on a per RO basis. That doesn't necessarily drive up margin, per se, but it does help us a lot with regard to the productivity that we have in our business. So there may be some incremental opportunity on the margin side, but that's not what we bake into our plans.
Mike Manley: I think what that means is that our hourly rate, obviously, needs to be competitive. So the fact that, by its very nature, says that the margins that we delivered are going to be constrained to some extent, albeit still incredibly healthy, and we're very pleased with them. We do think that there's opportunity for us with different products that we can offer and different ways of communicating with the customer that we can provide more work on a per RO basis. That doesn't necessarily drive up margin, per se, but it does help us a lot with regard to the productivity that we have in our business. So there may be some incremental opportunity on the margin side, but that's not what we bake into our plans.
Speaker #4: We do think that there's opportunity for us with different communicating with the customer, that we can provide more work on a per RO basis that doesn't necessarily drive up margin per se, but it does help us a lot with regard to the productivity that we have in our business.
Speaker #4: So, there may be the margin side, but that's not what we bake into our plans. What we bake into our plans is more sustainable growth.
Derek Fiebig: What we bake into our plans is more sustainable growth, not margin growth per se, Tom. Yeah. I guess the other thing is, we have plenty of capacity to support, you know, more repair orders, physical capacity. And as Mike said, you know, we've been able to grow our technician workforce. But if we can continue that, with minimal additional investment, you know, we have the plant in place to support more business, which itself will drive, you know, higher margin rates as well, better absorption. So, I think we're positioned, you know, to sustain the, you know, trends we've had, and, you know, continue to, and Christian and the team continue to manage this very closely. Yeah.
Mike Manley: What we bake into our plans is more sustainable growth, not margin growth p
Speaker #4: Not margin growth per se, Tom.
Tom Szlosek: er se, Tom. Yeah. I guess the other thing is, we have plenty of capacity to support, you know, more repair orders, physical capacity. And as Mike said, you know, we've been able to grow our technician workforce. But if we can continue that, with minimal additional investment, you know, we have the plant in place to support more business, which itself will drive, you know, higher margin rates as well, better absorption. So, I think we're positioned, you know, to sustain the, you know, trends we've had, and, you know, continue to, and Christian and the team continue to manage this very closely. Yeah.
Speaker #6: Yeah, I guess the other thing is orders, physical capacity, and, as Mike said, we've been able to grow our technician workforce. But if we can continue that with minimal additional investment, we have the plan in place to support more business, which itself will drive higher margin rates as well—better absorption.
Speaker #6: So I think we're positioned to sustain the trends we've had and continue to cushion in the team, continue to manage this very closely.
Speaker #4: Yeah, I think the other thing that you mentioned earlier in your commentary that we should just remind Colin, Cushion, and Gianluca, we have, I have, between business.
Derek Fiebig: I think the other thing that you mentioned earlier in your commentary that we should just, we should just remind Colin of, you know, between Christian and Gianluca, we have, I think, been successful at growing our wholesale business. And wholesale, as we know, is much, much more competitive, and the margin is dilute. So I think that that is a that is, for us, a big area, again, of opportunity of growth. And that will have, from a headline perspective, downward pressure on the margin. So, you know, when we talk about after-sales margin, I think we need to be clear that you may see a moderation in the margin that we report, and that may well be a mix-driven thing. It may not be, margin per se through our workshop.
Mike Manley: I think the other thing that you mentioned earlier in your commentary that we should just, we should just remind Colin of, you know, between Christian and Gianluca, we have, I think, been successful at growing our wholesale business. And wholesale, as we know, is much, much more competitive, and the margin is dilute. So I think that that is a that is, for us, a big area, again, of opportunity of growth. And that will have, from a headline perspective, downward pressure on the margin. So, you know, when we talk about after-sales margin, I think we need to be clear that you may see a moderation in the margin that we report, and that may well be a mix-driven thing. It may not be, margin per se through our workshop.
