Asbury Automotive Group Inc (ABG) 2003 Q1 法說會逐字稿

Thank you for standing by. You’re online for today’s Asbury Automotive conference call. At this time, we’re still adding additional participants, and should be underway shortly. We thank you for your patience, and please remain online. Please stand by, we’re about to begin.

Good day, and welcome everyone to Asbury Automotive Group’s First Quarter 2003 Earnings Results conference call. Today’s call is being recorded.

At this time for opening remarks and introductions I’d like to turn the call over to [Stacy Younkus] [ph]. Please go ahead.

Good morning, everyone. Thanks for joining us today. As you know, early this morning Asbury reported its earnings for the first quarter 2003. You all should have received a copy of the press release which is also posted on our web site, asburyauto.com. If you don’t have access to the internet or you’d like a copy of the release faxed or e-mailed to you please contact [Judy Cello] [ph] at our office. Judy’s number is 203-356-4414, to make sure you get a copy right away.

Before we get started I just want to remind everybody that the conference today will include some forward-looking statements that are subject to certain risks and uncertainties which are detailed in the company’s 2002 10-K report as well as other filings we have with the SEC. The purpose of today’s call is to discuss Asbury’s first quarter results as well as to update you on our earnings outlook for 2003.

Our agenda today will be as follows. Ken Gilman, our President and CEO, will begin the call with a few summary comments. Then Tom Gilman, our CFO, will review Asbury’s operating performance for the quarter. Ken will come back on the line with a few more remarks. And then, we’ll be happy to open it up for your questions.

Ken.

Thanks, Stacy. Good morning to everyone.

Now let me start by saying that this past quarter was an interesting one for Asbury, and I think an important one in terms of setting the disciplines and practices we plan to carry well into the future. I’ll get back to that with greater detail in a little bit, and so let’s start off with the bottom line results.

As we anticipated, earnings were down on a year-over-year basis. This was not a surprise, and was due to increased operating expenses which we discussed with investors during our year end results call. At that time I shared with you specific expense reduction initiatives we were taking in certain of our platforms with the anticipation of seeing the effects of those changes mature in the second quarter. I am pleased to report to you that we implemented those initiatives and made the difficult adjustments on our expense structure that we outlined in that conference call.

Today the expense reductions have been primarily personnel related costs. Taking a very specific disciplined approach we reviewed our personnel expenses on a platform-by-platform basis going store-by-store, working with each management team in establishing guidelines and setting boundaries.

As a result our SG&A expenses as a percentage of total revenue came down in March to 12.2 percent, versus 13.2 percent for the first two months of the quarter. While expenses in the first quarter are still high to my thinking by historical standards the indications are encouraging as we still anticipate that most of the intended effects of our expense control initiatives will be reported in the second quarter.

So what’s the bottom line? First, the end of the quarter our profitability improved significantly, specifically operating income in March as a percentage of gross profit was four percentage points higher than in January and February. Obviously, March is a seasonally stronger month, and it’s likely that the entire industry performed better in March than it had earlier in the year. More to the point, and putting percentages aside our ongoing operating income in dollars for March 2003 exceeded the level of March 2002. And so this is not simply seasonality at work. That’s why we believe the evidence is clear that Asbury is moving forward from a profitability standpoint, and that’s why we have not changed our EPS guidance range for the full year which remains at $1.50 to $1.60. I would like to remind everyone that this range does not include the potential impact of the Bob Baker deal or any other acquisitions in 2003.

As I said in our last call as a newly public company it’s taken some time to change the mindset so to speak, modifying practices at the platform level to be more in line with the expectations placed upon a public company. As I’ve noted before operationally some of our platform CEOs would not have made these expense adjustments if they were still operating as a private company. However, as a public entity with certain ongoing profit commitments and obligations they recognized the need to take action. We’ve learned a lot and continue to learn, with a continued focus on discipline not just at the individual platform level but also on a company wide basis, something I spoke a lot about in the last call.

The bottom line is that we are doing what we told you we would do and we believe we remain on schedule to achieve the improved results we’ve targeted for the full year. This is something I am very serious about, and something I plan to report back to you on a regular basis. So that you can measure our performance and track our achievements.

