Lithia Motors Inc (LAD) 2010 Q1 法說會逐字稿

Good afternoon. My name is Janelle, and I will be your conference operator. At this time I would like to welcome everyone to the Lithia Motors first quarter earnings conference call. (Operator Instructions). I would now like to turn the call over to Mr. John North, Corporate Controller. Mr. North you may begin your conference.

Thanks, Janelle. Good afternoon, everyone. Welcome to Lithia Motors first quarter 2010 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. We believe this non-GAAP disclosure improves the comparability of our financial results from period to period and is useful in understanding our financial performance. A full reconciliation of these non-GAAP items is provided in the financial tables of today's press release.

We have also posted an updated investor presentation today on our website that incorporates our first quarter results. Presenting 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 their prepared remarks we will open the call to questions. It is now my pleasure to turn the call over to Lithia's CEO Sid DeBoer.

Good afternoon everyone. Today we are pleased to report our first quarter adjusted income from continuing operations of $0.09 per share compared to an adjusted loss of $0.01 per share a year ago, an improvement of $0.10. The -- and $0.03 above the high end of the guidance we provided in February, thanks to a great March.

After a somewhat sluggish start to the quarter March results were way above our expectations as consumers who had been on the sidelines returned to the market. We attribute this to the significant incentives offered in the month as well as a general improvement in consumer sentiment and the continued execution of our plan. While unemployment remains high we believe that consumers have started to return to the new vehicle market and that credit constraints which accounted for some of the low sales volume in 2009 have been reduced.

Even as we work to improve our diversification, issues with Fiat and Chrysler have continued to improve. As many of you have seen, Chrysler updated its five year plan and released better than expected financial results earlier this month. In this plan Fiat expanded the vision for its global auto manufacturing and leveraging itself with new infrastructure and dealership networks that existed -- excuse me a minute -- that existed previously under Chrysler. We are strong supporters of this plan and believe that Fiat has taken strong initial steps to improve their situation.

As we discussed on our last call, for the first half of 2010 year-over-year sales comparisons won't paint an accurate picture of the success of the new Chrysler. The old company had some unnatural actions in the first half of last year that artificially inflated sales as it tried to avoid -- and actually ultimately even though they went through bankruptcy, they were unable to avoid it even using those artificially inflated sales incentives. The current vehicle sales levels although down when compared to the prior year have shown sequential improvement quarter -- month over month. Looking ahead we are eagerly anticipating the launch of their all new Grand Cherokee in May. With this introduction Chrysler is well on its way towards the objective of refreshing 75% of its product lineup this year. Sixteen vehicles in 2010 will be all new or substantially refreshed. Looking to the future Chrysler will continue to emphasize new models and improve fuel efficiency expecting to achieve a 25% improvement by 2014 on its fleet.

Moving on to the Toyota recall. We saw a small increase in our service, body and parts warranty work as a result of the recall. However, the biggest impact came through the impressive sales incentives Toyota responded with in March. Our Toyota unit sales were up 42% in March and 11% for the quarter. New vehicle sales also benefited from other manufacturers competing with Toyota and offering higher incentives to keep pace.

Another way we are focused on is property held for future development or currently vacant. That's an area we need to continue to work on. As a bit of background we purchased bare land in certain markets prior to the recession in anticipation of expansion and have facilities that we elected to close or were selected for termination through the domestic manufacturer restructuring in 2009. We believe that the actual carrying cost of these properties and the affiliated costs related to them is in the range of $0.12 to $0.15 a year in lost earnings. One of the first priorities then for our capital earmarks is for acquisitions to convert these assets into operations.

We are actively managing this challenge and believe we will continue to make progress on this area throughout 2010 either through the sale of the assets or the addition of new car franchises in those stores. As you know, we continue to seek out accretive acquisitions to achieve our diversification of brand strategy. Stated simply we believe it is a buyer's market currently and we are taking our time to make sure we make the best investments for our shareholders at this time.

In closing I want to share with you how excited I am about our management team. The last two years have been a trial by fire for everyone and I'm so pleased by our team's response to the crisis that was not created by us. I am more encouraged than ever that our next generation of leadership is now fully in place, well trained and is poised for continued success in the coming years. With that I will turn the call over to Bryan, our President, to provide you with some more operational details.

