Sonic Automotive Inc (SAH) 2009 Q3 法說會逐字稿

Good morning, and welcome to the Sonic Automotive third quarter earnings conference call. (Operator Instructions) As a reminder, ladies and gentlemen, this call is being recorded today, October 27, 2009. Presentation materials which management will be reviewing on the conference call can be accessed on the Company's website at www.sonicautomotive.com by clicking on the For Investors tab and choosing Webcasts and Presentations on the left side of the monitor.

At this time, I would like to refer to the Safe Harbor Statement under the Private Security Litigation Act of 1995. During this conference call, management may discuss financial projections, information of expectations about the Company's projects or markets or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the Company's filing with the Securities and Exchange Commission. Thank you.

I would now like to introduce Mr. Scott Smith, President of Sonic Automotive Incorporated. Mr. Smith, you may begin.

Thank you. Good morning, ladies and gentlemen and fellow shareholders, I'm Scott Smith, President and Chief Strategic Officer. Welcome to Sonic Automotive's third quarter 2009 conference call. Joining me on the call today are the Company's Vice Chairman and Chief Financial Officer, Dave Cosper, our Executive VP of Operations, Jeff Dyke, Rachel Richards, our Vice President of Retail Strategy, and Greg Young, our Vice President of Finance. If you'll please turn to the first slide.

Today, I'll be discussing an overview of the quarter, and then I'll turn the call over to Dave Cosper for a detailed financial review. Jeff Dyke will follow Dave and give an update on our operational trends, and then we'll open the call for your questions.

If you'll turn to the third slide -- overall results Q3, I'm very pleased with our performance this quarter. You're going to hear a lot of great things on the call today. For the quarter, we made money and generated a lot of cash. Our operating margin was 3%, and we continued to leverage our cost reductions. Our inventories are in good shape, and we cleaned up our balance sheet. And we also benefited from the cars program and have collected nearly all of the $25 million receivable that we had from the government.

I wanted to quickly summarize what we've accomplished at Sonic Automotive this year. We completed a debt restructuring earlier this year when the capital markets were essentially closed. As the year progressed and the markets began to thaw and open, we were able to complete a very successful equity and debt offering in the third quarter. Dave will go into greater detail on the offering, but I think our existing bondholders and the market in general responded so favorably to this offering because they understood that we are taking care of our near-term debt obligations. They also recognized that we were removing a very dilutive convertible security from our capital structure, and that our business model was performing as it should during the recent downturn. Obviously, the new vehicle business benefited this quarter from the cars program. Jeff will share some slides showing the impact this had on our new vehicle business, and I also want to point out that the cars program had no negative impact on our used car volumes. We continue to see our used vehicle business grow as we execute our playbooks in this area. The business is growing as we take a greater share of the market across the entire used vehicle spectrum. Our parts and service business has remained very stable despite the pressure on the new vehicle sales, and our margin in this area was up 100 basis points over last year and grew another 30 basis points from Q2 levels.

We have embarked upon a mission to become one of the best companies in America to work for and shop at, and I know that sounds hoakey. I've talked to you about this before in the past, but we'll become a much better Company just by striving for this lofty goal. Our associate satisfaction is at an all-time high, and our turnover is an all-time low. Investing in our people is the right thing to do, and our results this quarter and throughout the year show the benefits from having better trained, longer tenured associates to implement our playbooks. I really think that we're on to something special at Sonic, and you'll hear more about it from Dave and Jeff. With that said, I'd like to turn the call over to Dave to go into more detail on the financials. Dave?

Thanks, Scott, and good morning, everyone. This slide shows our third quarter results for 2009 compared to last year. Both periods have been adjusted to exclude unusual charges. The reconciliations to GAAP results are shown in the Appendix. As you can see, although revenue was down nearly $100 million, gross profit was essentially flat. Thanks to good cost control, we were able to achieve an operating margin of 3% for the quarter up from 2.3% a year ago. Bottom line, we earned $10.9 million after taxes for the quarter, compared with $6 million last year. We improved year-to-year even though non-cash interest was up several million dollars. In terms of diluted earnings per share, we're at $0.21 for the quarter, $0.06 better than a year ago. And as you can see, of course, share count is up substantially this year. Next slide, please?

