AutoNation, Inc.

Hello, and welcome to the AutoNation Incorporated Q3 earnings call. My name is Harry, and I'll be your operator today. All lines are currently in listen-only mode, and there'll be an opportunity for Q&A after management's prepared remarks. If you would like to enter the queue for questions, please press star followed by one on your telephone keypad. I will now hand the conference over to Derek Fiebig, VP of Investor Relations. Please go ahead.

Thanks, Harry, and good morning, everyone. Welcome to AutoNation's third quarter 2025 conference call. Leading our call today will be Mike Manley, our Chief Executive Officer, and Tom Slozek, our Chief Financial Officer. Following their remarks, we will open up the call to questions. Before beginning, I'd like to remind you that 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 Security Litigations 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 today and in our filings with SEC. Certain non-GAAP financial measures as defined under SEC rules will be discussed on this call. Reconciliations are provided in our materials. and on our website at investors.autonation.com. With that, I'll turn the call over to Mike.

Yeah, thank you, Derek. Good morning, everybody. Thank you for joining us today. And as usual, I'm going to start on the third slide. Firstly, we were very pleased to report our strong third quarter. We delivered 25% adjusted EPS growth generated strong cash flow and deployed significant capital for share repurchases and acquisitions, while maintaining our leverage at the lower half of our targeted range. Now, overall market conditions for new and used vehicles we think are reasonable and holding up well. Industry inventory of about 2.6 million units remains well below the 4 million units, which was the norm ahead of the pandemic. And units are down about 6% year-to-date. I think OEMs have been adding some production, but overall inventory levels are in good shape. New vehicle sales remain below historical standards, with the year-to-date light vehicle sire averaging 16.3 million units, and the retail sire averaging around 13.6. Our industry sales are up 5% year-to-date, with about half of that increase attributable to a strong performance in March and April. But we think comparisons will probably get tougher in the fourth quarter as we lap SARS of 16.7 million and 13.9 million, respectively. The tariff story continues to evolve. Most of the negotiations with major trading partners are nearing completion, and the effects on the auto industry, I think, are becoming clearer. The impact on the OEM profitability is significant and well-chronicled. but they're clearly not standing still. There'll be manufacturing relocations and other actions to drive a more efficient power supply chain, and the knock-on impact for the dealers and consumers are beginning to play out as well. We expect decontenting and reductions in trim levels, additional fees and moderation in incentives and marketing spend. Now, in the third quarter, we've already started to experience a reduction in certain types of incentive spending, which I will discuss a little bit more shortly. Our same-store sales of new vehicles increased 4.5%, largely in line with the overall industry, and unit growth was led by our domestic segment, which increased 11% from a year ago on a same-store basis. Import brands also increased and premium luxury was slowing down. With the expiration of government incentives for EVs on September 30th, There was a significant increase in sales of hybrid vehicles, which were up 25% from a year ago, and VEVs, which increased 40%. With the incentive exploration in mind, we reduced our VEV inventory by approximately 55% from year end to around 1,550 units for less than 20 days of supply at quarter end. New vehicle profitability moderated in a quarter as one might have expected, with the mix of ourselves being more heavily weighted to VEV and domestic vehicles. And as I mentioned, incentive spending played a part in here as well. Now, it is worth noting over the course of the quarter, we did see an improvement in unit profitability with September closing out more strongly than the average. Used vehicle gross profit increased 3%, which was 2% on the same store basis year over year, as we benefited from stronger unit sales and improved performance in wholesale. Our unit sales increased 4% overall and more than 2% on the same store basis, outpacing the industry. We had strong performances for the over $40,000 price point. In terms of acquisition, the team did a nice job acquiring vehicles through trade-ins and directly from consumers through our We Buy Your Car efforts. And these channels accounted for around 90% of the vehicles acquired in the quarter. We ended September with over 27,000 used vehicles and inventory, which is positioned as well for the fourth quarter this year. Customer financial services gross profit was the highest we have ever reported. reported in a quarter, increasing 12% from a year ago. We continue to attach more than two products per vehicle, with extended service contracts continuing to be the top offering, which is, of course, fantastic for our future after-sales revenue and customer retention. Our finance penetration was higher from a year ago, with around three-quarters of units being installed with financing, and we benefited from improved margins on vehicle service contracts. The momentum in after sales continued. We delivered a record third quarter revenue and gross profit. Total gross profit increased by 7%. The total gross profit margins expanded by 100 basis points from a year ago. Our growth was led by customer pay, which reflects our ongoing customer retention efforts. We continue to focus on our technician workforce by recruiting, retaining, and developing our technicians. And I think we're continuing to see positive signs here. Turnover has decreased. and franchise technician hand count increased 4% from a year ago on the same store basis. Now, the strong momentum at AM Finance continued. Originations have nearly doubled from a year prior, and we continue to scale the business with the portfolio now exceeding more than $2 billion. The portfolio on balance continues to perform in line with our expectations from a delinquency and a loss perspective, and the business's base costs have remained reasonably stable. enabling good profit scaling as the portfolio grows. Our Q3 performance combined with our share repurchases helped us to grow our adjusted EPS by 25% from a year ago. This was the third consecutive year-over-year increase in adjusted EPS. Cash flow for the quarter and year-to-date was also strong. On a year-to-date basis, our adjusted free cash flow is 1.7 times that of 2024, and Tom will talk a little bit more about that after me. Our investment grade credit rating and balance sheet, which, as you know, is really anchored around a low net capital, high free cash flow model, enabled us to once again deploy significant capital in the quarter for both share repurchases and acquisitions to improve our franchise density and portfolio in existing markets. We've expanded our presence in two key markets, including the acquisition of a Ford and a Mazda store in Denver, as well as an Audi and a Mercedes store in Chicago. All in all, I think, really good results and good progress from the automation team. And as usual, it is their results that have delivered this, so thank you all. Many of you listened. With that, Tom, I'm going to hand it over to you to take everyone through the results in more detail.