Aside from our cost-cutting efforts there were a lot of other areas from an operational perspective which were of great importance in the first quarter. In a quarter that was faced with a large degree of uncertainty we remain focused on just a few very specific initiatives that impact operating profit and improvement, people development, and factory relations.

Operationally our strategy during the quarter in terms of new vehicle sales was primarily volume driven. The new vehicle environment was particularly difficult especially in the first two months of the quarter. By taking a volume driven approach and foregoing a small amount of new vehicle margin we were able to sustain unit sales, thereby fostering good relationships with our manufacturing partners.

On a same store basis our new vehicle unit sales were down only 1.5 percent, while the industry was down 4.4 percent. So from a unit perspective we tracked very well against the industry across virtually all three of our market focused segments. Luxury, mid-line imports, and mid-line domestic vehicles.

An area of notable strength for Asbury during the quarter was our used car business, and I am especially pleased with our accomplishments in this area considering what many had perceived to be and, in fact, found to be a difficult use environment. Industry reports show that franchise deals as a group were down in excess of 10 percent against last year’s levels in terms of unit sales. As you know, used vehicles have been an issue for Asbury, and an area of considerable focus. On a same store basis our used vehicle unit sales were flat, as was our gross profit of 12.2 percent of used retail sales. This is a real achievement, particularly maintaining our gross profit margins.

Overall the used retail unit sales were up seven percent while the related gross profit was up eight percent, and so no matter how you look at it the used vehicle news from Asbury is good with our Tampa platform being our most recent and notable success story. Through focus, hard work, and discipline Tampa simply had an outstanding used car first quarter, increasing used unit sales by 36 percent, growing used vehicle retail gross profit 12.9 percent from 10.2 percent, an increase in total used vehicle gross profit by 54 percent. That’s a mouthful.

Clearly, Tampa’s focus on used vehicles is working and demonstrates the value of our approach to sharing best practices. And by the way, our used performance has also contributed to the ongoing strength we’re seeing in the F&I, that’s finance and insurance business, and in our fixed operations, parts, service, and body shop. Where Tampa is now our leading F&I platform at a per vehicle retail F&I of almost $1,000, which is a 41 percent increase over last year’s first quarter in Tampa.

That’s to my mind a perfect segway to talk about our high margin businesses, parts and service, and finance and insurance, which remained particularly strong during the quarter. These businesses together account for well over half of Asbury’s gross profit, 56 percent of total gross profit this quarter, to be specific, and compared to 54 percent in the same quarter last year.

In our fixed operations, parts, service, and collision repair, revenue was up 7.6 percent overall from a year ago, and 4.8 percent in the same store basis. Our fixed operations gross profit in dollars was up 6.7 percent, and up 3.4 percent on a same store basis. Our continued emphasis on customer retention, especially on the used car side, continue to bear fruit. We’ve expanded our product offerings and sharpened our pricing, and in general will become more competitive in our local markets, striving for our locations to have more of a look and feel of a full retail service shop and less like a typical auto dealership. We believe these initiatives are really beginning to pay off.

In our finance and insurance business we saw continued strength during the quarter. F&I income for the quarter rose 13.7 percent from a year ago and was up 9.8 percent on a same store basis. F&I per vehicle retail came in at $783, a 10.4 percent increase from the corresponding quarter last year.

Driving these improvements were continued strength in product sales, strong finance penetration rates, and the improved penetration of some of our preferred provider programs. We are also benefiting from enhancements to our menu selling approach across our platforms. And as we’ve noted previously, all of our F&I managers, more than 200 in total, have been certified with the Association of Finance and Assurance Professionals. Not only does this make our managers more efficient in their jobs, but it also makes our customers more confident that they are being treated with the highest level of ethical standards.

And with that, I’d like to turn the call over to Tom Gilman, our CFO, who is going to provide a more detailed review of our financial results for the quarter. Tom.

Thanks, Ken. And good morning, everyone.

Included in the press release you’ll find an income statement and a balance sheet for the first quarter, as well as a selected data sheet which details some of the specific metrics we use to track our performance.

Let’s talk about the quarter. From a performance perspective the quarter included three very different months. January looked like the fourth quarter, February looked like January only with fewer days, and then March’s performance was strong.

