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spk00: Good morning and welcome to the Sonic Automotive third quarter 2020 earnings conference call. This conference call is being recorded today, Thursday, October the 29th, 2020. Presentation materials, which management will be reviewing on the conference call, can be accessed at the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the Safe Harbor Statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information, or expectations about the company's products or market or otherwise make statements about the future. Such statements or 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 filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. Jeff Dyke, President of Sonic Automotive. Mr. Dyke, you may begin your conference.
spk05: Thank you, and good morning, everyone, and welcome to Sonic Automotive's third quarter 2020 earnings call. I'm Jeff Dyke, the company's president. Joining me on the call today is our CFO, Mr. Heath Bird, our Executive Vice President of Operations, Mr. Tim Keene, and our Director of Financial Reporting and Investor Relations, Mr. Danny Weiland. This morning, we reported the highest quarterly earnings in our company's history, with adjusted EPS of $1.29, up 95% from the third quarter of last year. These record results were driven by increasing consumer demand for new and used vehicles, as well as improving rate of recovery in our parks and service business, continued growth in our F&I per unit, and a fundamental change in our expense structure. Our core franchise dealership segment performed very well during the quarter, reflecting steadily increasing consumer demand and margin improvement across all business lines. Additionally, the previously announced permanent SG&A reductions continued to drive increasing operating efficiency, and unprecedented bottom line profitability at the store level. Turning to Echo Park, revenues for the quarter were $385 million, or 15% of our total revenues, an increase of 23% on a year-over-year basis. Echo Park achieved all-time record quarterly retail sales volume of 15,127 units, up nearly 15% year-over-year. As we noted on our second quarter call in July, we opened our first delivery and buy center in Greenville, South Carolina, which continues to ramp according to our plan. In addition, we opened another retail store in Houston, Texas in September and our latest retail store in Nashville, Tennessee just last week. Before the end of the year, we expect to open two more retail stores, one in Plano, Texas, the other in Atlanta, Georgia, as well as at least one additional delivery and buy center. We remain on track with our Echo Park expansion plan and will continue to keep you updated on our path to $14 billion in Echo Park revenue by 2025. In addition to our exceptional store performance during the third quarter, we continued improving operating efficiency throughout our entire organization. Adjusted SG&A expenses as a percentage gross profit were 69.1%, down 760 basis points from the prior year. We continue to expect to achieve permanent SG&A expense reductions of approximately $7 million per month, or $84 million annually on a go-forward basis. In recent months, we have seen more car buyers open to a wider range of shopping options across the omni-channel spectrum. This includes increasingly utilizing a combination of online, phone, and in-person shopping to complete a vehicle purchase. Several recent studies support our belief that the vast majority of consumers prefer to begin the car buying process online, then visit a dealership to get access to support from knowledgeable associates, and then have the ability to physically shop large inventories, and finally, test drive the vehicle before purchasing. In addition, our guests continue to tell us that price and quality are the most important factors when selecting a used vehicle. This is exactly the value proposition offered by Echo Park, and we firmly believe that our pricing strategy, compelled with our hybrid approach between online and on-site, offers consumers the car buying experience they want, as evidenced by yet another record quarter at Echo Park. As we continue to provide our guests with additional buying options, this will accelerate our Echo Park network expansion plans, as well as enhance our guests' online retail experience at our franchise dealership websites, and EchoPark.com. Given that, we are pleased to announce today that we recently hired Mr. Steve Whitman, formerly of Hertz, the Hertz organization, as our new digital or chief digital retailing officer, and Mr. Steven Conrad, formerly with Bell Department Stores, as our vice president of e-commerce to oversee the ongoing development and future evolution of our omni-channel platform. Each of these individuals brings extensive online retail experience to our company and we look forward to their contributions in further improving our overall guest experience. As we move forward, we believe Sonic and Echo Park are well positioned for the future growth and success. Throughout the pandemic to date, our management team has taken the necessary steps to strengthen our operations and take care of the health and safety of our teammates and guests, while also positioning the company to benefit from the economy's eventual recovery. We believe the automotive industry is at an inflection point, and we intend to capitalize on this momentum with both Echo Park and our Sonic franchise dealerships. Now I'd like to take the time to thank all of our teammates at the franchise stores and Echo Park stores for their relentless commitment to deliver our exceptional guest experience while executing our safety protocols. I also want to thank our manufacturer and vendor partners for their unwavering support. This concludes our opening remarks. We look forward to answering any questions you may have.