All right, great. Thanks, Mike. I'm turning to slide four to discuss our third quarter P&L. Our total revenue for the quarter was $7 billion, an increase of 7% a year ago on both total store and same store basis. We achieved attractive same-store growth across the entire business, including double-digit growth in customer financial services, 7% increase in same-store new vehicle revenue, which reflects new unit volumes across all three segments, and after-sales growth of 6%. Gross profit of $1.2 billion increased by 5% from a year ago, reflecting same-store CFS growth of 11%, after-sales growth of 7%, and used vehicle growth of 2%. The growth was offset in part by a decline in new vehicle gross profit. Adjusted SG&A of 67.4% of gross profit for the quarter was in line with a year ago. For the year to date, we were at 67% within our targeted 66% to 67% range. Adjusted operating income increased by 9% and margin of 4.9% increased modestly from a year ago, reflecting excellent growth and performance in CFS and after sales. offset by moderation and new vehicle gross profit or unit profit. As a reminder, CFS and after sales comprise close to 80% of our gross profit and together comprise the gross margin rate of more than 60% of revenue. Below the operating line floor plan expense decreased by 13 million from a year ago as average rates were down approximately 100 basis points combined with lower average outstanding borrowings. Non-vehicle interest expense was approximately flat from a year ago. As a reminder, we reflect floor plan assistance received from OEMs in gross margin. This assistance totaled $34 million compared with $38 million a year ago. Net of these OEMs as net new vehicle floor plan expense totaled $12 million down from $20 million a year ago. In all, this resulted in an adjusted net income of $191 million compared to $162 million a year ago, an increase of 18%. Total shares repurchased over the 12 months decreased our average shares outstanding year over year by 5% to 38.1 million shares, benefiting our adjusted EPS, of course, which was $5.01 for the quarter, an increase of nearly $1 or 25% from a year ago. Adjusted EPS for the quarter excludes the $40 million in business interruption insurance recoveries related to last year's CDK business incident. Also, the year-over-year comparison of just the EPS benefited from non-recurrence of the residual effects of the CDK business incident that adversely impacted the third quarter last year by approximately 21 cents. Slide 5 provides some more color on new vehicle unit volumes increased 5% from a year ago on a total store basis and 4% on a same store basis. Total store unit sales were led by domestic vehicles, which grew approximately 12% in the quarter, followed by import growth at 4%. Premium luxury was relatively flat year over year. By powertrain, hybrid new vehicle unit sales, representing 20% of our volume, were up nearly 25% from the third quarter of a year ago. Bev new vehicle sales, representing nearly 10% of our volume, were also up more than 40% year over year and on a sequential basis. Our new vehicle unit profitability averaged approximately $2,300 for the quarter, down approximately 500 from a year ago for the reasons Mike mentioned. New vehicle inventory amounted to 47 days of supply, down five days from the third quarter of last year, and down from two days at the end of June. The strong BEV sales during the quarter reduced battery electric inventory close to 70% from a year ago to less than one month of supply. For the fourth quarter, we expect the mix of new unit sales to improve, including less battery electric vehicles and a higher percentage of premium luxury, reflecting seasonal strength during the holiday season. Turn to slide six. Used vehicle retail sales improved on a total store basis by 4%. Average retail prices were up about 4%. Used vehicle retail unit profitability of $1,489 was lower than a year ago, reflecting higher acquisition costs. but remains in line with historical levels. Totally used gross profit increased 3% from a year ago, reflecting increased units and stronger wholesale performance. We remain focused on optimizing vehicle acquisition, reconditioning, inventory velocity, and pricing. Overall, industry supply of used vehicles remains tight. We continue to be competitive in securing our vehicle supply from our retail operations, including trade-ins, we'll buy your car, services, loan conversions, and lease returns. We source more than 90% of our vehicles from these channels and are encouraged by the level and quality of our used vehicle inventories heading into the fourth quarter of the year. Turning to slide seven, customer financial services. The momentum continues to be strong for CFS. Gross profit increased 12% on a total store basis. Approximately two-thirds of the increase was from higher unit profitability. The rest was volume related. The results reflect improved margins on vehicle service contracts, consistent product attachment, and higher penetration of finance products. The continued unit profitability performance in CFS is even more impressive considering the growth of AN Finance, which, while superior in long-term profitability, dilutes our CFS PBR unit profitability. In fact, without the AN Finance dilution, our CFS per unit