Lithia Motors Inc (LAD) 2009 Q3 法說會逐字稿

Good afternoon. My name is Shana and I'll be your conference operator today. At this time, I would like to welcome everyone to the Lithia Motor's third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions)

Thank you. Mr. John North, corporate controller, you may begin your conference.

Thanks, Shana. Good afternoon everyone. Welcome to Lithia Motors third quarter 2008 earnings 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. Actual results could differ materially due to certain risk factors, which are outlined in the Company's filings with the SEC. During this call, we may discuss certain non-GAAP items including adjusted income from continuing operations, adjusted earnings per share from continuing operations, and adjusted cash flows from operations. As required by applicable SEC rules, a full reconciliation of these non-GAAP items and the most directly comparable GAAP financial measures is provided in the financial tables with today's press release.

Presenting on the call today are Sid DeBoer, Chairman of the Board and CEO, Dick Heimann, Vice Chairman, Bryan DeBoer, President and Chief Operating Officer, and Jeff DeBoer, our Chief Financial Officer. At the end of our prepared remarks, we will open the call to questions. It is now my pleasure to turn the call over to Lithia's President, Bryan DeBoer.

Thank you, John. Good afternoon, everyone. Today, we reported third quarter adjusted income from continuing operations of $0.33 per share. This compares to $0.07 per share a year ago. This quarter marks the third consecutive quarter of improved results over the prior year. Although revenues in the quarter were down approximately 10% from 2008, we increased net income significantly compared to the third quarter of last year. While the recession is not over, Lithia has completed the majority of its reorganization and right sizing for the current vehicle sales levels.

The automobile retail model has proven its resiliency to market fluctuations for both Lithia and its peers. Excluding certain items, consolidated net income was $0.35 per share compared to a consolidated net loss of $0.02 per share a year ago. It is important to note that the stores and discontinued operations made an operating profit of $0.02 in the quarter. This is compared to an operating loss of $0.09 per share last year.

We have focused our efforts on returning all stores to profitability, including those that we are marketing for sale. Our third quarter results benefited somewhat from the CARS program. This incremental boost in revenue in August demonstrates our earnings potential as the new vehicle sales levels recover and we will leverage our lower cost structures. Towards the end of the program, we had sold through the majority of qualifying vehicles and were at historic lows for new vehicle inventories.

The shutdown of Chrysler and GM's production facilities combined with the CARS program resulted in a shortage of cars during the month of September. As the month progressed, we began to receive vehicles as manufacturing resumed and orders were filled. Based on these factors, September sales started out a little anemic, but picked up momentum as the month progressed and we ended just shy of expectations for the month.

New vehicle inventories were at 170 million at the end of the quarter. As a result of these factors, our days supply was 12 days lower than our five-year historic average days supply for this time of the year. Another bright spot in the quarter was our retail used vehicle performance. Same-store used vehicle retail sales were up 3.9% over the same quarter of 2008. Average selling prices have increased as the used car market has stabilized and pricing strength has returned.

We have focused on retailing lower priced vehicles with an intent of capturing consumers seeking less expensive cars. This is most clearly evident by the declining average price of vehicles we wholesale. Converting these transactions in an opportunity to increase vehicles sales at all of our locations and this provides us with higher gross margins and increases our ROI in our used vehicles. Going forward, we will be focusing heavily on this area of our business.

While retail used vehicle sales increased in the quarter, we continued to reduce our used vehicle inventories. We are now selling more units with fewer cars in stock. Our days supply for used vehicles at the end of the quarter was right in line with our five-year historic average levels. In the third quarter, we arranged for financing on approximately 68% of all the vehicles that we sold. We sold 42% of those customers a service contract and 37% of the customers a lifetime oil product. We believe some of the declines we experienced in finance penetration are associated with the CARS customers who had a tendency to pay cash a little more often.

Our F&I per vehicle in the third quarter was $946 a unit. We estimate our finance and insurance profit per vehicle in the third quarter was reduced by approximately $91 compared to the third quarter of 2008 because of the deferral of profit associated with our lifetime oil products.

