Asbury Automotive Group Inc (ABG) 2009 Q4 法說會逐字稿

Good day and welcome to the Asbury Automotive Group fourth-quarter financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to the Treasurer, Mr. Ryan Marsh. Please go ahead, sir.

Thanks, Angel, and good morning to everyone. Welcome to Asbury Automotive Group's fourth-quarter and year-end 2009 earnings call. Today's call is being recorded and will be available for replay later today. As you know, the press release detailing Asbury's fourth-quarter results issued earlier this morning is now posted on our newly updated website at the www.Asburyauto.com.

Participating with us today are Charles Oglesby, our CEO; Craig Monahan, our CFO; and Michael Kearney, our COO. As always, at the conclusion of our remarks, we will open up the call for your questions and I will be available in my office afterwards to address any follow-up questions you might have.

Before we begin, I must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature. All forward-looking statements are subject to significant uncertainties and actual results may differ materially from those suggested by these statements.

For information regarding certain risks that may cause actual results to differ, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2009 which will be filed within the next couple of days and any subsequent filed quarterly reports on Form 10-Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. With that, I would like to hand the call over to Charles.

Thanks, Ryan, and good morning to everyone and thanks for joining us today. 2009 will be remembered as a benchmark year for Asbury, not only for the challenging economic times, but more importantly for profound transformation of our Company. This time last year, we were dealing with severely disrupted financial markets, contemplating the fates of General Motors and Chrysler, reacting to the unprecedented decline in light vehicle SAAR and explaining a going concern opinion from our former auditors.

While navigating our way through the worst recession in decades, Asbury successfully restructured, relocated and reorganized into a leaner, more efficient operation. Today we are encouraged to see a sense of order restored within the credit markets, more stable footing for our manufacturing partners and what appears to be the stabilization of SAAR.

The automotive dealer model has been severely stressed tested over the last year and our results speak volumes to the flexibility and validity of the consolidator-dealer model. As the SAAR literally imploded, we were able to remove a significant amount of fixed cost from the business and benefit from matching our variable selling cost with declining sales.

We successfully managed our new and used inventories to levels appropriate for the current environment. We relocated, restructured and began reengineering the infrastructure of the Company in the midst of the most disruptive automotive retail market in recent memory and completed all of this without touching our credit facilities and increasing our cash balance to $85 million at year-end. I'm truly excited about the improved leverage that our leaner cost structure should capture as sales volumes recover.

The market does seem a little fragile in the first two months of 2010 with retail SAAR off about 9% in January and February off to a slow start. However, this may be due to unfavorable weather conditions impacting many of our stores and the temporary overhang from the Toyota recall campaigns.

I would like to voice Asbury's continued support for our Toyota partner while managing their recall campaigns with our customers and have complete confidence in their and our ability to navigate through this challenging period. For 2010 we will continue to focus on living within our cash flows, paying down debt and positioning the Company for improved earnings growth as sales volumes recover.

The M&A market remains quiet, due mostly to a lingering gap between price expectations of sellers and enhanced price hurdles of buyers. We would potentially entertain a deal if it complements our brand portfolio, fits in one of our existing core markets and offers acceptable risk adjusted returns. And now I would like to turn the call over to Craig.

Thanks, Charles. We are pleased to announce fourth quarter income from continuing operations of $0.15 per diluted share versus a loss in the prior year. Our reported fourth-quarter results were reduced by $0.03 per share by tax charges which increased our reported tax rate from the quarter to 46%.

Going forward, we will continue to plan our business around an effective tax rate of 38 to 40%. Additionally, in the fourth quarter, we incurred a $0.14 per diluted share loss in discontinued operations due primarily to asset impairments of $0.10 per share. We have roughly $18 million of vacant real estate we are actively marketing.

Fourth-quarter 2009 revenues totaled $899 million, grown at over 2% from $888 million in the prior period. The increase in revenues was driven primarily by a 12% increase in used vehicle revenues as well as a modest bump in new vehicle revenues.

We continue to focus on increasing cash flow, enhancing liquidity and adjusting our balance sheet to the current market. In the third quarter 2009, we achieved our targeted $100 million in annual cost savings and are now starting to anniversary these savings in the fourth quarter.

