Lithia Motors Inc (LAD) 2002 Q2 法說會逐字稿

Ladies and gentlemen, thank you for your patience and please remain own the line. Should you experience any audio difficulty you may press star 0 and an operator will assist you. Once again ladies and gentlemen we do thank you 4 your patience. Your Lithia Motors teleconference will begin in a few moments. Thank you.

Good afternoon. This is the second quarter earnings material of teleconference. On in listen-only mode and the floor will be open for your questions and comments following the presentation. Before we begin the company wants you to know that this conference call includes forward-looking statements. These statements are necessarily subject to risk and uncertainty and actual results could differ materially due to risks - certain risk factors. These risk factors are included in today's press release and in the company's filings with the SEC. Now I would like to turn the floor over to Sid DeBoer, Chief Executive Officer of Lithia.

Thank you, everyone. Good morning. Thank you for joining us and this is our 2002 2nd quarter conference call. With me today are Jeff DeBoer, our senior vice-president and CFO, and Brian DeBoer our senior vice-president of operations, mergers and acquisitions. We are very pleased with our second quarter 2002 earnings results. For the second quarter net income increased 56. Percent to almost 8 million dollars and earnings per share increased 16 percent to 43 cents on 34 percent more diluted shares outstanding. For the 6 month period net income rows 81 percent to 14.3 million and earnings per share increased 85 cents on 23 more diluted shares outstanding again. These figures demonstrate is well on its way to double digit earnings growth for 2002. This quarter we achieved record second quarter sales of 584 million an increase of 26 percent over the same period last year. New vehicles sales increasing the 25 percent, used vehicle sales, 30 percent, parts and service were up 21 percent, and finance and insurance income increased 25 percent. For the first 6 months we posted record sales of 1.1 billion an increase of 26 percent from last year. Going down the income statement for the quarter, we saw gross margin of 15.9 percent. This is I highest gross margin in the sector. At the low end of our forecasted range as the mix shifted the toward the lower margin new vehicles than we had forecasted. SG and A came in better than our forecasted range for the quarter at 12.6 percent. This was better than the quarter last year and thirties basis point improvement sequentially from the first quarter. We are seeing some leverage on the infrastructure we are putting in operation, computer systems and our operating integration teams which are crate call tools for imposing operations in all of our stores. Would he currently very well operational items in place that are capable of integrating two stores a month while still supporting our exists stores. The net effect of a better than expected SG and A to bring the operating margin in at the top ends of our range the 3 percent of sales. I would like to note at this point the second quarter we incurred unexpected workers' compensation claims in the amounts of 1 million dollar: Excluding these claims Lithia's SG and A would have been 12.4 percent and the operating margin would have been 3.two percent. Earnings per share would have been 46 cents or three cents higher than we reported: Cash flow figures were that very strong for the first half of this year. EBITDA for the 6 month period was 35.2 million versus 30.2 million a year ago. Knelt cash from operating activities improved 15 percent to 23.9 million from 20.7 million for the same period last year. Cash flow per share measured as net income was a dollar 6 cents per share. Cash flow per share was 25 percent higher than the earnings per share for the first half of the year. These numbers attest to how Lithia's auto to retailing model continues to again rate table and growing cash flow. Currently our sales mix by state including all acquisitions is Oregon, with 18 percent of sales, this is on a pro forma basis, on an analyze the basis. Oregon with 18 percent of sales, California 18 percent, Washington 17 percent, Colorado 12 percent, Idaho 8, Texas 13, Nevada 5, Nebraska 3, and Alaska 2. We've added the states of Texas and Nebraska since the same period last year and expect to city these states comprise more of the mix as they going forward. Finally, totally retail sales for the quarter were positive at .2 percent. This was better than or guidance of a 2 to 5 percent decline. Nationally new vehicle sales declined almost 2 percent in the second quarter while Lithia came I believe at a positive 3.1 percent. Total same store retail sales growth for the 6 month period came at a positive 6 percent. New vehicle same store sales were up 2.9 percent at Lithia compared to an in instrument industry decline in the same period. This marks 3 straight quarters of positive total and new vehicle same stores sales growth for Lithia and this is the second quarter in a row whore we've outperformed the national numbers. For the quarter interesting, Alaska, Northern California and Oregon performed the best followed by quash ton and Idaho, Nevada, south Dakota and Colorado with the weakest markets in the second quarter of the year. That's Nevada, south Dakota and Colorado with the weak oath. It's interesting that some of our best performs coming from states that have the worst economic conditions like Northern California and Oregon. Our combined business is in Oregon and Northern California which currently represent about half of our business from our same store sales B half 6 our same store sales has remained very strong with same store sales up 12 percent this quarter on top of a 14 percent increase in the first quarter. So, Lithia has now been able to grow EPS, improve and operate stories name dip economic environments and points to the strength of our operating model. The amazing thing about these numbers with your largely selling mass market domestic lines and buying integrating underperforming stores that are substantially below our internal operating averages when purchased yet still producing good margins and operating results. Lithia is building its business store by store. Brick by brick as it were. I'll turn things over to Jeff, our CFO. He will provide you with some more details on the are quarterly results. Jeff.

