Good morning. My name is Ellen, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the AutoNation Second Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Derek Fiebig, Vice President of Investor Relations. You may begin your conference.

Thank you, Ellen, and good morning, everyone. Welcome to AutoNation's Second Quarter 2023 Conference Call. Leading our call today will be Mike Manley, our CEO; and Joe Lower, our CFO. Following their remarks, we'll open up the call for questions. . Before we begin, 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 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 today and in our filings with the 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 located at investors.autonation.com. With that, I'll turn the call over to Mike.

Yes. Thanks, Derek, and good morning, everyone. Thanks for joining us today. As normal, Joe is going to take you through the results in much more detail than I will, but what I'd like to do is talk about the business, give you a perspective from my side, touch on what we see as industry dynamics and then give another update on where we're heading and the channels that we're putting in place for growth for the business. So as we know, there obviously continues to be mixed economic signals in the overall economy. But from our point of view, the supply and demand equation, even though it is moderating, we think, has remained favorable for the business. And last quarter, I said that we thought the consumer in no way tapped out, and we still feel that's the case for sure. Now notwithstanding the fact that higher interest rates are impacting affordability, lower unit sales over the past few years have contributed to pent-up demand, which, as we see inventory levels improve and some mitigation on that transaction price continue to convert to sales in the marketplace. And the aging vehicle part, which is now about 12.5 years as well as positive household formation, I think, are additional favorable dynamics for the business. And these factors, I think, will continue to be a benefit for new and used vehicle sales going forward. Now as in the first quarter, 2Q light industry vehicle sales increased from a year ago, both driven in this instance by an increase in fleet, but also a notable rise in retail units, which increased by about 10%. And even with these increases, light vehicle sale remains below what most of us who've been in the business a long time would consider trend. Where industry incentives…

Thank you, Mike, and good morning, everyone. As Mike described, this quarter's results were really driven by healthy margins, record aftersales performance, record CFS PVRs, disciplined expense management and our balanced capital deployment strategy, which largely offset used unit sales, lower growth PVRs and higher financing costs. The result was second quarter adjusted EPS of $6.29 per share, just below last year's record EPS of $6.48 and above the $6.07 we reported in the first quarter of this year. Second quarter total revenue of $6.9 billion was essentially flat from a year ago as increases in new vehicle volume and the continued growth of our aftersales business offset lower used vehicle sales. AutoNation's new unit sales increased by 8% in the quarter, which, as Mike mentioned, was largely in line with the overall industry when adjusted for brand mix. This increase in volume partially offset lower new vehicle PVR margins, which, although moderating still remain healthy at $4,600. Inventory for new vehicles increased by one day from the first quarter to 26 days. As is the case with the overall industry, we have a wide dispersion of inventory levels by brand and model. In core brands are generally below the company average, domestic brands generally above and premium luxury generally in line with the average. The overall new vehicle market remained healthy during the quarter as almost 40% of our vehicles were sold at MSRP, which continues to be far higher than pre-pandemic levels. This is down from about 45% in Q1. Our total used vehicle gross profit decreased by 14% from a year ago, reflecting lower unit sales and used PVR margins which declined slightly from a year ago. We continue to support our used vehicle economics to effective self-sourcing, which was above 90% during the quarter. After-Sales gross…

