Lithia Motors Inc (LAD) 2010 Q3 法說會逐字稿

Greetings and welcome to Lithia Motors' third quarter 2010 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. John North, Vice President of Finance and Controller for Lithia Motors. Thank you, Mr. North. You may begin.

Thanks, Manny. Good afternoon, everyone. Welcome to Lithia Motors' third 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, may also 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. These presentations are not intended to be provided in accordance with GAAP, and should not be considered an alternative to GAAP. A full reconciliation of these non-GAAP items is provided in the financial tables of today's press release. We've also posted an updated investor presentation on our website, www.lithia.com, highlighting these third quarter results.

Presenting the call today are Bryan DeBoer, President and Chief Operating Officer, and Chris Holzshu, VP of Financial Planning and Analysis. Also in attendance is Dick Heimann, Vice Chairman. 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 Bryan DeBoer.

Thank you, John, and good afternoon, everyone.

Today we reported third quarter income from continuing operations of $9.8 million, compared to an adjusted income from continuing operations of $8.5 million a year ago. This is an increase of 15%. We earned $0.37 per share in the third quarter, exceeding the guidance we previous provided July by $0.08.

Total same store sales were up 12% in the quarter, reflecting increases in all business lines over the prior period. New vehicles increased 8%, due to increased average selling prices. On a unit basis, we sold approximately 9,200 new vehicles, nearly flat with the previous year. This was in comparison to a difficult comp in 2009 with Cash for Clunkers.

Used retail vehicle same store sales increased 20% in the quarter. We sold 9,700 retail used vehicles, maintaining our industry leading used to new ratio of over 1 to 1. We continue to perform well in selling both program and certified vehicles and our as is cars with over 80,000 miles. We have lots of opportunities still in the three to seven year old vehicles, and will continue to focus our efforts to expand our customer base in this area.

Our F&I in the third quarter was $1,000 per vehicle. We arranged financing on 72% of our vehicles we sold. We sold 40% of our customers a service contract and 34% of our customers a lifetime oil product. As I mentioned, we have focused on selling higher mileage, as is vehicles that we previously wholesaled to competitors. In the third quarter, we sold approximately 2,100 of these vehicles, 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. Excluding these vehicles, our F&I per vehicle would have been $1,081 per car.

Now, let's move to service, body and parts, where same store sales increased 2.5% in the third quarter. As you recall, we were down 6% on a same store basis in the first quarter and flat in the second quarter of this year. For the quarter, same store domestic brand warranty work decreased by 15%, and import luxury warranty work increased by 5%. Customer pay business up 6% in the quarter, and we posted increases in both wholesale parts and body shop sales as well. We are pleased with the improvement we have made in this area, and are continuing to find ways to offset declining units and operations and reduced warranty work. I would also point out that, unlike some of our peers, our service, body and parts sales revenues do not benefit from the increases in reconditioning on used cars.

Regarding regional performance, North Dakota, Washington, Texas and Iowa performed the best. Alaska and Oregon were the weakest, as they had more difficult comparisons, due to the Cash for Clunkers program last year. In the quarter, overall gross margin was approximately 18%, compared to approximately 19% in the same period last year. This is primarily a result of shift in sales mix and average selling prices. Our overall gross margin remains industry leading, due to operating where we are the exclusive franchise in the market. Our gross profit per new vehicle retailed was $26.23, compared to $25.66 a year ago. Gross profit per used vehicle, decreased to $23.97, compared to $24.68 a year ago. Our average wholesale gross margin was $8 per vehicle.

In the third quarter, SG&A was 73.8% of gross profit. This marks our second year-over-year reduction in this area. We have continued our disciplined focus on cost control and believe we can achieve SG&A as a percentage of gross profit in the low 70% range, as sales volumes continue to improve.