Good afternoon to those of you on the east coast. Would I like to give you a breakdown on the quarterly revenue numbers, Sid talked about. Our total sales for the quarter with 584 million which is 26 percent higher than the prior year period. The contribution top gross profit by business line this quarter was 27 percent new vehicles, 20 percent used vehicles, 29 percent service and parts, and 24 percent finance and insurance. You'll notice that 73 percent of our gross profit is from nonnew vehicle business line. For the same period last year the contribution to gross profits. 20 percent used, 29 percent service and parts and 23 percent F and I. 72 percent of our gross margin for this period was from nonnew vehicle lines. The gross margin byproduct line in the second quarter as compared to the same period last year for new vehicles was 8.5 percent, a 30 basis point decline, used vehicles 12.1 percent a 60 basis point decline, an increase of 150 basis points for used sales and parts is down as a result of our focus on not only maintaining but gaining market share. We are aggressively pushing our proposal month pricing programs in an attempt to increase new vehicle sales volumes and markets share in all our stores. Used vehicle gross margins for the quarter with down as a result of competitive pressures from the new vehicle side of the business. Where incentives had been very high and affordability also very high. Which has resulted in a reduced margins on the late model used vehicles. The improvement in our service and parts margins is related to the pricing matrices that we put into our new stores once we take over, improving the pricing in the service and parts departments. For the quarter Lithia used to new ratio was 0.9 to 1. We sold 19 percent more total vehicles than in the same period last year. For the first 6 months we also had a used top new ratio of.9 to 1. Lit jam retailed over 43,000 vehicles an 18 percent increase versus the first simply months of last year. Our new vehicle sales mix by manufacturer for the quarter is (inaudible), Chrysler do this Jeep, 38 percent, General Motors and Saturn, 19 percent, Ford, 12 percent, Toyota, 9 percent, BMW 5, Volkswagen Audi 4, Subaru, 3, Honda 3, Hyundai and Nissan both 2 percent and there's 4 percent of other brands for a total of 24 different brands. Our gross profit mix by brands which is the important way to look at the mix issue, is as follows. Chrysler Dodge Jeep is 10 percent, General Motors Saturn, 5 percent, Ford, 3 percent, Toyota 3 percent, BMW 2 percent, and approximately 1 percent from Volkswagen, Subaru, Honda and 1 percent from all the other brands. No one brand represents no more than 10 percent of total gross profit. New gross profits represent 27 percent of our total gross profits. One area where Lithia continues to demonstrate an immediate impact on the profitability of the new stores is in the finance and insurance area. Our F and I revenue per vehicle this quarter was 995 dollars up from $954 for the first quarter of the year and also up from the $945 we recorded in the same period a year ago. This is record high level for Lithia in the past 4 years. This quarter's level of F and I penetration was 73 percent versus 75 percent recorded in the same period last year. Most of the dealerships we acquire are well below 50 percent under the previous owner, an average under $400 per vehicle of F and I income. Penetration of Lithia's. Lifetime I'm and filter product both in the second quarter and year to date stands at 30 percent. This product will continue to be very important to the long-term success of our service as it is designed to improve: Our goal is to have our service and parts and our used car business absorb 100 percent of our fixed costs which gives us great stability for down time: Total of flooring and interest expense as a percentage of revenue was 0.7 percent as compared to 1.3 percent last year. Floor plan decrease the 25 percent year-over-year and other interested expense did he every decline: Most lie due to lower borrowing cost on our variable rate debts which currently comprised approximately 84 percent of or total debts. Finally acid mentioned earlier, total retail same store sales were amp positive 0.2 percent. Any vehicles, positive 3.1 percent. Used retail vehicles, negative 5.4 percent. Service and parts, negative 2 percent. Finance and insurance, positive 4.6 percent despite units being roughly flat. For the 6 month period the same store sales figures by business line are as follows, the total was 0.6 percent positive. New vehicles up 2.9 percent. Used vehicles down 3.9 percent. Service and parts, down 1.9 percent. And finance and insurance up 7.8 percent. Of the three domestic brands on a new vehicle same store sales basis Chrysler, do this Jeep performed the best followed by General Motors and then Ford. Of the import brands, Mazda performed the best, followed by hundred day, Toyota, Nissan, and then Subaru. New vehicle same store sales for bolt do mess particulars and imports were up around the same after the plus 3 percent level. I would now look at the balance sheet with you. We have currently did he ends of June 64 million dollars and cash equivalents on our balance sheet. Our long-term debts which is largely composed of the real estate and equipment *financeing and we're excluding the used vehicle flooring facility, total 83 million dollars which is 13 percent less than our year end 2001 numbers. This gives us an improved 22 percent long-term debt to total cap ratio. This ratio is 32 percent at the end the year. We have one of the strongest balance sheets in the sector with plenty of growth potential going forward. Shareholders equity rose by 47 percent to 300 million dollars from 203.5 million at the ends of 2001. This was through 17 percent growth in *recontained earnings. Retained earnings now total almost 100 million dollars. We have updated our guidance for the third quarter and full year 2002 in the press release. We continue to maintain our conservative outlook for sales throughout the rest the year. Because we will be accruing higher amounts for workers' compensation claims and have been experiencing rising health care insurance costs we are raising our full year 2002 guidance by the amounts that we exceeded this quarter to $1.83, a range of $1.83 to $1.88. You can refer to our press release for the forecast. That concludes the financial summary. Now turns back over to have Sid for closing comments.