Yes. Thanks, Joe. So before just taking your questions, obviously, what I want to do is to thank the people that every single day deliver results for us, and that's our 24,000 associates. Thank you for what you've done in the quarter. Also, as you know, in May, we announced that Joe will be moving to a newly created role, which is basically going to oversee all of the business transformation initiatives for the company. Joe will continue to report directly to me and he's going to coordinate the execution and integration of our business transformation products really with a focus on process improvement, operational efficiency. And I think as a result of that will help accelerate our growth. Now I can tell you that since I joined the organization in late '21, Joe, in a very short space of time has been a trusted and advising me in business [ph] as I am incredibly pleased and excited as he moves into this new role to be continue to work with him. And I think he's done a tremendous job in the management of our balance sheet and guiding our capital deployment. But you also need to look below that and really look at what the business and how the business was performing in terms of some of the efficiencies, some of the cost base and everything else. And you can see the lasting effect that him and his team, in conjunction with the operational people, have added to our business, and I think it's absolutely tremendous. Now in August, Tom Szlosek will join us and replace Joe. And many of you know Tom, he's helped drive change in innovation across medical technology and manufacturing industries and frankly, like Joe, the best-in-class Fortune 500 CFO. And Tom is going to be responsible for continuing our focus on operational excellence, obviously, the development of our company as well as making sure we continue with a really balanced but focused capital allocation approach. So just a quick update on those things. And with that, should we open up to questions?

Yes. Yes. Ellen, if you could please remind people how to get in queue.

[Operator Instructions] The first question comes from John Murphy from Bank of America. John, your line is now open. Please go ahead.

Good morning, everybody. Joe, congrats on the new role, and I'll start with that. Mike and Joe, as you look at this, there's incremental dollars being spent here. Just curious if you could talk about what those were in the quarter for these initiatives, but also maybe more broadly, I mean you got 11 million customers in your Rolodex there, as we would say in the olden days that you can really leverage and potentially engage with for a longer period of time. As you're going through this exercise of transformation, what does that mean? I mean -- and could it mean that you're holding on to these customers in that vehicle for 10 years as opposed to five years and the profit opportunity is 2x or maybe more. I mean how are you kind of thinking about this holistically as the sort of the addressable market of what you could hit after? And is it more traditional things like another used vehicle sale and extended parts and service and then CIG and doing some more financing? Or are there other things that are potentially entering the equation as you look at the opportunity set?

So John, I'm going to start with that and then Joe can talk about the investments that we've made. So when you look at our customer base that we have built up, there are a number of things that I think are really relevant. Firstly, the percentage of active customers within there, and we can define an active customer by somebody that has a transaction within a period of time. So if you took active customers, including service, the actual percentage of active customers in the 11 million is well below 50%, well below 50%. So then you have to ask yourself, why do you get that level of attrition with the rest to the customers? Because if you look at our reputation scores and our customer satisfaction scores, it's purely not because of that. And it's because circumstances and needs change within that customer base. And that may well be the geographic position to our dealerships has changed. They're further away or as the vehicles age they've decided to take a nonfranchise solution to service and repairs or a whole host of different reasons. And as we've been -- as we've looked at that and spent time working with that customer base, identifying what is driving that, we're adding and building our business so that we can offer products and services that meet their changing needs from when they maybe originally bought the vehicle, more convenience in terms of service and repair so that, for example, if they are 20 miles, 25 miles away from a dealership and just looking for a quick oil change, we can provide that at a great level of convenience for them as well as well as then build out different products. We've added the finance company that was really twofold. One, because it's a deep relationship with customers, obviously. And secondly, it was a perfect match for the growth that we were trying to achieve and are achieving with AN USA. So without taking too much of the call, I think in the question itself, you answered a lot of it. And that is a big percentage of those customers are one and done. And there's an opportunity for us there. A big percentage of those customers have needs outside of themselves in their household, whether it is family members or whether it is relative. And what we are striving to do through the expansion of our products and services is increase the average length of the relationship that we have. And of all of the spend they make on transportation and mobility, however, you want to define it and I'm not too interested in what word you used, that we want more of that and earn more of that because of the quality of service, the price of our service and the transparency working with AutoNation. So a long answer to your question, but hopefully, that will add some color.

