Lithia Motors Inc (LAD) 2003 Q4 法說會逐字稿

Good morning, everyone, and welcome to Lithia Motors fourth quarter and full year 2003 conference call. 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 certain risk factors. These risk factors are included in today's press release and in the company's filings with the SEC.

Now, I'd like to turn the floor over to Sid DeBoer, Chairman and Chief Executive Officer of Lithia Motors.

Good morning, everyone. I'd like to thank you for joining us this morning for our fourth quarter and year end 2003 earnings release conference call. I'm joined today by Dan Retzlaff, our director of investor relations, Bryan DeBoer, our executive vice president, and Jeff DeBoer, our CFO.

We are pleased with 2003 earnings results. For the fourth quarter, net income from continuing operations increased 31% to a record 9.9 million and earnings per share from continuing operations increased 27% to a record 52 cents. This exceeded first call estimates by five cents for the quarter. For the fourth quarter of 2003, Lithia will continue the payment of a dividend of 7 cents per share. This is third seven cent dividend that we've paid. Investors can refer to our press release for information on the record date and the payment dates for that dividend.

Lithia continues to have a very strong acquisition pipeline and we have experienced no shortage of opportunities in the regional markets where we have been so successful in the past. We are well capitalized to take advantage of acquisition opportunities over the next year. We've posted record fourth quarter sales of 612 million, an increase of 10% over the same period last year. We experienced growth in all business lines this quarter. New vehicle sales increased 15%, used vehicle sales were up 1%, parts and service sales were up 16 and finance and insurance sales increased 9%.

We continued to be aggressive in new car sales in the fourth quarter of the year, using our promotional pricing strategy and by leveraging the incentives offered by our manufacturer partners. As a result, new vehicle same store sales grew 2.3% in the fourth quarter. We saw 6.2% new vehicle same store sales growth for the full year. This compares to industry new vehicle sales that were down approximately 1% for 2003. Our operational focus has allowed us exceed industry sales levels throughout the year, even though we still operate in some of the country's most challenging economic environments.

Lithia's exposure to domestic brands has been a point of concern in the past, due to loss in market share by these domestics throughout the year. We have not seen a similar trend in our operations. For Lithia, all of the domestic brands had positive new vehicle same store sales performance for the full year 2003. As a matter of fact, domestic brands outperformed import brands for the year. Nationally, domestics on a combined basis were down about 3.4% for the year. At Lithia, the domestics combined grew by 6.8%. We feel it is important to point out these performance differences because they help highlight the gains that can be produced by the effective implementation of Lithia's operating model.

It is also important to remember that, when we acquire stores, we are generally acquiring average operators where there is room to increase market share. We have an operating model that has been proven to do just that. The way we increase market share in our stores allows Lithia's brand performance to run contrary to the national numbers. We see nothing to hinder us from continuing that trend. On top of that, both Chrysler and General Motors have strong new product plans over the next few years.

For the quarter, then, finance and insurance same store sales were up 0.4%. For the year, F&I same store sales were up 5.1%. For the year, our finance and insurance penetration rate was 75%. Our service contract penetration rate was 41% and the penetration rate for our lifetime oil change was 34%. Strong new vehicle sales, combined with high penetration rates in finance and insurance, service contracts and especially our lifetime oil and filter service will help ensure continued parts and service business and increase customer contact in the years to come. Used vehicle same store sales were down again by 9% in the fourth quarter. This is essentially the same as the decline of 9.3% we recorded for the full year.

It is just as important to point out, however, that we have been able to increase used vehicle margins consistently throughout the year. Both the fourth quarter and full year used vehicle gross margins increased 130 basis points, year over year, to 13.6% and 13.8% respectively. In fact, in the second, third and fourth quarters of the year and for the full year 2003, the increase in used vehicle margins more than offset the decline in same store sales to produce positive same store used vehicle gross profit growth. Even though same store used vehicle sales were down 9.2% and 9.3% for the quarter and year respectively, used vehicle gross profits were up 3.8% and 3.1% for the same period.

We feel then our strategy in the used vehicle business has been sound. Operationally, we believe that we have done well in what has been a challenging used vehicle environment. Used vehicle day supply have remained at very low levels throughout the year and, at the end of the fourth quarter, were at their lowest fourth quarter level ever for our company. In the parts and service business, we have begun to realize consistent improvement. Same store sales were up 3.9% in the third quarter and again in the fourth quarter, grew by 2.2%.