I would like to comment briefly about acquisitions. We have completed acquisitions of 10 stores with nearly 400 million revenue so far this year. Over 160 million of these acquisition reference were completed in the first quarter of this year. Our latest acquisition of Mercedes of Omaha was completed on the 23rd of July and represents the first Mercedes store in our fold. This store had analyze the reference of approximately 23 million and has tremendous potential. Omaha has a higher than national income level than the national average. We have acquired approximately 77 million in national revenue which is *acomprised of our Ford and Mercedes store. Unused acquisition credit line of 130 million and the unused vehicle credit line of 10 million and the positive free cash flow we generate we have enough capital to acquire approximately 2 billion in revenues which would nearly double our current size and keep our long-term debts to total cap ratio we low 50 percent. Our growth balances are solidly in place. On a long term basis we are still targets ago 25 percent growth rate for earnings per share. 20 percent from acquisition growth. Which we have achieved over the past 5 years. The comments on valuation as most of you know the sector had been increasing steadily since mid-April of 2001 to May of this year. At which point a maintaining correction occurred basically wiping out most of our year to date gain. And those are the other companies of the in the sector as well. We felt the increase in valuation since April was in large part due to the resiliency of our auto retailers in the face of a slowing economic environment: Parts and service and used vehicle lines demonstrating their strength and our ability to continued to generate profits with healthy cash flows even in a recession near environmental. The separation of auto to him retailers and manufacturers in the markets had finally started to take holds. It seems over the last couple of months that separation was forgotten as concerned were raised about the consumer how demands might be affected. We need to prove the much resiliency of our model. We can sustain top and bottom line growth . I have no doubts that we will be able to accomplish both of these goals, both in the short term and the long-term. July E incidently, has been very upbeat. We're doing a great business for the month of July. That concludes the presentation portion of this conference call. Leo, if you would like to open the floor for questions at this time. 00:39:07

