Penske Automotive Group Inc (PAG) 2002 Q1 法說會逐字稿

This is an unedited realtime transcript. An edited version with proper case and full speaker names will be available shortly.

Pentagon pentagon good afternoon. I'm pleased to report our 1st quarter, 2002. I hope all of you have had a chance to see the press release that we put out this morning. Statements made in this conference call may include flamentsz regarding uag's future and earnings potential. Actual results may vary because of interest rates, changes and other factors over which management has no control. With me today in new jersey are samuel difeo, james davidson, and others. Thanks for joining us so I can review our results today. Before I discuss the specifics of the results, I would like to highlight some of the key items for you. We had a great quarter. Revenue increased 19%. Gross margin increased 50 basis points to 14.5% and net income increased 139% to $15.7 million. Earnings per share increased 90% to 40 cents despite a 23% increase in weighted average shares. On great will, earnings per share would have been 29 cents in 2001 versus 40 cents this year, a 38% increase. We believe our brand mix allows us to capitalize the changing share dynamics in the u.S. Automotive retailing market. During the quarter, we achieved same store new vehicle revenue increases of 4.2% at domestic dealerships and 8.9 at our foreign dealerships. Also, 69% of our total revenues were generated from foreign nameplates during the 1st quarter of 2002, which compares to 63% in 2001. Uag continues to realize new and used same store sales increases. We believe the resulting increase in units in operation, and I say units in operation bill continue to drive the growth in the parts and services business. We reported our 12th consecutive quarter of same store revenue growth since the investment? Uag by the pen ski group. Let me review some things i think you'll be interested in. I'll break down the revenue. New revenue for new vehicles was 7.3% up, used revenue, plus 2.3, if andy up 12.4, and parts 7.7 up. The company received 125 million from the sale of three million common shares to the public and the exercise of warrants by penske capital partners. Also 300 senior subordinated notes due were issued, interest rate 9.625%. The proceeds from the stock was used to pay for borrowing under our credit agreement. These equity transactions completed during the 1st quarter increased the public flow of common stock by 75% to approximately 15.8 million shares. Fully absolute -- tlooted, 54%. Acquisitions during the 1st quarter as was released previously, we were awarded the mercedes-benz market area in the uk, which will ultimately include four dealerships. It is located 60 miles from london and currently has two active dealerships, and the remaining two dealerships are expected to open early in 2003. We've talked about -- let me go back. We talked about the acquiring of sitner in england. They operate 60 franchises and is the leading prestige motor retailer in the united kingdom with estimated revenues expected to be in excess of 1 billion. Also we entered into two ventures during the quarter with toyota and lexus. A joint venture to sell them in the frankfurt, germany market. We also opened a new toyota dealership in monterrey, mexico. Toyota has made a strategic decision to move into the mexican market in 2002. Because of our relationship where toyota and results, uag was one of the four dealers selected to represent them in this new venture and we have the monterrey market. Inside the u.S., major market dealerships continue. Body shops are operating in atlanta, indiana, houston, and little rock. We expect them to generate up to $10 million when up and operational with gross margins in excess of 50%. Also, our north scott dale, arizona franchises will operate 11 franchises. The first retail outlets, with m with and audi in the second quarter of 2002, and expect to be fully operational by the end of the year. Five of the new franchises will be additional points that have been awarded by the I'ms. -- on a ams. In the 1st quarter, new retail revenues increased 21.3% to 978 million. Same store sales increased 7.3. Used retail sales in the 1st quarter increased 17.3% to 312 million and same store, 2.3%. More information on wholesale, we whole sailed 15,620 units with a loss of $24. We wholesaled 13,000800 with a loss of $50, so we found the market to be quite boring from the standpoint of our wholesale units. Finance and insurance increased 18.3% to $39 million, and same store revenue increased 12.4. The good news is that our if andy gross per transaction was up $29 [ indiscernible ] our finance penetration was approximately 70% for both new and used vehicles. More than half of these transactions were done with our captive oams. We've recorded f and I of 100% which is consistent with the other companies in our group. Moving on to parts and service, our s and p revenue increased. Our body shop labor revenue increased 14.4% to 