spk00: It is time to ask a question. You will need to press star 1 on your telephone keypad. That is star 1 to withdraw your question. Press the pound or the hash key. Please stand by while we combine the Q&A roster. Just one moment, please. Your first question comes from Rick Stevens. Rick Nelson with Stevens.
spk03: Thanks. Good morning, guys. Hey, Rick. Follow-up on Echo Park and the profit pressures we saw in the quarter, and it looks like you took down your guide for revenues and units and profits for the year, if you could discuss those changes.
spk05: Yeah, so it's a great question, Rick, and thanks. 2020 has been a really interesting year for us used car geeks, right? COVID set aside, the inventory in particular from a pre-owned perspective has just been all over the board. And what you might not know is going into May, sort of through April, our core plan for a lot of the franchise stores and all the Echo Park stores was a floating floor plan with a 30-day look back. So what were we all doing in April? We were selling down inventory and preserving liquidity because we didn't know how long the COVID deal was going to last. So we got to May 1st and we had a point on May 20th where the floor plan was going to adjust and basically drop our buying capability by half from a floor plan perspective. So when you see, I think if you can refer to page 46, Danny's at 46 in the deck. Correct. You can see The great time to buy pre-owned cars was during that time, and we couldn't do it. So we really had to maintain liquidity plus deal with the floor plan issues that we have. But Heath Bird and the whole team went to work with the banks, and now we've moved from a floating floor plan to VIN specific, and it's triple the size we have. So we have enough floor plan now for the foreseeable future, so we're in real good shape there. But by the time we got the floor plan handled, it was time that we could start buying. Now, all of a sudden, you've gone from a historically low rate, a historically big drop in terms of wholesale pricing to now a historically high increase, some 140% of the market versus pre-COVID. And so really interesting, interesting time because we kind of had our hands tied. Had we not, then we'd obviously bought more cars during the pandemic. the opportunity period where the cars were a lot cheaper. Having said that, if you think about it, we opened four stores during that time frame, four Echo Park stores. We did set all-time revenue and all-time volume records, and we remained profitable. And if that isn't just an indication of how strong the brand is and how strong the model is, I don't know what, because our hands were really tied. And so now what's great is as the markets drop back down, I think it's about $200 above where we were, And we're off to the races again. The volume's back, the margin's coming back. It did leak over a little bit into October, so we had a little margin pressure for the first few weeks of October, but that's coming back. And the fun thing now is that we're basically opening an Echo Park store every 15 days for the foreseeable future on average. And it's just one after another. And if you look at our last two openings, like I mentioned in my opening comments, the Houston Southwest store, now mind you, there's another store already in Houston, But the Houston Southwest store is going to be in the 375 to 400 car range in their first opening month. That means that we're profitable in month number one. And then our Nashville store that just opened last week, they're selling cars on a pace for over 400 car pace for an opening month. So we're real excited to see what they do in November. So, you know, it's a little blip. We're still very excited about the volume that we're able to get out given the constraints that we have. And look forward to having a great Q4. The interesting thing is that when you look at it, if you run a short-day supply, which we do, and you're buying cars all at the height, you actually had a point where the wholesale prices were more than someone running a long-day supply and their retail prices. So in other words, it was costing me more to buy a car than some of those that had 40-, 50-, 60-day supplies. that they could retail the car for. And so what's going to happen now is we're going to go into the fourth quarter, and if those companies that are on long-day supplies bought a bunch of cars in August, which I suspect they did because sales were so good in July and August, then they're going to have to deal with that situation in the fourth quarter. And that's behind us now. So we're excited about where we are. We're excited about the volume we're seeing out of Echo Park. It's rocketing and rolling again. And just a crazy time, but it's handled and we're moving forward.
spk04: And, Rick, as you see, I'll just add, you know, if you look back at the Mannheim and you look at the trends, this has only happened, it's never happened to this severity where the wholesale and retail correlation was so far off. You had a little bit in 2008 and 2009. So it really was, you know, for the quote-unquote Black Swan event, and it's resolved. Our Venn floor plan gives us plenty of room to grow, and as Jeff mentioned, this is behind us.