Thank you, Mr. DeBoer. Ladies and gentlemen, the floor is now open for questions. If you dove a question or comments at this time you may press the numbers 1 followed bill 4 on your touch-tone telephone. If at any time any point your question he is answered you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order they are received and while you pose your question you pick up your hand set to provide optimum sounds quality. Our first question comes from Scott (inaudible) every (inaudible). Please go ahead with your question.

Good morning, guys. Could you elaborate a little bit on the workers comp issue and the health care costs and as far as comparing what happened in this quarter versus what's going to go on for the rest of the year.

Basically, our accruals for work comp claims had to be increased due to increase of claims throughout the organization. That's an ongoing thing we're satisfied it's I can't tell now going forward. It does mean we won't see a reduction in that area in cost. Secondly the health care, that's an continuing for all people and business is in America. We were able to which negotiate a very good contract with health net on a uniform basis cross our total portfolio of stores and we are taking about a 17 percent increase I believe. It's going to be effective August first so it does have an impact starting in the third quarter. And that increase, though, we've negotiated so we won't have another increase until January of 2004. We're very pleased, actually with the contract in face of many people having to go up 30, 40 percent on health care costs.

Our results were on the positive ends of or SG and A guidance and we've left our guidance pretty much the same. We're pointing these out as factors that you need to keep in mind when you look forward.

Okay. And as far as inventories go, do you guys commented just either specifically or loosely on how you guys are looking?

Actually historically low levels. Our new car inventories we've ramped some knowing these incentives would be driven out here in this third quarter. One of the risks right now, people are out buying cars in July. Because the sales are so high we're running low on inventories. If anything we're a little low on inventories in new. We're in great shape in used. We've held that used car inventory where we wanted it.

We're as low as we've been on used looking good there.

On the F and I side the business. Seems like you guys on a same store basis did pretty well. The 0 percent discount that was going, had little effect I see on that model during the quarter and how do you expect that to effect it in this quarter if any?

We don't expect any impact on 0 percent. If anything it's positive because more people finances the automobile with us than they normally might and we're able to sell more of those higher margin profit items that we do offer in finance and insurance offices. I don't think there's any reason for us to worry about that finance and insurance side. We're very strong there. we continued to invest in the infrastructure, and ensure success there, that's strictly a selling model. And present all of our products to all the people 100 percent of the time and when we do that we get the good incomes. We fix the price in all the finance and insurance office. We're one the rare ones in the auto business that does that.

How about on the flip side, discounts object terms of 60 months and a lot more people are going to be approved because a lot of folks couldn't afford a 36 month loan. Do you think that could positively, obviously, the finance and insurance side?

Hopefully, we'll finance more cars. We'll seeing some of that in July. I don't have all the data in July.

That's what we saw in the fourth quarter last year.

Remember in October last year, we had an increasing in F and I income and it was very similar to what's happened here in July.

All right. That's all I have. Thanks, guys.

Thanks, Scott.

Thank you our next question comes from Rick Nelson from Stephens. Sir, please go ahead with your question.