And then let me try to put some quantification behind that, John. So if you think about really what Michael was saying, to deliver that, it's investments in technology, it's investments in people, capabilities, incubation of businesses and marketing. I mean, those are the kind of the buckets that we look at as we are developing solutions, developing capabilities, developing businesses. The cost of that, as I indicated last quarter, is tracking basically between 100 basis points to 200 basis points as a percentage of growth. And this quarter, it was about 150 basis points. When you look at our 61.9 as a percent, about 150 basis points of that are those types of costs that I've tracked that we kind of deemed the support of these critical initiatives, which I think will, as Mike referenced, position us fundamentally different going forward.

Sorry, Jon, I didn't mean to interrupt you. What were you saying?

No, no, no, finish up, I'm sorry, just had quick other ones.

Yes. What I think is important is that what we're talking about is a progressive expansion of our business. This isn't a light switch because those customers that have become inactive are obviously transacting with someone else or a different -- obviously with someone else or a different way, maybe they're getting a service or part now from a non-franchised family-owned store. But the reality is they are continuing to transact. So this is not a light switch. All of a sudden, okay, you know what come back to us and everything changes. So you will see a progressive development of this part of the business. But I think what's really important is it hasn't just begun. If you look at the investments AutoNation pre-me have been making, for example, in their aftersales business and the development of their technicians, all of that type of business, I think, adds stability in times when new vehicle sales are up or down and margins are really in the hands of someone else and continues to lay down a base of profitability that enables us to develop great cash flow so that we can invest in these businesses. So it is not a short quick burn flash. It's a longer run part of the business, John. So I think that's important for me to say that as well.

That's very helpful. Just real quickly on inventory levels and the potential for UAW strike, which seems like it's fairly likely, Mike, I mean, obviously, your former life, you're close to this stuff. I wouldn't say it's probably near your heart, but not dear to it. The situation is going to be pretty difficult. And it sounds like we're going to have some level of an extended strike at one, if not all, of the D3. How are you setting up to handle that? And what kind of implications might that have as we go through the end of the year for the business.

Yes, obviously, John, we're watching it very closely as I'm sure a lot of people are. I think your overview of the situation is probably right. What having been on one side of that table, I think, ultimately, what needs to prevail is the fact that the interest need to be balanced and ultimately get in line. Now whether that is a strike or prolonged strike or they get to an agreement beforehand, I don't know. But what I can tell you is if you look at the inventory development, the biggest growth in inventory that we've had is in our domestic. That to me gives me a level of comfort. We know we can survive on inventory levels way below the ones that we have today. And it looks as if it will continue to build as we get through the summer before the summer shutdowns in the plant. So I think you need to look at that. So the distribution of our day supply is much lower in other divisions. The second thing, and I touched on this before, the good news about our balanced business, the really good news about our balanced business is we have different sources. And as I mentioned, we came out the first quarter, I was pleased with the efficiency of our stock count on our used vehicles, but I did think and the team felt that we probably constrained ourselves. So we spent a lot of time rebuilding that -- and you'll see quite a change in our used vehicle inventory from the end of Q1 through to the end of Q2. That process hasn't finished because I still think that we can put more inventory and maybe because I think the market is robust. And obviously, if we do see a shortfall in terms of our domestic businesses on new vehicle sales because we get to a level of inventory that really is constraining sales to a large extent, we will have the ability to switch on and refocus on our used sales as well as that increase in after sales that we're seeing. But I would tell you, I think it's going to be an interesting summer.

Thank you very much guys. I appreciate it.

Thank you. Our next question is from Daniel Imbro from Stephens. Daniel, your line is now open. Please go ahead.

Mike, I want to follow up on that last question around the used business. Obviously, end market demand is choppy and you guys are moving your inventory around to address it. I guess two questions on that side. I guess, one, what is your outlook on when that affordability issue starts to get fixed? Are we seeing lenders extending terms any further? I'm just curious kind of how you position the inventory, if you can expand on that, if there's any assumption there? And then strategically, last quarter, you guys I felt like focused more within a per unit profitability, maybe less focused on unit growth. GPU stepped down a bit more than we thought they would this quarter? Just kind of any change in your strategic thinking there around market share versus profitability per unit? And then how do you weigh those two factors in this current backdrop?