For the full year, parts and service same store sales increased .7%. There are a couple of reasons for the improved results. The largest impact has come from the fact that we have been able to continue to improve the customer pay side of the business. The customer pay side of the parts and service business was up 3.4% for the fourth quarter and 1.4% year to date. Secondly, in the fourth quarter we saw a moderation in the decline in domestic warranty repairs. We are pleased to see these trends in the parts and service business. Finally, total same store retail sales in the fourth quarter were down a slight 0.7%, much as we have seen as a result of the weak used vehicle market.

For the full year, total retail same store sales were up 1.2%. Currently, our sales mix by state, including all acquisitions, is California with 20%, Oregon - 16, Washington - 15, Texas -14, Colorado - 10, Idaho - 7, Nevada - 6, South Dakota - 4, Alaska - 3, Nebraska - 2, Montana -2 and Oklahoma -1. We continue to focus on diversifying our revenue base. We added stores in two new states - Montana and Oklahoma - in the second quarter of the year.

For the quarter, I'll list the states in order of same store performance from the best to the worst - Texas being the strongest, Oregon remarkably so, in spite of the recession here, Nebraska, Alaska, Idaho, Colorado, Washington, Nevada, California and South Dakota. The most noticeable improvements from the same period last year have been in Idaho and Colorado. California came in near the bottom of the list because it is up against very difficult comparisons on strong performance in the fourth quarter of 2002.

We were also working through the licensing tax issue in the fourth quarter of this year. California is still a very healthy market for Lithia. Same store sales in the Idaho market improved substantially in the third and fourth quarters compared to what we saw in the early parts of the year. Colorado also performed significantly better in the third and fourth quarters, as compared to the first and second quarters. Part of the improvement here is due to easier comparisons from the same period last year, but we are also making good progress at building stronger teams in the Colorado market. And the improvements become more apparent each quarter. Texas has remained a good solid market for Lithia, demonstrating positive same store sales comps every month of the year through the end of the fourth quarter.

The integration of the acquisitions we made there last year have progressed very well and those economies are more stable than many of our other markets. In fact, they help demonstrate the power of Lithia's model and how well it works when the economy is stable. And we - how we can improve operations, enhance margins, as the integration process takes hold in our stores. We acquired our seven Texas stores in 2002 and they are comprised of three Chrysler Dodge or Jeep branded stores and three Chevrolet stores, with one small Honda store.

In looking at the year 2001, which would represent the period that we owned - that they were owned by the previous owner as compared to 2003, which represents a full year under Lithia ownership, under the Lithia model total retail sales increased 7.5% for the combined stores. The total SG&A margin with flooring added in for comparison purposes declined by 50 basis points. The gain to the bottom line was an increase of 38% in pretax profits, an approximate 100 basis point improvement in the pretax margin. Our after tax return on investment on those stores is - in 2003, the first full year as a Lithia operation, was about 20%. This demonstrates how the Lithia model can work in a stable economic environment by enhancing those operations and controlling costs with benefits falling to the bottom line.

To close, I'd like to comment on something you may have noticed from our press release. This is the first time that we have reported a group of stores in discontinued operations. For the full year, there was a zero net effect as the losses from the stores were offset by the gain from the (inaudible) stores. I'll turn this over now to Jeff, our CFO. He will provide you with some more detail on the quarterly results.

Thank you, Sid, and good morning, everyone. I'd like to look at our sales a little bit more closely. I'll first break it down by business lines. The new vehicle sales comprised 57% of total sales. This was compared to 56% in the same period last year. Retail used vehicle sales were 24%. They were 25% last year in the first quarter. Parts and service was the same 10% as last year. And the finance and insurance came in at 4% of total sales, which was also the same as the prior year.

The shift from our higher margin used vehicle business to our lower margin new vehicle business continued in the fourth quarter, as Sid explained. However, despite the mixed shift to the lower margin new vehicles, we were able to substantially increase gross and operating margins overall versus last year by gaining improvements in used margins and increasing the leverage on our SG&A expenses. The contribution to gross profits by business is as follows - 28% new vehicles compared to 29% last year, 19% used per used, which was the same 19% last year, 31% for service and parts - this was 30% last year - and 22% at finance and insurance, which was the same as last year, 22%. So you can see a shift to the service and parts business away from the used - away from the new car business, actually, by a percent. So, very stable in terms of our mix.