In closing I want to share with you how excited I am about our management team. The last two years have been a trial by fire for everyone and I'm so pleased by our team's response to the crisis that was not created by us. I am more encouraged than ever that our next generation of leadership is now fully in place, well trained and is poised for continued success in the coming years. With that I will turn the call over to Bryan, our President, to provide you with some more operational details.

Thank you, Sid. Good afternoon, everyone. I want to spend a few minutes talking about retail operations. New vehicle sales were a bright spot in the quarter. We sold approximately 7,000 new vehicles and our same-store new vehicle sales increased 11.5% in the quarter. In the first quarter total US industry new vehicle sales increased 15%. This is based on CNW research data. Excluding Chrysler our same-store new vehicle sales in the quarter increased 25.3% over the prior year. We are pleased with the progress we are making in this area considering our exposure to Chrysler.

Since we last updated you we have continued our focus on retail used vehicle sales. We sold 8,300 retail used units in the first quarter. Our used to new ratio was 1.2 to 1 compared to a ratio of 1.1 to 1 in the fourth quarter of last year. Same-store used vehicle retail sales were up 22.4% over the same quarter of 2009. We continue to focus on selling lower priced retail vehicles, attracting consumers seeking less expensive cars. Retail used vehicle sales remain an important area of focus for us with a goal to continue to improve this ratio even as the new vehicle market continues to recover

In the first quarter we arranged for financing on approximately 70% of the vehicles we sold. We sold 42% of our customers a service contract and 35% of our customers a lifetime oil product. Our F&I in the first quarter was $968 per vehicle. We self ensure our lifetime oil product and defer the related profit. Assuming we did not self ensure these contracts our F&I per unit would increase $80 per vehicle for the quarter. This difference anniversaries in the first quarter so going forward our F&I per vehicle will be on a comparable basis to the prior year.

The average FICO score for our customers in the first quarter was 718. This is down from a high score of 732 in the third quarter of 2009 and indicates that lenders are relaxing their credit risk profile on financing deals. We believe that there are still customers who want to purchase vehicles but are unable to obtain credit. As this credit trend continues more customers will be able to return to the market for a vehicle, increasing vehicle sales levels beyond the incremental gains associated with the economic recovery.

We also are pleased to report that GMAC, our Number Two buyer of retail contracts in the first quarter. They have returned to the market and are providing attractive financing options to our customers while supporting the GM and Chrysler brands. GMAC is a critical partner to Lithia. This retail support is a welcome improvement from late 2008 when the captive finance companies were essentially on the sidelines. Despite this trend no one lender comprises more than 15% of our business.

Now, let's move on to service, body and parts which continues to be an area of focus for us. Lithia's service, body and parts business was down 6% on a same-store basis in the first quarter. The biggest driver of this decline is fewer units in operation for all manufacturers. We believe this will continue through 2011 due to the low new vehicle sales levels in 2008 and 2009. The other major factors in this decline is due to our higher concentration of domestic franchises which experienced historical sales declines in excess of the overall market. For the quarter same-store domestic brand warranty work decreased by 23.9% and import luxury warranty work actually increased by 1% in the quarter.

Excluding Toyota, overall warranty work was down 18% in the quarter and we estimate that our same-store sales numbers would have been down 7% instead of 6% excluding the boost in Toyota warranty work. We continue to offer additional products and services to our customers in an effort to counteract some of these trends. We emphasize our lifetime oil change product to extend the length of time customers return to our stores. There also is a mature base of domestic units in operations that we are actively pursuing. We have increased our marketing budget and are attracting new customers. Despite these efforts we still believe that this area of the business will be affected in 2010. As a result we have lowered our same-store sales expectations from 1% to 3% in our full year outlook which Jeff will touch on in a little greater detail a little bit later.

Regarding regional performance North Dakota, Washington, Iowa performed the best with New Mexico, Montana and Oregon being the weakest, although almost flat. In the quarter overall gross margin was approximately 19% compared to approximately 20% in the same period last year. This is primarily a result of a shift in sales mix. Our gross profit per new vehicle retail was $2,668 compared to $2,608 a year ago. Gross profit per used vehicle improved from $2,258 compared to $1,913 a year ago, an increase of over $300 per unit. Our average wholesale gross margin was $112 per vehicle, essentially flat compared to a year ago.