profitability would have increased by an additional $30 from a year ago. Slide 8 provides an update on Ann Finance, which is our captive finance company. As expected, the profitability of this portfolio is gaining meaningful traction as the portfolio matures and we get leverage of the fixed cost structure from the outstanding portfolio growth. Year-to-date, you can see that we improved from a $10 million operating loss in 2024 to a $4 million operating profit in 2025. During the third quarter, we again originated more than $400 million in loans bringing the year-to-date originations to more than $1.3 billion, nearly double our originations from last year. We had approximately $160 million in customer repayments in the quarter. The portfolio has more than doubled since last year and is now greater than $2 billion. The quality of the portfolio continues to improve. Credit and performance metrics are improving with average FICO scores on originations of 697 year-to-date compared to 674 a year ago. The Lincoln C rates at quarter end of 2.4% are solid and losses are stable as a percentage of the portfolio. We do expect the Lincoln C rates to continue to normalize as the portfolio continues toward full maturity with the Lincoln C rates migrating to the three percentage range. Our loss reserving methodology incorporates this expectation. The non-recourse debt funded status of the portfolio also continued to improve as we have improved advance rates for our warehouse facilities. and are benefiting from higher non-recourse debt funding levels from our ABS issuance in the second quarter. Just going to 86% debt funded status that you can see on the page, released over $100 million of equity funding back to AutoNation. As we become a more regular ABS security issuer, we expect to further increase the non-recourse debt funding proportion of the portfolio, and we expect to carry out a second ABS transaction before the end of the first quarter, 2026. Closing off on Ant Finance, the business's attractive offerings are driving strong customer take-up, and we continue to expect attractive ROEs in the business driven by the profitability growth and the shrinking equity. Moving to slide nine, after-sale, representing nearly one-half of our gross profits, continued its revenue and margin momentum, and gross profit posted a third-quarter record for automation. Same-store revenue increased 6%, and gross profit was up 7%, led by customer pay, which increased 10%. internal and warranty were also higher than prior year reflecting higher value repair orders along with higher overall repair orders our total store gross margin increased 100 basis points to 48 48.7 percent of revenue we remain focused on hiring developing and retaining our technicians and as mike mentioned these efforts helped us to increase our franchise technician headcount by four percent from a year ago on a same store basis the increased technician Workforce is a key to consistently driving that mid-single-digit growth and after-sales growth profit. Slide 10, adjusted cash flow for the nine months of the year totaled $786 million, which is about 134% of adjusted net income, and this compares to $467 million, or 91%, a year ago. The big increase reflects stronger operational performance, including our continued focus on working capital and cycle times, as well as CapEx management, and prioritization, which resulted in a $40 million lower spend on CapEx in 2025 and 2024, as well as the recovery from the CDK outage, including the $40 million in business interruption insurance receipts in the quarter. Our CapEx depreciation ratio was at 1.2 times compared to 1.5 times a year ago. We continue to expect healthy free cash flow conversion for the full year. Slide 11, capital allocation. As we've discussed in the past, we consider capital allocation an opportunity to either reinvest in the business in the form of CapEx or M&A, or to return capital to shareholders via share repurchase. Year-to-date, we've deployed over a billion dollars in capital, as you can see on the page. We remain prudent in CapEx, which is mostly maintenance-related, compulsory spending, and total $223 million for the first nine months of 2025, which is 15% lower than 2024, as I previously mentioned. We continue to actively explore M&A opportunities to add scale and density to our existing markets. So far this year, we've spent approximately $350 million closing on transactions in Denver and Chicago, which Mike discussed. Share repurchases have been and will continue to be an important part of our playbook year to date. We've repurchased $435 million worth or 6% of the shares that were outstanding at the end of 2024 at an average price of $183 per share. In the nine months ending September 30th, we repurchased, September 30th, 2024, we repurchased $356 million at an average purchase price of $159 per share. In our capital allocation decisioning, of course, we consider our investment grade balance sheet and the associated leverage levels. A quarter at our leverage was 2.35 times EBITDA, down from 2.45 times EBITDA at the end of last year, and well within our two to three times long-term targets. which gives us additional dry powder for capital allocation going forward. Now, let me turn the call back to Mike before we go to question and answer.

