AutoNation, Inc.

Good morning, my name is Katie and I'll be your conference operator today. At this time, I'd like to welcome everyone to the AutoNation third quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by one on your telephone keypad now. If you'd like to withdraw your question, please press star followed by the number two. Thank you. I'd now like to turn the call over to Rob Katara, Vice President of Investor Relations. You may now begin your conference.

2021 conference call and webcast. Please ensure that you're... Meeting our call today will be Mike Jackson, our Chief Executive Officer, and Joe Lauer, our Chief Financial Officer. Following their remarks, we will open up the call for questions. I will be available by phone following the call to address any additional questions that you may have. Before we begin, let me read our brief statement regarding forward-looking comments. Certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued earlier today and in our FCC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. And now I'll turn the call over to Alderman Nation's Chief Executive Officer, Mike Jackson.

Good morning and thank you for joining us. Today we reported all-time record quarterly results with earnings per share at $5.12, an increase of 115% compared to adjusted EPS at $2.38 last year. This marks AutoNation's sixth consecutive all-time record quarter, driven by strong performance across both variable and fixed operations. Our third quarter's same-store revenue of 6.4 billion was up 18% compared to the prior year, as well as the third quarter of 2019. Consumer demand continues to outpace supply, driven by consumer desire for personal transportation and ongoing manufacturer supply chain disruption. We expect this to continue well into 2022. New vehicle sales are currently constrained by reduced production volume, low inventory levels, leading to even more pent-up demand that should support sales for the foreseeable future. In our used vehicle business, our strong self-sourcing capabilities, digital tools, and customer-focused sales processes are a competitive advantage that have allowed us to outperform our peers and the broader used vehicle market. In the third quarter, we self-sourced 90% of our pre-owned vehicle retail sales And our same store used vehicle revenue increased 53% year over year. We see additional opportunity to capture used vehicle market share through our AutoNation USA expansion. This week, we opened our eighth AutoNation USA store and our second store in the Denver market. And we expect to open two additional stores in Phoenix and Charlotte before the year ends. Our rollout schedule remains on track. with 12 additional stores planned for 2022 and over 130 stores by the end of 2026. Today, we announced that we signed an agreement to acquire Priority One Automotive Group, adding $420 million in annual revenue, together with our previously announced acquisition from the Peacock Automotive Group. AutoNation has announced $800 million in annual revenue from acquisitions this year. We also continue to buy back our shares during the third quarter. Over the last 12 months, through the end of the third quarter, we repurchased 27% of our shares outstanding from September 30th last year. Our strong execution and cash flows have positioned us well to continue our disciplined, opportunistic capital allocation strategy. I now turn the call over to Joe Lauer, our Chief Financial Officer.

