AutoNation Inc (AN) 2006 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the Autonation's second quarter 2006 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, where instructions will be given at that time. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to Autonation.

I'd like to remind you that this call is being recorded and will be available for replay at 1-800-475-6701 access code 836187 after 2:30 p.m. eastern time today through August 8th, 2006. Leading our call today will be Mike Jackson Chairman and Chief Executive Officer of Autonation. Joining him will be Mike Maroone, President and Chief Operating Officer; and Craig Monaghan, our Chief Financial Officer. At the end of their remarks we'll open this call to questions. I'll also be available by phone to address any follow-up issues. Before we begin let me read our brief statement regarding forward-looking comments and the use of non-GAAP financial measures. Certain statements and information on this call will constitute forward-looking statements within the meaning of the Federal Private Security Litigation Reform Act of 1995. Such forward-looking statements involve risks which may cause the actual results or performance to differ materially from expectations. Additionally, discussions of factors that could cause actual results to differ materially are contained in the Company's SEC filings. Certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, the Company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on the Investor Relations section of Autonation's website at www.autonation.com. And now, I'll turn the call over to Autonation's Chairman and Chief Executive Officer Mike Jackson.

John, thank you and good morning. Today we reported second quarter earnings from continuing operations of $0.33 per share. Excluding the $0.09 per share one time impact of the Company's recent recapitalization, second quarter adjusted EPS from continuing operations was $0.42 up 5% from the prior year. In addition during the second quarter we faced the headwinds of rising interest rates which cost us $0.03 per share in incremental floor plan interest expense and we incurred $0.01 per share expense from the new stock option accounting standard. We achieved record second quarter operating income of 213 million on revenues of five million which increased 1%. While the second quarter was a challenging economic environment for new vehicle sales, we were pleased with a strong growth in our premium luxury new vehicle business of 18%, our high margin parts and service business of 4%, used vehicles at 7% and finance and insurance up 8%. Now Craig will provide you details on the financials and Mike will follow with comments on the operating results.

Thank you Mike. As Mike mentioned we reported record second quarter operating income of 213 million and excluding the $0.09 impact of debt repurchases adjusted EPS from continuing operations of $0.42 per share versus $0.40 a year-ago. Q2, 2006 results also include $0.01 per share stock option compensation expense related to the Company's adoption of the new accounting standard. This is the primary driver of our increase in SG&A as a percent of gross profit. We expect to record similar amounts in future quarters.

Other financial items of note in the second quarter include the following; rising floor plan interest rates, net of OEM assistance cost us $10 million versus Q2 a year-ago. While the year-over-year negative impact may diminish in 2007 as interest rates level out, we expect to continue to have net floor plan cost and unfavorable comparisons to prior year during the back half of 2006. For Q2 we had an effective tax rate of 38.4% versus Q2, 2005 effective rate of 36.6%. The rate last year benefited from some adjustments for the resolution of various tax matter matters. Year to date, our effective tax rate is 39.2% and we expect ongoing rate to be in the mid 39% range. Results for discontinued operations for Q2 were nominal compared to Q2 last year's net income of $0.33 per share. Last year's income from discontinued operations included $0.36 per share in benefits from the resolution of various tax matters.

As for our capital structure, during April we successfully completed our tender offers for 50 million shares of stock with substantially all of our outstanding 9% senior unsecured notes. We financed these transactions with 1.3 billion in new debt and available cash. At the end of June, our non-vehicle debt was 1.5 billion and we had unused revolving credit Capacity of approximately $450 million. Our non-vehicle debt to capital ratio stands at 29%. We are targeting 2006 capital expenders -- capital expenditures of approximately 130 million, excluding any acquisition-related spending or release buyouts. As you know we view acquisitions and share repurchases opportunistically and anticipate full year 2006 combined spending on both in the range of 300 to 400 million excluding the recent equity tender offer. Now let me turn you over to President and Chief Operating Officer, Mike Maroone.

Thanks Craig and good morning. My comments will be on a same store basis unless noted otherwise. The industry new vehicle environment was challenging in the quarter with retail new vehicle sales off 7% compared to a year ago. Given this, we are pleased with our second quarter performance were with a 2% decline in total new and used unit volume we delivered a 3% improvement in same store gross profit dollars on revenue that was flat year-over-year. Our new vehicle revenue, for total stores was 39% domestic, 39% import and the 22% premium luxury. In 1999 almost two thirds of the store profit came from domestics. Today in 2006, over two thirds of the store profit comes from imports and premium luxury illustrating our ongoing efforts to shift to a more favorable brand mix. In the quarter we also reported solid growth in our parts service and collision business and our finance and insurance business. I'll begin with new vehicles and comment briefly on our second quarter performance in each area of the business.