Thanks, Tom. I think we'll just dive right into Q&A.

Harry, if you could please remind people how to... Yes, of course. No problem at all. To ask a question today, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two to exit the queue. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally. And our first question will be from the line of Michael Ward with City Research. Please go ahead. Your line is open.

Thank you very much. Good morning, everyone. I wonder if you can quantify, it looks like the variable gross per unit from 2Q to 3Q went down by like $250. And it looks like, is it split about equal between the unfavorable seasonal mix with luxury and then the BEV sell-up? Is that what we're looking at? And how does that reverse? or does it fully reverse in 4Q?

Yeah, Mike, I'll answer first, and then Tom, if you've got anything that you want to send. So I think you saw two effects, really, on the growth. Obviously, everyone's talking about the significant increase in BEV mix, and there's no doubt about it. BEV margins were absolutely terrible, and have been terrible for some time. But we'll talk about our view on how that moderates going forward. But it still, even though they increased significantly, it was only 10% of our total moves. And it did have an effect on our margin. The biggest effect, frankly, came from our domestic combustion or ice sales, where we saw quite a compression, particularly in the middle part of the quarter. We were able to reverse that to some extent as we came out of the quarter, as I alluded to in my comments. And I was pleased with our exit trajectory But I think we had too much pressure on our domestic mix, as I said, in the middle of the quarter. And that was the largest contribution to the sequential and year-over-year reduction. I think we've got better balance now going into Q4 with regard to that. And I do think that we are going to see a much better dynamic with regard to supply and demand on BEVs. in Q4 and we could have a relatively long discussion about what does the effect of the loss of the $7,500 do on that and what's the thoughts about that. But I do think that we have a better dynamic in terms of supply matching demand and therefore less pressure potentially on margins. A long answer to your question, it was actually more from the highest contribution was our domestic sales. And Tom mentioned they were up over 11% in the quarter. There was, of course, an impact of BEV. But remember, it was only 10% of our total mix, some of which will get mitigated as we go into the Q4. And you'll obviously get the benefit if we see normal patterns of a better luxury creaming mix in December. Tom, do you want to add anything? No, I think you hit them all, Mike.