spk03: Great. Good to hear. If you could also comment on the variability of demand that we're seeing, both new and used cars. It's been really strong. I know supplies have been tight. Do you think this is a multi-year demand tailwind or is it more short-term?
spk05: Well, let's address new first. Availability is coming back. I think we've got 1,000 or 1,200 more cars on the ground at this point than we did last month at this time, and that just keeps improving every month. Manufacturers are doing a great job getting inventory back in our hands. The demand is there. I think we'll all be back and rolling as we move into the first and second quarter of next year as supplies build. From a used car perspective, I've said this since you've known me, we don't ever have a problem buying cars. Sometimes you have to pay more for them. Sometimes you pay less. We had a problem this time because we didn't have any floor plan availability, but other than that, that's all resolved. But if you go back and just look historically, and in particular look at historically one to four-year-old cars under 50,000 miles, the supply is endless. We can buy cars all day long. That's the beauty of our model because when you mix the franchise business with Echo Park and I have access to all that inventory, we just don't have a problem buying inventory. It's never been a problem. The inventory is there. As a matter of fact, if you chart it out and you plot it out and you look at inventory supply, And that supply range, it's a flat line across the board for years and years. There's not very many blips. There's plenty of inventory out there for those that know how to go and get it.
spk03: Great. And you've hired these new digital executives. Is the goal to provide an online purchase at Echo Park? And if that's the case, what is the timeline to get that up and running?
spk05: Yeah, so we have it today, right? You can go on to Mercedes-Benz of Denver. You can go on to Echo Park, Greenville, and you can see examples of how a consumer can go end-to-end. But our definition of that is a little different than maybe what I've heard so far. Our definition is to make it really easy in that if a consumer wants to, which is less than 2% of the population right now, but if the consumer wants, they can go online, buy a car from end-to-end, no touch points, right no touch points the best-in-class right now has 10 to 15 touch points and and so we're building out what we have we're building out a solution that allows the consumer to go in the end with no touch points by vehicle do it very easily very few clicks and deliver on that promise so we're a little bit away from that I mean hopefully we can deliver on that sometime towards the end of next year but in between now and then We certainly have a robust environment where the consumer can go in. There are going to be touch points, just like any of our competitors, and we can deliver a car. We have customers coming in today, and some customers are doing, I think, about 15% to 16%, 17% of our customer base right now is completing some percentage of the transaction online before they come to the store to pick it up. And I've heard those numbers and ranges from some of our competitors in reporting. So I think that's sort of the overall bucket of consumers right now that want to do that. Is that going to grow in the future? Who knows? But we're going to be ready for it if it does. And that's why we've added Steve and Steven. They come with incredible pedigrees. Their resumes are fantastic. And they snap and fit right into what we're trying to do. And we'll introduce... them to you on the call next time, and they can start answering the omnichannel questions as we move forward.
spk03: That sounds great. Finally, if I could ask you about the new Delivering a Buy Center in Greenville. You mentioned how that's performing, and the rollout plan sounds like you're going to add one more of these prior to the end of the year.
spk05: Yeah, we're probably going to add Knoxville. We're working on that right now. We've got a couple of opportunities. We'll see which one fits the best. But the Nashville store, we're trying to let it get up and running, and it's up and running pretty quickly here. Greenville's doing great. We sold 80 cars last month out of the store. And if you think about it, the average new car dealer in a used car store sells 69 cars a month. We sold 80 in just our first month out of the shoot here. And so we're real excited about it. We think that that market can bring 200, 300 cars a month as we get better in our execution there. And then sort of the hub and spoke model will come to life. If you can picture Nashville and look at Memphis and Knoxville and some Kentucky markets, Lexington, we're going to be able to deliver into those markets a lot cheaper. Remember, in Greenville, we're actually using an office at one of our stores there, and we delivered 80 cars there. We have no overhead, no nothing. And so it's such a great model, and we look forward to opening up a bunch of those next year as we move forward. And it just puts us right on line, if not ahead, a little bit of pace to get our 140 stores and that $14 billion revenue number, if not better, by 2025.
spk03: Great. Thanks a lot, and good luck, guys.
spk05: Thank you so much, Rick.
spk00: Your next question comes from Rajat Gupta with JP Morgan.