AutoNation generated second quarter same store new vehicle revenue of nearly $3 billion on 99,000 new vehicles retailed both off 3% compared to the period a year ago. Year-over-year, our new vehicle gross profit per vehicle retailed increased $45 to $2,146 and gross profit as a percent of revenue increased 10 basis points to 7.3 %. At June 30th new vehicle inventory stood at 61 days. The comp is 11 days higher than the period a year ago when the sales rates spiked due to more aggressive incentive programs in the marketplace including General Motors introduction of employee pricing.

Turning to used vehicles, on a same store basis second quarter retail revenue was up 6% to 958 million on the sale of 59,000 used units. In the quarter retail used vehicle gross profit of 105 million in gross profit per vehicle retailed of $1,769 both declined 1% compared to the period a year ago. Retail used vehicle gross profit as a percent of revenue at 11% was off 70 basis points compared to the period a year ago. Even with the overall industry retail numbers down 7 %, in the quarter, in the markets we do business in, outperformed the industry for the brands we represent. We noted market growth in south Florida, Las Vegas, Memphis and Houston and market softness in Chicago, Atlanta and Seattle versus the comparable period a year ago. Our parts, service and collision team drove gains in all aspects of the business. Same store parts, service and collision revenue of 662 million and gross profit of 293 million increased 3% and 4% respectively compared to the period a year ago. And gross profit as a percent of revenue increased 50 basis points due to a slight shift of business towards service year-over-year. Our continued focus on cultivating customer pay business resulted in a 5% increase in this segment for the quarter.

Turning to finance and insurance, same store revenue in the quarter increased 8% to 171 million compared to the period a year ago. Gross profit per vehicle retailed of $1,079 was an increase of $100 per vehicle and a record for us. We attribute our ongoing solid results to our fully transparent process supported by intensive training and our preferred lender relationships that continue to strengthen and provide significant incremental gross profit. In April we introduced Smart Choice in our south Florida stores and the early results are extremely positive. Customers appreciate our innovative approach to the sales process that puts them in control. Through a computer generated sales menu, Smart Choice provides customers with everything they need to know to make an intelligent purchase decision all on one piece of paper. The menu includes the purchase price, trade in value, several finance and lease options with multiple terms and payments along with full disclosure of all taxes and fees. Smart Choice also delivers a shortened transaction time which figures prominently in our customer research as an important factor in driving a superior buying experience. We plan to roll out Smart Choice in all of our the stores in over the next 12 to15 months and or look forward to offering all of our customers an enhanced buying experience.

In closing, we are very pleased with the results of our high margin parts, service, collision, and finance and insurance businesses. This per -- this performance coupled with our continued efforts at managing store level expense and our balance store profit brand contribution between luxury, import, and domestic cont4ributed to solid results in the quarter. With that I'll turn the call back to Mike Jackson.

Thanks Mike. As we look to the balance of '06 we believe that the market will remain very competitive and challenging especially at retail. However we do believe in '06 the industry will be high 16 million, if not 17 million units for the eighth year in a row. As we announced in the press release this morning, Craig Monaghan, our CFO will be leaving August 1, 2006. Craig has been a highly valued member of our Executive Team since joining AutoNation in 2000, and we are excited for the great career opportunity Craig will be pursuing at Sears. Craig, thank you on the behalf of the entire AutoNation Team for you reference.

Thank you Mike. Over the last six years I have enjoyed my time here at AutoNation and am proud of my record of financial transparency and our strong balance sheet. I have grown and developed professionally during this time as CFO, allowing me to be positioned to meet the challenges that lie ahead at Sears. I want to thank Mike, Mike, John, and my entire team for the support they have provided.

Thank you Craig. Finally we look forward to Alex McAllister , our Vice President and Corporate Controller [assuming] the position of interim CFO. Alex will be a great asset during this period.

Thank you Mike. I look forward to this opportunity and am fully committed to serving the Company through year end. At December 31st, I will retire from AutoNation and in fact corporate accounting. I've always wanted to do something entrepreneurial and next year will be the right time with my family moving back closer to our roots in Michigan. AutoNation is a tremendous Company and I look forward to a smooth transition with a new CFO.

That concludes our remarks. Operator, please open the call to questions.