I also wanted to update you on the effects of variable costs as sales volumes increase. As we experienced in the third quarter of last year, our leverage on cost really shows through as revenues increase. To that end our adjusted SG&A as a percentage of gross was 83.4% in the first quarter. However in March, the strongest month in the quarter, it fell to 74.3%. We believe that in the higher volume quarters SG&A could be as low as the low 70%s. To achieve these levels we have continued to focus on efficiently using our SG&A dollars.

We are continually evaluating employee productivity and believe our efforts in this area continue to show. Making each of our dealership personnel more effective and efficient means employee headcounts can stay flat even as sales volumes increase. We also believe that aggressive marketing is crucial as the economy begins to recover. When customers who have been on the sidelines return to the market we want Lithia stores to be top of mind. We have increased our digital marketing spend significantly in 2010 in anticipation of a market rebound. We believe that in most cases our sales kept pace or outperformed our local markets. We are constantly evaluating the ROI on our marketing spend and will make adjustments in areas that do not perform as expected. With that I will turn the call over to Jeff, our CFO, to discuss our financial position.

All right. Thanks, Bryan. And good afternoon, everyone. I would like to start with an update on the balance sheet and our liquidity position. Our balance sheet remains very strong as we continue to generate operational cash flows and we maintain our prudent approach to liquidity. At the end of the quarter we had approximately $90 million in available liquidity including $11 million in cash, $47 million available on our revolving credit facility and $32 million in unfinanced new vehicle inventory. With these funds we continue to temporarily pay down our higher rate debt to minimize shareholder dilution until we can strategically deploy our capital for higher return investments.

Regarding inventories, new vehicle inventories were at $261 million, or a day's supply which is two days lower than our five year historical average for this time of year. The used vehicle inventories are at $75 million, a day's supply seven days lower than our five year historical average for the same time of year. Our inventories remain clean as you can see and we are in good shape for the summer selling season.

Our current ratio was 1.3 to 1 at the end of March and our book value was $11.92 per share. We were comfortably in compliance with all debt covenants at the end of the quarter and expect to remain so in the future. Our credit facility with US Bank, which was undrawn at the end of the quarter, matures in October of 2010. We expect US Bank to extend this maturity. However, until the amendment is obtained we intend to leave the line undrawn. We remain in good shape on our mortgage maturities as well. We recently extended a number of mortgages with Toyota Financial, pushing their maturities out to 2015. Our financing partners continue to impress us with their flexibility and willingness to stand with us through these uncertain times.

Looking forward we have no mortgages maturing in 2010 and have approximately $12.5 million maturing in 2011. We are currently working with our partners to extend these mortgages and believe these efforts will continue to be successful. Our operational cash flows are more than sufficient to retire these mortgages if necessary. In summary we continue to proactively manage debt maturities and our overall balance sheet. I would also like to note that excluding real estate debt our long term debt to total capitalization is only 1%. We have no sub debt converts or bonds outstanding.

Now a few words on the P&L. As we announced earlier today, we have reclassified the last two operating stores from discontinued operations, the rightsizing we announced in June 2008 is nearly complete. As a result our financial results have been restated on a comparable basis for all periods presented. If you would like more information the investor presentation published today at Lithia.com provides a historical summary of adjusted quarterly results.

Now, for an update on our second quarter and full year guidance. Our second quarter earnings guidance will be in the range of $0.19 to $0.21 per share and we are also increasing the full year guidance to the range of $0.63 to $0.69. Both projections are based on the following updated assumptions which are provided in the press release as well, but I will go over the trends here. We are increasing our revenue guidance to $1.9 to $1.95 billion, we're raising our new vehicle same-store sales assumption to an increase of 5.9%, we are raising new vehicle gross margin assumptions to a range of 8.3% to 8.5%, we're raising our used vehicle same-store sales to an increase of 11.2%, used vehicle gross margins are unchanged at 14.2% to 14.5%.

We're lowering the service, body and parts same-store sales to a decrease of 3% as Bryan indicated earlier. We're raising our service, body and parts margin as well to a range of 47.8 %to 48.1%. Finance and insurance gross profit remains unchanged at $955 per unit. We're lowering the tax rate to 38.5% as we make more money. Estimated average diluted shares outstanding unchanged at 26.2 million shares. Unfinanceable Cap Ex is also unchanged at approximately $2.7 million. Chrysler market share assumption is also unchanged. We're saying it's consistent with full year 2009 levels so no improvement. This guidance excludes the impact of future acquisitions, dispositions and any potential non-core items. We are pleased to be able to increase our guidance for the full year based on better than expected first quarter results and an expectation of a slightly stronger new vehicle market in 2010. That concludes the prepared remarks and we would now like to open the floor to questions. Janelle?

