Lithia Motors Inc (LAD) 2010 Q2 法說會逐字稿

Greetings, and welcome to the Lithia Motors second quarter 2010 earnings conference call. (Operator instructions.) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, John North, Controller for Lithia Motors. Thank you. Mr. North, you may begin.

Thanks. Good afternoon, everyone. Welcome to our second 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 our filings with the SEC. We expressly disclaim any responsibility to update forward-looking statements.

During this call we may discuss certain non-GAAP items, including adjusted selling, general and administrative expense, adjusted operating income, 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 on our website at www.lithia.com highlighting our second quarter results, which we would encourage you to take a look at.

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, Jeff DeBoer, our Chief Financial Officer, and Chris Holzshu, VP of Financial Planning and Analysis. At the end of their remarks we will open the call to questions.

It's now my pleasure to turn the call over to Lithia's CEO, Sid DeBoer.

Good afternoon, everyone. Today we reported our second quarter adjusted income from continuing ops of $0.27 per share, compared to an adjusted income of $0.22 per share a year ago. This is a 23% improvement over the prior year, and $0.06 above the high end of the guidance that we have provided for this quarter.

In the quarter April and May results both exceeded our projections, and June came in at expectation. While the economy appears to be on a steady recovery, we are continuing to execute the plan we developed during our restructuring actions in '08 and '09. We are very pleased to report that even at current sales levels Lithia is solidly profitable and poised to capitalize on incremental improvements and opportunities going forward.

We are off to a nice start to the third quarter, as well. July is on track with our expectations, and as Jeff talks he will provide more detail on our outlook in a few minutes. I'm also encouraged by the progress our domestic manufacturer partners, GM, Chrysler, and Ford, are making in terms of market share improvements and profitability. Their recovery over the past year has been remarkable, and I think everyone has been pleasantly surprised on how well all three of these companies have responded.

One of our other key partners, Toyota, has continued to react quickly and decisively to both retain current customers and attract new ones. Six months into the issues they've had I can confirm that customers remain enthusiastic about their products and that we have not seen really any reduction in sales level.

Moving on to acquisitions, earlier this month we were very pleased to announce our entry into the Bend, Oregon market with a Honda, Chevrolet, and Cadillac franchises and stores. We are excited to expand our presence in Oregon. It is our core State in the beginning.

I would note that we continue to find acquisitions that meet strict criteria we established last year when we shifted our focus back to buying stores and growing, and the efforts to diversify our brand mix. These improvements are evident from the sale of one Dodge store and the addition of these two franchises.

In mid-June we announced that Jeff DeBoer would be stepping down as CFO of Lithia by October 31st of this year. Today we announced that Chris Holzshu will be promoted to Senior Vice President and Chief Financial Officer upon Jeff's departure. Chris and Jeff will continue to work closely over the next few months to ensure a smooth transition.

One of the key considerations in our selection was the desire to expand the focus of the CFO to encompass Operations, in addition to Finance and Accounting. As the Vice President of Financial Planning and Analysis Chris currently leads our operational reporting and budgeting processes, and has worked closely with our store leaders to identify opportunities and work throughout the organization to improve our overall performance.

Chris joined Lithia in 2003 to manage the Corporate Accounting Department, and was subsequently promoted to roles in Internal Audit and Business Development. Prior to Lithia, Chris spent several years working at KPMG and is a licensed CPA.

I congratulate Chris, and am pleased that Jeff cultivated an internal candidate who possesses the experience, knowledge, and expertise to help lead Lithia in the future.

With that, now, I will turn the call over to Bryan, and he will provide you with some more operational details.

Thank you, Sid. And, like you said, I'll be talking about our retail operations. Total same-store sales were up 19% in the quarter. We sold approximately 8,700 new vehicles, which is a 22% increase year-over-year. We also sold 8,700 used vehicles in the quarter, an increase of 12%.

We continue to focus on selling three to seven-year-old vehicles to expand our customer base and continue our success in retail used vehicle sales. Through our efforts, we have maintained our industry-leading used to new ratio of one to one.