This slide shows the sequential improvement in profits through the year, and as shown, pre-tax profits have improved from just under $7 million in the first quarter to nearly $19 million in the third quarter. These numbers have been adjusted to exclude unusual charges principally related to our debt restructuring and impairments. This improvement has been made in a relatively flat industry environment. Our many business initiatives are gaining traction, and Jeff Dyke will talk about these initiatives in a few moments. Noted on the bottom of the slide is the substantial amount of non-cash interest included in our earnings. Further detail on components of interest expense is provided in the Appendix. For next year, the non-case expense associated with our revolver and our 4.25% notes will be substantially lower, and non-cash interest on our 6% notes will be gone. We expect non-cash interest on our new 5% notes to be about $1.5 million per quarter in 2010. Next slide, please.

I feel the performance of our business is masked somewhat by all the non-cash interest and other charges running through our income strip, and that's why we should put this slide in. This slide shows EBITDA for our business, and this really removes a lot of the noise. And similar to the prior slide, the sequential trend is very favorable. If you had to gather the second and third quarter EBITDA numbers and double them, you are getting close to the EBITDA level of 2007 on much lower industry volume. So with further planned improvements in our business and an uptick in volume, our earnings and cash can easily reach those prior levels. Next slide, please.

This slide shows our SG&A trend. We set a target of reducing our annual run rate by $135 million, $85 million of this in fixed costs. And we're on track with this target and our efforts for further savings are ongoing. As you can see on this slide, our SG&A excluding rent was down 370 basis points from Q3 of 2008, and all in, we were down 360 basis points. I'm extremely pleased with the level of cost savings we achieved, and the manner in which we've achieved them. We've been very thoughtful and prudent in our approach to cost reduction, and no peanut butter mandates have been given. Next slide, please?

As you know and Scott mentioned, we had a very successful market offering last month, and we've strengthened our balance sheet substantially. At September 30, we had $108 million in cash on our balance sheet. Most of it in an escrow account to retire the $86 million of 6% notes put on this past May, and ultimately the $17 million still outstanding on our 4.25% notes. And actually tomorrow, we're taking out the 6% notes completely. This slide pro formas our balance sheet to take all that debt out and nets the cash with the debt. And as you can see, this leaves us with $600 million of debt, down from $752 million at year-end 2008. This is a substantial delevering for us with more to come. In fact today, the balance on our revolver is zero, and that's without using any of the escrowed cash noted above. Next slide, please.

This slide shows our major debt maturities, and presently, we're working on renegotiating our revolving credit facility. We're targeting to have that done before year-end, hopefully by mid-December. And the fact we don't have any borrowing on the revolver and no near-term maturities is certainly helping with that process. As you can see on the slide, our next significant debt maturity is August, 2013, and that's nearly four years away. And the 5% convertible notes that we issued last month are due in October of 2014 -- so several years without any maturities. Next slide.

Debt covenants. This slide just quickly shows we're compliant with all our covenants by a wide margin. We don't expect any material changes to our covenants with a renegotiated credit facility. Next slide.

I think we've done a very good job managing our spending and cash through this difficult economic environment. CapEx for the third quarter was $8 million, just up slightly from where we were in the second quarter. We'll continue to manage our cash carefully going forward, and major spending for facilities will be limited to projects where we can obtain mortgage funding. With that, I'd like to turn the call over to Jeff Dyke.

Alright. Thanks, Dave, and good morning everyone. As Scott has mentioned on every call, this is a people business, and we intend to continue to drive associate satisfaction as our number one priority. I want to thank all of our Sonic Automotive associates for the opportunity to represent you on this call and to present the fantastic progress you're making as a team. We've been talking to you about associate satisfaction, and as you can see on this slide, the hard work that our team has put into developing our culture is really beginning to pay off for our Company. Today our Company turnover is just over 34% as we march toward our goal of 10% or less turnover. It's important to understand how critical this is to where Sonic Automotive is headed. With turnover at normal levels for automotive retailing in excess of 50%, training associates and implementing operating playbooks is a recipe for failure. As turnover has declined, our training dollars are going further, and our long-tenured associates are better equipped to implement our operating strategies at a higher level. The results from this effort have driven our customer satisfaction levels to all-time highs, and as 84% of our stores are at or above national average in customer satisfaction as measured by our manufacture partners. With associate and customer satisfaction on the rise at record pace and turnover reducing at record pace, the product of these events is improved operational excellence. I'm proud to present to you our operational slides for Q3 2009. Next slide, please.