As discussed on our last conference call, we have retained the liability associated with providing these products to our customers. While this does have near term earnings impact, over the life of the contract we make more money by doing this. Lithia's service, body, and parts businesses were down 2.8% on a same-store basis in the third quarter. Our domestic brand warranty work decreased by 9.4% and import luxury warranty work decreased by 15.7% for the quarter. Sales in the customer pay service and parts, which represents 80% of the total fixed operations business, was flat for the quarter. The key to offset declining units and operations in the future will be a continued focus on this customer pay work.

In the quarter, overall gross margin was approximately 19% compared to 17% in the same period last year. We saw margin improvement in most business lines in the third quarter, including new vehicle margins at 8.8%, a 110 point basis point improvement over last year and used vehicle retail margins at 15.3%, a 490 basis point improvement. Our gross profit per vehicle retailed was $2,550 compared to $2,291 a year ago. Gross profit per used vehicle also improved to $2,519 per unit compared to $1,678 a year ago. Our average wholesale gross margin also improved to a profit of $18 per vehicle compared to a loss of $279 per vehicle a year ago.

With that, I will turn the call over to Sid, our Chairman and CEO, to provide you with some more operational details. Sid?

Thank you, Bryan, and thanks everyone for joining us. Good afternoon. Over the past 90 days, we have spent considerable time establishing a longer-term plan to outline our strategy over the next three to five years. As vehicle sales levels have stabilized over the past few quarters, we have finally been able to focus on our offensive strategy going forward, as the defensive plan we established last year proved successful, and we have pretty much completed those strategies.

The basic premise of our plan going forward is to continue our focus on solid financial performance at every store we have and to drive profitable growth at our existing locations, and through opportunistic acquisitions. As many of you know, we successfully executed a follow-on offering of stock in October. This provided approximately $43.5 million in capital that we plan to strategically deploy for acquisitions.

Our acquisition strategy is simple. Including the markets we are in, we have identified approximately 114 markets west of the Mississippi that fit our demographic requirements. Regional, single-point markets for our mass-market brands, and larger cities for luxury acquisitions. We will be seeking stores in these locations either to compliment our existing mix in the markets we're in, or to strategically enter new locations as opportunities arise.

We will focus on improving our import and luxury mix. We will also look to have balance between domestic and import brands in each market we operate in that matches that local market's requirement and its demand. Given the single-point nature of these markets, franchises just do not typically come up for sale that often. We believe that the current disruptions in the market provide a unique opportunity to acquire many of these franchises and a lower price due to currently depressed earnings.

Private dealers are having a tough time finding financing, which may accelerate ownership transfers. And Lithia is a Company that can buy underperforming stores and turn them into winners. So we will be finding those stores where we see the potential and others have not done as well. We believe we are well positioned to purchase four to five locations per year and have the capacity to handle up to ten acquisitions per year if we find the right opportunities.

We will be diligent about continued financial performance and will not grow purely for growth's sake. Our goal is to make acquisitions accretive in the first year of operations and we will have stringent ROI targets on the purchase prices.

We are also pleased to announce our first acquisition, a Kia franchise in Anchorage, Alaska. This imports store is a nice compliment to our existing presence in Anchorage, where we currently have Chevrolet, Chrysler, Jeep, Dodge, BMW, and a Hyundai store already. This partially fills our need for more import in that market. We have other transactions in the pipeline and are actively pursuing a number of leads not only in Alaska, but in our other markets and in those 114 markets we've identified.

While acquisitions are our focus, we are committed to continuous improvement in our current store portfolio as well. Over the past year, we have implemented new departmental budgets and forecast tools to help refine and improve the metrics and profitability, and to set clear expectations for management personnel in all departments in all our stores. And as you know, those metrics and those tools we have are uniform throughout all of Lithia stores. We are all on one operating system.

We have spoken at length about the $65 million in annualized fixed costs we have removed from the Company, proud of the hard work our employees have done to contribute to our success. As these costs have been removed, we have shifted the majority of our focus to reducing variable expenses in our stores currently. One area of variable expenses we're evaluating is to improve productivity even more per employee. We believe that improving production for our sales personnel and our technicians will accomplish two things. It will improve average individual compensation for those people, which will attract the strongest talent, and it will reduce turnover, lowering training and other expenses related to turnover.