In the second quarter we arranged for financing on approximately 70% of the vehicles we sold. We sold 40% of our customers a service contract and 34% of our customers a lifetime [oil] product.

Our F&I in the second quarter was $938 per vehicle. As I previously mentioned, we have focused our selling of higher mileage, as is vehicles that we previously wholesaled to competitors. In the second quarter we sold approximately 1,600 of these cars, which had an average F&I per vehicle of around $350. These incremental sales are impacting our F&I metric, but we believe they are an attractive way to grow revenue and establish new customer relationships.

Due to continuing credit constraints there are still customers who want to purchase a vehicle and are unable to do so. SAAR will recover significantly as credit continues to become easier for consumers to obtain. We believe our manufacturer and lender partners recognize this, and are working to find solutions. For example, General Motors announced acquisition of AmeriCredit, which will improve their ability to reach new customers.

GM's other major partner, GMAC, and soon to become Ally, is important to Lithia, as well. GMAC was our number one buyer of retail contracts in the second quarter and is back in the market aggressively. However, diversification of our lender base remains a key focus, and we note that no one lender comprises more than 15% of our current business.

We continue to be encouraged by the progress made by Chrysler. In the Fiat earnings call last week it was announced that Chrysler made an operating profit in the second quarter of 2010. We look forward to learning more when the full results are released in August.

In the second quarter a select group of Chrysler models made-up the majority of our volume. RAM pickups represent 50% of our Chrysler unit sales, on par with our results in the first quarter. Jeep products made-up 16% of our volume. The Challenger, Charger, and 300 made-up approximately 12%, and minivans made-up another 8%. In total these models make-up 86% of our Chrysler unit volume. The redesigned Grand Cherokee at these early stages is a hit with consumers and demand is strong. The important point is that Lithia is not dependent on the Fiat improved car lineup to drive operating results at our Chrysler stores.

We have continued to reduce our exposure to Chrysler through the sale of certain stores and through the acquisition of other brands. To that end, in the quarter we sold a standalone Dodge store in Fresno, California. This brings the number of standalone Chrysler facilities we operate down to 23 from a peak of 37.

Now, let's move on to body service and parts, which was essentially flat on a same-store basis in the quarter. As you recall, we were down 6% on a same-store basis in the first quarter of 2010. We are pleased with the improvement we have made in this area and are continuing to find ways to offset declining units in operation.

Our common data systems across our stores, which we believe is unique to Lithia, offers us deep visibility into trends in this area. This is a competitive advantage that we are maximizing to improve our results going forward.

For the quarter our same-store domestic brand warranty work decreased by 22%, and import luxury warranty work increased by 7%. Excluding Toyota, overall warranty work was down 14% in the quarter, and we estimate that our same-store sales would have been down 1% instead of flat excluding the boost in Toyota warranty work.

Regarding regional performance, all states demonstrated improvement compared to the prior year. North Dakota, Alaska, and Nevada performed the best. New Mexico and Oregon were the weakest. However, they both had single-digit improvements still.

In the quarter overall gross margin was approximately 18% 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 retailed was $2,546 per unit compared to $2,445 a year ago. Gross profit per used vehicle improved from $2,452 compared to $2,362 a year ago. Our average wholesale gross margin was $91 per vehicle, a $77 per vehicle improvement from the prior year.

Adjusted SG&A was 77% of gross profit. This marks our second year-over-year reduction in this area. We have continued our disciplined focus on cost control. As we discussed last quarter, we are increasing our SG&A spending in advertising where we think there are incremental investment that is warranted. We are pleased with the results in our increased marketing as we have improved our market share in both new and used vehicle sales.

Looking ahead, we continue to prudently balance our advertising investment. We do believe that spending will remain constant with current levels on a dollar basis, although better leverage will be realized as volume increases.

With that, I'll turn the call over to Jeff, our CFO, to discuss our financial position.