13 million, same store, 18.9. This is just a labor number. Typically you have almost another dollar of revenue which would be generated from the parts that go along with the labor association that has some real legs for us for the future. Gross profit, it was up 23.6% in the 4th quarter. Same store, up 17. The margin increased 50 basis points from 14% to 14-1/2. I think the increase in our margin is primarily due to a 20 point basis increase in our margins on new vehicles and 120 basis increase in service and parts revenue. Just giving you comparisons, q1, we were at 14, cue, 13.8, full year, 13.9 so we have definitely moved the bar. I think it's important to note as people look at our numbers, we typically, new vehicle retail sales represents 60% of our total sales in the first quarter compared with the average of our peers of about 57. We know that has some downward pressure on our gross margin, but we think with the units in operation, getting these vehicles out there is going to give us that follow on parts and service business, because of the longer warranty will drive that business into our shops. Looking at sg and a, in the 1st quarter, it was 194 million at 11.9%. That's an increase up from 11.5 in the 1st quarter of 2001, but as we continue to invest in brand management and training along with with the increases that we've had in healthcare and insurance costs, drifb that number up, but we think we're well in line. Interest expense, quickly, on our debt with 7.9 million for the quarter and our floor plan interest was 8.6 million. Just a note on tax rate, it was 40% in the 1st quarter, and that was down because we have some benefit from our european operations when we consolidate the tax rates. We currently estimate as you look at the balance of the year that our rate will be between 40 and 41%. Moving on to the balance sheet, let me review a couple of key items. Total inventories as of the end of march were $833 million, which includes 145 million from sitner. Without that, our inventories would have been down 8% on a 19% increase in business, so on the basic businesses, we had some good leverage from the standpoint of momentum of sales. Again every again, inventory supplies, we had a 52 day supply, used was 32. We took hole sale out. -- whole salt out. We can always do better, but we are very consistent with the leaders of the pack as far as inventory. A new vehicle inventory from the standpoint of our business was 606 million, and we had 14 periods of that over 120 days. As you know, we've talked about it before on this call, our goal was to get to 10%. A year ago, we had 20% over 120, so, again, great progress on new. From a used perspective, we had 4% of our 180 million over 90 days, so, again, good inventory control both on new and used. Capital expenditures for the quarter was 36 million. We also completed a 50 million sale lease jack during the quarter 4th quarter. Maintenance cap is 5 million, roughly $20 million. Moving on to debt, let's review uag's debt position at the end of march. That's after the completion of our common stock and subordinated debt offerings. Total long-term debt $485 million. March 1, bore rings amounted to $243 million, which leaves us the capacity to borough an addition add 453 million. In addition, we placed 3 hundred million of senior sub 98d notes at 9.65 in march. The proceeds were used to repay the credit agreements as I said earlier. Floor plan boroughing, at the end of march, were 758 million. Of our 1.3 billion in total net, includes floor plan as of the end of q1, 5 million was fixed, weighted average 8.6%. That puts is in great shape. I know there's been a lot of discussions, I've heard, and I'm sure you have that what will happen with interest rates. So I had our folks put together what's the impact of -- based on our march 31 balance sheet, if we had an increase in short-term rates what would be the impact on our interest expense. There's a 25 point basis increase in the overall short-term rate. With 50 basis points it would be 1.1 million, 100, it would be 2.1, so that gives you a sense of the impact. The good news is that we have over 500 million fixed at the point. Obviously as we look at the oems and other interest rate scenarios in the past, manufacture assistance on floor plan continues based on turnover of vehicles and et cetera. As a component of cost of sales, we had the benefit during the 1st quarter of $7.8 million in floor plan assistance, so we credit this to the cogs of sales. -- cost of sales. Debt to capital ratio was 47%. It was 53% in q1, at the end of the year it was 52, some we're meeting our goal to maintain a debt to capital ratio of no more than 50%. Ebitda was $39 million for the quarter. A 35% increase over q1 of last year. Ebitda for the year is going to be approximately 189 million base on the information we have at this point. Total debt excluding floor plan ebitda is 3.1. We talked about acquisitions, but that continues to acquire strong brands in the right