The quarter ended as we expected with earnings down on a year-over-year basis, but with performance measures trending in the right direction. Overall, the company’s total revenue for the quarter increased 4.9 percent from a year ago, and the total gross profit was up 3.4 percent. On a same store basis total retail revenue was up 1.3 percent for the quarter, while same store total retail gross profit was marginally higher.

Regarding new vehicles our new retail units were 22,283, up three-tenths of a percent from a year ago, with the average selling price of 1.8 percent. Our new retail vehicle revenue rose 2.1 percent, however the related gross profit was down 9.2 percent as new vehicle retail gross profit margin decreased to 7.6 percent from 8.4 percent in last year’s first quarter. On a same store basis our new retail units decreased 1.5 percent, new retail revenue was up three-tenths of a percent, gross profit was down 10.5 percent, and the gross margin comparison was the same as on a reported basis.

Our performance was significantly stronger on the used side, as Ken mentioned. For the quarter our used retail units increased seven percent to 15,602. Our average selling price was basically flat. While used retail vehicle revenue was up 6.9 percent. Gross margin in used was 12.3 percent, up a tenth of a point versus the prior year’s quarter. On a same store basis used retail units were essentially flat, used retail revenues increased 1.1 percent, and used gross margin was 12.2 percent, the same as last year’s quarter. So in our view the used business performed really well in a tough competitive environment.

In parts, service, and collision repair our revenues increased 7.6 percent, while the related gross profit rose 6.7 percent. For the quarter our parts and service margin was 52.5 percent. On a same store basis the parts and service revenue increased 4.8 percent, and gross profit rose 3.4 percent.

In finance and insurance our gross profit for the quarter increased 13.7 percent, resulting in a 10.4 percent increase in our F&I PDR to $783. A strong growth in our F&I PDR is primarily from preferred provider programs initiated last year, as well as the continued success of our many selling process. On a same store basis F&I revenues were up 9.8 percent from a year ago, while the F&I PDR was up 10.9 percent.

So a strong backend business, parts, and service, and F&I continue to perform well, and provide a stable earnings stream at a time when conditions were challenging, particularly in new vehicle sales.

Selling, general, and administrative expenses for the quarter excluding D&A were up 9.1 percent from last year’s first quarter in which we were a privately owned company for 11 of the 13 weeks of the quarter. I’ll discuss expenses in more detail in a few minutes.

Depreciation and amortization was 5.9m, compared with 5.8m a year ago. Income from operations totaled 26.7m, compared to 33m last year, down 19.2 percent. Our operating margin was 2.4 percent, versus 3.1 percent last year.

Floor plan interest expense was 4.6m, compared to 4.2m a year ago, reflecting higher inventory levels. Other expense was up 467,000 versus last year’s first quarter, primarily due to the disposal of a capital asset in St. Louis.

Pretax income was 11.5m, compared to 18.9m a year ago. Net income from continuing operations for the quarter was 6.9m or 21 cents per share, compared with pro forma net income a year ago of 11.4m or 33 cents per share.

EBITDA for the quarter was 27.4m, down 20.7 percent from a year ago. The EBITDA margin was 2.5 percent versus last year’s 3.3 percent.

Excluding floor plan we reduced our debt by about $8m during the quarter, and our debt-to-total-capitalization ratio decreased to 51.9 percent, compared to 52.7 percent at year-end. At the end of the quarter 44.6 percent of our non- floor plan debt including mortgages was at floating interest rates. Based on this debt structure we estimate that a 100 basis point change in interest rates on a non-floor plan variable debt would affect our EPS by approximately four cents on an annual basis.

Our days supply and inventory at the end of the quarter was 73 days on new vehicles, and 41 days on used vehicles, virtually the same in both cases as of the end of the fourth quarter. Our inventories increased by a relatively modest 18m during that quarter.

Total capital spending for the quarter was 15.2m, and we are now targeting between 45m and 50m on the full year, reduced from our prior guidance of 55m to 60m. Free cash flow was 14m.

Now let me speak about our cost reduction program. It actually began with our budget review process prior to the year end as we conducted a platform-by-platform review for 2003 planning purposes. Then as January and February auto sales softened we launched a cost reduction program with one key requirement, an immediate reduction in expense.

As part of that effort we reviewed Asbury’s entire cost structure, and then our platform management, including our CEOs and CFOs conducted a store-by-store review. No cost was to be held sacred. From that effort we developed annual platform commitments and corporate costs were reduced, as well.