The flip side of that is you have this record level of financing insurance per unit. Any reason that won't continue?

I have expectation. That team has continued to grow their contribution to our company throughout my four years now with AutoNation, and they are led by a great group of people in the dealerships, by the way, in our markets and here. our expectation is that their performance will continue. And I think the thing that Tom and I are delighted about is that it's really in value-added products. We mentioned the attachment rate, for example, of service contracts. And it is clear that that really, for us, is good for the future in terms of loyalty and in terms of our after-sales business. So there's no reason why we would see that necessarily change. It is and will continue to be mitigated by increased penetration of AM Finance in terms of the periodic reporting of that. But over the long term, the contract term, we're better off with the overall returns AM Finance delivers rather than the one-off contracts we sell on behalf of others.

Thank you very much. I appreciate the time.

The next question today will be from the line of . It's JP Morgan. Please go ahead. Your line is open.

Great. Thanks for taking the questions. I just wanted to ask a little bit of a high-level question on just the auto credit trends. You noted that delinquencies were flat quarter on quarter. Looks like your average FICO mix is a little similar to some of your public peers out there, you know, CarMax and others. I'm curious, like, is there anything in the data that you see or the performance that you see in your loan book that concerns you, you know, with regard to the health of consumer, with regard to, you know, how maybe losses or delinquencies have been performing, you know, within the quarter or maybe in certain cohorts of the consumer? Any more color you can share that would be helpful and have a follow-up on the used car business?

Yeah, thanks for that. This is Tom. Good question. And obviously there's a few headlines with some of the well-chronicled issues that came through in a couple of the larger portfolios this quarter. Obviously, that makes us double down and look at everything that we're doing. And we're very, very confident in the portfolio. I mean, the growth has been outstanding. The financing levels continue to grow, minimizing our equity. But importantly, the portfolio itself is something that we look at very closely. Mike looks at it every week. And we look at not just the delinquencies, the delinquency rates, but we look at loss rates and write-offs by vintage going all the way back to the start of when we did this business. The trends are all in line with what we expected. You know, our reserving has reflected those expectations. And, you know, not seeing anything by way of acceleration and anything like repossessions or, you know, first payment skips or anything like that that, you know, is not already reflected in, you know, how we manage the book. So I'm pretty good. I'm pretty happy knock on wood with how that's been going.

understood, but that's helpful color. Oh, you're just following it when they use credit business. Um, you had a pretty strong same store growth number last quarter. Uh, it looks like it's slowed down a bit. I'm sure like there's been, you know, some effect of the pre-buy that happened last quarter, you know, that's causing the decel. Uh, but we're curious if you can get an update on some of the initiatives, you know, you talked about last time, you know, on improving the business there, both growth and profitability, you know, where you are. in the timeline of that progress? And should we start to see, you know, further acceleration in that growth here over the next few quarters?