spk01: Hi, good morning. Thanks for taking my question. You know, just had a question on, you know, just what you're seeing in terms of just near-term demand trends, you know, how October looked like for you, you know, both, you know, new used and also product and services, like have those volumes improved from third quarter levels and then You know, on parts and services, how do you see the recovery shaping up here? You know, particularly, you know, we would lower miles driven, you know, potentially likely likely to be lower here, you know, for the remainder of the quarter, you know, as you know, more shutdowns come into place. Just curious as to a thought there, you know, as you go into 2021 also, I mean, how, how much of function is miles driven, you know, like how much of that goes into the equation? for the growth of that business and how much is, you know, likely independent of miles driven and more around like just company specific actions or, you know, like vehicle complexity, et cetera.
spk05: Yeah, so thanks for the question. So let's address fixed operations first. We were actually up year over year by 3.6%, I think, in September, which is great. We have a day's difference in October, so I think we're going to be maybe down 1% or 2% for the month. We'll see when it all finishes up. But fixed operations is coming back slowly but surely. And if you'll remember back when we started projecting kind of what was going to happen with volume and fixed, we said fixed a while back it was going to take a little bit longer because of the things that you just mentioned. The other thing, too, is our exposure in California is quite high, and we've had more shutdowns out there than anywhere. But that market's a little bit topsy-turvy when it comes to that. a lot of less driving, so that issue is certainly going on. From a used and new perspective, the business keeps just getting better, and I've commented on both Echo Park and Sonic Automotive in particular at Echo Park in October. Now that we've got that floor plan issue resolved and our inventory levels are back up where they're supposed to be, the engine is really rolling again, and I think 5,200 to 5,500 cars for Echo Park out of October is a pretty decent range and certainly pushing for north of 16,000 cars in the quarter. So we're excited about that, sort of where we should have been last quarter had we not had the slowdown there from the floor plan. The new car business, the demand is there. It's just a function of inventory. The more inventory we get, we're selling it. And the margins, which is great, because I think we all would have said, hey, the margins are going to get a little tighter and a little tighter, and the margins are still really good. We're a little over $2,600 a copy, I think, for the quarter, and it's going to be strong again in the fourth quarter. And look, 2020 was a crazy year, right? But we've cut so much cost and we've got our revenue engine going, in particular with Echo Park, that 2021 is going to be a great year. You know, the shutdowns, if they happen again, we're a lot more educated on how to deal with them. We've got a whole different cost structure. We're just a – the economy's – you know, better prepared to deal with it. And so if it happens, it happens. As we've all done, we'll stay strong as we move through this. But we think 21 is going to be a fantastic year. 2020 is by far and away going to be a record-breaking year for us from an EPS perspective. And, you know, we expect to do that again even better in 21 with great volume growth and just the fantastic growth out of Echo Park.
spk01: Got it. That's helpful. On Echo Park, EBITDA, you explained all the issues that happened in the third quarter. Should the fourth quarter EBITDA, is that expected to get back to, you know, the prior run rate of like, say, 5, 6 million in EBITDA? Or, you know, should we consider any offsets even to that, you know, with the new stores opening up? And, you know, just looking into 2021, you know, I appreciate you cannot guide, but Is that exit rate of Echo Park like a good starting point to assume? You know, when we look into 2021 EBITDA potential for Echo Park, you know, just any color on the puts and takes there would be helpful.
spk05: Yeah, so here's how I'd look at it. Here's how I'd kind of guide you there. You know, we have still a little bleed over from inventories from September into October. So the first few weeks of October, still difficult margins, but that's finishing now. It's not done right now. And so November and December should be back on our normal EBITDA pace. However, you need to remember that we're accelerating our openings, right? So the model that we got used to in 2019 and throughout 2020 where you got that $5 million in EBITDA, we're accelerating our openings. And what that means is I'm carrying people, I'm carrying managers on my employee list now that I'm going to deploy in the next six to eight to nine months. So we've got a little bit of a carrying cost as we expand the revenue. And that's just natural. That's just common sense that that's going to happen. So I would expect a better Q4 from an EBITDA perspective than what we saw in Q3. And then I would expect, because the ramp-ups are so much faster, or the last couple have been really fast, in Houston and in Nashville in terms of getting the profitability. I don't expect a lag, these three and four and five months lags to get profitable as we move forward. And of course, the delivery centers are profitable almost immediately as well. So, I mean, I'm not afraid of that $5 million, $6 million EBITDA quarter and growing like we're going to grow. But, you know, keep in mind that the growth is going to include having us hire people ahead of time and ramp up to get ready for these store openings.