We can see the effect of lower new vehicle margins and higher used vehicle margins reflected in the numbers. Seventy-two percent of our gross profit was from non-new vehicle gross in the fourth quarter as compared to 71% last year, mostly reflecting the increase in used margins.

I'll now go over the gross margins by business line. Gross profit margin for new vehicles in the fourth quarter was 7.8% as compared to 8.4% in the same period last year. The year over year decline continues to be a result of our aggressive volume driven new vehicle marketing programs and we've seen the same trend throughout the year. For the year, new vehicle margins have remained fairly consistent and came in at 7.7%. Our historical average gross margin in the fourth quarter for this business line is 8.9%. As we have noted earlier, new vehicle same store sales have been strong and margins have been lower.

In the used vehicle business, the opposite has occurred. Same store sales have been weak, but margins have been strong. The fourth quarter gross margin, as Sid mentioned, was 13.6%, which is 130 basis point increase in the fourth quarter of last year. Our historical average gross margin for this business line, in the fourth quarter, is 13.2%. So we are 40 basis points above our historical average in this business. In addition, the wholesale used vehicle business realized profits in the fourth quarter as compared to losses in the fourth quarter of last year and in the first and second quarters of this year. Inventories as at all-time lows and this reflects our improved strategy in the used vehicle business.

The parts and service gross margin for the fourth quarter was 47.3% as compared to 48.3% in the same period last year. Our historical average gross margin in this business line is 46.2%. So we are still well above our fourth quarter average levels for this year - for the year. Total gross margin for the quarter was 16.3%, which is a 20 basis point increase over last year and only 10 basis points lower than our historical average for the fourth quarter of the year. Our sales, general and administration expenses, also known as SG&A, as a percentage of sales, we 12.3% for the quarter. This is 40 basis points lower than the same period last year and is 10 basis points lower than our historical average level for the fourth quarter.

Our SG&A as a percentage of gross profits in the fourth quarter was 75.5%, a 330 basis point improvement over the fourth quarter last year. The combined effect was an operating margin of 3.6%. This is a 50 basis point improvement from last year and an improvement over the last two years as we work our way back to normalized levels. Historically, we averaged 3.7% in the fourth quarter of the year. Our new vehicle sales mix by manufacturers for the quarter is as follows - 41% Chrysler-Dodge-Jeep, 24% General Motors and Saturn, 9% Ford, 7% Toyota, BMW at 4%, 3% Subaru, 3% Honda, 2% Hyundai, Volkswagen-Audi at 2% and Nissan also at 2%. And then there's 3% from the other brands. We have a total of 25 different brands currently. Seventy-three percent of our sales were truck, SUV, minivan sales versus 72.4% last year, reflecting the strong demand for these type of vehicles in the market that Lithia operates in. It's important to remember we operate a regional market for trucks and SUVs and domestic brands dominate the sales environments.

Our gross profit mix by new vehicle brand as a percentage of total gross profit for the quarter was 12% Chrysler-Dodge-Jeep, 6% General Motors and Saturn, 2% Ford, 2% Toyota, 1% BMW and approximately 1% each from Subaru, Honda and Hyundai, leaving a total of 2% to other brands. For Lithia, of the three domestic brands on a new vehicle same store sales basis, Chrysler performed the best, which includes Dodge and Jeep, of course. This was followed by Ford and then General Motors. All domestic brands had positive same store sales growth for the year as Sid mentioned - 6.8% positive same store sales growth for our domestic brands. The import brands - Nissan, Subaru and BMW performed the best, followed by Toyota, Honda, Hyundai and then Volkswagen. As a group, imports were up 3.4% for the year, same store sales.

Our inventory position going into the first quarter is good. New vehicle day supply at the end of December was down five days compared to December of last year and at the second lowest levels we've been since 1997, excluding 2001, of course, when 0% was first announced and we nearly sold out of vehicles. Used vehicle day supply at the end of December were also five days lower than the same period last year and at the lowest levels of any fourth quarter since Lithia became a public company at the end of '96.

Lithia continues to general consistent improvements on the profitability of the new stores in the finance and insurance area. Our F&I revenue per vehicle this quarter was $995, our highest level achieved in any fourth quarter over the last five years. Our F&I revenue per vehicle for the year was $945, also our highest level ever achieved for a full year period. For the quarter, the total of flooring and other interest expense as a percent of revenue was 0.8% as compared to .8% last year.