Daniel, well, firstly, on the affordability, what we're seeing is that mix is changing. So you saw the average price of used retail coming down, that's pure mix change. We're seeing prices -- wholesale prices mitigating, they peaked in March. The last few months, they're trending down much more normal depreciation pattern, which is bringing down net prices on used as well. Our terms, our periods are remaining solid. But we do know that we are competing against lenders that have increased the term that they're prepared to offer in the marketplace to keep the balance and monthly payment. So at the end of the day, the equation, whether it's price, whether it's term, whether it's accessories, the reality of what's not changing is not changing very much is the monthly payment available. And as always, we finding ways to still be able to maintain sales, and I think that will continue. Secondly, no, I still think we've got a very robust margin. It's not a change in our focus at all. But even with that, I still think it's important that we balance the volume that we want to achieve as well as taking, I think, a very deliberate approach to maintaining use margins. So I was pleased with the margin I think that there was more volume without an impact on a significant impact on margin. But we are in a period now where we're seeing, as I said, a return to what we would consider more traditional depreciation in the used market, and we just have to stay very agile with pricing. So you're going to see, as you always do, fluctuations in margin, but we want quality business, but we want our fair share of business. And I don't want to constraint being the fact that -- we don't have enough used vehicles to meet the demand. So it's always a balance, but it's not a change in strategy.

Perfect. That's helpful color. And then maybe just a follow-up on the new side. Inventory, obviously, is still tight at 26 days, but GPUs were under a bit more pressure than expected. Is that just a certain brand mix issue that kind of pulled down the sequential step down in GPUs relative to the one day in inventory? Just trying to help better understand the sensitivity of maybe how quickly GPUs will compress as inventory build from here given that move this quarter sequentially.

No, I don't think that -- a number of things are happening on these. You talked about affordability on used vehicles. You have the same impact on new vehicles. And as availability picks up, obviously, maintaining momentum in the new vehicle market is important. So net transaction prices are clearly coming down. Some of that was expected from a margin compression. And frankly, I think where we're at is probably better margins than I expected coming into the year, which is why I made the statement that I think margin compression will continue, but won't reach the levels certainly in this year, in my opinion, that we saw pre-pandemic. So what I would say is that -- and by the way, that's also -- on the OEM side, the increase we saw in incentives, the move to leasing are all about affordability issues, all about maintaining momentum in the new vehicle market. I think that there is -- I think that there are plenty of tools available to maintain that going forward. But it's driven by not just improved supply of inventory, but it's also driven by making sure that some of the issues and pressure on affordability are mitigated in certain ways. So as I said, we expect to see ongoing mitigation and margin, but not the levels yet that we saw pre-pandemic.

Our next question comes from Rajat Gupta from JPMorgan. Rajat, your line is now open. Please go ahead.

Great. Congrats Joe on the new role. I had a first question on parts and services. The growth there accelerated from 1Q to 2Q, both revenue and gross profit. Are there any specific areas you would attribute that to? Is it just a broader industry strength? Was there anything AutoNation specific, perhaps RepairSmith is begin to contribute. If you could just get a little more granularity there would be helpful. And I have a follow-up.

Yes, it's Mike. I think there are really three things in play. The first thing goes back to some of the things that we're talking about before, and that's being really looking at the penetration of our franchise businesses in the areas that they're responsible for. And recognizing that is the branded vehicle park, which is the primary target for a franchise dealership offers a lot of opportunity in exactly the same way and you consider market share. So it's really the team's focus very much on where is our service and parts market share, where do we want to take it. That leads you to the second part, and that is you have the capacity. We certainly have the physical capacity because OEMs for many, many, many years, oversized their dealerships, which means that we have physical capacity already paid for and installed. And we've been very focused on increasing our human capacity to be able to take advantage of improvements in penetration. But the real effect that we're seeing, I think, is a return to -- obviously, you've got more miles driven. You've got longer ownership of vehicles. And therefore, there is more work being done on a per vehicle basis. So it's a combination of those things that have delivered the result. You're not seeing the effect of RepairSmith yet. That will take some time to be integrated into the business, as we've said on many occasions. But our focus on those three areas that I touched on is what's driving it. And hopefully, we'll continue to drive it for a little while, yes. .