Thank you, Bryan. And good afternoon, everyone.

Our balance sheet is in great shape, as you all know, as we continue to manage our debt maturities and generate strong operational cash flows, following our equity offering last fall. New vehicle inventories were at $257 million or days supply 16 days lower than our five-year historical average for this time of year. Used vehicle inventories are at $84 million, which is seven days lower than the five-year historical average for the same time of year. We are operating with leaner inventory levels and are still able to stock the cars customers want. We are not sacrificing on opportunities through this discipline.

We announced impairment charges on certain non-operating properties in the quarter. We have spent the last nine months looking for mitigation strategies for these holdings and believe facilitating a quick sale at this time is the most prudent course of action.

As we discussed last quarter, these properties represent $0.12 to $0.15 per share annually in holding costs. As of today approximately $17 million or 42% of the assets are in advanced negotiations to be sold. We believe this is an attractive time to deploy the capital generated from these sales into other investment opportunities, and want to move quickly to capitalize on the current market conditions.

At the end of the quarter we had approximately $118 million in available liquidity, including $15 million in cash, $71 million available on our revolving credit facility which was recently expanded, $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, such as acquisitions.

As many of you have seen, we executed an amendment to our revolving credit facility with U.S. Bank, extending it for three years, increasing the commitment amount to $75 million and lowering the interest rate by 50 basis points. And since that time I'm happy to report that we had an additional amendment with the facility that reduces the interest rate another 40 basis points to LIBOR plus [235], and we're very pleased with that development.

We also believe these developments are a testament to the strength of the relationship between U.S. Bank and Lithia, and will only improve our ability to continue to execute the capital strategies we have had in place for over 18 months.

Our next mortgage maturities are in November of 2011, when approximately $3.4 million come due. We continue to manage these well in advance of their maturity date and to date have found attractive financing options despite the current difficult environment.

In summary, we continue to proactively manage our capital structure, and our overall balance sheet is as strong as it has ever been. Excluding real estate debt our long-term debt to total cap is less than 1%. We have no sub debt, converts, or bonds outstanding. Our current ratio was 1.3 to 1 at the end of the quarter, and our book value was $11.75 per share after the write downs. We were comfortably in compliance with all debt covenants at the end of the quarter and expect to remain in compliance into the future.

Now, for an update on our third quarter and our full year guidance. Our third quarter earnings guidance is in the range of $0.27 to $0.29, and we are increasing the full year guidance to be in the range of $0.72 to $0.77. Both projections are based on the following updated assumptions, which I'll summarize here for additional transparency, indicating the direction of the change in the guidance.

First of all, revenues, we increased the guidance to $1.95 billion to $2 billion. We raised new vehicle same-store sales assumptions to an increase of 12.4%. We lowered the new vehicle gross margin slightly to a range of 8.0% to 8.3%. We increased the used vehicle same-store sales assumption to an increase of 14.1%.

Used vehicle gross margins remain unchanged at 14.2% to 14.5%. We increased the service body and parts same-store sales guidance to a decrease of only 2%. Raising service body, parts, we raised the service body and parts' gross margin assumption to a range of 48.1% to 48.7%.

Finance and insurance gross profit remains unchanged at $955 per vehicle. The tax rate also remains unchanged at 38.5%. Shares outstanding, 26.2 million. And we increased the CapEx assumption by about a million dollars to $3.5 million.

Chrysler market share remains as an assumption of unchanged, which is consistent with full year 2009 levels.

This guidance excludes the impact of future acquisitions, dispositions, and any potential noncore items.

Before I turn the call over to Sid, I'd like to congratulate Chris on his upcoming promotion. And also announce that John North will also be receiving a promotion from Assistant Vice President to Vice President of Finance and Corporate Controller and will remain in charge day-to-day for Investor Relations, Finance, and Accounting, and work very closely with Chris as a great team.