For the full year 2009, our SG&A expenses were $87 million lower than they were in 2008. The majority of the cost savings to date have been achieved by adjusting our business to the current retail environment and the restructuring of our organization. Now, with our leaner organizational structure in place, we are well positioned to deploy best-in-class technology and processes throughout our dealership network to help drive further productivity improvements.

In terms of our infrastructure investments, I would like to provide the following updates. We have completed the consolidation of our our payroll processing and are expanding the scope of this project to include other HR functions such as recruiting, new employee on-boarding and benefits administration.

We are approximately two thirds complete with the conversion of our stores to a common DMS. We are over 50% complete with the conversion of all of our stores to a [common chart of] accounts.

We spent $8 million on CapEx in 2009, well within our $10 million 2009 target. Our CapEx budget for 2010 is $25 million, bringing our CapEx back in line with our depreciation expense.

In 2009 we focused on generating cash and paying down debt to remain in compliance with our financial covenants. As a result, the Company's financial position has strengthened with total available liquidity on December 31 of approximately $243 million, including $85 million of cash and borrowing facility availability of approximately $158 million.

We currently have nothing drawn under either the B of A or JPMorgan facilities and we are currently in compliance with all of our financial covenants. I would also like to highlight the fact that we repurchased $7 million of our convertible notes during the fourth quarter and have no significant debt maturities scheduled until the third quarter of 2012.

Based on our expected operating cash flows, increased cash balances and available liquidity; our 2010 plan includes a more balanced capital allocation strategy. We will focus on deleveraging and reinvesting in our business. In this regard, our board reauthorized us to repurchase up to $30 million of debt over the next 12 months.

In order to better help investors compare our light vehicle performance with that of our competitors, we are providing additional disclosure on our heavy truck operations. Asbury's heavy truck business continued to be adversely impacted by the unfavorable economic conditions particularly in the home building and construction market.

For example, Class VIII truck sales in the United States have declined approximately 40% over the last two years. In the fourth quarter, our new heavy truck revenues declined 33% compared to the prior period.

On a pretax basis, our heavy truck business lost $1.6 million in the fourth quarter, driven primarily by inventory losses. Our heavy truck business generated a pretax loss of $1.8 million in 2009 versus a $3.5 million pretax profit in 2008. We believe our inventory has been appropriately valued for the current heavy truck sales environment.

As you'll note in the tables attached to our press release this morning, we have given additional detail on corporate level F&I activity. Within the tables, you will note that we had a $0.5 million loss in the fourth quarter of 2009 and a $4.8 million gain in the fourth quarter of 2008. The $0.5 million loss and $4.8 million gain related to the wind down of our capital finance portfolio and sale of one of our retro portfolios.

Adjusted for these corporate items, our dealership generated light vehicle F&I PBR was $932 in the fourth quarter of 2009 versus $957 in the prior period. Michael will provide more detail on light vehicle F&I performance.

Considering all the changes we've faced as an industry and as a Company over the last year, we've made great strides in redesigning and creating a leaner infrastructure. As various employees continued to invest tremendous energy and creativity, I couldn't be more appreciative of their hard work and commitment.

Now I'd like to hand the call over to Michael Kearney, our COO, to provide some operational highlights for the quarter.

Thank you, Craig. Since Toyota seems to be top of mind, I would like to spend couple of moments describing what we have seen in our markets with Toyota.

Toyota has always been a terrific partner of ours and I have no doubt that we will be able to work through this recall together in order to provide the service our customers expect and deserve. It is still too early to tell what the impact of the recalls will be with respect to customer defections from Toyota.

We have five Toyota dealerships which represent approximately 10% of our revenues. As of today, 100% of our new and used car inventory have been updated for the various recall requirements and we continue to work with customers as they schedule appointments and drop by for recall work on their vehicles.

Over the near term, we believe the gross revenues generated from this uptick in recall related repairs will offset the loss of new vehicle sales growth. By expanding service hours and reallocating staff, we are prepared to accommodate all of our customers during the recalls.

One of the important benefits we anticipate from these recall campaigns is the added number of opportunities we will have to touch and interact with existing as well as new customers. A special thanks to our Toyota team members for your efforts and your flexibility.