While cutting costs continues to be a focus, we are also being strategic about the expenditures we make. To that end, we are shifting advertising dollars to target certain models for increased advertising in the fourth quarter, including increased internet and direct marketing campaigns. These markets have a high ROI on this expense and it's an opportunity for those additional advertising dollars to produce results. This decision is based on having the correct staffing and the correct inventory levels at our stores to capitalize on incremental sales and to focus on geographies where competitors have either dramatically reduced advertising or have pulled back for a lack of capital, and have reduced their consumer awareness. We believe there are 15 to 20 stores in our portfolio that can take advantage of this strategy.

So to summarize, our operational personnel are focused on a few main ideas, continue to maximize gross profit on each transaction. As you can see, those strong margins we're maintaining and actually increasing. Remain vigilant on converting as many used vehicles into retail transactions as we possibly can. Improve productivity for store personnel to achieve higher average compensation and results, and thus retain the very best talent, and opportunistically pursue market share through advertising and identifying emerging consumer demands.

With that, I would like to turn the call over to Jeff, our CFO, to provide you with the financial data.

Thank you, Sid, and good afternoon, everyone. Since our last call, there have been two major developments that have occurred on the financial side of our business, which I'd like to share with you today. First of all ,I'm pleased to announce that we have executed this week an amendment to our credit facility with US Bank. The amendment extends the maturity date of our line and provides for $50 million in capacity that we can tap for acquisitions or other general corporate purposes. Additionally, this amendment relaxes certain restrictions that were previously in place regarding acquisitions, dividend payments, and share repurchases.

US Bank has been a key partner for Lithia for over 40 years and I am confident our relationship will continue well into the future. This facility is a testament to our partnership with one of the strongest banks in the country, and we appreciate the trust and confidence that they have in Lithia. This credit facility provides significant additional funds as we find attractive acquisition opportunities. As Sid previously mentioned, we completed a follow-on offering of equity earlier this month, raising approximately $43.5 million. Combined with the new facility from US Bank, we have adequate capital to execute our growth plans into the future.

The fourth and first quarters are the toughest due to seasonal downturns in sales and we believe this winter will prove challenging for many small dealers in markets that Lithia is attracted to, and these dealers will need to sell as a result of the financial crisis and credit constraints that we're all experiencing. We are poised to strike and purchase stores as we find these opportunities.

Adjusted cash flow from operations were approximately $81 million through September 30th. We are generating significant operational cash flows, which is another source of funds for acquisitions. We have spent the last 18 months, as most of you know, focused on reducing debt and improving liquidity. To that wend, we have eliminated almost all near term debt maturities. Over the next two years, we have only $21 million in mortgage debt to refinance. We have no other debt maturities to speak of. We have always been able to refinance mortgages despite the challenging credit environment, and have enough operational cash flow alone to cover these maturities if we did run into any trouble.

For the year, we have closed on eight mortgage loans and currently have several other loans in the pipeline. Lithia's strategy is to own the majority of our real estate and to keep them financed. As a result, excluding our real estate, our long-term debt to total capitalization was at 11% at September 30. We were comfortably in compliance with all debt covenants as of September 30, 2009 before the equity offering. We expect to remain in compliance with all covenants into the future.

We would like to update our long-term earnings guidance, assuming more normalized SAAR levels. Note that these estimates are including the additional dilution from the equity offering and do not assume acquisitions, which as Sid mentioned, will be accretive and will only add to these numbers. We believe currently our breakeven to be at a SAAR level as low as 8.5 million. At 11.5 million SAAR, our projections show earnings of $1.05 per share. At 13.5 million SAAR, our projected earnings will be $1.53 per share. Finally, at a 15.5 million SAAR, our projected earnings will be just over $2 a share.

I will now turn it back over to Sid for some closing comments.

I want to take a couple minutes just to thank all of our employees. As you all know, without these people none of the things we've accomplished in this last year, nor would our future be as bright as it is currently. These were tough times and our employees stepped up, did more work, and their hard work and dedication made our results as they are today. It's been a difficult year for everyone and I really appreciate the extra effort and I know we all do in management. And we know they're all there with us. There is no one left, I think, in our Company, that isn't and doesn't deserve the job they have.