Personally, I went back and counted, this is my 54th Investor conference call over the 13 years, and I wanted to thank each one of our -- each and all of our loyal and longstanding shareholders. You know who you are. And our analysts, as well. It's been very enjoyable working with all of you.

I'm currently searching for an opportunity as a CFO for a Fortune 500 company that has international business so that I can go back and use some of my international experience before I joined Lithia. So I'm looking forward to that, and if any of you have good ideas of large companies looking for CFOs right now, I'd be very happy to talk to you. Thank you.

In conclusion, I'll take it back, this is Sid DeBoer, I just want to formally thank our team for all their efforts. I mean it is a remarkable team that we've assembled, and the demonstrated behaviors and the demonstrated successes we're achieving are a testament to their efforts and their loyalty to our Company.

And, Jeff, you know, that it's personally very pleasing to me, the 13 years of service, and I want to thank you personally for serving your father in this Company.

Now, thanks, also, to everyone for joining us today. I'm optimistic about the prospects for Lithia, and I'm really looking forward to continuing to update any of you as we progress and we execute our plan. I've never felt better about our future.

This concludes our prepared remarks. We would now like to open the call to questions. Operator?

(Operator instructions.)

Our first question comes from the line of John Murphy with Bank of America Corporation. Please proceed with your question.

Good afternoon, guys.

Hi, John. Thanks for calling in.

Thanks for having me. On SG&A you guys have had some pretty good performance in the last couple of quarters. I was just wondering as we look at what will hopefully be a sales recovery in the next few months and hopefully the next 18 months at least, if there will be significant leverage there? And if you're comfortable with controlling those costs as sales recover? Because, as I recall, you've had some best in class performance there at the 72% to 73% range historically. I was just wondering if that could be a range that we could get back to maybe in the next year or two?

John, this is Bryan. We're very confident that the 72% to 73% is doable again at a much lower SAAR than it was in the past. We're obviously working on many different initiatives, primarily focused on productivity in our operations and the service and sales ends of things.

And we believe we still have lots of opportunity that will help drive those costs down, and then we obviously mentioned the advertising component that as sales return our dollars spent will still maintain about the same GRPs. So we shouldn't have to increase our advertising, and as a percentage that will come down, as well. So I think it's pretty doable at a much lower SAAR than what it was in the past.

This is Sid, John. Just to add, the retention of the net out of the gross improvements, there is a lot of leverage and we should return historically. As we mentioned in the past, we've had months where our SG&A was below 70%, and I think that's achievable even more than it was in the past with the cost and the productivity improvements the operations teams have been executing on. And we don't have to add a lot of people to improve a lot of volume.

Got you. And then you mentioned credit availability as a bit of a hurdle to getting [ops] closed in dealerships. I was just wondering, you know, we've been hearing from other dealers that it has improved pretty dramatically, and I was just wondering why you're seeing it being tougher than sort of your peers? And also maybe in the context of that credit availability if you might comment, Sid, on GM's acquisition of AmeriCredit and what it might mean for availability of credit in your dealerships?

John, this is Bryan, again. Let me comment on the availability of credit in terms of what we're seeing on the front lines, and then Sid can speak to GMAC, Ally. In terms of what we're seeing today we actually saw about a 10 point increase in [Beacon] scores quarter-over-quarter which gives you an indication that we've kind of stabilized again in purchasing habits from the lenders. It went from about 17's, 715, 717, something like that to about 723, 724 this quarter, which is not the signs we wanted to see, where we want to see it start to drop into the high 6's.

But, you know what? All the signs and all the communications from our lenders, it sure appears that they're more confident. They're saying that dollars are being freed up. They're showing examples of deeper buying, we're just still waiting for it on the front lines, and we know that there's a lot of pent-up SAAR demand in that area.

John, on the AmeriCredit issue with General Motors, it's obviously a positive. I mean I'm not sure they have to have their own finance company to do all the things, and I don't think AmeriCredit does any leasing to speak of or at least hasn't historically.