Greg spent some time discussing our heavy truck business. Everything I will be covering with respect to operational highlights will pertain only to our light vehicle retail business. New vehicle unit sales were up 1% in the fourth quarter versus last year while new vehicle revenues were up 4%.

Our average selling prices increased largely due to the stronger luxury vehicle sales including Lexus, Mercedes-Benz, BMW and Infiniti. On a same-store basis, our new vehicle inventory was $351 million at the end of December with our day supply around 63 on a 30-day trailing basis. An improved stocking level combined with a more favorable model mix of new vehicle inventory has enabled us to generate gross margins of 7.4% versus 6.6% last year.

Asbury's used vehicle unit sales were relatively strong with an increase of 7% from the fourth quarter last year. During the quarter, we successfully reduced used vehicle inventory levels while increasing margins to 10.4% from 10% in the same period last year.

By retailing a larger percentage of our used vehicles, we were able to reduce wholesale losses significantly, coming in at around a $200,000 loss in the fourth quarter of 2009. As a result of the strong used vehicle sales and our used vehicle retailing strategy, we ended the quarter with $62 million of used light vehicle inventory or a 36 day supply on a trailing 30 day basis.

At the dealership level, F&I revenues were flat compared to the same period last year. F&I for vehicle retail for the quarter was $932, down 3% year over year due to tighter lending standards, lower advanced rates and the shift away from subprime customers in many of our markets.

Sequentially, F&I PVR has approved 3% from $909 in the third quarter as a result of improving our sales processes, the increased availability of credit for some consumers and the broadening of advanced rates. Charles mentioned the softness in the retail SAAR in January and February.

Consumers have seemed to remain cautious in the service drives as well. Continued caution from consumers combined with higher quality cars and expanded service intervals has resulted in pressure on our customer paid business.

Additionally as the number of units in operation within warranty period declined, we anticipate continued pressure in our warranty business. In the fourth quarter of 2009, our parts and service revenues declined 6% and gross profit declined 3% from the fourth quarter of 2008. Parts and service gross margin for the fourth quarter was 52.8%, up 3% compared to the prior year.

The year-over-year gross profit decline was driven primarily by a 9% reduction in warranty work and a 4% reduction in customer paid work, partially offset by an increase in internal preparation work associated with the increases in vehicle sales volumes. We have several initiatives underway to proactively address our expected decline in units in operation including seven-day service, centralized call center for service reservations, owner loyalty and reward programs, selling prepaid maintenance and F&I as well as in the service lane. expanding our power and wheel sales which have been very successful for us in the past and wheel repair.

Overall, I'm very pleased with our operating performance and would like to extend my gratitude to everyone in the field. Thanks again for your hard work and dedication to our customers. With that, I'll hand the call back to Charles to conclude our prepared remarks. Charles?

Thanks, Michael. Considering our strong portfolio of brands enhanced by a lean, more efficient cost structure; Asbury is well positioned to generate significantly improved earnings as sales volumes increase. And I wanted to thank each of our employees for their incredible dedication during the most disruptive of times. We ask and they delivered. And now I would like to turn the call back to the operator we will be happy to take your questions. Operator?

(Operator Instructions) Rick Nelson, Stephens.

Thanks (inaudible) quarter. I wanted to -- I have a follow-up on the truck business. The losses that you generated in the quarter, I know you had indicated the bulk of that was inventory losses. Do you feel like that is behind you now?

Rick, it's Craig. We do. We feel like we've got our inventories properly valued. It's a business that we feel good about. It generates a tremendous amount of growth in the parts and service lanes. And like the light vehicle business, as this economy starts to turn around, we think this is a business that could do very well.

And of the 1.8 million in losses, how much of that was related to inventory markdowns versus operations?

The vast majority of it was inventory write-downs.

Also I would like to ask you about SG&A, the $87 million year-over-year reduction. How much of that do you view as permanent and is there more cost-cutting coming or is that behind you?