[OPERATOR INSTRUCTIONS] John Murphy, Merrill Lynch

Good morning guys.

Good morning John.

A question on the incentive activity out there you are seeing, there is clearly pockets of excess inventory and maybe some even excess 2006 models still floating around on -- on -- on your -- on everybod -- on dealer lots in general. I was just wondering what -- what you are seeing, you have been watching this industry for a long time, is this typical incentive activity at this time of the year for clearouts, or is it something a little bit more ominous?

John, this is Mike Jackson. I'll talk first then Mike will get into the details. Obviously the issue is with the traditional Detroit three. My sense is that inventories are even higher than last year, but incentives are lower which means it is going to take more time to sell off model year '06 and we can't really commit to major model year '07 purchases until we know exactly when we are going to clear the '06. So, on the one hand we are going to avoid the tremendous peak and crash and burn of last year, but the inventory challenge for the '06 we remains and whether the incentives in place will be enough to clear it in an orderly manner to ramp up for '07s is unclear at this . Mike, would you like to add something?

I think that covers it. There is certainly the excess supply in the domestic side. The only incentive program that's really moved the customer was the short term GM incentive. I do see the July business a little bit stronger than the June business but certainly nowhere near the levels we hit last year and I think everyone anticipated that.

Okay. So you think we're probably going to be muddling through these -- these '06s 340D ling through these '. maybe longer than we have, particularly last -- versus last year.

Absolutely versus last year.

But where we have been normally?

And maybe even normally.

Okay. Then just [digging] a look at -- or thinking about the acquisition market, I mean you guys are clearly pretty mature the here as far as your size and are not too aggressive on acquisitions. But as the market seems to be softened -- or I expect it to soften as rates start cranking up and real estate values come back to earth, I mean do you think there might be some more opportunities to get a little bit more aggressive on the acquisition front as multiples might pull in in the next 6, 12, 18 months out there?

John, that's exactly why we sat out the second half of -- of '94 -- '04 and most of '05. Because all you had to do was -- the [inaudible] is going to keep raising rates until the market screams uncle and that's going to have an impact on real estate values and a real -- and on multiples. And we're seeing much more reasonable discussions today and I think the opportunities will be there second half of this year going into '07.

Okay. And then one last question on -- on Smart Choice, I mean it sounds like a great product. What's the cost of implementation? How quick is the payback? And I know it's tough to quantify, but how much could it help your margins? Or where do you really see it helping you?

John, it's Mike Maroone. The cost to the implementation is really in the training component. And it's -- it's not a significant amount of money. We have a training infrastructure in the Company. The software is there. We've -- we -- we have begun to -- or beginning to roll out Smart Choice. I don't know that it's going to be a significant enhancement to operating margins, but I do believe long term we're going to have a better customer experience and I think the payoff can be an owner loyalty in a long term basis. It is clearly addressing the needs of the customer, and that's for transparency for Choice and for a faster transaction. And, again as I said earlier in the call our earlier results in south Florida were positive. We took modest amounts of share. But the research we did was very positive in terms of how customers understood it and how they appreciated what we were trying to get accomplished.

So you think it'll just be -- it'll -- on the margin it will help you close ups? Is that really -- ?

Yes. I think it helps us -- I think it will help our closing rates. I think it'll help our customer satisfaction and I think it is a good thing for our business.

Great. Thank you very much.

Rick Nelson Stephens, Inc.

Thank you. Good morning.

Good good morning Rick.

A question on SG&A. WE did see a little bit of a back up as a percent of gross [have realized options] and the numbers this year, they were not last year. What -- what is causing that rise?

Rick, it is Craig, it's -- it's almost entirely attributable to the option expense. Actually we feel like we are doing a pretty good job on managing our cost right now.

So would you have leveraged X options?

We would have been pretty much flat. In an environment though where we see rising costs because of fuel prices, we see some pressure on taxes, et cetera, despite that we have held or cost very much flat.

Okay. Inventory data supplies 61 days, do you have a break down of domestic and foreign and how you feel about the overall inventory levels at this point?

The in -- the obviously -- the domestic inventories are quite high. If you -- if you figure them on retail sales, Rick, I would say that the Detroit three are well over 100. We've managed our inventory to a lesser number than that. I would say our increase in day supply overall was due to the June business where the sales component was certainly on the softer side. June was a softer month than the other months in the quarter and I think impacts that calculation. We're satisfied our inventories are in good shape but I certainly would say I think the whole industry wishes there was less domestic supply right now.