So, but GMAC does, and they're huge for us, and they're certainly a great auto finance company. And they have access to capital deposits, which many of the others don't, because they are a bank. So we're looking to do a lot from Ally. And particularly if they can buy some branches or something and get some more deposits, and hopefully that whole thing comes together. Because they're going to be the auto finance source for our Company for as far as we can see forward, one of the major ones.

And AmeriCredit already was in all of our stores, and so it should help the GM focus in terms of reaching down into that lower credit score, which they've been excellent at. So nothing negative about that, but I'm not sure they need a standalone finance company.

And then just lastly on acquisitions, I mean the balance sheet is in much better shape. You seem to be on the hunt at this point, at least given the acquisitions that you made in the second quarter. I'm just wondering what the environment looks like out there, and if we could expect that to potentially pick-up significantly going forward?

I don't know that I could say that it's going to be significant improvements. Our main goals now are to pick and choose the right acquisitions. It took us a little longer than we expected to get these first couple under our belt, but we definitely have others in the pipeline, and we definitely are seeing that there's a loosening of the market. And it just -- it continues to be that the more your name gets out there and the more that you start to market that you're in the business for acquisitions again things seem to generate a little bit of a snowball affect.

John, this is Sid, again. Very tough criteria on our side, though. And prices haven't fallen dramatically. We are finding some, but, boy, we're being highly selective.

Great. Thank you very much.

Thank you, John, for following us.

Our next question comes from the line of Rick Nelson with Stephens. Please proceed with your question.

Thanks. Good afternoon, guys.

Thank you, Rick.

A follow-up on service and parts, you reported flat same-store but warranty was down 14%, what was the offsets? Obviously, customer pay had to be up pretty strongly?

Yes, Rick, this is Sid. If you look on those slides we've got, we've got broken down what customer pay, what was warranty, the whole thing so you guys could have a view of what's going on with our service and parts.

Customer pay was up 5.2% for the quarter. Warranty was down 10%. Wholesale parts were up 0.7%. Body shop was where we're struggling a little bit, even though we improved quarter-over-quarter, was down 8.8%. The big thing is is our customer pay. I mean it's starting to really take hold and we're seeing the turn there, which is exceptional.

Yes, what do you think is the big driver there, Bryan? Is it pent-up demand, people postponing services and now coming back, or is it something you're doing?

I think I can fairly say that it's a couple things. Obviously our commodity push on becoming more of a one-stop shopping center. We've spoke about that in the past. I think it's fair also to say that there is demand coming back into the marketplace.

And our focus on cycle times, which is how quickly a consumer can get in and out of our stores, is a big push in our stores right now, and we think that's making a difference. It's been a focus over the last nine months, and hopefully they're starting to get it, you know, that we can really do these things, the same things that Sears and other quick service type of facilities can accomplish.

Hey, Rick, this is John. I wanted to clarify one number. Our warranty work was down 10% in the second quarter. The 14% was excluding the affect of Toyota.

Oh, I've got it. Okay. Yes, I see the table here. That's helpful. Do you think that growth rate in customer pay is sustainable?

Yes, single-digit growth in the customer pay I think that's what we're looking for.

There's still a lot of opportunity there. I mean we're not capturing all the market share that we should yet, and so we're working hard on units in operation and focusing on direct e-mail blasts and all kinds of service reminders. We've got very sophisticated systems, because of our centralized data and all the things we're able to do we can identify everybody that needs a service this day and this time, and based on how many miles they've driven and everything else. There's a lot of sophistication that we should continue to be able to grow that customer part on business.

In the slide deck, Rick, there's good data on how we're servicing older vehicles. That's really been a successful strategy for us, is moving to the six-year and older vehicles even, up to 31% of our business and growing. And so that's why we're confident about being able to maintain that growth.

What's happening in the body shop? Why do you think those results are negative?

Rick, we've been hit fairly hard in our Texas market, and that's probably the biggest problem area in our body shops. We have since hired two body shop managers in the Texas area, out of the four, and they're starting to make good improvements. So we're seeing that that should come closer to flat over the coming quarters.