Rick, we're always looking for ways to improve productivity and I would like to answer this kind of maybe in a little different way than we have in the past. And rather than saying what percent is permanent and what percent is variable, we've taken a different look and we're kind of thinking of it this way. We will add cost as our gross profits improve but we think that's going to come in different [ratings], if you would.

So, for example, we think we could add another 5% of gross profit to this business and maybe have two thirds of that flow through to the bottom line. As you start to get beyond that, if you add another 10 or 20% of gross profit, we're then going to have to staff up, hire more people, make more investments. Probably less than 50% of that would flow through to the bottom line.

And obviously if you start to increase growth at much higher levels beyond that, we'd probably have to start adding service bays, making even bigger investments. You would then see further deterioration of what we could get to the bottom line.

I would also like to ask Michael or Charles about the regional areas of strength and weakness. Any commentary on Florida particularly would be helpful.

Rick, this is Michael. Florida as you know still struggles in the housing industry. However in the last 12 months, we have seen a slight but noticeable improvement in the business in Florida.

If you take the cuts that have been made and the reorganization that has been done, the profitability is -- we've seen very nice improvements there. But we do see that that state -- we see some improvements.

Texas has been stable and really the other parts of the country that we're in with the exception of California where we only have one dealership has been stable with some slight improvement throughout the last two quarters particularly.

I would like to ask about the DMS transition and how that is going. I know you mentioned that part of your stores were on the DMS. Are you facing any challenges there?

Rick, we have got so many things going on with respect to our infrastructure builds and our technology buildouts that we've decided that the best thing for us to do right now is take a little time to digest the changes that we have underway. We don't think that's going to be long-term in nature, but there are times when you can try to change too much too fast. We think a breather makes sense.

Rick, just to add a point to that. This is Charles. We have changed so many things last year. We had a lot of balls in the air. And to really evaluate every one of the controls and the changes that we put in, we needed to settle a little bit.

And the organization responded incredibly well to the speed of change that we asked them to do. And so now with some stability in the marketplace, we are able to take a breather and really evaluate everything that is working for us and what we need to alter a little bit and tweak.

So we feel that we've done a great job and particularly the organization as we've got -- as Greg mentioned, two thirds of our organization is in the same DMS now. Complete payroll centralization is done.

So as we have centralized our Company but still [with] decentralized on the operational side in the field, but putting the right communication networks so that we are not decentralized but we feel that way from a communication standpoint and all of that is working very well for us right now. So we just need to take a breather and continue to process everything that we have put on our plate.

Is it still your intent to move to one DMS and --?

Absolutely, there's no question about that. We will absolutely do that.

And the timeline for that?

We would like to have had it all done yesterday but again, we had so much going on that we just needed to take a small break during this time and then at its appropriate time which will be soon, we will be moving forward with it. This is not an indefinite stop at all. It is a planned breather so that our organization can absorb all the changes that we have asked it to make. So we will very soon resume moving towards our single DMS.

Rod Lache, Deutsche Bank.

This is actually Dan in for Rob this morning. Just a couple of questions, if I could. I wanted to ask you about kind of the dynamics in the used industry. We noticed a pretty strong year-over-year pickup in unit sales. But on a sequential basis, gross margins were down. You are not alone. This seemed to happen to all the public retailers. I just wanted to get your take on what's going on with gross margins and how we should be looking at it going forward.

Dan, this is Michael. The sequential drop in our particular case was brought primarily by the fact that we have changed the strategy a little bit in the fourth quarter. We have retailed a larger percentage of our overall used car inventory. Some vehicles that ordinarily would have been wholesale, we elected to retail that product. And with that came a little bit of a decline in the margin.

We continue to evaluate that particular strategy as we go forward, but we still managed to keep a fair amount of margin out there on those vehicles. But that is what brought the sequential decline from the third to the fourth quarter.

Okay, gotcha, thanks. Any color on kind of the used demand? It seems like you maybe sold a broader kind of range of vehicles. Was demand really up in the quarter, do you think? Or was it just because you had more vehicles available for sale?

Dan, the answers -- two answers to that question. We did have more available inventory. As you know, we had a fair amount of inventory at the end of the third quarter of last year, mostly as a result of the activity in August with Cash for Clunkers and the uptick in the retail.