As we discussed last quarter, we have increased spending in advertising where we think incremental investment is warranted. We are pleased with the results of our increased marketing as we have improved our market share in both new and used vehicle sales. Looking ahead, we continue to balance our advertising investment. We believe spending will remain constant with current levels on a dollar basis, although better leverage will be realized as volume increases.

I want to spend a few minutes discussing the acquisitions in the third quarter. As you may recall, we announced our entry into the Bend, Oregon market with Honda, Chevrolet and Cadillac franchises, and expanded our presence in the Billings, Montana market with a Toyota franchise. We are pleased that we are able to find opportunities like these, which can be purchased at two to four times EBITDA, or 10% to 20% of revenues. Additionally, all stores added this year are outperforming the pro forma financials we've utilized in evaluating these purchases. Looking forward, we will continue our disciplined approach to capital investment, including a pipeline of prudent acquisitions that meet our hurdle rates.

With that, I will turn the call over to Chris, our new CFO effective November 1, to discuss our financial position. Chris.

All right. Thank you, Bryan.

Our balance sheet continues to be in great shape, as we continue to generate cash and prudently manage leverage. At the end of the quarter, we had approximately $111 million in available liquidity, including $15 million in cash, $31 million available on our revolving credit facility, and $65 million in unfinanced new vehicle inventory. With these funds we continue to temporarily pay down our higher rate debt until we can strategically deploy our capital for higher return investments.

New vehicle inventories were at $284 million or a days supply seven days higher than our five year historical average for this time of year. Used vehicle inventories are at $87 million, or a days supply of five days lower than our five year historical average for this time of year. We're operating with leaner used vehicle inventory levels, but are attacking new vehicle market share, which requires additional inventory in stock.

Lithia's continuing our strategy of owning dealership real estate and mortgaging the properties individually. As a result, we own approximately 56% of our facilities. Our next mortgage maturities are in November, 2011, when approximately $3 million comes due. Looking on to 2012, approximately $8 million matures throughout the year. We continue to extend our mortgages in advance of their maturity date, and look for opportunities to extend duration.

Excluding real estate debt, our long term debt to total capitalization is approximately 12%. We have no sub debt, converts or bonds outstanding. Our current ratio is 1.5 to 1 ar September 30, 2010 and our book value was $12 per share. We were comfortably in compliance with all debt covenants at the end of the quarter and expect to remain in compliance in the future.

I wanted to update you on the non-operating properties we discussed on our call in July. We have continued to work on these holdings, and I'm pleased to announce that we have mitigated 24% of the properties, saving us approximately $0.03 on an annual basis. We have another 29% of these properties in advanced negotiations, and believe we will mitigate another $0.02 to $0.03 in 2011. The remaining $0.06 to $0.08 of carrying costs on the remaining properties are expected to be mitigated in 2012.

Now, I want to discuss the results relative to our projections for the third quarter. We exceeded the upper end of our guidance by $0.08 in the quarter. This improvement came from successful execution by our general managers and their operational teams. As we anticipate a slow but steady economic recovery, we are seeing regional differences in recovery rates. Through the use of individual store level budgets and forecasts, our leaders have transparency and the performance opportunity based on market realities. We were able to design performance expectations based on market differences, optimizing performance without adopting a one size fits all approach. In addition, this allows us to use data to respond quickly in each location.

We anticipate earnings in the range of $0.11 to $0.13 per share for the fourth quarter, for a full year expectation of adjusted earnings in a range of $0.84 to $0.86. We are pleased to be able to increase our full year guidance. For specific assumptions related to these earnings numbers, I would refer you to today's press release, at lithia.com.