Our new vehicle market share continues to improve. September marked the eighth straight month of market share growth year-over-year as a Company. September also marked the single largest market share month in our Company's history, as all regions improved as you can see on the slide. As mentioned in our previous call, our attention to associate satisfaction, retention, and our ability to execute our eCommerce and pre-owned playbooks, continue to contribute to the success of our new car market share gains and record setting performances. Total retail volume for the quarter was just over 24,300 units on a year-over-year basis and a decline of 6.6%. We continue to manage all new car inventory ordering on a centralized basis and are very proud to report our new car day supply is in excellent condition at 39.5 days, well below the industry average of 53.8 days, and significantly better than the same time last year of 60.1 days. Our domestic day supply is 49.8, our luxury is 44, and our import day supply is 27. Given the slowdown post-Clunker, we believe we are well positioned to meet our customer needs and continue our share growth. New vehicle margin was 7.6%, up from 6.9% last year and up from 7.1% last quarter. As mentioned on the prior slide, our customer satisfaction scores continue to be on record pace for the year. Next slide, please.

I want to take a minute to update you on Cash for Clunkers and its effect on our business in Q3. As you can see from the charts, our new car volume benefited in July but primarily in August by increasing volumes some 6,000 units which represented about 28% of the total volume when you combine both months. Brand mix did play a significant role in the success of the program weighted more toward import and some domestic versus luxury. New vehicle volume did slow in September to a 9.2 SAAR, and October volume currently looks a little bit better than September and back on track to previous levels prior to Cash for Clunker beginning. We expect the SAAR to be somewhere in the 9.5 to 10 range for the remainder of the year following normal seasonal adjustments. We're also currently projecting a 10.5 SAAR for 2010. It's important to note, and as we projected on the previous call, you'll see on the next slide our used vehicle volume was not impacted by the cars program. We think the program was a huge success. Our back office teams did a fantastic job managing the process. In total, we had a $25 million receivable from the government. And today, I'm proud to report that we have no financial risk remaining for Cash for Clunkers. Next slide, please.

As mentioned previously, and as you can see from the slide we had a fantastic used car quarter. Our volume was up 25% over prior year. As a matter of fact during August, which is the primary month for Cash for Clunkers, Sonic Automotive had its largest used car volume month in the Company's 11-year history. This performance continues to demonstrate the strength of our focus on associate satisfaction, retention, and the excellent execution of our used car playbook by the Sonic pre-owned team. We fully expect to achieve our goal of averaging 100 units per store per month in retail volume. Today, Sonic sells approximately 60 units per store per month, and that's up from about 45 units per store per month last year. As we mentioned on the call -- on our last call, our used car margins would move around. As we continue to work with the elasticity of our pricing models and inventory mix and while our margins are down on a year-over-year basis which is quite similar to what we saw in Q2, we're not concerned because the volume levels are driving higher gross profit dollars. We were up $2.5 million in gross over prior year, not including the incremental gross that would be generated in F&I and service gross as a result of the prep work that is done on these vehicles. Certified pre-owned continues to be about 34% of our total used car mix, which is right on target and in line with our operating plan. We ended the quarter with a little under a 35 day supply on used cars, which is a few days higher than I would have liked. We targeted to be at about 30 days at the end of September, but our used retail volume is tracking up some 35% in October at this point, which would put our day supply in great shape heading into November, a little less than 30 days. Next slide, please.

Finally, our overall continuing fixed operations revenue was down 0.6%. Our best performance of the year as we continue to show progress in the early stages of our fixed operations playbook rollout, and we continue to support our associate satisfaction and retention process. Our customer pay revenue was up 2.2%, and we're excited about our margin growth in the customer pay segments that service was up 80 basis points. Parts was up 20 basis points, and body shop was up 60 basis points, marking the largest margin growth of the year. Total same-store warranty revenue was down 5.5%. However, Lexus, as a part of this number, was up approximately 48% for the quarter due to the recall. This will create added pressure in 2010 comparisons on a year-over-year basis.