That concludes the presentation portion of the conference call. Thank you all for joining us. Operator, we'd like to open the call now to questions.

(Operator Instructions) Your first question comes from the line of Rick Nelson.

Thank you. Good afternoon. (Inaudible) or Bryan, can you comment on what you're seeing in October on both the new and the used car side perhaps as it relates to September?

Sure, Rick. October is looking better than it was in September and is right on forecast. Our inventories have improved to pretty good levels again and it was a little bit tight, obviously, in the first part of September. So we're pleased what we're seeing in October.

And when do you think this quarter is going to be fully stocked with product?

I think we're getting real close to now.

And then I'd like to ask you on the used car side, where you've seen some price erosion at auction the past couple of weeks, I'm wondering if this leads to anything on the demand side, any concerns you might have there for used car demand.

When I heard the conference calls from a couple of the others, I did some checking internally because we were not aware of what they were talking about. And my used car vice presidents and the people in charge of that reassured me that the used car market is very strong, that there is huge demand for those vehicles that sell well. There is an over-supply of used rental vehicles that are getting no sales because these guys have lined them in, have way too much money. And so that portion of those cars, and they're not cars that we're seeking or even looking to buy, they're 40,000, 50,000 mile wore out, four-door sedans that have been rented way too long and they're lining them at way too high a price. And so nobody is buying them. But that's not a slow down.

We know there's always a seasonality drop and so far, we haven't seen anything of the magnitude that historically occurs in November.

So that doesn't appear to be an issue for you guys. I'd like to also ask about the geographic areas of strength or weakness, and specifically California and hearing from some dealers in Texas that it's getting weak.

Sure, Rick. This is Jeff. Looking at the quarter in the different markets, we had positive comps on same store sales overall in Oregon, and Idaho, and Colorado, and California with a low single digit decline right in line with other states like Alaska, Montana. Not showing any weakness in particular for Lithia. Our worst state was in Texas and that's pretty much the lag effect from oil and gas being high last year and tough comparison. So it's not down that much, actually. So it's -- I would say it's not that bad, but it is our worst state. So that's the same thing we're seeing.

Still though some of our best stores and highly profitable even in this environment.

Yes, we're putting up good numbers.

We'd like to buy a lot of stores in Texas.

We're not struggling in Texas profit-wise at all.

Has the downturn in sales, is that a more recent phenomena, or I guess relative to the rest of the country did things --

It's lagged by about a year. When the others got hit over a year ago, it got hit here recently. It's lagged by about a year.

And how about acquisition pricing? Some of the dealers are saying that the pricing is still high. I know you guys have done a couple deals and you're shopping in a little different market than the others. If you could comment there.

Well, fortunately the first one in Anchorage is free because it was an open point that we were able to reestablish in the marketplace. So that was exciting. The other things that we're seeing appear to be in the two to three times EBITDA.

And what sort of brands are those?

Pretty much across the board. The domestics are even less than that because there's not typically huge goodwill multiples,

Profits are depressed now too. So with lower multiples and lower profits, it's an excellent time to be doing acquisitions. We're excited about what we're seeing out there.

So dealers are pricing their deals on the trailing earnings -- ?

These guys just need to sell, Rick. They've got financial issues with their creditors. They don't have a choice but to sell. So it's not a matter of looking at historicals and just. It's just they need to get what they can get and what we're willing to pay.

We can compare it to the home market a little bit that it takes people to finally come to the realization what they need to do. This'll be the second difficult winter in the automotive industry as a dealer. This second winter we believe will be when they'll have to cut things loose or they'll finally make the decision that it's not worth the fight anymore and that's really what we've seen over the last couple months.

Rick, if you look at our acquisitions in Abilene, Texas a couple years ago, I mean that was a Toyota and Honda store that would have been stores that no one else would buy. But with our strength and our balance sheet, we were able to buy them at very low multiples and turn them into winners. Those stores now are succeeding above MSR, great CSI, making good money and that's the kind of thing that Lithia does that others don't do. I mean, I heard comments today that these are stores that no one wants. Well, I'm sorry, we want those kind of opportunities, and we will find them.

Got you. Thanks, Sid.

Thanks, Rick.