Okay. And then on the acquisition, [inaudible] just the follow up, the evaluations, especially on the import and the premium brands, are we seeing any upward price pressure there given the demand from you and your peers for those types of dealers?

They remain very attractive assets and as such are clearly going to have a price premium over the domestics, however, what we are seeing is what John referred earlier, that due to rising rates and the economic stress that's out there, there are a lot -- the supply demand equation is changing. So we'll have to see what that finally leads to. There are a lot more deals on the market today with a lot more flexibility than there was a year ago.

Good. Thanks. Craig, I look forward to seeing you in Chicago soon.

Thank you, Rick.

Matt Nemer Thomas Weisel Partners

Good morning everyone.

Good morning.

First question is on inventory. Mike Jackson, thanks for being candid on inventory over the last few quarters. I'm wondering, if you look at the rate, the interest rate picture year-over-year Xing or out the employee discounts last year, is it your feeling that inventory should -- should be -- it seems to me like it should be actually meaningfully lower after you look at the floor plan per vehicle expense even net of assistance.

I'm not sure I have -- what is the question?

Question is, do you feel like inventories should be flat year-over-year or do you think that given the interest rate picture, they should be down?

Oh, they should be down. There is no question. You know, I think as an industry -- to produce in such a manner that model year change over every year we carry these huge inventories into distress selling closeout periods is a mistake. And we should have a much more orderly transition. I mean, what other industry in the world is accepting as benchmark's traditional inventory levels that are 50 years old? There has to be a more efficient way to do this. With the technology and the information systems that is exist today, there has to be a more intelligent way to run inventories more efficiently and I think everyone would be better served. Consumers, retailers and manufacturers.

And can you give us any detail on -- on what you can do about that in the back half, in terms of your ordering policies?

Well, we are very -- as I indicated, we are very -- we have -- we have not placed any meaningful order for '07s with the domestics at this point. Mike, is that correct statement?

Yes, other than the new models and maybe a couple of pockets but we are -- we are very conservative on our '07 start up. And I think if we look historically back to the last several years the start up as been significantly impacted for reasons that Mike just laid out. There is too much prior year inventory and because of the distress selling environment and the high incentives it creates too big of a price jump for consumers.

So whats happening is it has gotten so out of whack, that if you start buying '07's at this point and they arrive, they are basically sales proof, because of the discounting on the '06s. To liquidate them becomes so extreme. If you go back five years ago, it wasn't that extreme, it was more orderly. So you really have to sit back and not the order '07s until you really know exactly how and when the final '06s are gone. And at this point we can't f -- we can't figure out exactly when that is going to be.

Okay. And then lastly, Craig congratulations on the move to Sears. I'm wondering how far the Company is along in -- in the replacement search process?

That's just starting. Craig approached me not too long ago listing all his quite significant accomplishments in our six years here together at Autonation and saying that he was really looking for a new challenge and an opportunity. And of course, I understood that, informed the Board and we didn't have to go much past the Board to find a new opportunity for Craig, so we whole heartedly support and congratulate him on that. We are literally just starting the search today. Mr McAllister was certainly qualified to become CFO for the Company, but to accept that on something beyond an interim basis would have required a long term commitment. He personally made the decision to pursue something entrepreneurial which would not allow him to make a long term commitment. And in traditional AutoNation style, we just decided put all that out on the table today.

Great. Thanks very much.

What I would say finally, I think it is a very attractive position. I think attracting someone to come join a company like AutoNation, sitting here in Fort Lauderdale, Florida, particularly considering some of the talent that may be available in the auto industry, I'm quite confident we'll find on outstanding CFO.

Edward Yruma, JPMorgan

Hi. Thank you very much for take my question and Craig, best wishes on your new adventure, hopefully you'll be as successful there as you were here. I wanted to ask a couple quick questions regarding the progress on the shared services initiative. I know that's a key driver behind your 100 basis points in operating expense leverage goal longer term. Where do you stand right now and what successes and failures have you seen to date?

That's a great question. On the successes and failure, I'll start there. When we -- as we're building out our shared service center, it -- it's really a much larger undertaking because it requires a basic infrastructure to be put in place. So let mew start with the fundamentals. About three quarters of our stores today are operating on a common operating system, which for us is our dealer operating management system. So we have about three quarters of the stores on ADP and we hope to get the rest of the stores on the ADP by the middle of next year. With that foundation, and you have to have that foundation before you can move stores into the shared service center environment. We have about half of our revenue operating in the shared service center environment today and we put about five stores in per month. That's just a very steady pace that we roll against. We are working in California right now to roll those stores in. We also have all of our California payroll operations being handled out of our Dallas shared service center. We do all of our IT security; desktop, and our DMS systems out of our Dallas service center. So there are quite a few things being done there. We feel like we have very good engineering and design. But to get this completely done in -- is -- is going to be a continuing endeavor. There is still a lot of work to do. But I feel like we are well on our way.