So we did have more available inventory. We also saw a little bit of an uptick in the consumers out there as well as there are a few more players entering the lending market that were out of the market in the first part of '09. And we're seeing a little bit better acceptance of advanced rates, not much but a little bit better there. So I think those three factors combined helped us grow the used car business in the fourth quarter.

Okay, great. On the new vehicle side, how would you characterize your market share performance? The units at -- unit year over year of 1% seemed a little light compared to what we have heard the retail inventory -- retail market was up maybe 5% in the fourth quarter. Is that kind of a Florida effect or just how would you characterize your share of performance?

Dan, this is Michael again. We were pleased overall with our market performance. I will tell you that at the end of the third quarter, again we had very low inventory levels in a number of our large volume brands, particularly Honda and in Lexus. We spent a better part of the fourth quarter rebuilding that inventory.

So we did grow the business a little bit. I think we were a little bit inventory restrained. I think there is a little bit of a Florida market but not too much of that. So I would say we are generally pleased with our market share but that we were hampered a little bit by the reduction in availability of new car inventory, particularly at the beginning of the fourth quarter.

Okay, thanks. Parts and service again, thanks for the kind of color on the split of warranty and customer pay. We are definitely projecting that the pool of kind of one to four-year-old vehicles is obviously going to be down over the next couple of years, understand the warranty effect on that. But what about customer pay? How focused is your customer pay business on newer vehicles?

I'm going to talk a little bit about historical before I let Michael answer that a little more technically. Being in the business as long as I have, I can remember the days when our service departments were strictly warranty shops, period. And what that allowed was independent shops and Quick Lubes, Jiffy Lubes, all of these people to enter the business and take advantage of all the customers out there that needed the simple repairs; again oil changes, tire rotations, whatever it may be.

You could see that as the quality of the product continued to improve and the warranty continued to decline and I think that is a space that we're going to look at in the future as well, is it will continue to decline because of the quality of the vehicles. But the dealer body started to respond and look at the other markets available to them.

There was still a lot of UIOs in the marketplace and we are evolving our model to match the market that is out there. And some of the details that Michael did mention that we are doing now, broadening our product offerings, but we also do price checks on a local basis all the time so that we make sure that we are competitively priced in the marketplace and we are educating our customers to let them know how competitive we are but we are able to bring a higher level of service to them in a number of ways that independent shops can't.

So there is a market out there that we have allowed as retailers to be absorbed by other entities. And so that the opportunity for us to find more customer pay is still there. So with that (inaudible) give you some of the details of the question you had.

Dan, again to follow up with Charles on that, I think there's two pieces to that question. The one piece of that is the consumer issue that that is out there today. We hear it in the lane every day of the week that people are putting off spending as long as they can and we are seeing that particularly in large repairs that those things are being put off. This is a disposable income issue.

That will improve, we believe that to be true. And as I noted, there is also longer service intervals on a lot of vehicles, going from 3,500 miles to 5,000 to even 10,000 between oil changes. So we are aware of that but as Charles said, there are a large number of units in operation.

We are initiating and putting together programs to allow us to expand hours, expand not only the hours in a day but the days of the week that we work and some other programs; some loyalty programs, reward programs, some technology pieces to get our hands around the customer base that we have allowed to go to our non-franchise competitors in the last decade. I don't know whether that answers your question or not.

No, I think it does. It sounds like between the initiatives and kind of the unwind of these -- when people actually make repairs that they have deferred, there should be some offsets there in customer pay. So I appreciate all the color on that.

Just one last one, I promise, kind of housekeeping. We noticed that floor plan as a percentage of new inventory was about 110% in the fourth quarter, up from 100% in the third quarter. Is there anything that happens at the end of the year that would cause that? How should we be looking at that going forward?

It's Craig. We use a lot of our cash from time to time to pay down floor plans and what you've seen here in this movement between the third and fourth quarters is we had a lot less cash tied up in floor plan at year-end. It's one of the reasons that you saw the bump in cash up to $85 million.

Okay, gotcha. So it's more like a 110% type of number is what we should be looking at going forward?

Yes, it's in that range. I would say at year end, most all of our vehicles were [floored].

John Murphy, Bank of America-Merrill Lynch.