Your next question comes from the line of John Murphy.

Good afternoon.

Hi, John. Thanks for calling in.

A couple questions for you. On the used car market, I mean you guys are doing real well here. It seems like the market is doing reasonably well also at large and we heard some -- like Rick said, there was some weird comments from other companies on weakness in auction values. But it does seem like that market is continuing to do pretty well. Is that more of a demand driven equation where you're actually seeing the demand for travel utility being fulfilled by these used cars and there's something quirky going on in auctions that there's really this true demand. It's not a supply shortage that's driving this strength.

There's still a shortage of popular vehicles. I mean, there's not enough new cars being sold to supply the market. So you've got an over -- demand is higher than the supply. And that's still there. I mean our guys are -- we're able to find them. We've got a great partnership with Manheim that we developed, a national contract that's really quite effective in us finding automobiles that we need. And you need to turn them quickly. There's still good gross margin in them. You saw our margins.

I mean, we're not suffering on that side. We have a very liquid inventory right now and we have about the right amount, and we think we can continue to grow sales, particularly by keeping and not wholesaling that seven, eight-year-old, that $6,000 car, where we were doing that in the past. So some of that is still there. It's hard to go out and find those kind of cars. Those have always been hard to find because they're really very profitable for a dealer and a lot of new car dealers wholesale them. We're not going to be. We're going to be retailing them and I think our record on that is improving.

It was disconcerting to me to see that the average selling price was going up and so I had to drill down in it. We actually improved a number of these value autos we sold, but the price of the other cars went up so much that the average selling price on the aggregate was higher. So I'm real comfortable that the used car market is -- it's going to get a seasonal swing. There always is one and there's always the flood of rental cars when they all buy the new fleets that oversupplies that side. But those are not the kind of cars we can make a lot of money on. There's not a lot of high consumer demand for them anyway.

And when -- you see the rise in used car pricing. Are we getting to a point, though, when we think about this, where there is such demand that you can then get that incremental buyer maybe into a new car instead of a used car? I mean because obviously you're targeting sort of lower ASPs or lower selling prices on the used side. You got people that are coming in. I mean, can you convert them into new and will that start driving new vehicle demand as you step forward over the next couple quarters, you think?

That's one of the pieces but when our trade-ins are worth more, we're able to sell more new cars. Historically, when you -- now, I've been through four or five of these. I've been doing this for 40 some years and historically when the used cars strengthen it ultimately helps you sell new cars because you can pay more for the trade-ins, and people don't have the dis-equity, and all those issues are softened. We can get more down payment out of their trade in and more people can qualify for a new car. So that's a tailwind that's going to help us sell more new cars.

There is some of what you're talking about, but I don't believe it's a substitute of the used car because that might be an influence in what you were saying, that they wouldn't buy a new car instead of a new one. It's more that we can give them a lot more trade-in and actually increase our new car sales again. I mean the industry is looking at 10.5 for SAAR rate for October. That's what I've heard and that seems like that trend seems to be about what we're seeing. And next year 11.5 million, I mean that looks like that's probably the number. We're optimistic about that. Sure, we're structured if it's 8.5 million to break even, but the reality is that we think there's a swing going on. I'm more positive than I was two weeks ago.

Also, just on a financing availability in your dealerships, I mean how do you see that right now? Our loan to values creeping back up? Is there more credit available? Are the creditors dipping a little bit lower in the spectrum here? What are you seeing there on credit?

There is momentum in improving credit available for people at higher levels. The repo losses have been reduced because they're able to wholesale vehicles they were losing 7,000, 8,000 on. And so all of a sudden that trickles back up to the top and says, hey, that's okay, used trucks sell again. They're worth 22,000 not 14,000 and immediately that begins to trickle out because everybody, and particularly GMAC and Ford Financial, and Toyota Financial, and Nissan Financial, and Hyundai Financial, BMW Financial, and I can name the manufacturer partners.

I mean, these guys want to help us sell cars and they're huge on pushing once there's a way they can take the risk again and not have this downside that was so extreme, that was mostly caused by the high fuel cost. I think one of our competitors mentioned the high fuel cost being a shock thing that could still impact this deal and we want a consistent fuel price. It can creep to four or five bucks over a two or three year period, and that's fine. We just don't need it to go to $6 a gallon all at once because that's what killed us last year.