We also pleased to introduce first quarter and full year 2011 guidance, based on an expectation of a 12 million unit new vehicle SAAR. Our first quarter earnings guidance is in the range of $0.15 to $0.17,nd we are projecting the full year to be in the range or $1.03 to $1.11 per share. Both projections are based on the following updated assumptions. Total revenues in a range of $2.2 billion to $2.35 billion, new vehicle same store sales increasing 10%, new vehicle gross margin ranging from 8% to 8.2%, used vehicle same store sales increasing 8.8%, used vehicle gross margin ranging from 14% to 14.3%, service, body and parts same store sales increasing 1.9%, service, body and parts gross margin ranging from 48.6% to 48.9%, finance and insurance gross profit of $970 per unit, a tax rate of 40%, estimated average diluted shares outstanding of 26.9 million, and capital expenditures of approximately $10.6 million. Guidance excludes the impact of future acquisitions, dispositions and any potential non-core items.

I will now turn it over to Bryan for some closing remarks.

Thanks, Chris. Third quarter results and our future guidance are a testament to the hard work of our employees. I would like to thank everyone personally for the hard work in improving our results, and to welcome the new members of the Lithia team in Bend and Billings. We rely on our local store leaders to make decisions that are best for our customers and our teams every day, and their efforts are appreciated and recognized.

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

Thank you. (Operator Instructions).

Our first question is from the line of Rick Nelson with Stephens. Please go ahead.

Thank you. Good afternoon, and congratulations on a really great quarter.

Thanks, Rick.

I'd like to ask you about the guidance for next year and what sort of SAAR environment does that assume? I know you're looking for 10% same store growth. Do we assume the industry is growing at that sort of pace? Or does this assume market share growth for Lithia?

Hello, Rick. This is Chris.

What we have on our guidance, and as we said in the prepared statement, is we're expecting somewhere around the $12 million SAAR for next year. In the order to make up that difference, what we're focused on through our operational team is increasing market share in both new and used in each of the markets that we're in. So we're looking about 5% from the general market, and 5% from incremental improvements in our stores.

Thank you for that.

Also, the service and parts growth rate, I'm curious to get your commentary as to what drove the increase and do you think it is in fact sustainable?

Rick, this is Bryan.

In terms of last quarter, we were actually able to make pretty good ground in our commodity sales, as we mentioned last quarter as well. That was very rewarding. We're starting to also see people come back in and they have more disposable income than what appeared to be in the future. On top of that, you're starting to sell more cars. I mean, obviously with these type of same store sales increases, you're starting to get consumers in -- quicker into the sales -- into the service process. So that's going to help offset some of that units and operations that we were very nervous of coming into 2011 and 2012, and now we really don't see the decline. We actually believe there will be an almost 2% increase in 2011.

Thanks.

Also, the new vehicle margins look like they have really stabilized and, in fact, improved on a per unit basis. It looks like your guidance incorporates some pressures there from what we saw certainly year to date. I'm curious, are you using price to drive market share? What was the thought there?

That was a pretty good assumption. We are assuming, to gain that additional 5% that's not come from the macro-market, that we're going to have to drive it through price to some extent. Also, our mix on vehicles is changing a little bit, which is modifying that market share -- or that margin a little bit, and that would do it between cars and trucks.

Any commentary on what you're seeing here in October from an overall stand point?

This is Bryan again, Rick.

We're right on forecast in October. We're finally back able to predict what's going to occur and it's a little more comfortable environment, where then we can start focusing on how do we increase market share and look for new opportunities, if the market doesn't recover.

What sort of brands,Bryan, are working. We hear trucks are still performing quite well?

Trucks are solid. That's accurate. SUVs are kind of stagnant, like everyone's been hearing. There's obviously some new products coming out, with the different manufacturers, and those are obviously building good margins. And all in all, it's pretty stable. Incentives really aren't vastly different than where they were a quarter or two ago. I would say this, it appears that Chrysler finally is hitting on more like six cylinders, because their marketing that we spoke to last time, as well as their incentives, now are all aligned. So we're starting to see the results there and we're real pleased at what's happening. Now that obviously doesn't change the fact that we still are keeping a close eye on the thing that are going on there.

Great. Thanks a lot and good luck.

You bet Rick. Thanks for listening in.

Thanks, Rick.