Thank you, Mike, and good morning, everyone. I'm going to start the same place as Mike opened. Today we reported net income of $362 million, or $5.12 per share, versus adjusted net income of $212 million, or $2.38 per share during the third quarter of 2020. This represents our sixth consecutive all-time high quarterly EPS and a 115% increase year over year. As Mike mentioned, consumer demand for personal transportation remains strong, while new vehicle inventory is at historically low levels. In this environment, we continue to focus on optimizing new vehicle margins and procuring used vehicle inventory to support sales. We expect these trends, with demand exceeding supply, to continue well into 2022. For the quarter, same-store variable gross profit increased 42% year-over-year driven by an increase in total combined units of 4% and an increase in total variable PBR of $1,709, or 39%. A decline in new units of 11% was more than offset by growth in used units of 20%. Our customer care business has recovered, with same-store customer care gross profit increasing 8% on a year-over-year basis and 6% compared to the third quarter of 2019. Taken together, our same store total gross profit increased 29% compared to the prior year and 45% compared to the third quarter of 2019. We also continue to deliver significant SG&A leverage due to strong cost discipline and robust vehicle margins. Third quarter SG&A as a percentage of gross profit was 56.9%, a 750 basis point improvement compared to the year-ago period on an adjusted basis. As measured against gross profit on an adjusted basis, our metrics improved across all key categories, with overhead decreasing 390 basis points, compensation decreasing 290 basis points, and advertising decreasing 70 basis points. We expect SG&A as percentage of gross profit to remain below 60% for the fourth quarter and the full year 2021. Floor plan interest expense decreased to $5 million in the third quarter of 2021 due primarily to lower average floor plan balances. This combined with a lower effective tax rate and fewer shares outstanding generated our record EPS. Turning to the balance sheet and liquidity, our cash balance at quarter end was 72 million, which combined with our additional borrowing capacity resulted in total liquidity of approximately 1.8 billion. We continue to leverage our strong balance sheet and robust cash flows to invest in our business. As Mike mentioned, this week we opened our eighth AutoNation USA store in Denver, Colorado. We remain on track to open two additional stores in the fourth quarter and 12 more in 2022. As again Mike mentioned, longer term we continue to target over 130 stores by the end of 2026. In addition to organic growth initiatives, today we announced the acquisition of Priority One Automotive Group. We will continue to look for additional acquisitions that complement our portfolio and meet our return thresholds. We have also continued to repurchase our own shares. During the third quarter, we purchased 7.9 million shares for an aggregate purchase price of $879 million. This represents an 11% reduction in shares outstanding for the fourth quarter alone. Today, we announced that our board has authorized an additional $1 billion for share repurchase. With this increased authorization, the company has approximately 1.3 billion available for additional share repurchase. As of October 19th, there were approximately 66 million shares outstanding. Despite our significant capital deployment, we maintain ample capacity on our balance sheet. At the end of the third quarter, our covenant leverage ratio of debt to EBITDA was 1.4 times of slightly from 1.2 at the end of the second quarter, but still well below our historical range of 2.0 to 3.0 debt to EBITDA. We continue to demonstrate strong operational execution and disciplined capital allocation. Going forward, we will remain focused on leveraging our balance sheet and strong cash flows to drive long-term shareholder value. With that, I will turn the call back over to Mike. Thank you, Joe.

It's been my honor to serve in a leadership position of AutoNation for the past 22 years. We've built an exceptional brand. We're America's most admired and respected automotive retailer. We provide a peerless customer experience from coast to coast. and we have made a difference in people's lives to drive pink and our efforts to beat cancer. I am forever grateful to all the associates of AutoNation for these achievements and thank them for all the efforts, especially through this pandemic. And I'm thrilled to welcome Mike Manley as the next CEO of AutoNation. He is one of the world's most respected, admired automotive executives And we are thrilled to have him as our new CEO and AutoNation has an even brighter future. With this, I'm happy to take your questions.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of John Murphy from Bank of America. John, please go ahead.

Good morning, guys. And Mike, congratulations again on a fantastic long run. It's good to go out on top, although I think the top's going to keep going up. So I think your legacy will be well healed here. And I'd say goodbye, but I'm sure we'll stay in touch. And you never know when you're going to pop back up again, Mike. So thanks. Thanks for everything. First question here. You alluded to the supply, demand, and balance lasting well into 2022. I mean, from what we're hearing in modeling, that's going to last at least through the first half of next year and probably well into the second half and maybe even 2023. So you're going to have this high class issue of high GPUs, presumably continued good performance here, and you're going to generate a boatload of cash. How do you think about cap allocation? I mean, you're turning the cap back on a little bit here, more on acquisitions. you're buying back shares, you're opening AutoNation USA stores. I mean, you're structurally growing the footprint of this company and it's still being underappreciated by the market. I mean, how do you, you know, think about this? You know, I mean, and if anything, you know, changed and as we, you know, fast forward the clock, I mean, you do simple dumb guy stuff like say you bought back 11% of the shares and you acquired revenue of 4% of the company, so 15%. higher EPS, you know, go forward just on those cap allocation, you know, very simple, you know, thought process there. But you're going to do a whole lot more of this at least over the next year or so. I mean, is anything changing? And how should we think about that capital being deployed? Because it's pretty aggressive but not wild at the moment.