But you can see our model, John, that we adapt. It takes us two or three quarters at the worst and this was as bad a recession as I have ever experienced. I'm not old enough to have lived through the depression and people didn't buy cars then like they do now. But we've seen the worst. It's better now and it's going to improve. That's our forecast.

And Sid, just one last question on this. What kind of support are you seeing from GMAC in your Chrysler dealerships? Because they're substituting for Chrysler Financial now. I mean has anything changed in the relationship there or the support on leasing terms, or financing terms, or anything like that?

GMAC is a tremendous partner and we're just delighted. They want to be the auto finance company in America and they need a lot of business from Chrysler to get a mix so it isn't just General Motors. Because as a bank, they need a mix. They're also wanting to do our Hyundai, our Nissan. I mean they're going to be a broad supplier of credit for us. Yes, they initiated some leasing in the Chrysler stores. We have some great leases on some minivans, and some Jeep Wranglers, and some of those high demand vehicles where there is great resale value.

And I mean they're supporting Chrysler every bit as well as Chrysler Financial was. I mean there's a transition here that's tough because they're overloaded taking on 2,300 dealers or whatever it is all at once. I mean we're in. We're done. We've made our deal with them. We're fully financed with them. They're doing all they can to help us sell cars. They've taken over our flooring at all those stores and they're making a good profit on that flooring. It's all incremental business for them. I mean I'm bullish on GMAC.

And it really is the last question. If we think about these Fiat models potentially coming in as Chryslers, particularly on the car side, and this is sort of your opinion, Sid, what do you think about that in the US market? What's your thought? What have you seen there in that transition?

I think I almost need to reserve my comments until I see the whole plan and I'm going to Detroit on Tuesday next week and I spend all day Wednesday with Marchionne, the crew, and the press. And they're having private dealer meetings with us as well and I'll know more. And obviously I don't share anything that -- as a national dealer member. But all the public information I know. I'm impressed. I love the guy's talk about low-day supply and a demand driven model. This guy's a home run on that. He did it at Fiat and the Fiat brand, whether they call them Chryslers, or Dodges, or Jeeps, or some Fiats, I don't get to organize that.

I'm really a proponent of the marketing people kind of figuring it out, doing the research and whatnot. Because I mean they've got some great stuff. The Alfa brand is a great car. I mean I don't know how much of that we get or whether they call it a Chrysler or an Alfa, but we'll see. We're going to know here in a week.

Great. Thank you very much.

Thanks, John.

(Operator Instructions) Your next question comes from the line of Jordan Hymowitz.

Hey, guys. Thanks for taking my call.

Hi, Jordan.

What was the floor plan interest benefit in the quarter?

Jeff, do you have that?

I didn't hear --

Floor plan interest benefit from the reduced inventories?

No, the outstanding (inaudible) manufacturers that offset the book --

The (inaudible) correctly. I'm not sure anyone else does.

Yes, we get a credit from the manufacturer.

And what's that number?

We don't keep it that way. It goes on cost of good sales. It's not a credit to flooring on our GAAP accounting.

It's usually around 70%, 80% of the actual expense, something like that.

I'm confused. I mean, everybody else breaks it out (inaudible) cost of goods sold is a positive now?

It's the same as everybody else, Jordan. There's nothing there. I mean it's just --

That's my question is some companies have reported huge increases in that. So is the net -- the floor plan interest line was a big positive this quarter versus usually a slight negative. Was that the case -- ?

Because -- about 50% of our manufacturers had very few shipments this quarter. So it probably wasn't a huge positive for us.

Okay. But you don't have the number?

We don't give it out.

Okay. Second question is in your $1.05 number at 11.5 million SAAR. What interest rate assumption are you using?

1% higher than today.

So 1.5%?

Yes, 1% higher than today.

The LIBOR being 1.5%.

Yes.

I'm sorry. Okay. Yes. And what is your sensitivity to interest rates at this point?

How much are we hedged, Jeff?

We're about 50/50 on our hedging right now roughly.

Maybe a little more than that because the inventories are down.

Mixed versus floating, yes.