Thanks. Yes, Michael, I'll give you an answer to that question. I will tell you that one of the things that we talked about was that we believe that we can grow our used car business and we are growing our used car business above the industry and all of those things. are continuing to happen, and our margin is relatively stable, albeit there's some downward pressure on it. So I think if you look objectively at our performance, you would say, yeah, it beats market. That's a good performance, or some people would. But I will tell you that the team and I are really, really focused on what the art of the possible is here, and we are maintaining higher stock levels for the sales than we would normally have. Historically, I like to make sure that we have an inventory turn rate that, for me, balances obviously the depreciation that we're now back into a normal cycle with how long we're keeping those vehicles in our inventory. And we're not at that turn rate with the level of inventory that we're carrying today. Typically, the team would balance back down to just above their run rate to give them room to grow. But we're not going to do that this time. We're going to hold the line with higher inventory unused for a period of time while we continue to work on the other levers to get our run rate to get back to the turn levels that we would expect. Now, the consequence of that, of course, is that the depreciation effect on our margin will be there for a period of time and will continue, frankly, in Q4. And as you know, when you think about depreciation, impact, and it is completely time-based, that puts some downward pressure on our overall result. So I would say we continue to make progress. There's more headroom. We're not where I or the team would like to be. We're not going to take the balancing approach that we've taken before because we want to work the kinks out of the system. There will come a point that we may have to rebalance our used inventory down. so that we can alleviate some of that margin pressure that we're seeing. We're not there at this moment in time, but we'll make that decision as the quarter continues. So the short answer is progress above industry in Q3. Our expectations are higher. We are doing numerous things to get there. They haven't all worked in the quarter, albeit the result was good. We're going to hold higher inventory levels than we normally would to make sure that we have the supply that is there as we work through those other things. The consequence of that is picking up increased depreciation, which is accounting for about 0.2% of our margin at this moment in time. And we will stay there in Q4 to enable the organization to grow. And we will see what happens with the overall marketplace. That doesn't mean to say that at some point in the quarter, we will balance our inventory back. If we see that the market is not giving us the results that we need, That's what our job is to do. But at the moment, we're holding the line with our inventory, which is why you see our inventory levels where they are unused. So hopefully that's enough color for you.

That's really helpful. I really appreciate it, and good luck.

The next question will be from the line of Jeff Lick from Stevens Inc. Please go ahead. Your line is open.

Good morning, gentlemen. Congrats on a great quarter, and thanks for taking my question. Tom, I was wondering if you could give a little more detail on the impressive 100 bps of gross margin expansion and servicing parts, just kind of what's driving that and how sustainable that will be going forward.

I mean, when you look at the performance in the quarter, I would say that the total, just to reference, the growth was roughly 7% in gross. I'd say it's equally balanced between volume and price. With volume, I'm talking about both parts, number of repair orders and labor hours per repair order. Those are all up and tracking nicely. Also, from a price perspective, there's inflation in the market. We definitely do our part to offset that on a regular basis. we probably got a little bit more mixed favorability as well. But the initiatives that, you know, Christian and the team are driving around technicians and, you know, the hiring and training of technicians, as well as having the appropriate capacity from a service pay perspective are working out well for us. And we're able to, you know, leverage the investments that we've made. We talked about Robert Marlayson, You know, maintaining a reasonable level of capex spend and we've been able to achieve these results well of being thoughtful about the amount of capital reporting in as well, so I say those big drivers.

James Meeker, And just a quick follow up on sg and a 67.4%. James Meeker, You know, as a ratio of both cross profit and black last year which, given the other your peers reports that's. you're the leader in the clubhouse, looks pretty impressive. I know you're kind of taking a bit of an outsider's point of view, given your previous professional experience, and just curious where you see that going and what highlights you'd give as to what's going to lead that.

Mike has his expectations. We talk about a range of 66, 67, but we're driving even more aggressive than that. I think the other important thing is, you know, There's a disparity amongst the group in terms of how service loaners are reported. We include the entire expense for service loaners in our SG&A rate as well, so I think ours is a bit penalized compared to some in the group. Overall, I agree with you that the performance is good from an outsider's view, but I would say we have a number of initiatives driving productivity on the in our variable side, both, you know, whether it's on the sales side, in the service base, that's really important and drives the outcomes, unit outcomes. Also on advertising being very, very thoughtful in terms of return on investments that, you know, we're getting there. And then lastly, there's a whole pool of, you know, costs, other SG&A types of costs that, We manage every day. We have a number of initiatives I've talked about before, but those are front and center. We look at them every month as a leadership team and course correct when we see things not in the direction we want. I think it's getting the right amount of attention in the company. I expect us to closely manage that. Now, we've got investments that we make, and those are fairly regular. They can be a bit variable and spike at times. But they're all made with the idea of driving further growth. So in terms of how I'm looking at it, I think it's a big area of focus.