markets. As noted, acquisitions already completed are expected to generate in excess of 1 billion in annual revenues including sitner. I thought it would important today to discuss a little more about sitner. They are the leading prestige brand retailer in the uk. Their portfolio fits perfectly with our strategy. I'm pleased to report that all the key management is still with us today. This is a group of really highly talented operational and financial managers that have an average of almost 10 years with sitner. They go back when sitner had three franchises and today, they operate 60 so we have a great team on board. Like uag, sitner has expanded their business through acquisitions with a focus on developing a national network of dealerships concentrating with core brands. Sitner is the number one bmw in thing u being with 16 franchises. Sitner has developed a unique relationship management system with a goal of retaining customers or life. Based on their success, we want to implement a similar model in our domestic dealership operations. A further feeter of the crm program is every customer who buys a vehicle is integrated into a sitner contact center at our website. It's an operational base for the crm program through the context sitner offers the following. All inquiries regarding scales and service. They schedule service appointments, direct mailingses to customers. They notify customers of warranty recall and notices from the manufacturer. I can say to you this system is far superior than the one utilized today by uag. Another great practice that we want to share with sitner, it will en hence profitability as we go forward, how do they manage their people. They had an annual turnover of less than 30% which is significantly less than the u.S. Average of 90%. I got that statistic this morning from the january 2002 nad national average, so hats go off to the sitner team. Also, they have extensive used car expertise. Their used car ratio is approximately.8 to one. We're extremely pleased with their performance. Their early returns are exceeding our expectations. We'll continue to evaluate opportunities in the u.S. And europe. We will pursue those that meet our criteria and certainly give return to other shareholders. We continue to evaluate whether we should fix, hold, or divest stores that under perform. Let me make a few comments on internet. As I set before we continue aggressively to pursue using the internet as a tool to retrace traffic to the stores and increase efficiency of our operation. In the 1st quarter of this year, our internet sales for both new add yoond were 9.4% of total retail business. Our cars direct, which is our multibrand franchise partner, our business doubled during the 4th quarter. Wards had their top -- [ indiscernible ] internet is live and well at uag and we're going to continue to use it. I might say that in my recent visit to sitner, they are very engaged with internet selling of their brands. Just before I close, let's talk about the 2001 -- or 2002 1st quarter brand mix. The number one revenue provider for us was the lexus relationship with 26% of our revenue, 414 million. Daimler-chrysler was number two with 18%, 289 million. General motors was third with 13%, 2 '16 million. Honda act contrawas 12%, with 190 million. Our ford relationship was 12% with 1 hundred 87 million. Bmw was 128 million. Affinity at 160 million. That gives you a quick wrap-up on our brand mix. Foreign name plates venn every generated 69% of our revenues during the 1st quarter. Now wrapping up, the key metrics things that we all, our mission here at uag is to -- csi remains strategic. You might see the note I sent to keith crane talking about how big retailers are attacking their customers and trying to provide the best service and deal with the best metrics from the standpoint of the retail relationship. We're working on employee turnover. Certainly inventory control, we've made a lot of progress there. We'll continue. Margin expansion, we had the benefit of that during q1, and obviously expense controls, as we get larger, we see many opportunities to reduce expenses. I also think we continue to believe that the automotive retail sector is undervalued relative to other retarls. As previously noted, the elimination of goodwill was 4.6 million and we'll continue to evaluate the impact, if any, from the impairment provisions of the new goodwill standard which we would expect to adopt in q2. The press release this morning, we indicated we expect annual eps to be in the rang of about $1 80. Please note that this estimate has been prepared assuming 41 million 500,000 analyzed weighted shares. It would be a 21% increase. On a quarterly basis, the balance of earnings would expect to be earned as follows, between 51 and 53 cents, q3, 22 and 54, q4, between 37 and 39. This assumes no acquisition activity for the end of the year. So that completes the formal information this afternoon, so I would like to open it up for questions. Thank you very much.