Thank you.

Our next question is from the line of John Murphy with Bank of America. Please go ahead.

Good afternoon, guys.

Good afternoon.

Question on the parts and service margin at 49%, it's a pretty impressive number in the quarter. Just wondering what is going on there? Are you selling sort of lower -- are you selling quick lubes there that are higher margins or why is the margin so high and is that something -- I mean, obviously your guidance was slightly lower margin going forward? But why would that erode, going forward?

Right now, what we're seeing is that the service department, which is our highest margin business, is actually improving more year-over-year than our parts is. However, we believe over the next number of quarters and into 2011, we have a new initiative that we're focusing on regional parts wholesaling. So we believe that our parts numbers, and even the lower end of our margins in part, are going to apply pressure to bring that back down. The single biggest factor when it comes to your service and parts margins is what is the mix between a 30% business and a 70% business in service department.

Got you. And is there anything going on with the average service ticket where it was higher or lower particularly in the quarter? That would have helped out or been a drag?

John, this is Bryan again. No. There's no big anomalies there.

On the average selling price increasing, is that driven by mix or -- why were you able to get such a good higher average selling price? It seems kind of unique to some of the other dealers that have reported so far.

John, this is Bryan again. Are you referring to higher than last year?

Yes.

If you remember in clunkers, our months were huge and we sold out all of our lower priced vehicles first. The price leader models, the lower trim levels, so and so on. We didn't really sell the higher dollar stuff until September and even into October and November, because that was all we had left over. So people were really attracted to getting those $3,000 and $4,000 incentives on the lowest price cars. That's probably the single biggest reason for the increase is really the comp last year was driven down by clunkers.

Got you. And you're not seeing anything unique in the mix in the quarter, sort of in October to date that is specifically rich to the beginning of the year, or is that just a year-over-year phenomenon because of the Cash for Clunkers?

No, I would say that most recently it's probably fair to say that our domestic same store sales and our domestic market shares have improved again. And they definitely have a higher portion of their business coming from SUVs and trucks, which are higher dollar.

And then just lastly, I know this is a very simplistic question, and it might be too simple to answer, but do you guy have a sensitivity to 1 million units of SAAR in your earnings forecast? Just because 12 -- sounds like we're going to be running at 12 in October and that might be prove to be a little bit on the conservative side? I'm not putting words in your mouth, I'm just asking if you might have a sensitivity, because we think it might be higher?

There's no question that at the lower SAAR levels, in the $10 million to $11 million range, that we were bumping up pretty hard against our fixed cost structure. So as the SAAR increases we obviously see more leverage. In fact, Chris even has a number that he can speak to, in just one second. But I really don't know a specific number of what a million in SAAR is equivalent to in terms of EPS or in terms of revenues. I know that the impact of it is fairly substantial fairly quickly. Now remember though, October, November and December, seasonally are some of the more difficult months and, obviously, one of the more difficult quarters.

Chris, do you want to talk to him about that, how much incremental dollars come from incremental sales revenue increases?

I think we look at that a couple different ways, John. The first thing to keep in mind is that we're seeing differences in each of our regions as far as the recovery. Certain markets are definitely responding better, and because of our variable cost structure and our focus really on productivity in each one of our stores, we're able to move our volumes and our staffing accordingly, based on what's happening. We're watching that very closely, in every market that we're in and every store that we focus in on.

What we're seeing,as far as leverage is concerned, for every gross dollar that we're bringing in from the quarter, when you just look over quarter for quarter, and John's got a nice slide on this, we're bring about $0.55 of every dollar to the bottom line. That's at number through -- that's a number from a number of initiatives that we are going to continue to focus in on and increase that leverage. We felt like with the opportunity to continue to work o, you know, cost cutting initiatives as well as profit improvement and gross margin improvement, we are going to see that leverage continue to rise.

Great. Thank you very much.

Thanks, John.

Thanks, John.