I would describe it as Mike Jackson said, the running operating, savings are being consumed with the one time implementation cost. But hopefully the implementation cost will fall away and then you're on a lower operating basis. That's a several year process.

Great. One follow -up question. You've definitely shown some nice strength in your -- in your gross per -- per new vehicle retailed and also your F&I numbers. How sustainable are those trends given kind of the [glut] of inventory that you're seeing and kind of uncertain demand trends? Thank you.

I think we really met that challenge for the past two years. When we saw the trend on front end growth was going to wrong way, we knew that was not sustainable. And really have worked hard on our inventory mix and our inventory levels to manage that front end growth. So I think -- I think we have the discipline today to continue to be able to manage that challenge.

If I could add, on the F&I side we have made a real significant jump and almost all of that is coming from our preferred lender network, where we continue to leverage or size and scale and our driving significant amounts of business through that network and it is really benefiting the Company.

Great. Thank you very much.

Rod Lache, Deutsche Bank

Good morning everybody.

Good morning.

I have a few questions. First, can you just explain the dynamic in the floor plan assistance? Why is the floor plan assistance flat when the inventories are up and obviously the interest rates are up?

We get assistance that is fixed on a per car basis.

Okay.

One's different in the industry, Rod. It once floated, it no longer floats for the most part, I think with the exception of one manufacturer.

Okay but wouldn't more units -- wouldn't more units raise the floor plan assistance or no?

If we retailed we'd recognize it upon retail. So if we retailed more units there would be more assistance.

Okay. Right. Can you talk a little bit about -- just -- the -- either you are seeing the strengths in used versus the weakness in new, what's behind that and would you expect the grosses on the new to come under more pressure just given the inventory situation in the industry right now?

It's Mike Maroone. I think Mike Jackson answered the new vehicle margin question, but I really -- it -- we have been able to stabilize and improve our new vehicle margins really due to the hard work we've done on getting the right mix in the new vehicle inventory. We put a lot more effort into what we call core models and core brands and I think it has allowed us to -- to withstand if pressure from oversupply. On the used vehicle supply, the market, I would say is stable. It -- it's a decent market, there's always as shortage of good quality, low priced used vehicles. But there's certainly some growth in the certified pre-owned segment. And all in all I would say the used vehicle market's stable.

Okay. Can -- can you just give us you're -- how do you compare -- how do you think you compared versus the overall retail market . in the quarter?

On the new vehicle side the overall vehicle market was off seven we were off three. In the used vehicle, I don't have good transparency into how the overall responded. We -- we do get information but it's -- there's a little bit of a lag.

Okay. And -- this uptick on the F&I, there's been this process sort of -- my impression is it's kind of a linear process of increasing the transparency in -- in the AutoNation stores and pushing that. But it was a pretty significant uptick, is there anything unusual about what we saw this quarter?

We have total transparency through all our stores today. We tell the consumer that the rate is negotiable. We tell the consumer that we are making a margin on the rate. We tell the consumer they do not have to buy any product to get that rate. And that they can get their financing somewhere else if they like. So it works extremely well. But the improvement, and Mike will go into detail, comes from bringing the lower tier stores up to the performance of the better stores.

We put training infrastructure in place in every one of our regions. There's continuous training. We've certified our F&I professionals and certainly focus, as Mike said, on narrow -- narrowing the bandwidth. So our top stores are performing at a very elite level and we're looking to push everyone else up to that level. And I think we made a lot of progress. But the preferred lender network has -- has really been a good thing for us. We -- it's just a great way to -- to utilize our size and scale.

Great. Thank you.

Jonathan Steinmetz, Morgan Stanley

Great thanks. Good morning everyone.

Good morning Jonathan.

few questions. It looked like on a comp store basis the used gross per vehicle retail ticked down a little bit even though the revenue per unit went up pretty substantially. Can yo just talk about what's happening there? Are you seeing any manifestation of some of the weakening in large SUV values and that kind of thing?