Okay, and, Sid, I know you mentioned July was on track with your expectations. Can you characterize July maybe as it relates to June, are we seeing an uptick in store traffic and volume?

Rick, our expectations for July were higher than those for June, so being on track means it's doing better than June.

Right. And from a profit standpoint where is the best year-over-year growth coming from? Is it domestic stores?

I think we have that data in the press release. Do we, John?

It's pretty balanced.

It's pretty balanced, but there's no big falloff by any one brand. Everyone is holding their own. This is Sid, again.

How is Honda doing for you guys, out of curiosity?

Our market share in Honda is up considerably. Our stores are much more profitable. We've also been specifically focused on that, as well, so it may have a little better results.

Rick, this is John. As far as manufacturer profitability, the strongest with us was Honda, actually, in terms of a quarterly improvement year-over-year, followed by General Motors, and then Toyota and Chrysler were about equivalent in terms of their improvement, but they were all up significantly.

Great. Thank you. Good luck.

Thanks for following us, Rick.

Thanks, Rick.

Our next question comes from the line of [Carlo Canell] with [Canell Capital]. Please proceed with your question.

Hi. What's the absolute value of the real estate from which the $8 million charge was derived in the quarter?

He'll give it to you, hang on a minute. Bryan is digging it out.

Are you asking pre or after the impairment?

I would ask pre, I guess?

So pre-impairment it was $55 million. The charge was $13.3 million pretax, so after was about $41 million. So it's about a 25% decline, and we had a detail of that in the presentation on our website on page 16 of that presentation where we break it all down.

Okay, and when was the final -- when did you lower prices most recently to try to move this?

Approximately 90 days ago.

Okay, and any chance of liquefying it, any bids, at all?

Well, we have about 42% of it that are in late stages of negotiations. This is Bryan, Carlo. So almost half of it is already sold, basically.

What we did we got results by dropping the prices, and so that encouraged us to just take the markdown and move on on this property.

Got it. next question, are you applying for any of the Fiat dealerships?

We don't know yet. We're going to go to the presentation in August and find out exactly what the criteria is and what's going on, because there's a lot of rumors. And I'm on that National Leader Council and they're inviting me. We're not in many of the markets where they have targeted. We've got a couple stores that may look at it. We have one that has an empty showroom that may work to add something, at least be part of it, see what happens with it, but it's not going to be a major initiative for us.

Okay, and then lastly in 2011 do you think you will be net acquiring more dealerships or disposing of more dealerships, would you wager?

This is Bryan again. We will definitely be net acquiring dealerships, so we'll be plus rather than negative.

We don't have a lot now that we want to sell. This is Sid, again, Carlo.

Okay. Thank you. Good quarter.

Thanks for being a shareholder.

Thank you.

Our next question comes from the line of David Whiston from Morningstar. Please proceed with your questions.

Good afternoon, guys.

Hey, David.

Hi, David.

First on parts, one of your competitors this week mentioned they saw a very abrupt major increase in major repair for the higher mileage older vehicles, and I see the data on slide 10. It sounds like you guys have already been pursuing that for awhile. But have you noticed any kind of an abrupt shift for the past few quarters in that area?

It's been -- this is Bryan, again, David -- it's been pretty gradual. That's been our push since April of last year is those as is, even that middle range, three to seven-year-old vehicles. So on a wholesale basis I think it's fair to say that it's grown pretty gradually, as well, which isn't just being affected by our internal sales.

Okay, and I guess for either Sid or Bryan, it seems like as of March 31st your customers weren't really ready to spend on parts as much as some of the customers at your peer firms. And I just wanted to get an update on that as of the end of June, you say the typical vehicle customer is more confident, the same, or less confident?

This is Sid. David, I don't -- you know, our locations of our stores, the seasonality first quarter was different than certainly the second quarter, and we're not seeing any trends that are different than the others. I mean we're improving in parts generically and we have focused on it.