For the quarter, continuing fixed operations gross was up 1.3%, and continuing gross margin was 50.6%, up 100 basis points from last year and up 30 basis points from last quarter. Before I hand the call back to Scott, I want to take a moment to thank all of our Sonic associates for their hard work and dedication to creating one of America's greatest companies to work and shop. Thank you very much. Scott?

Thank you, J.D. We've accomplished a lot at Sonic Automotive this year. Our balance sheet is in a much better shape, and we're able to focus on our business and grow our cash flow in the current environment. We continue to see the benefits of patient, consistent rollout of our operating initiatives and our playbooks. Our focus on our associates is evident in the improvement in our associate satisfaction turnover. Over time, as business and cash flow improves, we plan on maintaining our focus on our investment principles and reducing our debt. And when prudent, hopefully phasing back in our 401(k) for our associates. We reported a lot of great news today, and I'm extremely proud of all of our associates. And before I end the call, I'd like to say thanks to each and every one of our outstanding associates who continue to work so diligently to make all of our success as a team possible. Thank you, team, it's an honor and privilege to lead our Company. At this time, we would like to open the call and take your questions.

(Operator Instructions) Your first question comes from Matthew Fassler with Goldman Sachs.

Hi, this is actually Mark [Conray] filling in for Matt. Just a quick question first. Could you talk about your view of new margins going forward, following after Cash for Clunkers? And as inventories are building up, what are the trends you're seeing there? And then a quick follow-up would be on the used margin side going forward, what would be the net impact from your strategy in used? And maybe potentially lower prices at some point of auction as fleet sales pick up and maybe supply coming back? That would be great. Thank you.

Okay, Mark, it's Jeff Dyke. First of all on the new car side, our new car margins are fairly stable -- actually grew last quarter. And the great news for us is our new car inventory is in really good shape, and I think that's going to play a role for us over the next quarter. I do not see new car margins backing up, and we're not seeing that in October. From a used car perspective, our used car inventory is in great shape. We are not at risk of having cars having to go to auction in the fourth quarter. As matter of fact, we're in such good shape going into November and December, that while everybody else will be selling cars, we should be able to buy some cars at some pretty cheap prices, which is part of our strategy on an annualized basis. We always try to come into the fourth quarter with lighter inventories. We are a little late reacting this year, but going into November, I see us 28 to 30 days, which is going to allow us to buy cars. And we are seeing the auction softening up. Prices are going to come down, and we're going to be in really good shape to be able to go out there and buy some cars cheaper so that we can bolster margins as the quarter ends and into the first quarter of next year.

Great. Very helpful. If I may, just one other follow-up would be the $10.5 million SAAR for 2010. Can you talk about the underlying assumptions behind that? Just because we've been hearing numbers from different sources that were higher than that. Like JD Power's and all that. If you could comment, that would be great.

This is Dave. We're not experts on this. We just picked that number. I think we're comfortable with it. I think we have proven we can be profitable at a 9.5 SAAR, and if it's 10.5, we are going to be more profitable. And if the other guys are right, I'll take that, too. We're just planning our business conservatively.

Got it. Thank you very much.

Your next question comes from the line of Rick Nelson with Stephens.

Thank you.

Hi, Rick.

Can you comment on October sales, and how they're tracking? Relative to September, and where you see inventories today. I know you were depleted coming out of the quarter, but are building, we know, in the industry?

Rick, this is Jeff Dyke. Our new car volume is up from September, and so is our used car volume. So we did -- I don't know --6,300, 6,400 cars in September, and we're going to do over 7,000 in October. And about the same for used, we ought to be one-to-one. And again, our inventories are in great shape. Coming out of August, we were really tight, and we want to be tight on new car inventories because we're not quite sure what's going to happen with the SAAR. But if it stays down in the nine to 9.5 range, we're going to be in good shape And if it goes up to 10, it's not going to be a problem for us to continue our market share growth. And then again, to comment on the used car inventories, we're in terrific shape. And that's not going to cause us any issues between now and the end of the quarter.

If you don't see this fall off in pricing at auction and some of the back up in supply at auction is a negative for the used car business?