Thank you. At this time if you would like to ask a question, please press star 1 on your touch-tone phone. Questions will be taken in the order they are received. If you would like to ask a question, please press star 1.

Rick nelson, you may ask your yes, and please state your company name.

Stevens. Judge do you think same store sales are so much stronger than everybody else that's reported and strongser than the industry numbers that we've seen?

It's good management, I'd like to say, but overall, we've made a commitment in our compensation plans, they are all tied to increases, we've told people we're a public company, we need to grow the business. Compensation, we've done a lot of work on facilities. We've expanded body shops, service and parts have had a tremendous amount of work on across the business, and i think that the brands that we are involved in today, when you look at units per outlet, just to give you a couple of metrics, toyota had the number one sales per outlet nationally at about 1300. Our toyota dealerships averaged 3,000. Lexus were number two. They averaged 2,000 last year, so I think we're getting larger dwoips. I'm going to get a metric for the next call to talk about how many units we're selling per location, which should give us certainly some good opportunities. So even on the domestic side, we had really good, as I said earlier, good growth and this is because we have strong used car capability, we're trading a lot of used cars, we're not afraid to step unand trade them. Our same store sales is up, also. So it's an opportunity from the standpoint of the right brands, our locations. Also, we've really tried hard to vertically integrate with our oem partners with floor planning and extended warranties and using them from a standpoint of captive finance, so those tied together give us that strength.

The manufacturers are putting up some strongs numbers today for april. Is that your experience as well, continued strong sales?

We're going to have a good month. We don't have numbers today obviously, but we'll be on plan.

Thank you.

Renee shaw.

Morgan stanley. A couple of questions. First on the sitner acquisition, do you have a better sense of synergies either on revenues or margins over the next 12 months. Second, can you talk about what you're seeing in terms of credit availability particularly for used cars, and then third, if you can talk about brand mix, if there are any brands that didn't grow in the quarter, that would be great. Thanks.

If we looked at sitner, I'll give it to you on a broader basis, we're looking at revenues of probably around 800 million, that would be about 2-1/2 to 3% business based on mix, so they would be strong from the standpoint of what we've seen in the 1st quarter. I just returned, spent a couple days over there. Their business is very robust at this point. From a used car perspective, you ask whether there's any pressure on financing. One of the reasons that we're linked tightly with our oem captors, if we give them 70 or 80% of the new financing along with the leases, they tend to buy deeper from the standpoint of the used cars, and also that would apply ply if they were getting the extended warranty, so those are things that -- I didn't get the third question, I'm sorry.

Brand mix this quarter, if there are any brands that didn't show growth this quarter.

Our gm brand was down 2.2%. We were down 5. Honey da was down 2-1/2 and we were down just over five. That was availability, but everything else -- I guess we were down in infinity. Everything else was up.

Just a follow-up on sitner, I was trying to get a sense in incremental synergies, profitability, growth, do you have a better sense now oh what that business looks like?

Sitner has the opportunity through some console dations of locations where they can put two dealerships together. I reviewed two bmw stores this past week, and we can end up with a super store and take out a lot of duplication of overheads. I think the expansion, with the reputation sitner has, the premier auto group, which has been probably not well executed in the states, sitner is right in the middle of that, and markets are being offered to similar larger players. We also just received a lexus and toyota open point in the birmingham area, which would give us that entire birmingham market, which is the second largest city in the uk, so we're already seeing opportunities there.