Earlier in the call I spoke about how different each of the months were during the quarter. So to measure ourselves to see if progress was being made we looked at the average expense levels for the months of January and February, and compared them to March. We told those of you who were on our year-end call in late February that we thought the effects of the cuts would not be felt until the second quarter. But our platform results led us to believe that we might have gotten a jump on the cuts, and that’s what we saw in March.

Now as we all know one month does not make a trend in this business, but progress was made. And, for example, I always believe that costs come into an automobile business on two feet, and so we reduced our manpower account by 146 people between January and March. That resulted in a reduction in personnel costs which is the biggest part of our cost structure. We reduced personnel costs as a percent of total gross from 40.8 percent in January and February to 37.4 percent in March. As a percent of sales personnel expense was reduced from 6.6 percent to 5.8 percent. We reduced per vehicle advertising from $306 in January and February to $275 in March. And total SG&A expense was reduced from 13.2 percent in January and February to 12.2 percent in March.

As Ken mentioned, expenses are still high based on historical standards, and while these early indications are encouraging we’ve identified even more opportunities in items like outside services and other SG&A costs. Once again, we expect to see the results more clearly in the full three months of the second quarter.

One final issue. At the end of the first quarter we were in compliance with all of our financial covenants as required under our various financing arrangements, including the fixed charge coverage ratio. The terms and conditions of our credit agreement are in full affect. We were confident that this would be the case at the end of the quarter since the two properties that caused our covenant to be reduced were financed.

At Asbury we have great relationships with our lenders. And we work hard together with the captives to sort out all kinds of issues as they arise. We also have started a relationship with Capital Automotive Re to enter into sales leasebacks of some of our prospective properties. This will have the benefit of reducing our mortgage debt, reducing our self-funded capex, and should free-up additional cash flow. And so we’re looking forward to working with the people at CARS to develop a new and exciting relationship.

With that, let me turn it over to Ken.

Thanks, Tom. I’d like to make a few more points and then we’ll open the rest of the phone call up for Q&A.

In terms of our platform performance generally speaking it was consistent with what we observed in previous quarters, plus a few positives. Jacksonville, our largest and most profitable platform, had another great quarter, posting solid revenue increases across-the-board, and new used F&I, parts and service, while posting double-digit increases in operating income.

Tampa, as you might have surmised, also had a strong quarter, reporting a 12.5 percent increase in gross profit. The increase was driven by a strong used business, as I noted earlier, as well as the previously noted 41 percent increase in F&I for vehicle retail over the last year’s levels, and a seven percent increase in gross profit generated by fixed operations.

As a group several of our other platforms, specifically North Carolina, Atlanta, St. Louis, and Mississippi are also doing relatively well and turned in steady results about as we expected. Arkansas reported lower profits for the quarter as a whole but they made huge strides, especially following the expense control initiatives. Specifically, Arkansas’ operating income for March was more than 50 percent higher than a year ago, and that percent is a meaningful number of dollars. It’s not simply just a calculation or a big percent yielded in small dollars, it’s a big percent that yielded reasonably significant dollars. And so we feel very good with Arkansas.

But Texas continues to be soft with profits still below a year ago, but we’ve seen some signs of improvement. Portland remains our biggest problem, as we continue to face the difficult sales environment in that part of the country, driven in large measure by the local economy. In addition, our Portland expense structure has simply been too high given the current sales levels. We’ve had a recent change in senior management in Portland, expenses have been reduced by a meaning full amount, and we are undertaking a fundamental revamping of the entire new car selling process in the Portland market as part of that platform’s turnaround program. As I see it, we are pleased that our largest platforms are performing relatively well, and are working to build-off the successes experienced in those platforms.

Speaking of platforms, an update quickly on the status of our proposed acquisition of the Bob Baker Auto Group in San Diego. Without getting into details I will say at this point that we continue to move forward with the transaction with the goal of closing the deal in the first half of the year. I’ll keep you posted as developments become available.