Actually, if you manage your used car inventory right like I think we have done, and we have demonstrated we've done over the last few years. It's a positive for us because as our inventories -- as we start shrinking our inventories in August, while everybody else is out there trying to sell inventory, they're selling it cheap. And it puts us in a position to buy inventory, and that's exactly what we do every year. And if you go back and look at Sonic Automotives performance, December, January, February, typically our highest used car margin months. And that's supported around that strategy.

Excellent, and Dave if you could tell us what's in Discontinued Operations in terms of revenues and numbers of dealers and the composition?

Yes, how you doing, Rick? I think at the moment we've got 15 locations in DiscOps, and on a quarterly revenue it's about $180 million. And now that the dust has settled, Rick, on the debt situation, we're going to take a look at that in the next couple of months and -- because there's some stores in there that I don't think we want in there, ongoing. You remember we had some stores for sale to try and generate some cash. And now that we're on the other side of the major debt issues, I think we're going to relook at that. So that 15 locations is likely to drop -- I don't know -- maybe five, seven, something like that. Not a very big number of stores in there, ongoing, in my view.

And with the debt situation significantly improved, what are your thoughts about acquisitions?

I'm still a little gun shy and very conservative. I think we're, as a team going to generate cash, run our business very efficiently and whittle away at some debt. Our next maturity is 2013, and that's a lot of time. But you know what? There's no time like the present to start whacking away at some of that. I do see acquisitions in the future at some point but not tomorrow.

Got you. Thank you. Good luck.

Thank you.

Your next question comes from the line of Himanshu Patel with JPMorgan.

Hello, I'm sorry, this is Ryan Brinkman for Himanshu.

Hi, Ryan. Hello. We've got you now.

Great. I was just wondering if you have an estimate as to clean, normalized, combined cash and non-cash interest expense on a go-forward basis? It looks like you give a little guidance on individual securities, and I did not aggregate that up. I was just wondering if you have an estimate as to clean interest expense, go-forward?

Ryan, this is Greg. There's a slide in the Appendix on Slide 26, that gives you the year-over-year makeup of the interest -- both regular interest and the non-cash along with all of the deferred loan cost amortization that we've been running through the P&L this year. I haven't added it up going forward, but I can tell you quickly if you look at that page, obviously the 4.25%s and 5.25%s and the 6%s all go away with their associated discount amortizations and non-cash interest charges. So the only thing we'll have going forward are the $275 million of 8.625% notes and the new 5% notes that are out there. And as it says there on that slide, the non-cash associated with those new notes will be about $1.5 million a quarter. And then to the extent we have any interest on our revolver, but right now that balance is zero. And then you can pick up the mortgage interest off that slide. So I think if you look at Page 26 you'll be able to get to a fairly decent number. We did have some -- you can see on the revolver side there was almost $2 million to $2.5 million on a year-over-year basis rolling through our interest expense. A lot of that was related to the amortization of some of the debt restructuring costs we incurred back in May, and all of that which will be gone going forward in 2010.

Okay, and do those roll off by Q4? Or not until the revolver is renegotiated?

They will still be in there for most of the fourth quarter. They won't roll off until the revolver gets renegotiated. Okay, great. And then, we're also hearing from other sources that maybe the percentage of used vehicles placed at auction that are selling has potentially lessened compared to even just a month or two ago, and that maybe prices at the wholesale level have decreased a little bit, too. And I see that your wholesale gross margin loss ticked up just fractionally, and I know that's not very material for you. But I was wondering if yet you've seen any flow through of this to your retail operations? If you would expect prices at retail for used vehicles to maybe decline marginally here?

We have seen the auction prices coming down. That's something that happens every year. So this is cyclical. It happens every year, and we are adjusting our retail prices as we do every year heading into the fourth quarter, especially end of September-October and really the first couple of weeks of November. We adjust with the market. So if the prices do come down. But then it's a wonderful thing towards the middle of December they start popping back up, and we have a good run for the last two weeks of December and on into the first quarter. So this is something, Ryan, that's just a very normal process. It happens every year, and our inventories are in really good shape. And we try to take advantage of it each year when there are other dealers out there that just don't manage their inventories well.

Okay, thanks for your help.

Sure.

Your next question comes from the line of Stuart Vaughn with Vander Capital.

Hello. Was there any one-time SG&A costs in the P&L associated with the offerings?

Not material.