Thank you. Sid, why do you think same store sales in service and parts fell in the quarters?

you know, Scott, I mean, Rick, that is an issue we have a great plan in place to increase parts and service, same store sales by 5 percent a year and we think we'll begin to see that. We have capacity issues. We're going to have to find ways to man more hours. The lifetime oil changes and all of those things. Most of our shops may have to be - expand the number of hours. We have a 6 day a week plan we're putting together right now and we've used it in BMW in Seattle, three shifts, 14 hour days, 14 hour days. Really expand dramatically our capacity in service and parts. We're looking at it hard. We have the people coming in but we're not selling the service work to them because we're too busy. That's good problem to have and we think we're going to capitalize on it by getting more hours in the day.

How about the outlook for used vehicles sales also margin?

As we explained, used vehicle sales because of the new models being so popular and they're priced very close together and it's almost more affordable to buy a new car. Our older model used car is still selling very well. We'll see some shift back and forth depending on incentives. As those one or two year old model sales, if these incentives stay, level out, it's one of the reasons for gross margins, we're able to make more on those 1 to 2 vehicles than we have. Margins in our forecast are pretty stable going forward to slightly improving. I think we've seen the worst in the margins, potential for used cars and we continue to invest in that side. And we'll see improvement.

Good. Thank you.

Thank you. Our next question comes from (inaudible) Shaw of Morgan Stanley. Please go with of ahead with your question.

Tone of business in July J. you said you have seen a pickup. If you're seeing that across all the different regions or concentrated in certain areas and talk about whether you're seeing any sort of pickup in the used side as well as traffic comes up? Thanks.

Another person came in on the used side. I know on the new side it's across the board we are seeing that everywhere, very similar to October last oh year and the month is over basically we got the last day today so it looks like it's in the bag. As far as the tone on used cars, we don't see a material difference from what we've seen for the first half of the year. There's still an issue with the later model ones not being as popular. People are choosing to buy the new car. Are you still there,? Hello. Have we lost the group.

Mr. Shaw, dogs that conclude your question.

Yes. I'm good, thanks.

Okay. Thank you.

Our next question comes from Kevin berry of Wellington Management. Please go ahead with your question.

Good morning. Jeff, can you run through the same store sales new used service and parts. I missed those numbers.

No problem, Kevin. Let me turn to that. For the quarter, and the 6 month period,

Just the quarter, please.

Just the quarter the total was positive 0.2 percent. The new was up 3.1 percent. The used was down 5.4 percent. The service and parts was down 2.0 percent. And the finance and insurance was up 4.6 percent, despite the (inaudible) being roughly flat.

Thank you.

You bet, Kevin.

Thank you. Our next question comes from Doug turner of (inaudible). Please go ahead with your question.

Thank you. Just a couple quick questions. On acquisitions, you announced you've done about him 400 million to date. Your second quarter and third quarters tends to be slow historically. Can you give us in my opinion idea on what to expect there going forward?

We haven't given any guidance on that much. I don't know that we should. I mean, we have the same plan in place Doug and we're continuing to accelerate acquisitions but we didn't see a price dropoff like we hoped might happen because business has been very strong for most retailers. So we're not going to be able to accelerate beyond our normal pace and that's where we're at for the year. We'll continue to see some acquisitions later in the third quarter. We won't see a lot of them right away.

Okay. And to the F and I and the early question, can you give any color, given that penetration rates were about flat or so, can you give any color with regard to what types of items are driving the gains that you're seeing in your F and I per unit.

Right. Because we actually increased our finance and insurance income per unit financed. You can see that many decline in the incomes. And basically, I don't S have data that actually breaks that down. I would have to be just guessing. There's analysis being done by our people on a ongoing basis. The numbers are so good we don't have any real concerns. Obviously you lose some on the reserve side when it's 0 percent you only gets $100 for those contracts. We've picked it up in service contracts, sales, largely, some of the coatings we're doing, lifetime oil changes is a profit for us. I think that's the sum of it. It's mostly service contracts.