Our next question is from the line of Himanshu Patel with JPMorgan. Please go ahead.

Good afternoon, guys.

My question was just really on the sort of 6% customer pay increase that you saw this quarter, and sort of last quarter as well. Can you just give a little bit more color on sort of the drivers of the strength of that? I apologize if you covered this earlier in the call, but I'm curious is this partly driven by folks who had kind of deferred a lot of work and you seeing that type of customer come back? Is this the benefit of some of the recent dealer consolidations? How do you kind of put some color around that?

Himanshu, this is Bryan again.

In regards to the quarter, I think there's no question that our business is being driven from the service department. That's where most of your parts revenues obviously come from as well. We're seeing bigger increases in that area, and I think you spoke directly to it. It's definitely that people have deferred maintenance. They are now starting to act on that deferred maintenance. And then, we believe also that we've done a pretty good job and we've implemented some processes in terms of what we call ASRs, which are additional service requests. Which is, when a person needs service work, how do we follow up with them if they're unable to complete the work at that time. This is working out fairly well and is a lot more automated, including some direct mailings for ASRs to try to attract those consumers back into the dealership, after they've already left and they've deferred that maintenance.

Okay. Then I just wanted to clarify, did you say your 2011 guidance is based on a $12.0 million light vehicle SAAR?

Yes. It's a $12 million light vehicle SAAR.

So if we exit this year at $12 million, you're sort of not implying any sort of recovery. Is there something you are seeing in forward traffic, to use that level of conservatism? Or is it just -- am I reading too much in between the lines there?

I think it's important, obviously if we get the upside, and it ends up being $12.5 million and $13.5 million, then everyone wins, right? But we believe it's more prudent to be very conservative in our estimations and look at the $12 million SAAR as a realistic number. Then we'll be able to actually reduce costs and try to stabilize things at that, so we can improve our EPS and our earnings that we bring to the bottom line, even if there's not that increase in volumes.

Additionally, there's some pretty good regional differences that are occurring and we're not seeing in the west yet a recovery at that $12 to $12.5 million SAAR that a lot of folks are talking about. Now, we hope to. They were one of the earlier markets to go into the recession, but as of yet we are not seeing the big strong recoveries in these areas

And, last question for me.

I think your assumption, if I heard correctly, was 10% up on new units and 9% up on used units. That sort of kind of parity for both them. Would you expect new to start outpacing used at some stage over the course of 2011, or you kind of expect that sort of you know, comparability to continue in all four quarters of the year?

I think it's pretty balances through the year. I think there's no question that our comps are starting to be a little more difficult. That's fair to say. But I would say that our opportunities in used, in that middle market car, which is the real meat and potatoes of the used car business, in the three to seven year old vehicles. We're starting to make some headways there and we haven't pushed as definitively in those areas. We've been focused on that, what we call value autos, the seven year and older vehicles, over 80,000 miles, and really those certified vehicles. And now we believe that the opportunities in used are pretty dramatic in that middle market car. I think the new vehicle push, it comes through multiple things. Obviously that macro increase of about 5%, and the other 5%, is really the trend rates we're seeing currently in terms of what our market share is in each individual market.

I'm sorry, if I could sneak in one more. Is there a -- could you just comment a little bit on the behavior of captive and banks in terms of how deep they're buying now?

Himanshu, this is Chris.

Definitely, we're feeling like credit availability is getting better. However, specifically on the nonprime and subprime categories, there's still an opportunity to kind of set the alignment between what customers need to do to help us structure a deal to get them done and really make something happen. What I mean by that, is we need a little bit more equity. We need to see some values in some trades. We need to work on term. We need to make sure the customers are stable in the markets they're coming from. But we are seeing more opportunity there, but again it still comes down to that relationship in the local markets with the banks to structure the deal properly for the customers.

Okay. Great. Thank you guys.

Thanks, Himanshu.

(Operator Instructions).