Nice impressive performance. Thanks very much for the color and best of luck in the fourth quarter. Thanks, Jeff. Thanks, Jeff.

Our next question today will be from the line of Daniela Hagen with Morgan Stanley. Please go ahead. Your line is now open.

Thank you. One question on forward demand. As we've kind of passed through the peak tariff fears as you spoke to Mike, we're now seeing OEMs revise up guidances, kind of clears the bar on improved outlook here. You spoke to decontenting, but how are you seeing pricing on new model year vehicles? Is that relatively unchanged? How are you thinking about 26? Anything you can share there would be helpful.

Yeah, so I think you're right in your view. I think the OEMs now have had enough time and are getting to a level of clarity where they have looked at their product plans, looked at their supply chains, and the two big impacts of tariffs, but also from a powertrain perspective have driven significant change into all of the OEMs views on their product lineup and the power trains that they're going to deploy. And I think that they have, to the most extent, got their heads around that and understand what they want to do. And therefore, they're being much more clear and less cautious about their future outlook. A lot of that hasn't really made its way yet into the market. Some of it has, of course. But I would tell you that my view on this is look at pricing and what's come through the system so far. It looks broadly in line with normal pricing that we would expect for the model year changeover. But that, of course, is just a headline. We know that there is, as always, option decontenting, things that were standard made optional. And there is always value engineering that happens with every single OEM. So at the end of the day, if you were to assess true value delivered to the customer for each dollar, I can't really give you a clear picture on that yet. But we know that the levers that have been pulled are on the supplier side. they are on obviously the cost per vehicle side and the bill of materials and also on some of the incentives that have been provided to dealers whether it was volume growth incentives or other support incentives that do not directly impact net transaction price in the marketplace but ultimately do impact dealer margins so we know there is effect across all of that some of that we saw in the quarter we alluded to that in my incentive comments i think that's going to continue as we get into deeper into Q4, and we clear our prior model year. But I'm pleased with where the industry is, frankly. We said at the beginning of the year, we thought it was, we were hoping for 5% up year over year, and we had no clue, really, of the turbulence that we were going to see, that we have seen this year. And I think the OEMs have largely navigated it well, some better than others always. So we are hoping that Q4 continues that. We think that the year-over-year comps are a higher bar in Q4. And we said that because we wanted to give you an indication of our view of October through the end of December. But as we get into next year and you see some of the more rapid supply chain changes, the OEMs are there, I think what they're going to want to do is to maintain their progress in this year. So it's too early for me to call what I think 2026 will be in terms of a total inventory But I do think there's a lot more clarity from the OEMs, and I do think we're going to see more potential impacts that will be mitigated to some extent by their actions and dealer actions in Q4.

Great. That's very helpful. And back to used car, you spoke to sourcing challenges. Availability should improve at the margin over the next year. But how do you expect the strategy around older used cars to shift over time? It's clearly a very fragmented used car market. How are you viewing competition from the likes of online pure play retailers, and is there greater opportunity to grow and consolidate there?