Got it. Got it. That's helpful. Maybe a follow-up on AN Finance. The loss rate there it seemed like it improved quite a bit from 1Q to 2Q, just the total contribution from that, unless I'm missing anything else in the other line item there, but curious if you could clarify that. And then any color you could share on how delinquencies or charge-offs tracked sequentially in that portfolio? And any near-term trends have changed your view around the ramp-up of that business? And how do you view penetration there progressing through the course of the year?

Just one or two questions, Rajat. I'm happy to talk about AN Finance. So it is progressing. As you know, we kind of stepped into some headwinds, but it's progressing with a lot of attention and a very positive direction. We are very deliberately increasing the penetration within the AutoNation USA stores, as I mentioned, and 20% of loans now are coming -- of the AutoNation stores are through AN Finance. That's allowed us to drive down costs. It's allowed us to improve credit quality. And in a marketplace that generally the delinquencies have been a challenge with the industry continues to be a challenge, but we've mitigated that by expense discipline. We've mitigated that by portfolio pruning. And being very deliberate in how we continue to build the book. That book is very rapidly becoming an AN Finance dominator -- AutoNation's dominated book, which will continue as that really is obviously aligned with our strategy of penetration of the customers. So from a contribution standpoint, you're correct in that it's had sequential improvement in each of the quarters. I expect that to continue. But as we've indicated, it will be at a very governed pace given the environment and given kind of our strategic initiatives. So is there anything else on AutoNation Finance I can address for you?

No, I think that's very clear. I appreciate it and I'll get back in queue. Thank you.

Our next question comes from Michael Ward from Benchmark. Michael, please go ahead. Your line is now open.

Thanks. Good morning, everyone. First off, Mike, you mentioned that you thought maybe the vehicle manufacturers might turn a little bit more to interest rate or lease incentives. Certainly, you're down at lows, and we'll see that increase. Does that have any impact, positive or negative on your F&I or variable gross margins on the new.

OEMs are very, very adept and well practiced at making sure that the pressure is equally borne unfortunately.

Okay. Joe, you mentioned you talked about operating cash flow being $240 million. I think from what I can tell, most of the inventory increase was on the used side and that's probably largely financed by non-trade floor plan, which is below the operating line. Are you including any of that increase in floor plan in your operating cash flow number of $240 million.

No. When we talk about -- so you are correct, and you understand the nuances of the accounting associated with trade and nontrade. So when we talk about it, and we're going to try to make sure we clarify this further. When we talk about the $230 million that does have used floorplan in it, and that is the benefit of the increase of the used floorplan. And so it's really a matter of tracking both what shows up in operations on the cash flow statement and effectively paid through the cash flow which is the financing activity. So you are correct.

Okay. So that -- and then you also had the seasonal $190 million in the care side...?

Yes, that the way that -- Yes, the way that the tax payments go, Q2 is an opportunity to contribute to our government. So that is always going to be the quarter where we have the substantial tax payments.

Okay. So the operating cash flow number we see is from a seasonal standpoint and then from the floor point standpoint is going to be lower than we thought when the Q comes out later today. But all things being equal, it's normal course of operations.

It's definitely normal course. And you can see that in the $236 million it does include the tax payments, right, that's buried in the operating cash flows. So I think pretty clearly, when you look at what's reported from cash from ops and you look at new and used floor plan, I think you'll pretty quickly get to the $236 million number.