John, a few things. So, look, I expect more demand than supply. well into next year, and as you said, maybe 2023, but why talk about that today? And we have a tremendous percentage of the income pipeline pre-sold, and I expect as the production distortions and disruptions settle down, they will come in and go out. They're not going to go to inventory. So it's a long journey to more inventory, I'm in your camp, John. So what? As long as they're coming in and going out. And our strategy of growing revenue by giving customers a choice with pre-owned has obviously been very successful, very compelling. Same time, we've been disciplined on the cost side. And yes, we've used, since we're bullish about AutoNation and the Outlook, we've viewed share repurchase as an opportunity, which we have seized. And if I go back over the past 12 months, it's 27% of the shares outstanding have been repurchased. And while we announced $1 billion of forward authorization of share repurchase, of course, that's a step-by-step opportunistic decision. And on that forward issue and what it means, what we've done in the past, what it means, Joe, just as a mathematical calculation, and how you think about capital going forward.

Thanks, Mike, and thanks, John. John, with your point, it starts with actually having capital, and we have plenty, both from a robust cash flow and a strong balance sheet. As you know, we've demonstrated that through the pandemic and prior. And we are the only standalone auto retailer with investment-grade ratings. So starting there, it comes into an investment prioritization and really looking at after-tax returns. As we've indicated before, for us, the highest return has been our organic investments into ANUSA. We've laid out a plan. I think we've also been pretty candid in saying so far we've actually exceeded our own plans and very pleased with that progress. Anticipate we'll continue to deploy capital along those lines. We've said throughout that where there are attractive opportunities for M&A, we will pursue them. Year-to-date, we've announced two acquisitions of size, $800 million of revenue acquired, and we'll continue to search and assess and try to identify those that both fit a strategic and financial returns, and then their share repurchase. Particularly with our outlook, combined with relatively attractive valuation given any historical perspective on multiples, we've been extremely opportunistic. And as we've done all that and look forward, we realize we have significant capital to deploy and we'll use the same disciplined and a balanced approach going forward.

Okay, just a quick follow-up on that. I mean, I think it's pretty easy to understand buybacks have an immediate return, acquisitions, you know, relatively quick return. When we think about the AutoNation USA store in investment, you know, how fast do you think that return on investment turns positive, meaning, you know, how fast are these stores now that you're kind of running, you know, not hot yet, but, you know, running more normally on store openings, how fast do they become profitable and accretive to the equation? Because I think that's the only part of the equation where there's a lag time on the return of this capital, you know, this mass capital you're generating and redeploying, you know, coming in sort of at a later date. I mean, how fast is that return?

What we want to do is grow the business with the highest return and being in control of our own destiny. So, in many ways, the hard part is done. We've built the brand. We have the digital platform. We have the stores, how they operate as delivery centers, speed to market reconditioning centers, acquisition centers. Those are the three things. principal activities that take place within a USA store. We've defined the footprint that it's highly efficient and effective, exactly what it needs to be. And our speed to profitability has been even better than our plan. And really the critical path is how quickly we can develop the right sites and build the stores. So every year we expect that to be more than the number that we can build to be more than the year before, and as of today, we're declaring 12 for next year. But, Gerald, why don't you tell us something about the returns?

Yeah, so you recall when we rolled out the expansion of NMCA, we gave a sample model. At that time, we thought break-even would occur within the first 12 months. We're actually realizing that in the first, if not second, month, so the success of the model has proven to be very robust. We mentioned that the monthly pre-tax on a full run rate would be up to $200,000 a store per month. We're seeing that being realized much more quickly than originally anticipated. And the investments that we articulated originally in the $10 to $11 million range, even in this environment, we're able to achieve that. So we remain very optimistic. The ANUSA stores in total contributed almost $5 million in pre-tax in the quarter. So again, as Mike mentioned, we're very pleased with the progress. We're exceeding our own plans, and we'll continue to evaluate how to appropriately accelerate that going forward.