I would also like to comment on our Price 1 Used Car Pilot Program. I am not going to tell you anything new about the future of Price 1 at this time. However, I can tell you that since January we’ve seen a steady improvement in Price 1’s performance on a sequential month-to-month basis. And that goes not only through the end of the quarter but through April, as well, in terms of both gross profit generation of profitability we continue to believe the potential up side of developing a standalone used car business is well worth our modest incremental investment at this point. For the first quarter the loss from Price 1 was $1.5 on a pretax basis, and we still expect the year-over-year losses of Price 1 to come down by about $3m.

In terms of our outlook for the industry and for Asbury for 2003 I would say that little is fundamentally changed since our conference call in February. Of course, like everyone else we’re glad to see that some of the uncertainty surrounding the industry and the overall economy has started to dissipate as the war with Iraq winds down. I would also like to point out that on a seasonal basis January and February generally are two of the softest months of the year, so external factors that we’ve all experienced are likely just added to the weakness seen at the beginning of the year.

We continue to base our forecasting on the [SAR] [ph] of about 16m vehicles which have if anything looks as if it could be a tad bit conservative. The trends we’ve seen in March and April continue to support this view. The industry had a strong line of new vehicles, the best that I believe we’ve seen in many, many years, in fact decades. Especially in the luxury and mid-line import brands where Asbury happens to be especially well represented. We also have continuing favorable trends in vehicle affordability and ongoing demographic factors that strongly point to continued healthy new vehicle sales, and so we remain relatively optimistic about the overall industry environment for new vehicles.

Lastly, while overall results are down on a year-over-year comparison we’ve proven over the last few quarters that we have great stability as well as growth potential in our higher margin operations, F&I and fixed. These businesses are key to our model, providing great stability to the bottom line as in this quarter alone as I’ve previously noted they accounted for 56 percent of Asbury’s gross profit. And with our used car business gaining momentum the news is getting even better.

With that said, I look forward to keeping you up-to-date on our progress, especially as it relates to the initiatives we discussed today.

I’d now like to open the call up to questions. Operator.

Thank you. (Caller Instructions.)

We’ll move first to Rick Nelson with Stephens.

Good morning.

Good morning, Rick.

Good morning.

On April sales, both new and used, and maybe as it relates to March performance?

I think that April is consistent with March, and with the seasonal factors that typically relate April to March.

And used vehicles, are there times that prices might be [perming] [ph]?

A little bit, but when you’re trying to use vehicle inventory reasonably quickly the reason I – and that’s the reason I emphasize the gross profits being consistent year-over-year in used. And that’s net of whatever wholesale gains or losses we might have had year-over-year, we really don’t see that the pricing environment has had a whole lot of affect on our ability to sell used vehicles. And so ‘yes’ they’re firming a bit, but it does not really present a great risk or challenge.

Ken or Tom, you talked about the SG&A expense ratio for March, relates to January and February, how does that March 12.2 percent compare to the prior year March?

We’ll get that for you.

I think it’s still a little higher.

It’s still higher.

So you’re not providing specific quarterly guidance, do you think you’ve got expenses battened down to a point where we can start seeing positive year-over-year EPS comparisons in the second quarter?

We don’t want to talk about guidance. I just, I don’t think that the consensus is out of line. What I do think is that we still have got work to do. We focused on the people side in the main, in terms of the expense initiatives. As Tom said, what we all saw in the industry is that expenses walk in and out of your dealerships every day, and so that’s what you have to deal with first. We’d like to be able to have a positive report in second quarter. We will just have to wait and see what happens.

Rick, the answer to your question is that expenses are still high by about a point and a half on a percentage of gross versus last year.

So for March this year it was what?

We didn’t talk about it as a percentage of gross, we talked about …

Rick, what was your question?

The SG&A as a percent of gross for March of this year?

For March excluding depreciation and amortization, we’ll calculate that – hold on a second. Why don’t you take another call, another answer. I’ll call you back, Rick, on that.

Okay, thanks Tom.

Okay, we’ll move next to Michael Millman with Smith Barney.

Thank you. I guess also we’re relating to SG&A since March certainly has the denominator affect, maybe you can tell us or give us some idea. On the 142 of SGA how much of that effectively as of March or currently is fixed? And how do we look at the variable out of it? What kind of percentage of sales should that be?

And secondly, could you …

That’s a mouthful, Mike.

I probably could have said it more simply.

No, it’s for us, too. You said it right, that’s a lot of calculating to do. I don’t know that we can answer that.