Our next question is from the line of David Winston with Morningstar. Please go ahead.

Good afternoon, guys.

Hello, David.

A few small ones here.

Given you said (inaudible), is it fair to say you're not seeing as much pressure on new retail margins, compared to your competitors?

Would you repeat that again, David?

Is it fair to say you're not seeing as much pressure on new retail gross margins, compared to some of your competitors, because some of the other dealers are?

This is Bryan.

We're not seeing dramatic pressures there. Most importantly we're not overinventoried in many of the manufacturers, so we don't have that overhang of vehicles aging and new models coming out. Their incentives also have been very stable over the last six months. We are not seeing those dramatic swings that can affect inventories. I would say, it sure appears, in most of our markets and regions, what we're getting back is very stable.

Okay, great.

And geographically, can you comment on what you think are your best and worst performing markets right now?

Sure.

We're getting to that, David.

Okay.

Okay. Our best performing markets are North Dakota, Washington, Texas and Iowa, and our weakest are Alaska, Oregon and New Mexico.

And another housekeeping one, can you break out the $42.7 million of other long term debt on the balance sheet?

Yes, Dave, about $40 million of that is our revolver, and we have a couple million dollars of some sellers note that we gave to people we bought dealerships from back in the early 2000s when we were buying stores. Most of that we just make the decision whether offset new vehicle flooring or whether we want to put the balance on the revolver. We make that decision just based on cost of funds and wherever we can find the cheapest source of capital is where it is. So you've really got to think about the revolver balance relative to our unfinanced new vehicles, which as Chris mentioned, were at $65 million at September 30. If we would have just floored up those cars, we would have no balance on the line.

Okay.

Last question, can you comment on specific operating margin potential both for 2011 and after that?

One second, David.

We're looking.

I think, if you go back to kind of what we have as far as guidance is concerned in 2011, you can back into that number, but you know, it's in the high threes, low fours if you kind of look through there.

Okay. Great. Thanks a lot.

Thanks, David.

Our next question is from line the of Mark Gaskill with MKG Financial. Please go ahead.

Thank you. Congratulations, guys, on a solid quarter.

Thanks, Mark.

Just couple questions, and I apologize if you talked about these, I came in a little late. Did you give any update potential forecast for next year, as far as a range of new store acquisitions? I know you are always looking at them, but is there a goal for next year that's been changed, or anything?

This is Bryan, Mark.

We don't give any forecasts . Obviously we're not putting ourselves, in terms of any quotas or anything like that. We purchase the acquisitions with a certain hurdle rate, and if we're able to find those right now, you know the ones that we've purchased we're going very well at. Obviously, those hurdle rates can change, but we're not putting the pressure on our sales to have to buy anything.

I would say this, we have a fairly full acquisition pipeline. There's lots of stuff out there, as we've announced over the last couple quarters, and we're actively out pursuing some of those

Good. That sounds good.

The last thing I have is on the Chrysler models, are you finding that you have to give any extra incentives, are you getting reluctance from buyers? Obviously, there's more apprehension, but are you having to give more incentives, bringing margins down on the Chryslers, in order to move the inventory?

Knock on wood here, hopefully we're not going to have to, but right now our Chrysler margins are looking very stable, even on some of the slower moving product. Their pipeline through the summer months, they were pretty tight on product. And obviously, they had a few of their product lines that hadn't even come into play. Now, we're starting to be able to see the vehicles, but our margins have been holding fairly strong on the Chrysler products.

Okay, thank you. That's all I had.

All right. Thanks, Mark.

You bet.

Thanks, Mark.

(Operator Instructions).

Our next question is from the line of Peter Siris with Guerrilla Capital. Please go ahead.

Hello, Dick. Nobody has asked Dick a question.

[Laughter].

Where is Sid, Bryan?

Sid is out of the country.

Somebody's got to be there to tell you what great Fiat models are coming out next year, right?

Thats for sure. We've got a pretty good team here.