spk06: Hey, Rajat, this is Danny. Just to add to that, in the third quarter, you know, we had $1.8 million of EBITDA drag from those new openings as well. And we had about $5 million of gross because of the margin pressure that we talked about at Echo Park that we lost in that quarter. So that $3.1 million of actual EBITDA you see is reflective of both of those. So as we go forward, you're still going to have to drag from new openings. But as those margins normalize here coming out of October, that should give us some upside.
spk05: Yeah, and the new openings, you know, the delivery buy centers are real inexpensive to open. Let's take, you know, it's either a rent. We either own the property or it's a lease, and we're talking about maybe $2 million to get a store opening, three at the most versus, you know, a traditional Echo Park store that's anywhere from 10 to 20, depending on the size of the store.
spk01: Got it, got it. Just the last one for me, you know, on the SG&A side, I mean, because you did not have, like, a similar kind of, like, gross margin tailwind, you know, as some other competitors, you know, is this kind of like the, I mean, you saw it on the new site probably, but how should we think about the SG&A to gross, you know, progression here? You know, I mean, you've talked about 73 to 73%. in the past, you know, on a normalized basis? Like, has that thinking changed at all, or are we still on track to, you know, hit that kind of number here, you know, on a normalized basis?
spk04: Yeah, this is Heath. If you look at the fourth quarter, it's going to be very similar to Q3 from a percentage of, actually a percentage of growths. And then as you go into 2021, you know, I think if you look at the total year this year, it's going to be around 73, you know, for the whole year. probably 69% in fourth quarter of what we're projecting. And as you go into 2021, you've got to factor in that first quarter where we did not have those annual savings that we got after COVID. If you think of that, you're going to be looking at low 70s as a percent of growth for 2021. Got it.
spk01: Got it. That's super helpful, Culler. Thank you so much.
spk00: Your next question comes from John Murphy with Bank of America.
spk07: Good morning, guys. Can I say a first quick question on Echo Park? I mean, you know, opening, you know, one store every 15 days is pretty impressive. It's, you know, kind of you're sticking to your plan and it seems like accelerating a little bit. But when you think about the human capital that needs to go into that store, you know, I mean, that's kind of a challenge, you know, at that pace. I know you're saying you're carrying a backlog of folks, but I'm just curious, you know, how you're sourcing them. I'm not sure you're calling people GMs in that store, but, you know, your equivalent GM in that store, where are they coming from? You know, where's that backlog being built? You know, and how do you get comfortable with that human capital that needs to go in, which is obviously very important in any store?
spk05: Yeah, John, good question. So part of that $1.8 billion is that drag of human capital, right, that he mentioned earlier, Danny mentioned earlier. And then what you have to remember is the delivery and buy centers, the headcount in those is about 10 people. So it's not real, real top-heavy when it comes to headcount, right? It's very few people. So we're growing those internally. And we haven't had a problem yet. I mean, we're opening – obviously, we've opened a lot of stores here recently and are opening a lot more before the year's over. And we're ready. We already have those managers picked out. And we've got the managers picked out for the next 10 stores. They're all working – in our environment today. But it's part of the drag that you'll see on EBITDA is carrying that headcount well ahead of time to make sure that when they go into a store, they can provide that culture. You look at our reputation.com scores at Echo Park, and they're off the charts. And we've got to have the culture and what we train our people to do, we've got to be able to move that from store to store to store. So we've been very, very thoughtful about the pace of opening and making sure that we carry that culture from store to store to store. But I think it's real important to remember there's a part of that, you know, opening a store every 15 days or so here that they're delivering by centers that are a lot easier to open and a lot less intensive when it comes to personnel.
spk07: And I'm sorry, so all of those folks are coming from internal Sonic stores at the moment. Is that a correct statement? That is correct. Okay. Then second, I mean, there's a great debate going on right now on, you know, what kind of footprint you need either both in used or new, whether a robust, you know, local, you know, geography, you know, coverage is good enough or you need to be, you know, at a national, you know, footprint so you're reaching everybody. I'm just curious, you know, what your thought is there, you know, on your core, you know, dealer franchises as well as, you know, for Echo Park.