A couple questions for you. On inventory levels, it sounds like in aggregate, you are about well balanced, a 63 day supply on the new vehicle side. But there do seem to be from what we are hearing, some shortages of certain vehicles in certain brands. Do you think you're inventoried well enough that there is no inventory constraint on demand or are there pockets or areas where we are seeing some sort of -- some constraint because of a lack of supply?

There are some pockets within our brands where we don't get as many of a particular model mix or even a trim level within that model mix. We have come into a situation where it is more of a pulled inventory. And when something gets hot, there's a lot more pull than availability.

So we do see that, it is not widespread. I don't think it's greatly impacting our business. For the most part, our manufacturing partners react as quickly as they can to that. But I would say as a general statement, there are some small pockets to that but I don't believe it's a substantial issue for us right now.

Okay and maybe a question for all of you and maybe for you, Craig, specifically also though. On SG&A savings, obviously you're talking about $100 million, your capture rate would be reasonably high on that going forward.

Obviously that's helpful on an absolute basis. But is there any reason that SG&A a few years out as demand hopefully recovers could not approach the low 70% range, sort of closer to the best in class where automation has been historically? Or are there any structural issues that would keep you from getting there, do you think?

It's a great question. I think we need to get on an apples-to-apples basis to start when you set these targets. We still rent or lease a lot of our source. If you adjust SG&A for rent and then compare us to AutoNation; you are going to see were much, much closer than it would appear on surface.

How much further can we go over time if SAAR gets back to normal? Maybe I'll make a bold statement. I think there are hundreds of basis point of improvement left and that is what we are after. I can't tell you at what SAAR we see that. But I think with the combination of leverage, infrastructure buildout and further productivity improvements, we still have a lot of opportunity on the table.

John, I think that that's from our perspective, the thing that's the most exciting for us is that all of the work that we basically did last year, we really set the foundation to take advantage of this improvement in the SAAR. We believe that at some point in time, it must come back with scrappage rate, with increased drivers license, overall health of the economy; that we will be able to take a lot more of that money to the bottom line than we would have been able to in the past, particularly with the old structure that we have. So we -- I agree with Craig. I think that we've still got some great opportunity out there.

When you look at your outlook or planning assumptions of [10-5] for the SAAR, is it fair to say that that's more of a conservative planning assumption to run the business as opposed to an outlook? I'm not trying to put words in your mouth right now. Calling the SAAR right now is a very difficult thing to do. We have a tough time doing that, admittedly. Is that more of a planning assumption to run the business as opposed to a real outlook of where the market may or may not go?

Absolutely there, John. We can position ourselves for the downside and take advantage of the upside and that -- we would rather -- we can build up easier than we can tear down again. We feel like we've really put ourselves in position that we can move up the scale quickly as necessary.

Our view, and I've said this before, I think that -- and it will be more loaded once the smile months or the warm months come about. I think that we will see an increase in the SAAR and we're hopeful that it will hit 11.5 for the year. But again, you are exactly right. We are planning our business for 10.5.

Okay and then just lastly, on your experience with your Toyota dealers and your Toyota customers if you will, are you seeing a shift in brand preference and those customers switching across to other brands or do you feel like at least for now, they're just net lost sales that may come back sometime in the future to Toyota or future brands? I'm just trying to understand if consumers are making that brand switch that quickly or it's more of just a net hit to the aggregate market.

I believe, John, that it's more of a hit to the market right now. I think everyone is stunned by the vastness of this unprecedented situation with Toyota. Historically, I've never seen anything like this. And the consumer I think is as we speak can see from our own customer perspective is -- they're just cautious right now and wondering what all this is about.

They certainly are concerned with their lives as we are as well. But I think that it's too early to tell because Toyota has got a lot of great history of quality and they have done a lot of things well. And I think that they have responded in a way that personally I have never seen any manufacturer respond in a market like this under this kind of fire.

They have apologized to the government. They have apologized to the public. They are doing everything that they can and even above and beyond that to try and work on again making sure that people can feel good about what Toyota really stands for. So I think it's too early to tell right now whether or not there will be brand defections or not. In my own opinion, I don't think there will be a great amount of defection from them.