Speaker #4: And wholesale, as we know, is much, much more competitive, and the margin is diluted. So I think being successful at growing our sale, I think that that is, for us, a big area.
Speaker #4: Again, of opportunity of growth, and that will have, from a headline perspective, downward pressure on the margin. So, when we talk about after-sales margin, I think we need to be clear that you may see a moderation in the margin that we report, and that may well be a mix-driven thing.
Speaker #4: It may not be margin per se through our workshop. So, Colin, please just bear that in mind when you're thinking about the future and what Tom and I just said.
Derek Fiebig: So, Colin, please just bear that in mind when you're thinking about the future and what Tom and I just said. Got it. And just secondly, any thoughts on SG&A? I think in the past, you've talked about 66% to 67% being the right target. Is that still sort of a long-term target and any sort of actions that might help, you know, reduce costs into next year that get you closer to the 66%? Yeah. Good question, Colin. Yeah. First of all, I'll reaffirm, 66% to 67% is our intended target. We were a bit higher in the Q4, and probably will be a little bit higher as we go forward here, at least in the early part of the year. You know, we've made some upfront investments on advertising.
Mike Manley: So, Colin, please just bear that in mind when you're thinking about the future and what Tom and I just said.
Colin Langan: Got it. And just secondly, any thoughts on SG&A? I think in the past, you've talked about 66% to 67% being the right target. Is that still sort of a long-term target and any sort of actions that might help, you know, reduce costs into next year that get you closer to the 66%?
Speaker #2: Got on SG&A? I think in the past you've talked about 66 to 67% being the right target. Is that the target? And any sort of actions that might still, sort of, long-term help reduce costs into next year?
Speaker #2: And just secondly, any thoughts on 66?
Tom Szlosek: Yeah. Good question, Colin. Yeah. First of all, I'll reaffirm, 66% to 67% is our intended target. We were a bit higher in the Q4, and probably will be a little bit higher as we go forward here, at least in the early part of the year. You know, we've made some upfront investments on advertising.
Speaker #4: Yeah, good question, Colin. Yeah, first of all, I'll reaffirm 66 to 67 as our intended target. We were a bit higher in the fourth quarter, and probably will be a little bit higher as we go forward here.
Speaker #4: At least in the early part of the year, we've made some upfront investments on advertising and it's really to in the upper funnel, which for us means creating demand as opposed to lower funnel where you're actually trying to capitalize on known demand.
Derek Fiebig: It's really to in the upper funnel, which, you know, for us means, you know, creating demand as opposed to lower funnel where you're actually trying to capitalize on known demand. We feel like we've got some opportunity to drive better, you know, upper funnel activity. So that's requiring a little bit of an incremental investment here. As we also talked about our loaner pool, we've made some conscious investments in it. It helps you on the used vehicle side when they come out of the pool. So we've talked about, you know, a tight market, but that gives us a little bit of a relief valve in terms of supply. But importantly, it's also helping us support the, you know, service business, you know, in its totality.
Tom Szlosek: It's really to in the upper funnel, which, you know, for us means, you know, creating demand as opposed to lower funnel where you're actually trying to capitalize on known demand. We feel like we've got some opportunity to drive better, you know, upper funnel activity. So that's requiring a little bit of an incremental investment here. As we also talked about our loaner pool, we've made some conscious investments in it. It helps you on the used vehicle side when they come out of the pool. So we've talked about, you know, a tight market, but that gives us a little bit of a relief valve in terms of supply. But importantly, it's also helping us support the, you know, service business, you know, in its totality.
Speaker #4: And we feel like we've got some opportunity to drive better upper-funnel activity, so that's requiring a little bit of incremental investment here. And we also talked—we've made some conscious investments in.
Speaker #4: It helps you on the used vehicle side when they come out of the when they come out of the pool. So we've talked about our loaner pool.
Speaker #4: About a tight market, but that gives us a little bit of a relief valve in terms of supply. But importantly, it's also helping us support the service business in its totality.