spk05: Yeah, I mean, on the new car franchise, the franchise laws and the rules between the manufacturers are going to keep you from really selling cars all over everywhere and advertising cars all over everywhere. That's a battle that I've seen coming. I've mentioned it in previous quarters before. It's going to be really interesting as e-commerce grows and our reach grows, quite honestly. It makes the idea of having fewer dealers even greater, right? Then from a new car perspective, or from a used car perspective, in particular Echo Park, it's just the distribution network. We need a distribution network that covers the entire United States. We believe that every mid-major market in the country deserves this brand and deserves the experience that this brand provides, and we're going to do that. That's what our plan is by the time we get to 2025, is to be serving a majority of this country with the brand. I don't think you can just do that with 10 sort of recon centers all over the country. If you read the data and you look at what the consumers are saying, the consumers are telling us that they want to be able to search your inventory online, but they want to come to a store, sit with an associate that's got experience dealing with the car that they're looking at. They want to test drive from a big inventory before they buy a car and make that decision. Our goal in our hybrid approach from A to Z is to allow them, if they want to go A to J or they want to go A to Z, our system is going to allow that to happen. And so they can do it now in our stores and by Echo Park by the end of the quarter, but it's wonky, right? There's still touch points all over everywhere, just like there is at any auto retailer, I might add, in the country today. Nobody, not one auto retailer delivers a car A to Z with no touch points. That's what we're trying to build as an option. Now, it's a very small percentage of the buying base, but still incredibly important to provide that experience and to provide that hybrid approach with a distribution network that allows us to touch every mid and major market in the country.
spk07: Just a follow-up to what you just said. When you think about getting a deal done, a lot of people, as they're thinking about things being done purely online, think of the F&I process as sort of the the last hurdle where the last thing you want to do is say no to somebody and then just lose them. But when you're interacting with them either on the phone or in person, you have the opportunity to maybe shift them if they can't get finance for the vehicle they want, you can kind of work them into another vehicle that may be good for them that they get finance for. Is that really just a major hurdle to getting this done completely A to Z online? And how often does the financing discussion you know, include, hey, maybe go down to trim level or, hey, maybe you'll consider this other vehicle. And you do that in a polite way, not to alienate the consumer. That would be very difficult to do in an A to Z online.
spk05: Yeah, that's another good question. It's far too complex to do A to Z purely with no touch points. And that's why it's going to always stay a very small percentage of the consumer base or for the foreseeable future. You do end up getting on the phone. And our Greenville store, for example, You know, our F&I department and our sales department is here in Charlotte, and we're delivering cars into Greenville and doing a good job with it. And our F&I numbers haven't changed, right? They're still – that's the one thing I think we've all learned is the more the business becomes online, we can still sell F&I products. And as you know, that's a real big part of Echo Park's profitability statement. It's all of it. And so that was a big question mark in our head, and we've overcome that – We're not worried about that as being a stumbling block for us any longer. But it's going to be very difficult for me to believe that you're going to complete automotive transactions with the appraisal, with the financing that you have to go through, with something that gets turned down and you need to flip them like you were talking about and not have a touch point and do all that electronically A to Z. But I do believe that you need to be able to offer it. In the experience, whether it's A to Z or A to Q, The experience needs to be easy like Amazon, right? It needs to have very few clicks and to get the consumer to a point. And then when they arrive at the store to take off from that point and have the exact same or better experience online as you have at the store level. And those are the things. That's why we're making the investments in Steve and Stephen, why we brought them in. Because we feel like long-term, we need that expertise that you would find at an Amazon or you'd find at a Google or wherever that can help us look at it just a little bit differently versus looking at it through the lenses of an auto retailer. I mean, all auto retailers, I don't care if you're the best in class or not, we're all experiencing the same thing, and we're going to work very hard to make it a lot, a lot more simple for the consumer to have a great experience online.
spk04: And, John, this is Heath. I'll just add, you know, we've talked about these expense reductions, and the majority of that's been through productivity. And we all truly believe, regardless of the percent that wants to go from A to Z, the more you can get from A to J or all, you know, further down the line, it makes us that much more productive. And so, you know, forget about the consumer experience, which we absolutely want to provide. From a productivity standpoint, the more you can do online, the better it is for us. And so it's a very integral part in the SG&A as well. And I do believe, I completely agree with Jeff, it's a very complex algorithm to solve, but there are technologies coming out with AI, et cetera, where you can start getting them further down the line even when there's questions about financing. So, you know, it's going to be an evolution, and we're committed to it.