And what's important within that, John, is we're now opening USA Stores outside the traditional footprint of AutoNation, and that is going extremely well, launching the brand in the new market. So we're very optimistic and confident about the future of AutoNation USA and the returns it'll produce and the fact that we can grow this company in effect organically with a brand without paying goodwill. And we control the pace of the growth.

Yeah, it's very exciting. Last question for me on customer care. Momentum seems to be building. Obviously, because of the shortage of inventory, people are holding on to their cars longer and driving more. So, I mean, I think there's been an expectation that, you know, as the economy reopens, people drive more, you'll get a bump. But there hasn't been sort of that second thought process of, you know, people are holding their cars longer, so they're willing to do more, you know, maintenance or need to do more maintenance, not even willing, but need to do more maintenance. I mean, how do we think about those, you know, two factors benefiting same-store sales on customer care? And are we still at the early edge of the reacceleration there?

Well, we clearly have seen reacceleration with us now exceeding 2019. The strong areas, obviously being areas of customer pay, have continued to perform well versus both 2020 and 2019. The one area that continues to be just a little bit of a laggard is collision. We do anticipate as miles continue to improve that that will fully recover. But overall, we're very pleased with the progress we're seeing in the business. And despite, you know, concerns about part shortages continuing to demonstrate growth over both 2019 and 2020. So we're cautiously optimistic that we'll continue to see those trends improve as we kind of proceed through this year and continue to kind of see people increasingly return to the roads.

Great. Thank you very much, guys. Appreciate it.

Great.

Thank you.

Your next question comes from Rajat Gupta from JP Morgan. Please go ahead.

Great. Thanks for taking the questions. And Mike, I just wanted to echo John's comments as well. It's been a great period and that's a plot going forward. Yeah, I just had a couple of questions. You know, starting with F&I, really strong numbers here in the third quarter. despite the lower mix of new vehicles versus used. I'm sure ASPs had a benefit there, but just curious, is there anything else that's going on there, maybe penetration for some new products that's driving that number? And just curious as to how we should think about the sustainability of that. And I just have one follow-up on this. Thanks, Rajat.

I'll answer that. So first of all, your assumptions and observations are correct as far as the relative FNI or CFS, as we call it, between new and used. But the real driver for us has been increased penetration. And as we continue to see that improve, it obviously impacts whether it's new or used, which has resulted, again, in very favorable trends pretty consistently over the last several quarters. And our expectation is that will continue. the pace of improvement you know we'll obviously watch closely but we don't see any significant threats to what we're doing in that part of the marketplace just given the fact that it really is driven by penetration rather than other factors got it and the penetration is that uh across both finance and service contracts uh is one versus the other uh driving that just trying to think like which part of that might be more

longer term. Finance maybe is benefiting from just the higher fees and lower rates, I guess, because the monthly payments are optimized. But I'm just curious about the service contracts.

It's more product, or if you want to call it service, it's really more driven by that. As I think you know, about two-thirds of F&I for us comes out of product versus financing. And we continue to see that area grow in the number of products and the number of customers that we're penetrating. And so it's much more that than it is a financing or rates issue.

Got it, got it. And just on SG&A, you've given some good color to us in the past around like the sensitivity there and, you know, what your medium term targets are. But, you know, how should we think about, you know, given like productivity continues to get better every quarter, you know, is there any change to how you're thinking about that ratio? longer term or maybe like just making changes in your incentive model within the store that could also lead to a more structural change to that number. You know, F&I is looking much higher than before. That has more leverage. So just curious, any updated thoughts there and if we can get any updated sensibilities around, you know, HGN integrals versus, you know, just GPUs, you know, once you're back to more normal supply-demand environment.