Okay, well let me ask another question. Which is probably much more qualitative. And …

Well, I don’t want to interrupt, but I would say that there was a denominator affect, but in my prepared remarks I wanted to address that. And say basically ‘yes’ there is a denominator affect, but ‘no’ we don’t think that that’s the pure reason why it dropped. We can look with the dollars, and we can look at what we’re spending. If you go back and replay this when it gets onto the web site, Tom’s remarks, where he gave you some specifics as a percentage of gross you’ll see that they were real substantive reductions in expense.

All right. The qualitative question is in trying to look at all the public companies, there’s very significant number differences, and it’s very difficult for us to tell, maybe I should say for me to tell, how much of the difference relates to geographic locations, how much relates to product mix, and how much relates to pure operational? Maybe you can talk a little bit about that?

Sure. I think a lot of it relates to product mix. I think that applies to certain geographic issues. Without going into specific names, and I – for those of you who have heard me speak before, I think all of the six companies in the space, the public companies in the space, are all quality businesses. Some are much more domestic oriented, and they’re spread-out in smaller towns. They are affected, one business is affected by factors that, for example, Asbury, and one of the others that are basically luxury and mid-line import driven don’t have to face. That also has an impact on your parts and service business because as the domestics improve their quality warranty work goes down. And so I do think that mix has a tremendous impact. And I think that location has some impact, as well. Sometimes those go hand-in-glove.

Thank you.

We’ll move to Jeremy Marks with Raymond James.

Good morning.

Good morning, Jerry.

Just could I have a little bit more detail on the used? I mean it looks like you guys did some really neat things in Tampa. First of all, just kind of what specifically you guys are doing in used, and I assume you are applying best practices over from Jacksonville into Tampa? And how far along you guys are applying those practices into other platforms?

Well, you’re correct, we did apply the practices from Jacksonville into Tampa. And, in fact, we moved an executive from Jacksonville to Tampa to head the program in Tampa. And it’s basically a centralization of used car management, in the main inventory management, E&A platform rather than doing it store-by-store, each used car manager making independent decisions. We are somewhat down-the-road in implementing that program in other platforms in North Carolina and Atlanta. And we’re putting people in place as quickly as we think we can absorb and phase the cultures of those businesses.

So a lot of it kind of sounds like maybe a key person who really knows the used business, I mean what do you really mean by ‘centralizing’ in terms of that you’ve kind of rotate used vehicles around your various dealerships?

Well, it’s understanding inventory management on a platform basis in terms of the used vehicles. And having a central point of view to make sure that you have buying against a predetermined inventory mix that’s right for that particular store. You’re deciding essentially what’s going to go to the auction, and what’s going to be in terms of your trade-ins, and what you’re going to retail through your own stores, and what stores those go to. And it’s simply saying that we think we’ve got a great bunch of used sales managers, but their talents are best, and time, are best placed selling the vehicles. And that’s going to auction some days, and selling other days. We think it’s best that the buying of the vehicles is best done centrally.

Okay, and so you’ve centralized the buying process by regions?

The platform, that’s part of it ‘yes’. In the main.

Okay. And then with manufacturer relations, obviously, they’re happier when you guys outperform the industry. Could you give us a little bit of an idea in terms of any specific brands where you are outperforming? And also, regarding the Baker acquisition, I don’t know if you guys already have talked about it. But you know, obviously, Ford had denied that acquisition, but then I guess Toyota was pending. Has there been any update there, as well?

Well, Toyota there’s a paperwork issue there, and we’re in the middle of working on that paperwork with Toyota. Before it’s resolved there was really no reason to really push that in haste. And so that’s a matter of just form. With Ford, that’s being dealt with by Bob Baker and the new Motor Vehicle Bureau in Sacramento.

In terms of how we outperform in the industry, we outperform in the industry in Acura, Lexus, two of our more important luxury brands – by the way, this is a lot of – a lot of this affected by, when you get down to brand specific performance, to relate to Mike’s question earlier, to where you are in the region. And so we did not in BMW, but our inventory was down at BMW, and so basically we’re selling at the same rate. And so we think that’s simply a factor of, a pointer, and so the industry as to what is happening elsewhere nationally with BMW. The same with Mercedes. We outperformed Toyota and Nissan, very close to the industry in Honda, and Chevrolet. And regionally, four out of the five regions we’re in – we outperformed them.