Janelle, are you there? Janelle, we're done, you want to open the floor for questions, please.

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

Good afternoon.

Hey Rick. Good afternoon, you're first again.

I would like to ask you about some details on the service and parts. Same store that you reported minus six. If you could provide us with customer pay and warranty and internal and other components of that measure.

Yes. We gave the breakdown for a lot of the warranty and other parts. John, do you have the customer pay?

Customer pay was about 80%.

The same store sale

Yep in the same stores sale increase was up 4% excluding Toyota customer pay -- or sorry was down 4% and excluding Toyota it was down 4.1%.

Okay. And the internal component?

The internal component we put into used vehicles so we don't reclassify the margin on the reconditioning into our service work.

Or the sales.

Or the sales.

It's a huge difference. It was almost 4% to 5% difference in our same store sales if we would classify it that way.

Yes. I guess you and Auto Nation treat it similarly.

I'm not sure how they do it. We can't seem to find consensus on how everyone does it, but we believe our method is the correct one obviously.

What are you doing to combat this units in operation challenge or head wind for the service operation.

Well, you know, it's not solely that, Rick. There's also this recession we're dealing with and people are postponing a lot of service work and we're finding that particularly in the older car base that people have very little money, no jobs, and so there's some of that but obviously when you've got General Motors stores that had 60% of the market share ten years ago now have 20% and Chrysler that had maybe 15% or 20% is now at 10%. I mean those things have impacted us and you see those drops and then the general trend of sales being at $10 million, you got rid of all that short term service work that was related to the prep of the new car and the warranty work related to that. So yes. I mean there's definitely an impact and I think we've given you guidance there as much as we can about it. We don't think it accelerates by any means.

Rick, I think looking forward obviously depending what the new car sales levels do the steeper the increase as we grow into this new economy the more it'll offset at that. So really it's a late 2010, mid 2011 depending on how steep the upturn is on the new units coming in.

Now one of the other dealers this morning was talking about a pick-up in domestic store customer pay that they thought some of the deferred maintenance was starting to show up now in the stores. You're not seeing that?

No. Our comp in March was actually strong so we closed with a good trend and the comp was actually slightly positive in March for service and parts same-store sales.

And customer labor or the whole thing.

On customer pay and labor. Customer was actually up pretty strong. 10% in service. So in March there was a very -- that's definitely what we saw, Rick.

We were up 4% in March on everything in service and parts.

And what do you think is accounting for the improvement in March? More store traffic and -- ?

What we're seeing is when we look at a cross section of our states it appears that the northwest and the western states are coming out of the things a little bit slower, but it appeared that in March they started to come back a little bit.

Maybe some seasonality there, too Rick.

Could be.

That brings me I guess to my next question is the guidance -- is it assuming a pick-up in the overall industry in the back half of the year?

No.

As I look at the EPS just using the mid points $0.29 for the first half, $0.37 then implied for the second half, is there seasonality that is driving that stronger second half if it's not --

That's all it is, Rick. The third quarter is always very large for Lithia as we've explained in the past.

Much bigger than the second quarter?

Yes. It normally is.

Okay. And then on the acquisition front, Sid, is there anything percolating or the are the valuations too big out there?

Let Bryan answer because he's leading that now pretty much so -- which I'm delighted.

Rick, we touched base on some of these facilities that still remain in trying to use our first dollars to help fill some of those facilities in bare lands. So we've been very discreet -- very discerning in terms of what we do, but we have a good amount of acquisitions in the pipeline as long as they ring that -- we're looking at 100% ROI over a five year average. So a five year period. And we have about two or three good import type of stores that will really add to our diversification and we'll be real pleased with once we get those completed.

And is it exclusively imports that you're looking at now or are you also contemplating domestic stores?

No. I mean primarily we would like to diversify so some of the dollars are that, but if it means that we're going to mitigate a facility that's sitting empty, we would be willing to look at a domestic store or in instances where there is an import store that has a domestic store attached you typically got to buy all of it right? So that's really how we're approaching that but we're not active going after stand alone domestic stores unless it's to backfill facilities.