In the first quarter of the year, we took advantage of the low interest rate environment to lock in fixed rates on more of our flooring debt by entering into two five-year interest rate swaps for a total of $50 million. At the end of October, one of our $25 million swaps expired. And in November, we added and additional 50 million, putting us currently at $125 million of outstanding interest rate swaps at fixed rates. We believe it is prudent strategy to progressively protect more of our flooring debt against possible rising rates, especially in today's low interest rates environments.

Even with the added expense from the swaps, our flooring credits to expense ratio for the quarter was 111%. For the full year, it was 109%. Including all fixed rate debt obligations and hedges, approximately 28% of our total debt has fixed rates. The higher floating debt ratio that we've maintained has been advantageous for Lithia, allowing us to take advantage of the lower rate environment. However, we intend to raise our fixed percentage to 40-50% or so in the future by further hedging - in order to further hedge against rising interest rates at today's historically low interest rates.

Now on the balance sheet. Seventy-four million dollars in cash at the end of the year, this compared to 16 million at the end of last year. Our long-term debt, excluding used vehicle flooring, is largely composed of real estate and equipment financing and was 178 million versus 105 million at the end of 2002. Our long-term debt to total cash ratio has increased to 33% versus 25% at the end of 2002 as we continue to leverage our balance sheet.

Our goodwill as a percentage of total assets is 19%, 1% lower than at the end of 2002 and the lowest in the sector. We continue to have a very healthy balance sheet with plenty of capital for future acquisition growth. The total balance sheet size also passed the $1 billion hurdle for the first time this quarter. Shareholders equity at the end of the quarter rose by 12% to 359 million from 320 million at the end of last year. This is through a 28% growth in retained earnings. Retained earnings now total 151 million. Lithia's book value per share is basis - on a basic basis is now $19.63.

At the final note, for the full year 2004, we are now forecasting from $1.95 to $2.05 per fully diluted share, higher than our previous guidance. For the first quarter of 2004, we are forecasting earnings per share in the range of 29-31 cents, reflecting seasonality. This forecast assumes a steady pace of acquisitions throughout the year.

That concludes the financial summary and I'll now turn things over to Brian, from our operational side, who will comment on acquisitions, operations and some final closing comments.

Thank you, Jeff, and good morning, everyone. I'd first like to comment on acquisitions and operations in 2003. In the first quarter of the year, we acquired three stores with approximately $75 million in revenue. In the second quarter, three additional stores with approximately $100 million in revenue. In the third quarter, we acquired another two stores with approximately $50 million in revenue. In the fourth quarter, we acquired three more stores with approximately $105 million in revenue.

To summarize, for the full year of 2003, we acquired a total of 11 stores with 23 franchises and approximately $330 million in annualized revenues. Finally, in January of this year, we acquired one additional store. It's now named Lithia Chrysler-Jeep of Reno. It's located in Reno, Nevada and this is now the fifth store that we own in that market. This store has annualized revenues of approximately $55 million and is the largest store in that market that we now own.

The potential growth for the company has not changed. The company has the ability to grow revenues at least 15% through a combination of acquisitions, funded by internally generated cash flow and same store sales growth. Currently, our six-year average year retail same store sales growth rate stands at 4.1%. Any additional growth from more aggressive acquisitions would be funded from our $200 million credit line. To finish, I'd like to give a quarter by quarter summary of 2003. The first quarter of the year, we demonstrated what the impact of an economic slowdown for Lithia looks like. We were long on inventories and margins were negatively impacted as a result of slow selling environments. As an automotive retailer with low fixed costs, it takes us only one or two quarters to adjust to economic slowdown and fortunately return to normal numbers. This is one of the key benefits to the automotive retail model.

In the second quarter, we were able to get our inventories back in line. We were also able to adjust our operations to the new lower sales environment and the result was improvement and better trends in all of our business lines. This result - this resulted in sequential improvements in our new and used vehicle margins as well. The third quarter, we were able to walk the fine line of keeping new inventory day supply conservative while generating positive same store sales growth. In the used car business, we attacked a weak market by increasing margins. The fourth quarter was similar to the third quarter and we continue to generate positive new vehicle same store sales growth.

The used vehicle business remained weak, however, margin improvements led to positive same store used vehicle profit growth for the quarter, as Sid mentioned. And in fact, this was also true for the year as well. We are in a good position heading into 2004. We will continue to execute the Lithia business model and add stores to our operational base in a consistent and disciplined manner. That concludes the presentation portion of this conference call. We would now like to open the floor to your questions.