Okay. And then just one last thing on the off lease. I think we're anniversaried up with three-year type period with COVID where you probably have no vehicles coming back off lease or very little. Was that one of the things that contributed to the -- when you look at the retail on the used side underperforming the overall market?

Yes. There were a couple of things that happened. Firstly, to your point, there weren't many vehicles that were put on lease. And then secondly, because of the appreciation of used vehicles, many customers for one of two reasons, were buying their own vehicle off the end of the lease, either because they didn't want to step into the market and one is the market to mitigate from a price point of view. Or secondly, they did want to step into the market and then see if they could maximize their margin on their own vehicle. I think some of those things are now dissipating, and we will see. But the reality is there is that shortfall that in the marketplace of those vehicles now age one to three, four years old. And you've seen all of the retailers step up their activity to outsource those vehicles to fill the hole. And I think we've done a great job in Q2, and that will continue to be a focus. It does come with some incremental cost from a marketing and development perspective. But I think that is an investment well worth making. And as I said, as you get through in the summer months, who knows what's going to happen, we touched on a potential headwind in terms of the negotiations. We want to make sure that we have things that we can turn to and sell effectively. So it's always a balance.

Our next question comes from Colin Langan from Wells Fargo. Colin, your line is now open. Please go ahead.

Just wanted to follow up on the commentary you mentioned. SG&A was impacted by investments in technology and new business initiatives. Any sizing of the impact? And is that sort of in the go-forward rate? Or is that more of a onetime sort of cost?

Yes. As I mentioned -- and we just had this kind of earlier question on the nature of it, it is people, it's technology, it's capability, it's business. As we've indicated previously, it's 100 to 200 basis points as a percentage of gross. And this quarter, it was about 150 basis points as a percentage of growth. And that's -- we track it that way and we'll tack it that way going forward.

Got it. All right. I appreciate it. Sorry I missed that. And then in the past, you've talked about AutoNation...

And just to be fair -- I was just going to say, just to be clear, we anticipate that spend will continue. We're going to continue to invest in the business. What I did -- referenced earlier and I referenced in my comments was the one element of SG&A that was higher than anticipated going forward was advertising. That was 75 basis points or so higher than you would expect from us on a going-forward basis, really associated with some of the unique things we did in the quarter. And that I would not expect to continue at that level going forward.

Got it. Okay. And then in the past, I think you put out by 2026 for AutoNation USA, 130 stores. I mean, I think you're at 60 now. I mean any color on how we should be thinking about it and when maybe the ramp will start to reaccelerate?

Yes. I touched on this somewhat last year and earlier. And what I checked was, and maybe I wasn't clear enough, I apologize for that. We will get to $130 million. I'm not going to be governed by a time line that as things develop in the marketplace make that $130 million the wrong thing to do for the business. We're very clear on the locations we want to be on. We have a fantastic strategy and team working on it. We're very clear now having open 16 of these that we've learned a lot, frankly, from opening 16 both on the size of the footprint, the capital involved, but also the cadence of opening. And one of the things I said was that you'll see a mitigation in terms of the speed we're opening AN USA, so that what we don't do is disrupt the existing growth and development of the USA stores. Number one. And two, we don't force a bad decision, a bad location because of some operational time line to achieve $130 million. So we will achieve $130 million. You'll probably see seven more through the balance of this year. Will you see an acceleration only if I believe and the team believe operationally, we can cope with it and that it is the right location at the right capital cost.

Our next question comes from Bret Jordan from Jefferies. Bret, your line is now open. Please go ahead.

On the AutoNation USA service penetration, I guess, how does that compare to the used cars sold out of the franchise stores? I mean the mobile vans are still ramping, but are you seeing those customers coming back after the purchase at the rig, you see them at the legacy business.

No, no. We do have a penetration -- it depends on the densification that we have or the density we have with other businesses in the marketplace. Because if we have appropriate franchise businesses, then we maintain or hand off the service work effectively, but there's an important percentage of customers that find have historically found an alternative to look after their servicing and warranty needs. Progressively going forward, they will need to do that because they'll have access to RepairSmith and replacements will effectively become, increasingly become the service and part arm for AutoNation USA.