spk07: Gotcha. And then just, that's very helpful. Then just lastly on used vehicle technology, of heartburn you had in in a quarter with um you know being a little bit short of of um the floor plan financing now that's worked out um you know it's it's very likely the usable pricing will be somewhat volatile going forward i mean there's just some you know some some factors that are sort of likely to drive that i'm just curious if you think about you know now that you got through that you know that heartburn of the you know the floor plan side you know has anything changed in in in the way that you would manage your used vehicle inventory, or is it still, hey, I'm going to stay in 30- to 45-day window, not get beyond that, keep it tight, and that's the best way to do it? Because you're kind of saying that, you know, folks that had 50- to 60-day inventory were, you know, doing better because they had, you know, cheaper inventory to sell out of. I'm just curious if anything has changed there, or you should think about it in the same way.
spk05: No, I mean, look, at the end of the day, if we'd have had the floor plan and the prices dropped like that to historically low levels, we knew it wouldn't stay that way. We'd have bought the hell out of it and had a much higher day supply. That wouldn't have been a problem. And most of our competition did. Look at all their day supply numbers that they've announced. They're much higher than where we are. We had a point when we got to the end of April that we had some regions within Sonic and Echo Park sitting at a 15-day on-lot inventory. I mean, our Dallas store, as you saw in our charts, that store got down to 500 cars, and we were just managing that floor plan as best we could, and we just, you know, had to fight with one hand tied behind our back. But to be able to do that and still come out with an all-time record was just amazing, and, again, ended up staying profitable during all that because the margins really took a hit when you had to buy all that inventory when the market was, you know, 120%, 30%, 40% above. Heck, yeah, we would buy inventory during a downturn like that, and we'd adjust our day supply accordingly and have more inventory on the ground. No problem. We just couldn't.
spk04: And this is a reason I'll add that this was a one-time black swan event. So, yes, if we'd had the foresight and the foreplan, we would have changed our model at that point. But 99.9% of the time for the last 40 years, a short day supply is the best way to run your inventory and be profitable.
spk07: Got it. Yeah, makes sense. Okay, thanks so much, guys. You bet, Josh.
spk00: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. That is star 1 on your telephone keypad. Your next question comes from Brett Jordan with Jefferies.
spk02: Good morning. This is Mark Jordan on for Brett. Most of my questions have been asked here, so I guess let's do two quick ones. So thinking about new inventories, I guess where did you end the quarter for day supply and where should we think about inventories getting back to more normalized levels? Is that kind of early next year? And I guess I'll piggyback on that with, you know, new GPUs were pretty strong during the quarter. Do we expect those moderate sequentially or do they kind of stay elevated again in Q4? Sure.
spk05: Now, our new car day supply is 43 days to end the quarter. That's going to continue to get better as we move forward. But we're going to do our best not to bring inventories back as high as they were. And I think everybody's going to be doing that, including most of the manufacturers. The margins are going to be good this quarter for new. I mean, they may not be quite as robust as they were in the third quarter, but they're still tracking to be really nice. And I expect that to last through the first quarter, too. And if the manufacturers behave appropriately and they don't oversupply. We can all have higher margins, and they can have higher margins. We can all make more money. The problem is when they get into oversupplying cars and all of a sudden here come all the games with the incentives and all the baloney, it makes it a lot more difficult. So I think we've got a good couple of quarters ahead of us with much better margins, better inventory management, and hopefully the world learns from that and we continue forward like that.
spk02: Okay, great. Then just one more, thinking about F&I per unit on the franchise side. I guess it was up nicely year over year, down a bit sequentially. But, you know, thinking longer term, how should we think about the opportunity there to continue expanding the F&I per unit?
spk05: I mean, look, we've got some of our competitors up over $2,000 a copy, and that's where we're headed as well. I think there's tons of upside. We continue to improve every month. We get a little better and a little better as an organization. and October is no different. It's getting a little better, and we expect that to continue. So I think there's a lot of upside, and when you place that upside, a couple hundred dollars a car on the kind of volume that we do, that's a big number.
spk02: Okay, great. Thank you very much. You bet.
spk00: There are no further questions at this time. Do you have further remarks?
spk05: No, just to thank everybody for listening in, and we will talk to you on the next call.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
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