Thanks.

Nate hudson. Bank of america securities. A couple more details on sitner. What was the revenue contribution from it during the quarter? What kind of sales comparisons did it post in march?

Well we didn't get all the revenues in march. The revenues were around 90 million in march. I might point out that march is always a real strong month because of registration. You have really two data points, one is march and one is september. Those are key registration months. That wouldn't be a tip month based on revenue or sales, again it was a strong month.

Can you talk a little more about the outlook on your service and parts business? Do you think the 7.7% increase you saw this quarter is a reasonable uke for the rest of the year?

If you go back, and I don't have that metric memorized, but we've had consistent not only service and parts, but gross increase because we've had -- we've been expanding our operations. I said it the last time on the call, we're going tonight service, we're opening on statute sats, we're opening on sunday's, we'll continue to do that. The body shop expansion, as you know, there are a number of smaller rollups in body shops. Today I think we'll get the benefit of those because we're tied to the oems. With that, we have a much better opportunity to great, so I see body shop increases really leading our parts and service, and that will help us with our absorption of our fixed expenses. You know 68% of our expenses are variable and 32% are fixed, and today we're running probably somewhere in the neighborhood of 65% of those fixed costs are covered by parts and service. So we have more units in operations are going to drive more parts and service. If you look at the increase in unit sales and revenue over the last couple of years, we're starting at the benefit of the parts and service today. Our average increase in parts and service have been 6.7%, someone gave me that. Someone gave me that note.

Thanks very much.

[ indiscernible ]

Bear, stearns. Gm announced they were going to remove 0 financing and probably the manufacturers will follow through. How do you feel about the timing of this and what could this do with uag's next quarter in financing? I think for us, because of the mix of our business, we won't see a lot of impact because of the 69% of our revenue was generated by foreign name plates, and when you think about it, you go all the way back following 9/11, most of the hondas toyotas have been selective models, but the majority of that has not hit our brand mix. It will be interesting to see what happens with gm, but again, a lot of the stronger models, the trucks and better suvs, they had really lowered that opportunity, and many people would come in and really elect not to take 0 and would take some cash back. They've turned it back, they have different opportunities there for the customer. They're not going to lose the momentum I'm sure, based on my conversation with some of the field people. So I see it really just a marketing strike that. Q1 is typically -- they picked it back up and they're changing the mix of incentives. I don't think you'll see them go down in q2.

Jerry marksman.

Good afternoon. General motors announced today that they were taking their net price assumption to negative 1.4 to negative 1.6%. I'm hearing that ford is easing off a bit on some of their select models. Is the pricing environment easing off, like ford and chrysler and still heating up on gm, is that how it's working?

I can only look at the average retail growth per unit. We were up on a per unit basis in the 1st quarter: We really look at an average across. So we've been able to gain margin on our new vehicle business. The killing price might be the same, but -- selling price might be the same, but some models they've even taken out antiskid brakes. It would be an option. Let's get the price down, which I don't see how that helps us from a financing balance, and residual when we get down the further -- road further in the life of the vehicle. Also, they were talking about depending on weather gm wins the debate, in any event it still looks like u.S. Vehicle sales this month were going to be kind of north of 17 million. With your new guidance that you've put out there of $1.80, what is that kind of based on, other a same store sales basis, have you kind of provided that? We come from -- we come bottoms up, and I don't think the sales rate we've heard from 158 to 165. You said 17 today. I think from our perspective, we look at each individual dealership, and that's how we grow our model and our business. I think at this particular point, I would say it's going to be 16 plus, and when you look at bmw is up 15%, this is a sweet spot for us in terms of the standpoint of the volume manufacturers. I'm sure that certain parts of the country might be impacted. We don't always see the strength in one part of the country that we see in the other, but basically in the 1st quarter I think it's been pretty good.