Thanks. Sure. The way I think about it, we always talk about the three buckets. We talk about compensation, we talk about advertising, we talk about store and corporate overhead. As I look at those items, let's start with store and corporate overhead. From a dollar standpoint, flat year-over-year, so obviously maintaining that discipline through the increased activity of the business is very important. I anticipate that we'll continue to maintain that strong discipline within the store and corporate overhead line. Advertising, modest increase in total dollars year over year, in part driven by rates. But again, very modest. We'll continue to watch that closely. That also improved, though, as a percentage of gross. And then you get the comp. And compensation increased about $83 million. $81 million of that was variable comp in the stores, which candidly is the model you want, which is obviously record gross profit. that's being generated in the stores and that's going to translate into the compensation and obviously that will vary as does profitability. So I feel like we are maintaining the discipline we need despite always looking for ways to continue to drive out cost and acknowledge that variable comp will fluctuate as it should with a model that really is predicated upon production. And so that's kind of why I think about the model and why I feel pretty good about where we are and why I feel confident as I look out the next couple of quarters seeing the success we're having in maintaining the discipline on controllable cost and recognizing the only real fluctuations are variable associated with compensation in the stores.

Got it, got it. But there's no change to this long-term growth level. You indicated like 65%, 66%. So that's still pretty much on track, right, for a normalized number?

It's going to be a long-term thing, but I clearly think we've demonstrated that we can operate the business at a lower relative cost than what's done historically in large part by the deployment of digital tools that are making our sales and service associates far more effective, and that's translating into the fact that we've been able to continue to operate with 3,000 plus fewer heads within the store environment on the same store basis year over year.

Understood. Great. Thanks for all the color, and I'll get back to you. Thank you. Thank you.

We take our next question from Rick Nelson from Stevens. Please go ahead.

Thanks. Good morning. Mike, congrats on a great career. It's been a pleasure to follow. I remember early days at AutoNation, I think you had 400 million shares outstanding. Pretty incredible. So I guess, you know, to start, maybe if you could provide some color around the M&A, the environment there. You announced a new deal today, Priority One. I'm curious about that acquisition. If you could comment on the multiples that you're seeing out there, that would be helpful.

So we obviously... are thrilled with the M&A we did this year. And so we have a broad view of the opportunity on capital and we look at the returns across all capital opportunities. And as you know, we do share with purchase as an opportunity to buy automation ourselves. But there certainly are acquisitions We're just thrilled to have, and on the new vehicle franchise, absolutely fit into our footprint and our operating structure, and we're delighted with what we've done. But at the same time, we intend to grow with AutoNation USA. We intend to invest in our existing stores. We intend to invest in our digital capability. So it's sort of a, we're in a position of doing all of the above. So when we see an acquisition that The returns look very good to us, and from a culture and operating point of view, it fits with us. We will not hesitate to make the acquisition.

Thanks for that. Also, curious on the inventory. You're sitting with 10 days of supply here at the end of the quarter on the new car side. Curious where you think we go from here. Do things get tighter? over the near term or are things starting to get better from a production standpoint and which of the OEMs do you think are starting to ramp production and which ones are coming slower?

So on the production side, it's been an unpredictable journey with almost every forecast or information we've been given from manufacturers There's been surprises and twists and turns. And here we are in the fourth quarter of 2021, and the chip shortage and component shortages remain a serious disruption to the production of new vehicles. My feeling is, and if you look at the history, I have actually always been reticent to say what I think is going to happen because of that unpredictability. My sense is that sometime in the first half of next year, production will begin to return to a trend line that is more recognizable. But I don't think that will show up in inventory. So then theoretically, You know, and there can be distortions when the numbers get these extremes. You know, the day supply number could move, but we don't really focus on it at that point. So, you know, our inventory is maybe about as low as we can take it, considering the friction of cars actually arriving, being prepared, and going out the door. We're down to 5,000, 6,000 units. So... But we've demonstrated ability to manage the situation very well. We saw the opportunity with pre-owned, nearly new, and have aggressively been out there purchasing them and have been able to sell them. And just look at the phenomenal growth in our pre-owned business with a revenue improvement of 50-some percent. And we've adjusted pricing. to reflect the supply-demand situation that exists in the marketplace. And we have consumers that are basically choosing to do one of three things. They say, yes, that vehicle is close enough to what I want, and I understand the pricing situation. And they purchase the vehicle, or they buy something nearly new, or they pick something that's in the pipeline, or they tell us they're going to see us next year. And in that last category, we count that as pent-up demand. because the new vehicle business is running below any sort of trend that you can think of. So hopefully this is the bottom of where production is and that we see gradual improvement. Inventories are about as low, in my opinion, as we can physically take them. But, of course, our operations are looking at every vehicle to see if we can take it lower. But it can't be meaningful if we're down to 5,000, 6,000 new vehicles in stock.