Thanks. Yeah, I always believe that there's opportunity to consolidate, particularly when you have the fragmentation that we have got. I mean, even if you take the largest of the players and their forecasts, it's a a tiny percentage of market so there's always opportunity for that to happen but let me try and let me try and answer your question in in sections and redirect if necessary firstly we have continued to see competition for retail grade used inventory and that competition it has resulted in some upward pressure on wholesale prices we and the other big retailers benefit from one more channel than some of the pure play. And that is obviously in our trading. But that channel is not completely isolated from competition because of the level of transparency of pricing in the marketplace, which will only increase. But I think we have a very strong sourcing strategy that enables us to keep the level of entry we want in place, albeit at an elevated level. cost. Our growth really, as we alluded to, came from higher-priced vehicles. Others are leaning into maybe lower-priced vehicles. I think as we exhaust the odds of the possible from $20,000 and above, and we want to continue to grow, we can lean higher into those lower-priced vehicles with obviously the consequences, the investment required to get them road-ready. But as I mentioned, we're going to hold slightly elevated used inventory in the quarter, really to see the art of the possible of our sales teams and our marketing teams to get our turn rates back up to what we're used to. They'll be given some time to do that. We understand the consequences of that, which will be some downward pressure, particularly around the aging. That will be in addition to some slightly elevated wholesale prices that we're seeing. We may have to balance that, as I mentioned before, as the quarter closes. But I do think for us, we have a very strong North Star in terms of what we think we should be capable of with our physical ,, the relationships and the confidence that comes from the brands that we have above our doors, and the fact that we have multiple sourcing channels. So if you were to talk to any of our market presidents, they would tell you that I am very bullish on used car volumes. I understand it's not a switch. It takes time. And of course, it includes all of the channels. But the reality is most people buy a used car within 50 miles of the dealership that's got it.

Thanks, Mike. That's helpful.

The final question in the queue today will be from the line of Brett Jordan with Jefferies. Please go ahead. Your line is now open.

Hey, good morning, guys. One of your peers yesterday was noting that the consumer sentiment around the luxury space was feeling a little softer. Are you seeing any changes sort of at the underlying demand level at the higher price points?

Yeah, I think that, so, I mean, it's a good question because really when we closed out the quarter and we saw the level of activity around hybrids, And a lot of that, obviously, for us is in the luxury space. And we come into what really is a bit of a quiet period for luxury. I would tell you that I think it is more muted than last year. But I still have expectations we will see a seasonal uptick in December. But I do think it is more muted, particularly as I see October developing. So that's the best color I can give you at the moment.

Okay. And then within the domestic internal combustion GPUs, was it brand specific or was there sort of a one-off event in there that is to be corrected? Or are we thinking that the domestic ICE GPUs are just under some sustained pressure?

Well, I tell you something, I think some of it was self-inflicted, frankly. That's one of the conversations that we have internally. We've set ourselves strong expectations in terms of how we want to perform in light of the marketplace. And it is always a three-way balance between what share are we able to achieve with the brand that we've got, at what margin level, and what marketing expense. And I think You know, we, as I tried to allude to, probably had some self-inflicted downward pressure in the middle of the quarter that was corrected in September, and I expect that to continue to be corrected. But you saw all of the domestic players, all of the domestic players chasing volume. Domestic players tend to chase volume, and they do it in conjunction with their dealers. In other words, they have programs and schemes and relationships with their dealers when they're chasing volume. Everybody participates. into driving a very competitive net transaction price um we're very we we have a strong partnership with all three of the domestics and we were supportive as we could and that had general downward pressure across the piece it is true that some domestics had higher downward pressure than others but that's the nature of the game and the cycles that they're in i think as i said some of our performance was a bit self-inflicted, which was corrected as we came out of the quarter. We just want to make sure that we are growing because I think there's opportunity for us to grow. But we do that in an appropriate balanced fashion, knowing that for every new car that we sell, we get a customer who has a very high loyalty for us for up to seven years if they keep the vehicle. And a large percentage of them give us a great opportunity on used car sales because the value we offer for their trades as well. So it isn't just one element. We try to think about the best balance we can achieve in the business. Sometimes we get it right. Sometimes we push a little bit hard. That's why we look at it every day. Thank you.

With no further questions on the line at this time, I will now hand the call back to Mike Manley for any closing comments.

Thank you, Harry. Thank you all for being on the call. As always, we appreciate your questions and we wish you well. Thank you.

This will conclude the Autonation Incorporated Q3 earnings call. Thank you to everyone who was able to join us today. You may now disconnect your lines.