Thanks. Two quick questions. One, could you briefly talk about any time frame or costs associated with this roll-out of the crm from the sitner group over to the united states, and I'm sorry, I don't know if jim can answer this, i haven't seen the restatement on the new f andy as you are reporting it on the basis.

I think I had something on that. Let me go back to one other item. The r -- crm from the standpoint of sitner, what we're doing, it's software that they own that has been generated, so we'll get the benefit of that software. We've had this slightly over 60 days, so we'll start to see some benefit from that. The most important benefit we'll have is customer retention. We need the repeat several business. That will grow our business long-term. That's where sitner has grown is customer retention. Jim said if you'll call him, he'll give you the restatement of the prior years. We have it just quarter to quarter I think at this time on a year today basis.

Okay. Thanks.

Domestic nick markelody, bare stearns.

Do you have the breakdowns on the brand growth?

I don't have the brand growth, but we can certainly get that for you. When you you look at it, we've grown more than in most cases than you just take ford, they were down 12, we're at 4-1/2. We had a much better 1st quarter with ford than we had -- chrysler, we were up 7%. They were down 7. So, again, I know that those types give us -- we've had a list on a year to year basis. We've done a lot of work on our domestics to make sure we get same store growth in parts and service and in investments. We've moved into some new facilities in houston, both dodge and chrysler, a new facility in the phenomenal Miss -- memphis. These are helping drive the store. Secondly, the floor plan assistance versus the floor plan expense, can you give me that number?

10.9 million for the quarter. -- 7.9.

What was the death at that year over year?

I don't have that number. We'll get you for you if we have it. Satisfies 7.9 for the 1st quarter. Jim davidson will be glad to give that to you if you call him.

What was the share count at the end of q1?

39 million 4, am I right? 42 5.

Okay. Thanks.

Peter caroost so, merrill lynch. Can you please clarify for me, your new car inventory on a same store basis in dollars, good it actually come down year to year in this quarter?

If you took sitner, it was probably down about 80 million between q1 last year and this year.

Can you explain why you manufacture part -- your manufacture partners are not disturbed by that change? Sounds like they're not able to push as much inventory to you as they did in the past.

I told the guys call them when they want to push more inventory. No, not really. Quite honestly, we have a tremendous system which is -- we have a report every morning where we can look at deals that are in progress, we look at our inventory. We have done a better job. The opportunities to have a view of that inventory on a daily and hourly basis, and we've used this from the standpoint of compensation as inventory control, the oems were turning it. That's the key thing. I've seen some of the others doing a great job there, too. We just have a discipline of a certain base supply. We're not limited by capital, we're limited by turnover. You will see us, if we would have used cars starting to build up, we would wholesale those. And secondly, sounds like you're sacrificing gross margin deliberately a little bit in some of your brands in order to expand the size of the marketplace that you can turn to for service, labor, and repair kind of work. Are you doing that with all of your brands or just selected brands? I would say this, that we are a volume, we need to grow our open line, grow it by manufacturers, and remember, we might lose some margin on the front end, but we'll get some finance, lease revenue, we'll get a used car that will come back in many cases, and certainly as you know, all manufacturers today are trying to tie that customer, total buying experience, back to the dealer. I think it makes a lot of sense. We're investing in the back end, meaning we're investing in parts and services. In many cases we're able to do that by opening a second and third shift. More units in operation, we have primary market areas which are being assigned to us by the manufacturers, so the more units we can get in operation is going to drive that. I think it's not a unique strategy by uag. It's the fact we've been able to generate this. It's not a specific formula. Each one is driving to meet their growth commitments on their plan.

Thanks.

Keith hogan, eaton advance. -- vance.

The recent announcement by for the record to split links mercury out of the pag group, how does that afocus you guys, I know you've rolled outone of these dealerships. Are you going to have to -- the links mercury dealerships?