Rick, also if we had a Dodge stand-alone and we could pick up the Chrysler/Jeep in the same market we would do that.

Yes. That's a great point. Mm-hmm.

Okay. Thanks a lot. And good luck.

Thanks, Rick.

Thanks Rick.

Thank you.

(Operator Instructions). Your next question comes from the line of John Murphy.

Good afternoon, guys.

Hi, John.

I am just wondering if you could talk about sort of showroom traffic in general through the course of the quarter and what you're seeing in April and how much of it actually picked up from January and February into March and April.

Actually -- I mean it was pretty typical in terms of normal seasonality. We expect January and February to be about equal and then to get about a 15% bump when it comes to March. The area, though, that we saw an extraordinary change was in our internet business and our leads and our hits on our websites. I believe, and I don't have the specifics but it was somewhere around a 30% increase in E-business in March which we only expected a 15% increase.

And is that a precursor to actual ups in the stores or is that actually converted to sales and then folks come into your store just to pick-up the car?

Well, the E-business is definitely the feeders of ups in the stores which is our ultimate measurement and that appeared to be on track in the store which means -- you know, I'm not sure what that really means. I think we were finally tracking it and maybe we're capturing a bigger amount initially early in the process. So it's a difficult read to be able to tell those things.

Okay.

John, our closing ratio has been improving, too, with increased focus on process and what we're trying to be sure we sell everybody a car and then also being able to finance more people the closing ratio improves.

So I think the increase in sales should be looked at as an increase in showroom traffic but maybe more of on a increase in the closing rate or the financing availability is that why you think sales were up? I'm just trying to gauge a few factors.

And tracking a better level of customer by our marketing strategies being more directed to current buyers through the internet and the direct leads we're getting seem to be more valid.

Got you. And then on Chrysler specifically because you talked about and alluded to it a number of times. In the past few months it's been rumored and actually the numbers bear out that Chrysler has been pushing more and more of its sales into fleet as much as 50% of its sales. I was just wondering how that impacts you either positively or negative as they push more into fleet in the near term.

I did see the automotive news cast today that talked about Chrysler's fleet. Or it might have been yesterday. And they're going to focus less on retail -- I mean on rental car fleet which I think ultimately impacts us some because that ultimately hurts your resale when they have too many of those pumped in there so but if they focus on government, police cars and large fleet users that keep a car three, four years then that only helps us. It builds service work, you know it does all those kinds of things that we're really interested in. So overall the trend for them is to shrink fleet again and I think they may have needed it in January and February, but I think March retail was much better for them. I know our retail on Chrysler was up huge in March over what we were doing in January and February.

Would you like me to share those numbers?

Yes.

John, in January, February we were at about 525 to 550 new Chrysler products. In March we sold 850 or 860, something like that, which was like a 56% or 60% increase sequentially. That's a huge boom. Things are finally meshing it appears. Their marketing is finally coming together, they're getting a little bit more aggressive in incentives on the back end and on the front end with the consumers. They're starting to buy like we talked about with GMAC so it's starting to come together and it appears that it's trending that way as well into April.

Product availability is also better.

Excellent point.

If you look at our slides, too, John, as an aggregate for our Company I think we're down to around 26% Chrysler now and it was 36% last year. So we've markedly improved on adding others and increasing sales there and then the drop off that they've had has impacted that well but overall I mean our mix has improved. So we try to mitigate some of that. I mean we'd love to get it so no one was more than 20%. Just so that we don't have to bet on who's going to be successful ten years from now, I mean I think that's one of the things you try to do is call who that is going to be and if you could figure that out let me know.

It's a tough game to call.

It is.

You also mentioned that you had a lot of property that was held for development and that if developed could generate as much as $0.12 to $0.15 in earnings and I was just wondering really what that property was for. Was that for the used car super stores or is that for open points you think you might be awarded? What was really the impetus for that real estate and how fast could that possibly be developed?

John, let me clarify real quickly. The $0.12 to $0.15 is what it costs us today to carry those empty facilities, bare lands and so on okay? Just for clarification.

That's the cost of carry?

That's the cost of carry today, right. Interest, depreciation --

Okay.