Jonathan, it's Mike Maroone. Certainly there is softness in the big SUV's, a little bit of softness in the pick up truck market. We were able to hold our volume but as -- as we went to a little bit richer mix from the CPO's, from the heavier trucks, we are unable to push the gross-margin. So I don't think it is alarming. On a PBR basis we were off very small amounts but certainly as a percent of revenue, we took a little bit of a hit.

Okay and Mike Jackson, I thought I saw a press interview, or at least some quotes from a press interview with you talking about California being down 14% year-over-year. But I didn't see it noted as one of the weaker areas. Is it just because the other three your mentioned were weaker, or what's going on there?

That was a response to a question as to how the overall consumer is behaving considering higher interest rates and gasoline prices. And what I was saying is, I think the key driver, as far as impacting consumers at this point is the steady increase in interest rates and the secondary punch is gasoline prices and their impact on the consumer. Certainly, if you look at California, where you have a significantly higher percentage of mortgages who are interest only and variable, and these rate increases keep toppling in one on top of another, in the month of June, retail in California was down 14 %. So that's sort of like the cutting edge of where we see this interest rate impact on the behavior of the consumer.

Okay. And not to [belabor] the whole F&I thing, but a couple times you mentioned preferred lender network. Was there greater penetration? Are you getting greater fees there? Is that part of why this number picked up?

I think it is both. Both our penetration has been improving. We are continuing to renegotiate our deals. We also have benefited from our warrantee participation with the dom -- with our manufacturer partners. We sell all of the manufacturer warranties and get rewarded for positive experience.

Okay. And last question. Mike Jackson, now that the Smart brand announcement is out with UAG, I mean, you guys, given your footprint and Mike, given your background it would have seemed at least logical to be in the mix. Can you talk about whether you were involved there, was there some reason why you didn't go more aggressive on that, or just -- just what happened there?

First, I think there is a market for Smart in the U.S. Perhaps 20 to 25,000. Now whether there is a business case for Smart, that's a another question entirely. I would say Rodger's a better guy than I to take on that challenge.

Very diplomatic. Alright thanks guys. And Craig, good luck in the new job.

Thank you much.

David Lim, Wachovia Securities

Hi. This is David Lim for Rich. Just a quick question we wanted to ask about the new vehicle software specifically related to, I think it's Trilogy? Where are you guys -- where are you guys on that?

It's Mike Maroone. We have been involved with Trilogy for many, many months. We like their demand sensing capabilities. We've worked with them with two or three manufacturers and we like the results we've gotten thus far. It's still early, but we are certainly interested in using their software and feel good that their demand sensing capables can help us get better mix and better -- and more efficiently manage our inventories.

And on the F&I front with the increase on the PVR, are you guys lending to more, possibly more sub-prime customers, or how is that all working out for you guys?

Well, sub-prime mix generally doesn't add to our F&I. In many cases it tax way. Those are cheaper cars and a different kind of commission structure. So I would reiterate that it's really from the preferred lender network along with positive experience in our warrantee performance with our manufacture partners.

Great. That's all I have. Thank you very much.

Mike [Quehagen]

Good morning.

Good morning, Mike.

On the used market, I guess I can understand the revenue per unit growing on CPO gross, but, is it still a goal to pursue the lower end of the market? Is there still a lot of opportunity to -- in that -- in that lower segment? And if so, should I expect to see -- see revenue per unit decline in the used segment going forward?

It's Mike Maroone. We're always trying to create -- and I just want to say create, trade for low priced used. With the industry volume off a little bit it is difficult to find those units. You can't buy those units at auction. So I think when the retail sales perk up, I think you'll see us have a higher quantity of the cheaper used and could drive the transaction prices down. But in a -- in a retail business that's off 7%, I think you can expect to see a richer mix of used.

The other factor is our growth of premium luxury and our retail used operations at our premium luxury stores, the price point is higher. The gross profit per unit is higher but the percentage is lower. So that is also a factor. We have time for one more question.

If I could follow up with a quick one -- a quick one. How -- how much of the Detroit the three mix -- it looked like it declined [508 - 90] basis points there. How much of that would the industry versus your ongoing efforts to shift your mix?

I think it's about one third of our efforts to shift the mix, or is the other way around Craig, which is it? We did this calculation?

I can't recall last time we did it.

I think it is one third our -- our divestiture acquisition strategy and two thirds the industry trend.

Okay. Thank you.

One more question.

[Jeff Colder], JP Morgan

Fire away Jeff All right thank you everyone. Appreciate your joining us today. All the best Craig.

Thank you.

Ladies and gentlemen this concludes today's program. You may all disconnect.