It was a management process. The pag, the good news was that ford had -- bought land roller. The brands along with [ indiscernible ] lincoln was the high line brand and would fit together quite honestly with jim O'Connor now taking over the sales responsibility really in north america, both brands, it will be a great move because they're -- it's a higher volume brand than jaguar and land rover. It won't affect us at all. We might have a different person calling on us, but i think strategically it was a good move. The other question, I was on the two sales calls this afternoon for both ford and gm and one of the comment threads that went through the calls was potentially some of the strong sales were a result of a lot of people using cashout equity home refinancings to buy automobiles and such -- in such a great enment. Is there anything you guys are able to track in your sales numbers, say, an increased number of sales, percentage of sales driven by cash sales that might indicate the degree to which that's happening?

I would think, and I don't have the number for you, we will get it for you, I would think that our finance and lease penetration went up in the 1st quarter. I don't have it specific, but it feels to me we really had more finance than leagues. Obviously with low interest rate environment, it's driven a lower cap cost from leases, and also financing, I can't communicate with you with any assurance that people are remortgaging their homes and loans, that has generated a lot more capital availability. I think there's been good pricing, certainly since 9/11, gm getting america rolling, all of that has been very positive, but again, when you start to look at the value of cars, there's used cars that were in short supply. We had a shortage of used cars coming. In the uk they're trying to buy cars to get the right ones. So the market was well balanced going into the q4 and going into q1 with inventory, both new and used, and that's given us the opportunity to see this growth.

Great. That was the -- those were the questions I had. I want to wish you good luck.

[ indiscernible ]

What's your ability to do acquisitions as far as a dollar value? How much room do you have on your balance sheet? We have over 450 million available, and of that, i think 350 of it would be unsecured, so we could really do that without having to need an equity component, but typically just as a matter of our own model, we like to see probably 15 to 20% of equity, but at the present time, it's even -- even in the sitner transaction, we did it with cash and not equity. The equity that we raised here over the last quarter put us in good shape for the next several months. Just from an acquisition pipeline perspective, what does the pipeline look like and what sort of mull pulses on an ebitda base assists to buy the property that you'd like? There's a lot of noise out there today with people who basically probably see this might be a time, because many of the public players and even some of the larger -- I'm sure the larger nonpublic companies are growing to get scale to reduce costs and get leverage in a number of areas, but i would think that -- that on an ebitda basis, depending on what the brands are, they'll go anywhere from 3 to 6, depending what it might be.

Thank you.

Again, if you would like to ask a question, please press star 1 on your touch-tone phone. Rick shane, ask your question.

This is michael gal from rogers stevens. On the floor plan interest model, can you give some color as to what degree was it from, better inventory control, and what degree was simply lower rates, and then a second question, on the sga side, it was higher from the insurance costs. Anticipating the benefit from lower short-term rates climbing, what do you see the areas for that improvement exclusive of floor plan costs?

Let me say from a floor plan cost perspective, half of it was rate and half of it was inventory. It would be 50/50. From the standpoint of -- the other question was sga, where we thought we'd take costs out of there?

Yes.

As we look at our business, we need to provide our dealer principals that are running these businesses the support. Some people call them plat forms. We call them regions. What we've done is give these regional managers the capability of a parts and services specialist, a finance person, personnel, et cetera, in training, and some of that has created more costs to us, but it gives us the scale today as we've divided up the u.S. We have the top professionals in place. Also, this same group, almost works as our own investment banking group going out and looking for acquisitions because we have people in the field that are familiar with those regions and have relationships with dealers, so we see that being some of the costin crease. We'll see that come down. I think at 11.9, it's certainly in line, and with the growth that we think we're going to have, we don't see a lot more fixed costs that we have to put into our business end of the region, so hopefully we'll be able to take -- bring some of that down. Advertising on a cost per vehicle is something we're looking at. We want to get repeat referrals, do a good job in service. The 4.6 million and a quarter of dna expense, was there any goodwill at all? The quarter?

Less than a couple hundred thousand.

Thank you very much.

Thank you. At this time I am showing no further questions.