Great, thanks.

(Caller Instructions.)

And we’ll move next to Rob Schwartz with JL Advisers.

My question has been answered, thank you.

And we’ll move next to Carla Casella with JP Morgan.

Hi. My question was you made a lot of headcount changes this last quarter, or reductions, and I am wondering how is the morale in the remaining – with the heads of the different platforms? Are there any morale issues, or any more major changes you think you need to make? And I am thinking more senior level to the platform?

Well, I think that we – it’s difficult to deal with headcount cuts, but what we’ve experienced is that the people that remain they’re pleased because it’s a better chance to make a better living, because everyone basically works on a commission. And so we think that while when you go in and you want to adjust the organization structure and take some heads out in a particular store or a particular platform, and it has a temporarily disruptive effect things get back to normal pretty quickly.

March was a reasonably good month. That’s one of the reasons, I think we spoke to you earlier, at least the investor community earlier, and so one of the reasons you wait to make certain adjustments, and you wait until March 1st, for example, is that you don’t want to do some of these things in a soft month like February. And so when we could identify some changes in January that we wanted to take, you don’t do that on top of a typically historically soft month like February. You want to do that when you’re coming into the first really good month of the year, which is March, so that people can see that they can continue to make a good living, that they can bring home even bigger paychecks.

And so that’s one of the reasons for timing some of these things. So it’s always a dicey thing when you’re dealing with folks in terms of jobs and job security, but we think we did a pretty good job of it.

And how many of the cuts were actually like the platform, like CEOs? Or was it mostly floor personnel, or salespeople?

Well, there were some at the management company levels, principally in Portland. But mostly it was folks in the dealerships.

Okay. And then, I am wondering if given the Bob Baker, the delays in closing Bob Baker, is that causing any – I mean, headcount issues in those markets? Or are you seeing any of your competition trying to, you know, steal good salespeople?

Well, there’s always – it’s a war out there for talent, no matter what business you’re in. And we have those same challenges, and so I don’t think we’ve seen any changes.

Okay, great.

And Bob runs a great business. And people like working for him and his dealerships, and that’s not going to change regardless of who has the technical title to the stores.

Okay, great. Thank you.

And we’ll move next to [Diane Keefe] [ph] with [Paxwell Fund] [ph].

Can you talk about the expense management in terms of its relationship to the way these companies were run in the past as privately held companies, in terms of corporate jets and other perks that the senior managers may have had? And like how many corporate jets you currently have, and other sort of luxury items that you have an opportunity to purge from the infrastructure?

Well, we have no corporate jets. All of those went away when the dealership groups, the platforms were originally assembled, and so that was, those legacy items never came forward even when we were a private company.

Okay.

And if a dealer had a particular favorite mode of transportation when he came over and became part of Asbury even as a private company that was his, and as part of the Asbury Automotive Group he had to conform to the policies of Asbury Automotive Group. And so we really don’t have that. And whether it’s jets or chauffeured cars, or things like that, we’re car dealers. And we want to make our money selling cars, and retain some for the shareholders.

Okay, so there’s not a lot of fat left of that sort to remove from the infrastructure?

Well, there really wasn’t any of it, any of that to begin with. It’s really, as Tom indicated, there were a lot of basically people costs. It doesn’t mean there’s nothing else, as he indicated as well, any outside services or some of the other non-people related SG&A. But first things first, we have to deal with the people. That’s ongoing, and we think we can now take some additional costs out, and the outside services, and SG&A. And for those of my CEOs who are listening on the call this should not come as a surprise to you.

Thanks.

If I could interject here for a second. If Rick is still on the phone, the SG&A as a percent of sales, and that’s excluding depreciation and amortization, last year the month of March was 11.9. This year the month of March is 12.3 percent.

And at this time there are no other questions standing by. I’d like to turn the conference back to Mr. Gilman for any additional or closing remarks.

Well, I have none. We’re going to go out there every day, and do what you told you we’re going to do. And we look forward to the next quarter. We’ll be reporting to you again in three months. And so thank you so much.

And this does conclude today’s conference call. We thank you for your participation, and you may disconnect at this time.