No, not in SG&A. You can see the $11 million pre-tax gain rolling through interest expense related to the 6%. That's not SG&A. And then there's another gain down in other income that we called out.

Yes, everybody, we put a number of Appendix pages at the end of our deck because there is a lot of one-time things from all the restructuring and non-cash interest, etc. So we have laid out in some detail the EPS calculations, the share amounts, and it should help with understanding.

And secondly, I think Jeff had mentioned something about used up 35% in October. Did I mishear that? Or what was that metric related to?

That's unit volume, and that's what we're tracking right now, today. We're tracking about 35% year-over-year.

In October, for used units?

Yes.

Okay, thank you.

Your next question comes from the line of Jordan Hymowitz with Philadelphia Financial.

Good quarter. A couple quick questions. The SAAR rate of 11.5 in the quarter -- second quarter. Can you quantify that between retail and fleet because I'm sure the retail mix was much greater which helped the profitability.

Jordan, an 11.5 SAAR mix -- ?

For Q3.

Oh, for Q3. Very, very little fleet. Just almost zero.

It was driven more by the Cash for Clunkers.

Yes.

And what is the normal mix of fleet? Is it about 20%, is that right?

No. It's not even that. It's probably 10%.

10%? So in your $10.5 million SAAR next year, would that be about a 10% fleet?

Yes, somewhere in there. And it could be even a little less than that, maybe toward 5%.

Okay. And second question is, do you have any impact on -- because with the new capital rates on what interest rates do to you? Like every 25 basis point increase is worth what to EPS at this point?

Well, a lot of our variable rate debt now is on the floor plan, and it's pretty much fully hedged. And it's not a lot of exposure to LIBOR with the hedges.

What happened there, we had had before things tanked a year ago, a strategy of being roughly 50% hedged but our inventory balances are down 40%. So we're almost fully hedged. So at the moment, no real impact from interest rates moving, but I don't see it moving any time soon.

How long do the hedges last for?

They're still out there for another two to three years.

Okay, so you have plenty of room there?

Yes.

And a question, what was the share base at the end of the quarter, as opposed to the average? What share base should we be using for next quarter?

It will be in that 63 million range.

Okay. Thank you very much.

Your next question comes from the line of [Shawn] Hayden with Guild Capital Partners.

Hello.

Hello.

I noticed on your balance sheet you have about $106 million of restricted?

Yes.

I was just wondering what was that earmarked for?

Yes, it's earmarked for debt retirement. Actually tomorrow, $86 million or $87 million of it will be netted against the 6% notes that we put on in May. And then there's another $17 million of outstanding debt of our 4.25% convertible notes that we'll take out.

We did our public offering in September, Shawn, and we had a 30-day call period on the 6% notes. So we had to wait about a month to take them out. So we escrowed the cash.

And that's tomorrow.

Yes.

Okay, and you said you were a little ahead of schedule on your SG&A plan.

No, I think we're right on track actually.

Okay, so when do you expect to have the entire $135 million out?

Probably fourth quarter. I mean, this quarter. We'll just keep working on it. I don't think that the job ever stops on SG&A because stuff pops in, and we just go at it continuously.

What do you see as a good maintenance level?

You mean like a percent of gross?

Yes.

Well, I'd like to see it fall, and I'd like to see gross come up, frankly. When the new car comes back, maybe in the 75% range ongoing.

Yes, I think if you -- if gross comes off as the SAAR starts to head upwards every 10.5 million to 11 million, you'll get back into the mid-70% range. But until you get back to that SAAR level, you are going to be somewhere in the high 70%s.

Okay, great. Thank you.

Your next question comes from the line of Derek Langer with Jefferies & Company.

Just two things. What is available in the bank facilities? And what are the letter of credits against it, and the CapEx outlook for this year and next?

Yes, I think CapEx will probably be in the $8 million range, $7 million to $8 million again for the fourth quarter. For next year, we've got a couple major projects that are on hold at the moment. And given our improved balance sheet structure, we're looking to get some mortgage funding lined up so we can resume spending on those. So it won't be a huge drain on cash, but there will be some CapEx as we push those projects forward. You asked about our credit line. I think it's about $77 million to $80 million of letters of credit. Our total availability under the revolver capacity is like $200 million to $205 million. Something like that. We've got roughly $100 million available at September 30.