That's a great, great color. Thanks a lot. Good luck and look forward to staying in touch. Thanks.

We take our next question from Brett Jordan from Jefferies. Brett, please go ahead.

Hey, good morning, guys.

Morning.

Morning. On the AutoNation USA side of the business, as you've got a few more units out, are you seeing attachment with customer pay service? Is that a model that's going to build out as these people bring their cars back post-purchase?

We don't really think so. That was one of our learnings from the prototype that we launched earlier. and we modified the layout of the facility and took costs out because we didn't see that as an opportunity. So now we have the cost of the store down to $10-11 million and the purpose of the facility is a delivery center and physical delivery to a customer at a delivery center remains where 95% of the customers want to be, absolutely. Reconditioning to a high standard that it can be done cost-effectively and quickly. I can't emphasize that enough. And an acquisition center where consumers can bring a vehicle and get a check for their vehicle. That's the role of the AutoNation USA store. And we have modified the level of investment for the fact that we don't see a big customer service component within that facility.

Okay, great. And then I guess on the collision side, you're putting 17 of your stores to caliber. Is that something that you sort of see strategically? You're reducing collision exposure? I mean, sort of talk about how you see that segment going forward.

Yeah, that was a result of a strategic review of the business and looking at where we were generating the highest profitability. We are clearly not exiting the business, but saw it as an opportunity where we could improve the returns on those facilities through a partnership. As you saw in the recent acquisitions, we've actually, through the two recent acquisitions, added four additional collision centers. So we do see collision as a very complementary business. But where it is not really complementary to our business, the relationship we established with Caliber really is a higher return for us and that was the rationale behind the decision.

Okay, great. Thank you.

We take our next question from Stephanie Moore from Truist. Please go ahead.

Hi, good morning and congrats on a great quarter.

Thank you.

You know, I think we talked a lot about more of the supply side of the equation this morning. I'd love to get your thoughts on just the overall strength of the consumer, you know, how much the consumer is willing to, you know, pay down, you know, down payments, anything there. And, you know, it's interesting just given where we are with such high used vehicle pricing is the fear eventually of a negative equity coming through in the years ahead it's kind of on your radar just love to hear your thoughts on again just the strength of the consumer and how we should think in the next coming years excellent question and the other side of the coin on these pre-owned values that is not fully understood is that this is a huge win for consumers consumers are very happy

that the value of the 275 billion vehicles on the roads of America that they own have appreciated in value. And this is very meaningful to them. And it's one of the underpinnings of why business remains so good. Customers just are... that what they thought is worth so much some years ago and it gives them confidence in their brand and confidence that they're making good decisions and most of them are looking at a trading value therefore the difference between what their vehicles worth and what they're buying as the key component so When it comes to the auto wheel, the American consumer is looking at it as, well, hey, this is my freedom. This is my independence. In this horrible COVID area, I can go where I want, care who's in the vehicle with me, and oh, by the way, I'm looking pretty smart because my vehicle's worth more than what I thought it was going to be at this point, and maybe I can trade it for a reasonable difference on something that is a bit newer, which your mileage is completely new. So once you see that in the behavior of the consumers, in the attitude of the consumers, it's a positive for the business in total.

Got it. Understood. Well, thank you so much.

Absolutely.

Again, if you would like to ask a question, press star, then the number one on your telephone keypad. We take our next question from David Whiston from Morningstar. Please go ahead.

David? David Whiston, your line is open.

Sorry, guys. Can you hear me now? We can. Can you hear me now? OK. Sorry about that. As you were talking a few minutes ago about how consumers are basically in several buckets in terms of some will buy close to what they want, some will just use, some will just say, I'll see you next year. But compared to a few months ago, are we seeing more people who are more willing to buy not quite what they want, or are more people saying, I'll just wait until this is better?