Speaker #4: So apart from those two incremental things, I expect us to continue to drive towards the lower end of that term. And we've— you know, the biggest component of SG&A has got a number of different initiatives in compensation.
Derek Fiebig: So apart from those, you know, two incremental things, I expect us to, you know, continue to drive towards the, you know, lower end of that range we talked about over the long term. And we've got, you know, a a number of different initiatives in place. As you know, the biggest component of SG&A is compensation. And it's important for us to have good productivity when it comes to both sales and service. We feel like we've got excellent training programs and standard procedures that we've got around the cycle service cycles to, you know, drive productivity in comp and benefits. I mean, I talked about advertising. And then, you know, the big category is just, you know, other SG&A.
Tom Szlosek: So apart from those, you know, two incremental things, I expect us to, you know, continue to drive towards the, you know, lower end of that range we talked about over the long term. And we've got, you know, a a number of different initiatives in place. As you know, the biggest component of SG&A is compensation. And it's important for us to have good productivity when it comes to both sales and service. We feel like we've got excellent training programs and standard procedures that we've got around the cycle service cycles to, you know, drive productivity in comp and benefits. I mean, I talked about advertising. And then, you know, the big category is just, you know, other SG&A.
Speaker #4: And it's important for us to have good productivity when it comes to the workplace, as you look to both sales and service. We feel like we've got excellent training programs and standard procedures that we use to drive productivity, and comp and benefits.
Speaker #4: I talked about advertising. Then, got on the service cycles. The big category is just other SG&A. We've got a number of good initiatives to manage through some of these inflationary things that we're seeing, like energy costs, as an example.
Derek Fiebig: We've got a number of good initiatives to manage through some of these inflationary things that we're seeing, like energy costs, you know, as an example. We're trying to standardize our usage model around, you know, utilities to offset some of that. So, it's a, it's an effort that we're heavily focused on and just reiterating where we are in terms of the range. Hopefully, that helps, Colin. Yeah. That's super helpful. Thank you very much for taking my question. Operator now, hand back to the management team for any closing comments. Yeah. Thanks, Adam. Again, thank you very much for joining the call today and all of your questions. And just finally, as I mentioned earlier, I just wanna thank the AutoNation team for what we delivered. And as usual, and you all know this, that's behind us now.
Tom Szlosek: We've got a number of good initiatives to manage through some of these inflationary things that we're seeing, like energy costs, you know, as an example. We're trying to standardize our usage model around, you know, utilities to offset some of that. So, it's a, it's an effort that we're heavily focused on and just reiterating where we are in terms of the range. Hopefully, that helps, Colin. Yeah.
Speaker #4: We're trying to standardize our usage model around utilities, so it's an effort that's ongoing. Just reiterating where we are in terms of that, we're heavily focused in that range.
Speaker #4: Hopefully, that helps,
Speaker #4: Colin. Yeah, super helpful.
Colin Langan: That's super helpful. Thank you very much for taking my question.
Speaker #2: Thank you very much for taking my question.
Speaker #1: Well, now I'm back to the management team for any closing comments.
Operator: Operator now, hand back to the management team for any closing comments.
Mike Manley: Yeah. Thanks, Adam. Again, thank you very much for joining the call today and all of your questions. And just finally, as I mentioned earlier, I just wanna thank the AutoNation team for what we delivered. And as usual, and you all know this, that's behind us now.
Speaker #4: very much for joining the call Yeah, thanks, Adam. Again, thank you today and all of your questions. And just finally, as I mentioned offset some of that.
Speaker #4: Earlier, I just want to thank the AutoNation team for what we delivered. And as usual—and you all know this—that's behind us now.
Speaker #4: We've got 26 ahead of us, so let's get to it.
Derek Fiebig: We've got 2026 ahead of us, so let's get to it. This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
Mike Manley: We've got 2026 ahead of us, so let's get to it.
Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