And that included $20 million outstanding at September 30 which is now gone.

Oh, so there was $20 million out at 9-30?

Yes, it is now at zero. Greg's right.

Okay, and what was the magnitude of that CapEx spending in 2010?

It could be what -- $40 million? Something like that? $40 million to $45 million?

With some mortgages on there. I think ex of mortgages, you're still in that $25 million range. $25 million to $30 million.

Okay, great. Thank you.

Yes.

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

Good morning.

Hi, John.

I just had to ask this SG&A question a different way. The $135 million target that you are focused on for this year. How much of that has been achieved year-to-date? Is the large majority? Or is there another $10 million to $15 million left in the fourth quarter?

I think most of it is there. It gets a little -- Cash for Clunkers, obviously, ramped up our compensation. But that's a good thing because you have got gross to go with it. We had targeted $50 million of variable savings largely in compensation areas.

Got it.

And we're most focused on the fixed side, and that's where we've got the bulk in the savings out, I'd say. There's a little bit more to come. We're still working on service loaners and a few other areas. But the savings that we've got in areas like advertising have been very strong, and I see them staying -- that cost staying out as volume comes back.

Okay, and then if we think about next year with this 10.5 million unit SAAR forecast that you're thinking about for next year which is only up very slightly. Are there other cost actions, or other business mix shifts that you think you might need to make next year because that's still a pretty tough market.

I think it is, but I think Jeff can opine on this a little further. But I think we'll just keep going on the used cars, and we have had great success there. Although I think there's more opportunity. And then in the fixed area, we're really just getting started on some of our initiatives there, and that's the most profitable part of our business. And I see that helping greatly.

Yes, John. It's Jeff Dyke. Dave said it right. We're limiting our exposure to the new car side and the swings. We've been very comfortable now in the 10 to 10.5 SAAR range. Even less, if need be. But our used car business, quarter after quarter after quarter, and our processes and playbook have proven that the strategy is working. And we're 3.5 years into the used car strategy with still more room to grow. As you remember I told you, we're averaging about 60 cars per store per month. And we believe that number is going to get to 100 cars per store per month. And then the fixed operation side, we're just getting started. We've got some nice growth there in terms of margins. But we really hadn't turned on the revenue engine there yet, and that's something over the next couple quarters we think will start ringing true.

Just lastly, and you may have hit this before so I apologize. In the new vehicle market, what are you seeing on pricing? Are you seeing any incentive ramp ups, or any more competition on low rate financing or other incentives in the market?

We're not at all. It's certainly something that would help, but Cadillac has come out with a lease program on their two new models. And that's about it there. And there's been some incentives here or there but nothing out of the ordinary, I can tell you. And it's something that we would certainly like to see. Toyota has had some stuff going on from an advertising perspective, and they've had some incentives. But nothing huge and certainly nothing on the finance side.

And then just last question actually. On financing, what are you seeing about the ability to get consumers financed? Are you still seeing required high or big downpayments and low loan-to-values? What are you seeing on the loans that are being written in your dealerships, and is there enough credit available?

There's certainly -- the credit is out there. We're selling cars. But it's nothing different than it's been over the last three or four quarters. It's been difficult. The carries are less. And sure, it's tougher to get vehicles financed, but we're still selling cars. There's plenty of credit out there, and you just have to make sure you structure your business appropriately, and we're doing that. That's not a hamper to us getting the job done.

But if that eased, do you think you'd be able to sell more vehicles? Or is that just not an issue at this point?

You would be able to in the lower tier customers.

But I think, John, we've grown the used unit in the quarter by 25%. So used are the tougher ones to get financed, and we're giving a lot of good support from our lenders.

Okay. Great. Thank you very much.

Your next question comes from the line of Derrick Langer with Jefferies & Company.

Sorry, I just didn't get the third quarter CapEx number.

It was $8 million.

Okay, thank you.

Yes.

At this time, there are no further questions. Mr. Smith, do you have any closing remarks?

Well I'd just like to thank everybody for their interest in our Company. It's a good time for Sonic Automotive right now. We've gotten the monkey off our back with the short-term solution with our refinancing, and we're really going to focus our attention going forward on our operations and our fixed ops and our associates. And just think that it's -- we've got some bright skies in front of us. So want to thank everyone for their time today, and take care.

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