Thank you. The floor is now open for questions. [Operator Instructions]. Our first question is coming from Gerry Marks of Raymond James

Good morning.

Good morning, Gerry.

Good morning, Gerry.

Good morning, Gerry.

Just ask you one quick question. Could you discuss a little bit in terms of the asset sales? It looks like you're still making some money. What the rationale was for kind of selling off some of these assets?

Gerry, there was an actual loss on the stores that we sold and put into discontinued ops, but we had a gain on the sale of one of the stores and it offset that loss.

When you sold it.

Yes.

OK. But could you kind of discuss why you decided to - is it just because you weren't able to effectively implement a turnaround or kind of what happened there?

Gerry, the way we look at those is we look at the future, three to five years out, and those - and both of those stores did not have the forecasting and the potential that we really expected to get out of those. And the ROIs were really weak.

It's really driven by cost to capital and earning our appropriate returns. And where we don't feel that's possible, we're just going to exit. And that reallocates that capital to a better yielding asset.

OK. But so it was more a - from an investment standpoint, that it just didn't -- well, not that it was kind of a larger acquisition and you were deciding to get rid of one of the stores out of the group. Is that correct?

That's correct.

OK. I'm sorry. One other quick question. I mean, you guys - SG&A, as a percentage of gross, was really impressive this quarter at 75%. You know, what seems to really be driving that change? Have you reduced somewhat your integration acquisition support teams and then, second of all, you know, where could that be going in the future?

Gerry, the main thing there, you know, we've - over the last couple years, we lost some leverage when the volume declined dramatically in our markets, but we are starting to see, you know, increasing - increases in volume, so we're getting back leverage. Plus we're adding additional stores and we're spreading our costs more efficiently over the larger base. So that's really the two reasons there and I think, you know, it's just possible to continue to improve on that, gradually. And hopefully, if the economy gets better and we get better volume increases, then you'll see maybe more dramatic increases. But we're certainly not forecasting that.

So, would you basically say that right now, with your store count, you think that you're reaching that point where you're starting to get leverage off of those integration support teams? Is that a good way to characterize it?

Yes. The efficiency of that group is certainly raising and we're learning more and more about how to integrate and help the stores without adding additional personnel and support services. We have a leadership program where people from stores that are functioning very well go to other stores and help and assist to put our systems in without adding additional overhead. So we're just continuing to leverage that base that we've got, Gerry, and, I mean, we don't look for huge improvements there because we do want to be able to add to under performing stores and we need to continue a good strong support base. So don't look for huge changes there, but we certainly don't see a regression.

OK. Great. Thanks.

Hey, Gerry?

Yes?

It's Bryan again. Back at discontinued operations, the thing that you're also going to see if we do have discontinued operations. Remember, we pay way under what typical retailers are paying for stores. These are two of our worst performing stores and we were still able to break even on those when we sold them. And that's really what we're looking at, is what Jeff said, is we want to be able to redeploy the cash in a better way.

And when you bought it, was it running at a loss, then, or ...

No. I mean, it was - it's just - when we buy stores and we don't - and we don't improve them that much, we're still going to be able to sell them and get out of them for a reasonable amount of money and not lose substantial amounts.

OK.

Because we're conservative in what we purchase.

Great. Thank you.

OK.

Thank you. Our next question is coming from Rick Nelson of Stephens.

Thank you. Good morning, guys.

(inaudible) button there.

Yes, you did. Congratulations on a great quarter. I see you're providing quarterly guidance again and I'm wondering, is that due to improve visibility or exactly why you ...

Yes, we're ...

... stepped back into net gain?

Yes, Rick, we're not providing quarterly guidance as we used to. You remember we used to provide every quarter of the year and have that out there. And now we're just going to provide quarterly guidance when it makes sense. In this particular case, the seasonality in the first quarter didn't seem to be fully reflected in all the analyst estimates. I mean, we're still right around where the consensus is. We just want to make sure people don't forget the seasonality in the first quarter. It's the very weakest quarter over the year for our business and we just want people to not forget that. So, we may or may not do it each quarter, but it will only be the immediately coming quarter.

OK.

Rick, on that - Rick, on that -- I mean, if you also, this is the fourth quarter report, which, you know, it comes almost a month later, too, so we're pretty far into the quarter and we just wanted to be sure guidance was there for this quarter.