Okay. And then a question, I guess, the domestic inventory build, given your background, do you think it's strategic that the big three are building given UAW risk? Or are they building for the sake of building

I think that Obviously, I can't get -- I can't get into their mind, but I would certainly be building in this way. I think it’s prudent build, frankly and when I look at the mix of vehicles that are being produced. And I think about the turn rate that we're still able to achieve with those vehicles, I'm comfortable and I think it's the right thing that's happening. We're still only have 43 days of the domestic. I have to say embarrassingly in my time, we were up at 130. So when we talk about build, I think we still have to remind ourselves and ground ourselves that particularly for the domestics, high levels of inventory, spot deliveries is what most of the customers are used to and expect in those businesses. So yes, we are talking about a build, but we're only at 43 days.

Our next question comes from David Whiston from Morningstar. David, your line is now open. Please go ahead.

Thanks. Good morning. I wanted to ask about your advertising spend. You've got a lot of mileage out of it recently with the Panthers sounds like finally you have one partnership and now Messi at the DRV PNK Stadium. And particularly with the F1 deal, just that's a global sport, as you know. So I'm just curious if you're laying the ground for international expansion.

Well, that's a good question. I've got to say that -- and again, if you look at the relationships that been built up over many years, within AutoNation and consider those as assets. I think the team have done a great job, and you occasionally trip over an amazing opportunity as you've seen within to Miami. And I think at the end of the day, it's going to be fantastic for the sport, it is going to be fantastic for the region. And obviously, with our name all over it, it's going to have big benefits for us, and we're already seeing quite a diverse change in some of the hits that we're achieving on our media channels. As we've said, so you've got to put it in the category of what is -- what is good luck and what is good strategy, genuinely falls into the category, good luck with that.

Okay. And with the trade-in values and everything else going on in the economy, I'm just curious, are you at all concerned that at some point, trade and values for consumers are going to come down while new vehicle pricing stays elevated to the point that it does hurt new vehicle affordability.

Well, trading values are heading down now, they've been heading down since February, March, and they -- I think they'll continue on that normal pattern. But what's also happening is, you're seeing increases in incentive rates, you'll see mitigation in new vehicle margins. So you're seeing an offset. And as I said, that's kind of the 3-legged still balance to get to a monthly payment that customers are looking for. I still think if you look at pre-pandemic levels, purely on the new vehicle pricing and incentive side, we're still a long, long way from that. And there are a number of levers that can be pulled. So yes, I think you will continue to see trading values decline in a normal fashion, but I think there's plenty of tools, particularly with the OEMs that they can deploy if they want to stimulate and maintain demand.

And just one more question on the -- on EONs massive discounting of the Model Y. Does that at all hurt any particular brand for you guys, either on the premium side or volume brand in your crossovers?

No. I think it's -- there's no doubt in ripple through the marketplace and had a big ripple effect. I think one of the things -- it's so fluid at this moment in time. You saw the announcement from Ford obviously. And there are other pricing adjustments that are going on. They don't necessarily get the headlines that those do. So I think I think where we're at sat right now is we're really try and understand what is the right net price for those vehicles in the market at the volumes the OEMs want to sell. And I think as a result of that, you're going to see constant adjustments, whether it is headline adjustments with MSR fee or less visible adjustments with incentives. I think what's important and where we've been incredibly cautious is in the used market because whatever is adjusted on MSRP or incentives on the front end immediately impact the back end. So if you look at -- look at our inventory, for example, one of the things that we are really focused on is if we have EVs in stock, which we do because there is a marketplace for those that we're very, very focused on what price and what term rates.

Thanks everyone for joining us on the call today. I look forward to speaking with you after next quarter.

This concludes today's conference call. You may now disconnect your lines. Thank you all for joining.