And so on and so on. Okay. Where did they come from? Some of it was speculative land. We have probably four to six parcels that are speculative land, a couple million dollars each, something like that. We've been writing down some of those obviously over the past number of quarters. A few of those -- two, I believe -- no three are closed franchises by manufacturers and there's another six to eight that are sold or closed facilities that we initiated.

And Bryan says speculative he doesn't mean speculative in that sense. It's more development property for future retail location.

Mm-hmm.

Right. Yes. We had specific plans for them when we bought them but those plans changed based on our need to change our diversification and our mix and then we sold some stores that we would have moved to these new sites. For instance, in Colorado we had a big piece of land we were moving in Fort Collins, we were moving the Chrysler Dodge Jeep store out to a hunk of land, so we bought the hunk of land, and then we ended up selling it so.

John, do put it into perspective for you, too, last year we probably mitigated about $0.06 to $0.07 so it would have been higher so we're making pretty good head way in this arena and now that we have cash available to go backfill with franchises or new acquisitions we think that will move quickly well and we'll be able to get that $0.12 to $0.15 down further.

So you think --

If they turn into something good, John, they will be accretive too. I mean they could add to our earnings more than that $0.12 to $0.15 if we could find franchises for them all.

What was that, John?

So you think the best use of this land is ultimately to buy franchises and put the franchises on this land as opposed to the land they are currently on. I mean that's the game plan for these parcels?

No. It's more finding franchises to be able to fill these, not our existing franchises. And then like Sid alluded to we'll also sell these properties. They're obviously marketed at competitive prices and we're actively looking to sell those. Now, there's probably about half of them that it would be much better to be able to find an import franchise or a domestic franchise and fill those facilities with.

It's a combination. It's not easy just to put them all in one bucket. It's a group of stores that each has a different purpose and I think we've defined all of them for you.

Got you.

And it's all over the board. Some of them were terminated, some we planned on moving -- I mean Bryan, Texas, we bought a bunch of acreage to move the Chrysler stores and we don't feel it's prudent to build a brand new Chrysler store today until we have a clearer view of their success, so those are the kind of things you put on hold then but you hold that land.

We thought it was appropriate to share that with you just so you could see what normalized earnings would be under fully mitigating or getting rid of those facilities, okay?

Got you. And then lastly just in the outlook it looks like your used margins are particularly strong in your outlook at 14.2% to 14.5% which does look like something that's reasonably achievable. I was just wondering -- that's the high end of the range of where your used margins have been, the used market has been a very good one for you, or the used segment I should say has been a good segment of your business for you. Is that something that you believe is structural in getting to those higher margins over time or would it be better to drive higher volume and lower margins and greater returns. I'm just trying to understand what that 14.2% to 14.5% really means.

John, historically we've been as high as 15% to 16% in used vehicles. What we've seen that's occurred and it's actually still occurring is we're selling a higher priced vehicle but you still make the same per transaction. So as we drive our average cost down we will see that our margins will go up. Now obviously that impacts same-store sales, right? We'll have to sell more units to be able to do that and that's why when you look at our same-store sales guidance of -- what was it 13% -- ?

11.2%

11%, something like that. When we just did 24%, why is that? Why wouldn't we continue at 24%, right? Well, we obviously have a little bit more difficult comps but also as we drive the average price down which will increase our margins, we'll have to sell more units to keep pace with that.

So that's just it -- the margin is a question of mix up or down in the price points?

Yes. It also has a lot to do with turns. If you're able to keep your inventories clean and you're able to predict what you're going to sell better, which we gained a lot of experience at in our used car initiatives a couple of years ago. We know what sells and we're getting very good at being able to put those cars on the front line. So we believe that's been a big impact especially quarter over quarter.

We don't set a percentage goal target at the store level and in answer to your question could it mean that we are making too much money and not selling enough cars, John, I mean we will not compromise volume for gross. We are going to go for total dollars produced.

Yes.

I mean that's the goal and if it ends up 11% and we make a lot more money, that's okay.

Great. Thank you very much, guys.

Thank you, John.

Good questions.

(Operator Instructions). There are no additional questions at this time.

Okay. I would like close the meeting then and thanks again for your participation. We look forward to talking to you again as we discover things about ourselves and as we move forward. Thanks for your participation.

This concludes today's Lithia Motors first quarter earnings call. You may now disconnect.