Okay. All right. Thank you very much. Oh, actually one more thing. Sid, you made an excellent comment about the over-supply of huge vehicles in the rental market.

Right.

I mean the rental companies have been going longer and longer and taking more and more risk, and taking more of their vehicles and risk vehicles. Do you think that's going to really disrupt the market? In other words if the rest of the market stays strong, but the used vehicle market for rental cars could get very weak?

There's nothing that's going to disrupt the market there because that's a segment that we trade in and it's a bargain car with a high book that you can finance for customers. But we just need to buy it cheap and we turn them. And we always have some, but there's not going to be a disruption. What we need is used Priuses, and used SUVs, and used pickups, and none of that stuff's in the rental fleet.

Okay. Thank you very much.

Thanks, Jordan.

Your next question comes from the line of Peter Siris.

Peter Siris. Sid, what do you mean you weren't around during The Depression? You were selling cars in the Depression, weren't you?

Weren't you, Peter?

Yes, I was selling cars in The Depression. I think -- I read that you're what, 92?

You know how old I am. I'm older than you are, I'm afraid, but I'm not that old.

Yes, not much older than I am. The -- I'm interested in the discussion you guys are having, you had earlier about these pieces of junk dealers that nobody else wants, but you're willing to take. It makes logical sense to me that there are a lot of those -- there are a lot of guys around with dealerships in trouble. What are the economics on these things?

They're huge, Peter, as you know. I mean in the past we've had accretion of 50% better earnings in a year or six months and double, triple, and I mean it's just those are the home runs. And there's a bunch of them in our Company, and we certainly honed our acquisition strategy. So they have to meet criteria and we do a complete analysis of where all the pieces are, and we do an analysis of what people are there we can keep and where the owner is going to do and not do.

And because we have a common operating model, we close the store, put all of our stuff in it, and they open two or three days later with our systems. And yes, it isn't perfect then, but I guarantee you we can turn them into winners if we're going to buy them. We're not going to buy anything we can't see a reasonable time --

What are you -- I mean these things are, what, losing money now?

Peter, this is Bryan. We're not looking at buying poor performing stores. What a lot of dealers did during the glory times of the mid-2000s and early 2000s was overextended, okay, and now they're in a situation that they need to take a chunk out of their capital structure and sell the dealership because they need to. And that's really what we're looking at is those dealers that maybe got a little bit too far ahead of the game and now need to sell the store.

So what multiple of earnings are you -- ?

(Inaudible) stores.

So what -- ?

(Inaudible) I gave an example of, Peter.

Listen, Sid, what multiple of earnings are you paying for these things?

Bryan already said, two to three times EBITDA, Peter.

Right, so -- and that, and you figure you can improve the earnings by putting in your systems, right?

Yes.

So you should have what kind of payback on this, one-year paybacks?

20% to 40% ROI.

What's the ROI, Bryan?

20% to 40%. We're looking for accretion right away.

That would be after tax cash-on-cash return of 20% to 40%. Historically, that's what we've received on acquisitions and the opportunities are even better now than they were. Quality of stores is better. The brands are better. I mean, these are great stores that are just struggling right now and it's a great time to buy them.

Aggregate numbers reflected some poor choices and some markets that totally wiped us out, like in Denver. I mean, Chrysler lost 50% of its market share there. So those kind of decisions have to be smart.

How aggressive are you guys going to be in buying these things?

We're not.

We're not going to be aggressive. There's enough opportunities out there, Peter.

You got to play your cards. You make offers, Peter.

Well, what I'm asking is if there's so many opportunities out there, let's say that a lot of them came to you. Because logic says -- what you're saying makes logical sense. How fast are you willing to acquire things? What's your appetite?

We're only really looking at about one per RVP per year, which is four to five acquisitions a year. However, if things get depressed even further we can due up to ten if we chose to, if the prices were right.

Great. Okay. Thanks, guys.

I want to under promise and over deliver.

Okay. Thank you very much.

Thank you, Peter.

There are no further questions at this time. Mr. DeBoer, do you have any closing remarks?

Just thank you all for your participation and we'll look forward to sharing our business plans with you again at the end of the year. Thank you.

This concludes today's conference call. You may now disconnect.