OK. Sid, all of the public dealer groups are experiencing gross margin pressures in new cars. That's been the case for awhile. What is causing that how do you see that developing as the year unfolds?

Well, you notice ours dropped from our historical levels over the last two years. But we've been able to hold pretty well where we are. I don't see an erosion going forward, particularly in the regional markets we're in. I mean, I would attribute it to a highly competitive environment where you're forced to get numbers, too, by manufacturers, in order to meet their minimum sales requirements and their, you know, the requirements in order to purchase stores are pretty strict, particularly with some people like Ford and whatnot.

If you're not selling the numbers, you need to up that share and you have to do it sometimes by sacrificing gross. So, certainly, we're seeing some of that, I'm sure, by some of the operators. We don't have a lot of issues with that going forward. I think we're fine and I think most of our stores can maintain the gross levels we're at and I think they'll be some improvement in time and gross margins and new, at least in our stores.

And how about being an incentive environment? How do you see that shaking out? I know the manufacturers are talking about reducing incentives if the economy strengthens.

Well, we see a lot of repricing going on. I don't know if you've noticed, but the Chrysler brand has totally revalued the way they price their vehicles and they're pricing a lot closer to what they'll have to sell them for. And so, there will be a decline in incentives. Because of that, the new minivan with the stow-and-go is, I think, a couple thousand dollars less than the old minivan, the one they're replacing it with. And that's not coming out of our margin. The margin they're giving us is still the same. They haven't reduced the dealer margin on those vehicles. So - but I think they're planning on just backing off and making product the strong star.

And as products are stronger, obviously, incentives aren't as - don't need to be as strong. The new Durango is not as incentivized any where near as strongly. I'm only using Chrysler as an example, but it's true of all the manufacturers. I think you'll see incentives increase on the import brands because the end pressure on pricing is going to be pushing those prices up and they're going to have to find ways to get people to buy them, too. Affordability and down payment is still the issue that we will be facing throughout this year.

If they are successful, the domestics, anyway, on the incentive front, that should be good for your used car business, should it not?

Yes, although I do know, Rick, our used car business, you know, has only reflected the price changes on a short-term basis. So, we have a structural issue with used car business and that new cars are so affordable with the long-term financing and the low interest rates that people are buying new cars instead of used. And that has been that switchover. We're reaching down further in the market. We're not looking for same store sales growth. We're looking for same store gross profit growth next year in used cars by selling older, less expensive, used cars. And we're really working hard on that. And I'm so pleased.

I just came back from a general managers meeting. I spend two days with our group, all the 80, 90 store managers and all of our support service personnel that support them. And you should have seen the focus on used cars that's been developing in our company and how far we've come with it. It's just a tremendous amount of new tools and new education and new support to improve our used vehicle sales throughout our organization. Because it's such an opportunity for us and, you know, and I think that will offset any loss in used car volume that may take place. Because, really, we manage this business on a gross profit basis, not on a store sales basis. Because gross profit is still where it's at. If we can sell a $10,000 car and make two grand on it, that's a heck of a lot better than selling a $30,000 car and making 1,000 on it.

All right. Thanks a lot. Congratulations.

Thank you. Once again, as a reminder, it's one followed by four for any questions at this time. Our next question is coming from Scott Stember of Sidoti & Company.

Good morning, gentlemen.

Scott.

I was wondering if you could talk about, on the used side of the business - Sid, you mentioned that, on the wholesale side, that you guys are doing a good job and it's one of the reasons why the grosses are up. Are you doing anything different, like closed auctions or anything on that side?

Bryan, why don't you deal with that and let's brag a little here. It's pretty intuitive there, Scott.

Yes. Actually, we've changed all our wholesaling policies and developed regional auctions, whether they're third party or whether they're ran by our support services team. And that's been an amazing results that have been generated from that. And we're planning on continuing that for the long-term basis.

We just had an auction in one of the retail markets and we put 60 vehicles up in the auction. Fifty-nine of them sold and the average profit was about $400 a unit.

Yes.

And they all - all but one vehicle sold. So, it's, you know, it's something, yes, we've done with our regional strategy and the size of Lithia that's been able to leverage that and be able to get more out of our wholesale vehicles. The best part of that is we're not looking for wholesale profits. It's that we can trade stronger. We can get more for people's trade-ins and make more gross on the vehicle sale going in with - by paying more for the used trade. And also qualify more people for loans because they've got more equity than we realize.