And then also, in your early comments I was intrigued to hear you talk about Northern California and Oregon, so forth. Obviously, Oregon is unemployment rate has been about that I think the high of the nation but there's been some signs recently that may be turning around and some discussion Oregon may be attracting some employers. Can you guess speak what you expect for the next year or 2 in your core market there.

Since that is now, it won't be the largest piece of our pie any longer, 18 percent with California. It Oregon doesn't have a optimistic view for the future. That's our view. All the recent information we got, I don't know where you got it's changing. Intel is largely in Portland and they have not increased hiring and they're still laying people off. There's still some good, in terms. Tourism business, health care, some. Markets, but we don't look for any increases in the economic environment in Oregon.

My last question, just your current truck mix. Some of your recent automobile situation is geographies.

Yeah, the mix has gone up, Doug. In the quarter it was at 70 percent truck and minivans and so forth. 70 percent that's near record levels for us. Especially Texas

Cars have gone up, Jeff?

The truck mix has gone up 70 percent.

Is that higher than it's been?

Yeah.

The car mix gone up? I guess it hasn't.

No. That's right. I was asking about the truck mix given some places you're in. What are you seeing on margins, car versus truck? Is its same across the board as you're seeing for the overall business?

You know the margins are dictated by it demand. If we've got units short in threw supply then we got great margins if there's a lost anything then they slip. It's a price driven model, basically we've got a lot of hot product on the truck side. There's some on the car side. Real excited by the Chrysler Pacific yeah that is coming out next year. I don't know if that will qualify as a car or truck. Mini Van is a car in today's world. Basically we don't see much difference. Truck is the where we get most of our gross profit. Car is lower. Toyota we do better. The new honored attach accord is going to be very good. That's 4 year old that we're replacing that's coming out in a month, that should help the Honda stores in terms of profit and gross margin.

Once again ladies and gentlemen if you have a question or comment you may press the numbers 1 followed by 4 on your touch-tone telephone at this time. We do have a follow-up coming from Rick Nelson from Stephens. Please go ahead.

Jeff, do you mean see any changes in accounting for F and I contracts? I know one of your peers had talked about that as it relates to contracts in transit?

That was on the balance sheet. And that doesn't have anything to do with the finance and insurance company of incomes.

We're not sure why they mentioned that. We show cash and equivalents, we show cash and cash equivalents together. If we split them apart it's no issue. It's all money you can get within 3 or four days.

That's a nonissue.

Much I don't know why they brought it.

No effect on any current ratios.

If you're booking it as a receivable that is a cash for that period of a few days; is that right?

Yes we do book it that and it is shown as cash and cash equivalent currently. We always have and it's alleges been done that way in the business.

Doesn't change the current ratio. Doesn't effects anything really.

Are you guys being reviewed by the SEC?

No. I think the only reason they had a review they had a debt offering

That was the only reason they had a review.

Just part of the normal process. I don't understand the concern there.

Thanks.

Thank you. Our next question comes from Morris (inaudible) of (inaudible) please go ahead with your question.

Thank you. Follow-up question. First can you guys explain the increase in average price of retail used car? I would have thought that if that strong business in new cars is pulling away business from the late model used, the average price of the used cars might have gone down.

I don't think it's substantial. Might be fussing over a little detail on that. I don't have a good answer on that.

It's been increasing over the last couple of quarters. Increase because of inflation and what have you. There's no special factor there.

One of the things that is taking place, the ramp up in new vehicle selling prices. They're raising the prices so they can give incentives. You can see it. It's happening. They just had the 2002 price increases and we've seen that right along. They sneak in $100 or $200 increase all the time.

We've added quite a few high line stores, we had the BMW store in Seattle and that does bring that average price on the used cars up substantially because a used BMW is very high. That's.

That's probably one of the better explanations on that issue.

One other follow-up question. The workers' comp I, was that a lot of catch up there, the million dollars and what degree is going it to run higher year-over-year going forward.

Repeat

The workers' comp.