I have two simple questions.

The first is you know, all of these analyst gets on the phone and they ask the 12 SAAR this year and 12 SAAR in October, and what last week's sales are, and what I'm curious about is, if I look at the scrappage rate is what, 13.5, something like that, right now?

Yes, 14.

Okay. What that says is over some extended period of time, I don't care how long, sales got to get back to the scrappage rate or above. Is that reasonable?

That make sense.

Okay, I'm not asking for a projection. What I'm asking is this, if over an extended period of time sales have to at least equal the scrappage rate, what -- how would I figure out what a company could earn if it -- if the sales, I'm not asking when but at some point the sales will go above the scrappage rate. Given what this company is, what does it earn -- how do I figure out what it earns if we have 14 and 15 million SAAR year, which is what we will average over a extended period of time?

Peter, I think it's fair to say that, in terms of that bubble between actual scrappage and sales, that can be pushed and it can be expanded. Whether it's three years, whether it's five years, I think that's yet to be determined, but we're definitely seeing people keep cars longer. In terms of how you look at that and try to transpose or extrapolate something into our financials, I think Chris can give you some type of understanding on that.

Peter, I think the easiest way to do it, if you just take our guidance that we gave on the call and run that through your model with that increase in projection, using that $12 million SAAR number you will see that the upside opportunity for us it very strong. We like playing with that model, but it's not something right now that we're focused on for next year.

No, I understand this, Chris. I know it's not for next year. I don't think that -- but, above 12, -- so for each million above 12, what does that add?

We actually had that question earlier, and it's not something that we really share, but we will say that we believe that each incremental dollar of revenue or gross profit that's generated, about $0.55 if it goes to the bottom line. I also believe, this is just me speaking here, that as we get further away from these lower levels of $11 million, $12 million SAAR, we can definitely expect to gains some economies of scale, to find new ways to improve productivity. We can find other ways to distribute expenses and I believe we can reach upwards of 60% to 65% of each dollar being put to the bottom line. And we've seen month over the previous 12 to 18 months where we're been able to do those type of things.

As you run your business, as you make buy decisions on new dealers, and as you plan -- you work on a five year plan, I'm not asking whether it's this year or next year or the year after, and I agree with you, people are going to keep their cars longer. But over an extended period of time, this is a question, you think sales are going to be above $12 million?

Yes. How is that? [Laughter] Absolutely. They have to be. I don't know whether we're going to get to $14 million or $15 million in two years or five years, and I wish I had a crystal ball to be able to see that.

My issue for the analysts who are out there, is I would love to figure out what for you and for your competitors what kind of money you earn, even if it's three years out, or five years out, when the SAAR goes back to where -- to it's more steady state.

The other question I have is this, Oregon, you said, is still one of your weak markets. If I remember correctly, Oregon has been a lousy -- a weak market for a lot years. It went into a recession way before everybody else did. Sales in Pacific Northwest have not been a great for a while. What do you think is going to turn Oregon as a market? Besides the Ducks being number one, and winning the National Championship?

Two weeks in a row where that's not happened. That's good.

You know, obviously we have some fairly high tax rates in the state. It's maybe not the most lucrative place for businesses to relocate. However it is as fairly invigorated and newly developed state, especially in the Portland market where it's an attractive place to live. There's no question. I think that we just need a little bit greater balance economically, and in terms of where our political culture is and we'll see some of that. These midterm elections could change a little bit and help our state.

But ultimately still, it's not like it's dramatically worse than our other states. It's a few percentage points behind that.

Thank you very much, and Dick, I appreciate all your answers.

Thanks a lot.

We have no further questions in the queue at this time.

I would like to turn the call back over to Mr. DeBoer for any closing comments.

I'd like to just thank everyone for joining us today. I have never felt better about the outlook of our Company, and excited to continue to update you on the progress in the coming quarters. Have a good afternoon.

Ladies and gentlemen, this does concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.