OK. And as far as looking out, what do you guys, you know, within your assumptions, looking out for used car valuations? There was some evidence in the last couple of months that there's been some softening once again. What are you guys seeing right now? What do you guys expect?

There's no softening right now. The market's very strong on used - all late models, everything. The prices are up probably 10, 15% from the lows in November. And our, you know, I have one guy that I get that report from that bought 5,000 cars last year that's right on the market for all the program and one and two-year old vehicles. And I talk to him weekly and I get that report. And, I mean, he's very negative in the sense that he's not able to find cars at good values right now.

OK. And the other thing - last question. Some of the new models from Chrysler, obviously, the Crossfire and the Pacifica were, I guess, part of the plan for Chrysler to reinvigorate their sales. How are those moving in your markets? Are they moving with a lot of discounts and incentives?

Well, I think the incentives are necessary on the Pacifica. The Crossfire, it's a low, low volume vehicle and it was intended to do any more than help create a better image for Chrysler, which it's succeeding at doing. They are going to have a, you know, a soft-top or a hard-top version of that - a convertible version of that out here shortly. And they're also doing a 330 or 340 horsepower version of that, which will be out here in the late spring. And I think that'll even more enhance the image of that Crossfire. The Pacifica, they're repricing that totally and redoing it as a 2005 model very early, I believe, in May or even in April.

And they'll restructure that much as they have the minivan and the Durango in terms of their pricing strategy. And I don't think they'll need as much incentive. It's a very good vehicle. And people are really beginning to find that it is what it was intended to be. It's not just a, you know, a revamped minivan. It's a very drivable (ph) sport-like sport wagon in that crossover sector. And I think it continues to gain momentum in most of our stores. It's not red hot, but with the incentives they put on it, we're selling it successfully.

OK. That's all I have. Thank you.

Thank you. Our next question is coming from John Thompson (ph) of Prudential Equity Group.

Good morning. Hello, can you hear me?

Yes. You bet, John (ph).

Hi. How are you guys doing?

Real good.

Quick question for you. Can you comment on how February new car sales are going? Have you seen - and can you just comment on the trends there?

Pretty much as we forecasted. We're not seeing any negative things and nothing real positive either. It's just pretty much as we saw the market and what we anticipated it would be like, which is nice.

And it is a leap year, so we've got an extra day.

OK. That's good. Second question is I know you commented on the use of incentives by the import manufacturers or the import brands. Have you seen any evidence that the Japanese and specifically the Europeans have been more aggressive with the use of incentives in your dealerships?

Nothing specific. We've seen some movement on BMW side, but they have issues, obviously, with the price of the euro, both Volkswagen and BMW. And they're only hedged for another six months or eight months or so. So, ultimately, that pricing pressure is going to be there. And I think it's true of the Japanese to an extent, as well.

OK. And one final question. What have your dealers' reactions been or your reactions been to the new Chrysler and GM products that you see coming - that'll be new this year?

You know, I'm just pleased to see them finally really focusing on developing products that are more and more acceptable to our customers and less and less of a commodity driven thing. I mean, particularly with Chrysler and GM. I mean, the new Malibu is a wonderful creature and it's priced right and it's very, very competitive. The new Chrysler 300 series and the new Magnum, they're priced right down with Camry. And I, you know, quite frankly, that's going to be a real interesting pricing war, in a sense, because you've got 23, nine on a new 300, fairly well equipped. Sure, it's the little smaller V6, but it's still a real competitive, five-speed, automatic, very well designed rear wheel drive, big full size car at 23, nine.

I mean, I'm excited about those kinds of things. These people are all going back to what it took to be successful in the past and that's pricing products that people want in a real full size - I mean, a real market segment where there's a lot of opportunity. You know, the car of size has not gone away by any means and I don't know. I think the Malibu has got a great lineup all the way through and I think John Moser's (ph) going to continue to take share with that.

OK. And you're seeing favorable reactions on the rear wheel drive 300 - consumers - too early?

We've not - we've not really sold any yet. I mean, they're just coming in.

All right. Thank you very much.

Thanks, John (ph).

Thank you. I'm showing no further questions at this time. I will now turn the call back over to the speakers for any further or closing comments.

All right. Thank you all, again. This has been, I think, our 30th conference call since we became a public company over seven years ago. And we appreciate all of you long-term investors staying interested in us and we'll continue to execute as we've promised. Thank you.

Thank you.

Thank you. This does conclude this morning's teleconference. You may disconnect your lines and have a wonderful day.