It's consistent now. It could have been a win time event. We may have too much accrual now if figure in this case. We're very conservative on those issues, normally.

Going forward it may be the same as the percentage of sales versus a year ago. You may not see that impacts on the SG and A.

SIDNEY DEBOER no it was a couple large claims and they have a impacts through our retro program. You're accruing based on your.

Recent experience.

Right. You don't know until the insurance companies get done with all those audits. Some of the things we estimate. And much obviously would he weren't estimating quite enough there so now we are and it's very aggressive and it may be too aggressive. If anything we erred on the conservative side going forward.

Thank you very much.

Thank you our next question comes from which Peter Cirus from (inaudible).

Hi, guys. I apologize but I must have gotten the wrong press release. In the press release, how much did you lower your earnings estimates by for the year?

We didn't lower them. We raised a little bits on the third quarter on the low number and we raised the year.

You didn't talk about going bankrupt or anything like that.

Certainly not. Peter.

Either my machine is wrong or my press release must be wrong. (LAUGHTER).

What would happen if we announced bad news.

(LAUGHTER) I guess what I'm interested in this. Since obviously this market does not want to see what looks to be good news, let me ask you about bad news. Explain to me what a worst case scenario might be. I'm not talking about next quarter or anything like that. But your assumptions are for what this year for what sort of a car year?

Our assumptions really based on 50 and a half million rate and that's where we're still at. I know the rate will be end up of being higher than because we had a stronger first half. So we think that recession level rates. We don't think that's - that's the low ends of future ranges. We don't think 12 million rates will ever take place given. There's too many people living here and that whole thing has changed. There's a lot of reasons why, and the affordability issue is still real and interest rates are not going to see him rate any time soon. We don't see why this isn't the low end the scale and why we won't see large increases as things begin to appear better.

First on the upside, if the accelerate stays approximately where it is now, how much upside is there to your - that you guys has negative comps for the third quarter and first quarter, right?

Yes.

So assuming I'm not asking you to project, but assuming flat accelerate what sort of upside is there to the guidance.

There's certainly upside Peter and we hope that's demonstrated. We don't know that. We want to have keep our guidance conservative.

Supposing you go to a 13 million, 14 million accelerate. How much - how does the model work? In other words, what's the downside on these numbers? You've been doing this for 60, 70 years, right, Sid?

Right. New York City not long but 40. 1959 so I got a lot of years ahead of me. I started young.

Assuming a reasonable recession or severe recession how much downside would he there be to earnings.

We'll still make money, I don't think there's any doubt of that. Poorly run organizations would suffer in a downturn and we're well run. The downside 50 percent from current levels is the worst that could happen.

It had happened the first quarters.

We saw it in the first quarter.

New car sales were down 12 percent, that's as bad as new car has ever been and our earnings per share were down that 43 percent and that's as bad as it can get.

We were able to react to that without the market imposing, sales rate stayed at that level in our market, over the 6 month period, and costs back in line relative to that accelerate we were making the big money again.

It takes two quarters to adjust a rapid slow down like that, by the third quarter western putting up record profits and sales in a continued down 11 percent new car sales environment in the western region so we really came through the worst new car sales environment there's really ever been.

What do you guys think is scaring the market for this group?

The linkage to future consumer confidence. Those consumer confidence numbers this morning. People are selling blindly and all it takes is a couple of them. The whole sell sector is getting the same impacts. Anybody had a press release, their stocks went down that day more than the next day so who knows? If I knew that Peter I wouldn't have to be an auto do dealer.

(LAUGHTER) Yeah but it's more fun being an auto dealer.

Much more fun. I would probably do it anyway.

Thank you for your answers.

Gentlemen I'm showing there are no further questions at this time.

We would like to thank everyone for participating and hopefully you've gained information useful to you and we'll continue to execute our end and thanks for your interest.

Thank you. This does conclude this afternoon's teleconference. You may disconnect your lines at this time and have a good day.