And our customers, you know, some of the markets we're in are probably softer than some of the recovery that's taken place in the large cities in California and Florida. So there's more recovery there than there is certainly in Oregon and Montana and Nevada. So I mean it's hard to know those differences. I don't believe we have anything that's making us less aware or less aggressive in terms of growing those businesses.

Okay, and back to the impairment charges, obviously it's a soft real estate market but is there anything else going on with these properties such as just a poor location or environmental issues that's causing these impairments?

This is Sid, again, David. I mean basically these were properties we were buying to grow with in the past, that was something to do with [L2], something to do with going to move a store, and we put all that CapEx expense away and these things are empty, or they're stores that we closed.

So those are just nonproductive facilities that we no longer need, and so by dropping the price we're getting offers and we're getting them sold. And we certainly think that we can get rid of at least half of those this year, and that's going to turn all that cash back into the Company where we can use it in more productive ways.

Okay, and do you have a rough idea on these held for sale properties what percent are in suburban markets versus rural markets?

I don't have a stat, but it's pretty much -- John, can you help with it?

David, I'll get with you after the call, and I can get you some more info on that, okay?

Okay, sure. And then just finally on the capital structure, for Jeff and Chris, are you guys likely to draw on your new revolver or issue any bonds over the next 12 months?

Yes to the first question of drawing on the revolver. On the second one probably not.

Okay, thanks a lot, guys.

Yes. Thanks, Dave.

Thanks, Dave.

(Operator instructions.)

Our next question comes from the line of Himanshu Patel from J.P. Morgan Chase & Company. Please proceed with your question.

Hi, this is [Vakala] for Himanshu. I have a couple of questions today. What do you think about used vehicle business gross margins going forward? We heard from [Pinski] today that used vehicle margins are getting pressure as used vehicle customers are deflecting to new vehicles (inaudible) used vehicle margins. Do you guys witness similar stuff in your used business?

This is Bryan. Our used vehicle margins going forward we believe are going to remain similar, in the 14% to 16% range.

This is Sid. We're not seeing any unusual pressures there, and that's always a quick turn inventory issue. I mean you've got to pay what you have to pay for the good stuff, and you've got to sell it right away. And you can get your margin if you buy the right stuff and price it right, and it turns.

Thank you, now, for coverage, you guys, too. It's great to have you following us.

Okay, and my second question is I see that the warranty sales are declining now, but (inaudible) customer pay, that that business is really improving. And did you guys break-down the margins in the forecast of this business?

We haven't shown that publicly, but we may be able to provide it in the future. If John is getting requests for information, we're trying to be as transparent as we can on anything you guys need to know.

I can -- this is Bryan, again -- the margins in warranty and customer pay are very similar, so there's no big disparities between the two.

And then wholesale margin is kind of 15% to 20%? Is that reasonable?

Wholesale margins are definitely lower than it is in customer pay and warranty work.

Wholesale parts sales you mean?

Wholesale parts sales, yes.

It's in the 15% to 20% range.

And then what do you think about July new vehicles? Is it trending at the same level as June or is it sequentially improving?

Again, this is Sid. And basically our expectations for July were for an improving new car volume over June because traditionally it's one of the best new car months. And we're not disappointed.

Okay, so do you agree with that 11.8% and 12.0% (inaudible) forecasting for the month?

Sure.

You know, I'm not sure the seasonality factor that's applied to that SAAR number nationally, so we have looked internally and it's running on track, certainly in those 12% to 11.5%, somewhere in there. I mean I'm not sure the SAAR rate, what it needs to be in July and how many hundred thousand units it needs to be to get a $13 million SAAR, but I don't believe it's a $13 million.

Okay. Thank you.

Thank you.

Thank you.

There are no further questions in the queue at this time. I'd like to hand the call back over to Management for closing comments.

Again, thanks, all, for listening and for being part of our team in terms of the investors and the people that are following and are interested in our performance. And thanks for listening. That will conclude our remarks.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.