It's really one of those all of the above. So you have consumers that say that's close enough, and I understand the pricing in this environment, and I want to move ahead with the purchase. And obviously the fact that we're down to 5,000 vehicles in stock or 6,000 vehicles in stock means there still needs to get demand there. But we have far more demand than we have shipments coming to us or inventory. And so a significant number, we... give them a choice around the nearly new pre-owned. That's going very well. But I have to tell you, the pent-up demand is building. And all that is awaiting into 22 and 23. So there is a bound wave of pent-up demand that is building. And even though we are growing our business and had an 18% increase in revenue, not like we're exhausting demand out there at all. So I'm very pleased on the pre-owned side for AutoNation. We're clearly taking market share with our brand and our aggressive acquisition strategy. We're selling everything we can on the new side. We're selling deep into the pipeline. Consumers have shown that they accept waiting 30 to 60 days Now, they're not switching necessarily to build-to-order, but they're definitely buying the pipeline. We're giving them visibility into what's coming, and they make a pre-selection and a comfortable waiting. But at the end of the day, the demand is building, not decline.

Okay. And do you believe GM and Ford will follow through after the chip shortage has been run at low inventory levels to than pre-pandemic?

I couldn't hear the question.

Can you repeat that, please, David? Was it GM and, did you say GM and Ford?

Yeah, I was saying, do you believe that they will follow through after the chip shortage and run at lower inventory levels than before the pandemic, like they're saying they will?

So, listen, I think that this god-awful, unbelievable pandemic that no one in the history of MEDICON would ever wish for, there are learnings for the industry that have been taken to heart. I really believe that the production, push, liquidation, instant gratification business model that has been corrosive for the auto industry is in the dustbin of history. And not that I believe the situation as we have it now where they can't even produce at, let's say, trend to supply both the fleet business and the retail business at a reasonable runway. No, I'm not saying we're going to run here at this where we are today. But I think going back to the days of production push and liquidation and all this, destructive behavior that comes with that, including damage to the consumer in the value of their automobile and value in the portfolio of the manufacturers in their finance company, I think there's an epiphany like why would we ever want to go back to that? We have an historic opportunity to take deeply learned lessons here and find a new way forward. That's what's in discussion with every manufacturer. And I think that paints a brighter future for our industry at every level, manufacturer, supplier, retailer. And here's what everybody misses. It's better for the consumer. You're protecting what they invested and are behaving in a much more rational way. And I think that's the future of the oil industry. Out of every horrific thing you go through, there should be indelible lessons that you don't forget. And I think that's where the auto industry has concluded.

Yeah, I agree with you. And last question, are you worried about inflation next year impacting consumers' ability to buy a vehicle?

David, what was the word you used? I'm worried about inflection. Inflation. Inflation, I'm sorry.

So this is a very good question. Thank you for asking it. So, of course, we're watching inflation in the CPI, and you see the big component that pre-owned is in that. And everybody is going, oh, my God, the sky is falling, inflation, inflation, inflation. What they've missed is the consumer is very happy that they own, that the 275 billion vehicles on the road in America are worth more. That has made the consumer happy, not unhappy. They own those vehicles. So once you see the other side of the coin there, the consumer is happy. are not unhappy about this. They don't consider it inflation. They say, oh, I've made a pretty good investment here in this vehicle. It's worth more. And if I want to sell it, I can get a nice check. And if I want to trade it, I have a reasonable difference. As soon as you realize that the consumer doesn't view that as inflation, but as a win for them, then you understand our optimism and our confidence about the future of low-moving.

Okay, great. That's helpful. Mike, congratulations. Thank you.

Thank you.

Again, if you would like to ask a question, press star, then the number one on your telephone keypad.

All right, excellent. I think we've answered every question today. Thank you for all your questions. I'm not going to say over the years. Listen to this. I'm going to say over the decades. Have that for a statement. I'm very grateful for them, and I wish you all nothing but the best. Thank you for joining today.

now concludes today's conference call. You may now disconnect your lines.