And maybe just lastly, I apologize. On this Toyota issue, what is the mood of the consumer that's coming back into your service base to get these recall fixes put in place in general? I mean obviously they're stressed, but in this experience, I mean are they somewhat comforted by the response and how you as well as Toyota are handling this?

John, this is Michael. You know, they're not as stressed as I think people might lead you to believe. We have had great experience with customers and our consumers. Some of them are making appointments, we handle it very quickly for them. Some of them drop by, we fix it for them.

It's actually been as a pleasant of an experience for them as you can under the circumstances. We have not seen any major issues at all in the lanes. For the most part, they're very appreciative that we have enhanced our service hours and our days to accommodate them and get their car fixed and go on their way.

Derrick Wenger, Jefferies & Co.

Yes, just some detail because the balance sheet not really published here. The size of the bank facility, the availability on that revolver and the letter of credit [strong against it?

The LCs at year end -- this is Ryan, the Treasurer -- the LCs at year end were $11.4 million and based -- and then netted against our borrowing base availability on the JPMorgan and B of A facilities, we have $158 million of availability.

What's the size of the overall facility?

The overall facility at the B of A is $150 million and the JPMorgan are $50 million facilities.

$150 million and $50 million?

That's correct, so $200 million net.

Okay, great. Thank you.

We have time for one more question.

Christian Buss, Thomas Weisel.

You have a lot of balls in the air with respect to your centralization initiatives. Can you help us understand the priorities there in 2010?

Yes, we've -- this is Craig. I'll jump in and take the first shot but we are all working on this. I think we need to put it in perspective.

18 months ago, this business was run really as six independent regional operations. We have eliminated those regional offices and are now consolidating the work that was done there into our headquarters here just outside of Atlanta.

That work I would say is 85% done. We have at this point collapsed all of our payroll operations here into the loop. Getting the common DMS done this year is a very -- I would say is number one on the priority list.

We're also working to automate a lot of reconciliation processes, whether they be bank recs. We're using automated processes now on our floor plan recs, inventory recs. We are making some technology investments where we're trying to move to more of a paperless work environment.

I would tell you today for example, all of our CapEx is approved electronically and goes through an electronic process. We are working to get a standard CRM system in across the country. We're doing a lot of work on the Web side and expanding our Web initiatives. We are stepping up with our Web team. We are starting to do customer surveys to understand how we should continue to build out our technology infrastructure.

When Ryan kicked off the call today, you see we have a new corporate Website. We're working on our store level Websites as well. So I didn't give you a priority list; one, two, three, four. But I think that gives you a sense of where we are trying to go the next as we continue to build on our infrastructure and streamline the Company.

This is -- and those (inaudible) that list that Craig mentioned is exactly why we're so excited about the future. Because those these are opportunities that we had not been able to take advantage of in the past because of the structure we have.

So with all of these changes, the key for us as we understand how important people are in this industry because this is very much a people industry, that we keep our business operators or our general managers so that they are what we say decentralize because what we are looking for them to do is be the great leaders in their communities, in their organizations, with their employees so that the inspiration still happens.

This business still happens one-on-one, with the customer and with our employee whether they enter the portal through the Internet which is continuing to grow, and we are excited about that as well, or whether they come in as foot traffic. So that general manager is key and that is a process that although we can build a structure around them to help them be even more efficient and create more productivity gains, but it cannot be centralized because it is still a personal business in each one of our operations.

So that's why we believe we've got exactly the right balance between centralization and allowing our business operators to have the autonomy that they need to operate in their local markets with all of the support from the technology and productivity gains we can get to them.

Thank you very much.

With that, we thank everyone for joining us today and we are really looking forward to this year. It is going to be a little different year for us than last year, but every bit as exciting. So we look forward to speaking to you at our next quarterly earnings call. Thank you.

Thank you for your participation in today's conference. As a reminder, there will be a replay available for this conference beginning later this afternoon through March 4, 2010.

You may access the replay by dialing 888-203-1112 or 719-457-0820 and entering the replay passcode of 760-9047 followed by the pound key (Operator Instructions). Once again, thank you for participation in today's conference. Have a great day.