Good morning, everyone. Welcome to AutoNation's Fourth Quarter 2025 Conference Call. Leading our call today will be Mike Manley, our Chief Executive Officer, and Tom Szlosek, our Chief Financial Officer. Following their remarks, we will open the call to questions. And I'll now hand the call over to Derek Fiebig, Vice President of Investor Relations, to begin.

Thanks, Adam, and good morning, everyone. Welcome to AutoNation's fourth quarter conference call. 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 and on the website located at investors.autonation.com. With that, I'll turn the call over to Mike.

Yeah. Thank you, Derek. Good morning, everybody, and thank you for joining us today. I'm on the third slide. We're pleased to report a solid fourth quarter and full year results for AutoNation. During a turbulent year, we delivered 3% revenue growth and 8% adjusted net income growth and four consecutive quarters of year-over-year EPS growth, ultimately leading to an increase in adjusted earnings per share of 16%, half of which went to share repurchases. Adjusted free cash flow exceeded $1 billion, up approximately 39% from 2025, and we deployed over $1.5 billion in capital, which resulted in a 10% reduction of the shares in circulation with the remainder invested in the business, including $460 million in M&A to acquire some strong brand assets. Our balance sheet remains extremely healthy with year-end leverage largely unchanged from the prior year. 2025 was the first year that AutoNation delivered earnings and EPS growth since 2022. And as I said, it was a solid year of growth and performance by the group. Relative to the fourth quarter, the industry faced tougher sales comparisons to last year, when post-election sales surged, driving a Q4 2024 light vehicle SAAR of 16.7 million. Also, sales in this year's fourth quarter were negatively impacted by the strong pull ahead earlier in the year as consumers reacted to the tariff announcements and purchased vehicles prior to the expiration of government incentives for electric-related powertrains. We felt these impacts across most brands with the biggest impact in premium luxury. In the fourth quarter, our same-store unit sales of new vehicles decreased by 10%, including declines of 60% in battery electric vehicles and 10% in hybrid powertrain vehicles. For the year, however, our new unit growth was 2%, largely in line with the overall industry. With regard to new unit…

Customer financial services had an excellent quarter, growing unit profitability by 8% from the prior year and 4% sequentially. Fourth quarter and full year gross profit per unit for CFS were the highest we have had in the history of AutoNation. Our customers continue to purchase more than two products per vehicle with extended service contracts continuing to be the top offering. Which is, of course, fantastic for our future aftersales revenue and customer retention. Our finance penetration continues to grow with around three-quarters of units being sold with financing. The momentum in aftersales maintained, and we delivered record fourth quarter and full year revenue and gross profit. The quarter, total gross profit increased by 6% or 4% on a same-store basis. Our growth was led by customer pay, which increased 8% on a same-store basis and warranty, which increased 6% on a same-store basis. Improvements in our aftersales performance were not restricted to just revenue, We also improved our total gross margin for the year by 80 basis points to 48.7%. We continue to focus on our technician workforce by recruiting, retaining, and developing our technicians and I think the efforts are certainly paying off. Turnover has decreased. Franchise technician headcount increased more than 3% from a year ago on a same-store basis. Is up more than 5% on a total store basis. Strong momentum at AIM Finance was maintained, including a $19 million year-over-year swing in profitability to $10 million. Originations for the year increased by $700 million from 2024 with the portfolio now exceeding $2.2 billion. Portfolio continues to perform in line with our expectations from a delinquency and a loss perspective, and the business' base costs have remained stable. Enabling attractive profit scaling for portfolio growth. As I mentioned earlier, this was the fourth consecutive quarter of year-over-year increases in adjusted EPS with our full year adjusted EPS growing by 16% from 2024. Cash flow for the quarter and the full year was also fully adjusted free cash flow was up 39% from 2024. And our investment-grade credit rating and balance sheet anchored on a low net capital high free cash flow model enabled us to once again deploy significant capital for CapEx, M&A, and share repurchases. During 2025, we expanded our presence in three key markets, including of a Ford and Mazda store in Denver, as well as an Audi and Mercedes store in Chicago, and a Toyota store in Baltimore. All in all, great results. I think good progress and a solid performance by the AutoNation team. Now I'm gonna hand the call over you to you to take everyone through the results in detail. Thanks, Mike. I'm turning to slide four to discuss our third quarter P&L.

Mike explained the factors that impacted our fourth quarter vehicle unit sales and revenues. Total revenue for the quarter was $6.9 billion compared to $7.2 billion a year ago. Driven by a decline in revenues from new vehicle sales of approximately 9%. New revenue per unit retail was stable year over year, As Mike mentioned, our CFS and aftersales businesses delivered strong top-line results with the highlight being the 6% growth in aftersales. Fourth quarter revenues from sales of used vehicles were essentially flat year over year. For the full year, revenue increased 3% to $27.6 billion including our CFS and after sales, which were up 85% respectively from 2024. Revenue for new vehicles was up approximately 3% and for used vehicles, 1%. Revenue per unit retail increased modestly year over year for both new and used. Fourth quarter gross profit of $1.2 billion decreased by 2% from a year ago for the quarter. Only half of the rate decline in revenue. The positive outcome reflects declines in new vehicle gross profit being significantly offset by 6% growth in aftersales. For the year, gross profit was up 3% led by our CFS and aftersales, which were up 87% respectively. From 2024. Our adjusted SG&A expenses were flat in the quarter and 68% of gross profit. During the quarter, we increased our advertising expenditures specifically targeting upper funnel demand creation activities and had higher expenses for our service loaner fleet to support the growth in our aftersales business. This also will help bolster used inventory levels. Full year SG&A was 67.3% of gross profit, absent the fourth quarter investments I just mentioned, our SG&A as a percentage of gross profit would have been in line with our targeted range for both the quarter and the full year. Adjusted operating income, which…

Vehicle unit profitability averaged approximately $2,400 for the quarter increasing more than $100 or 5% from the third quarter. This sequential increase was consistent with prior years and reflects strong commercial performance in the face of declining OEM dealer incentives. New vehicle inventory amounted to forty five days of supply, up six days from the fourth quarter of last year and down from two days. At the September. Turning to slide six. Used vehicle fourth quarter retail unit sales decreased by 5% on a same store basis and 3% on a total store basis. Average retail prices were up about 3% for the quarter, and 1% for the year. And for the full year, used unit sales increased by 1%. Overall, used vehicle profit was down 6% for the quarter but up 5% for the year reflecting increases in used retail and used wholesale. Q4 used vehicle profit per unit of $14.38 was lower than a year ago, reflecting higher acquisition costs, as Mike mentioned. For the full year, used profit per unit of $15.55 was flat from a year ago. We remain focused on optimizing vehicle acquisition, reconditioning, inventory velocity and acquisition pricing And we're investing in creating a better customer experience. Overall, industry supply of used vehicles remains tight, We continue to be competitive in securing used vehicles from our own retail operations, including trade ins, we'll buy your car, services loaner conversions, and lease returns, and we continue to source more than 90% of our vehicles. Through these internal sources. Let me move to slide seven on customer financial services. Momentum in CFS performance continues. Unit profitability was up 8% in the fourth quarter. And 6% for the full year. Reflecting improved margins on vehicle service contracts, consistent product attachment and higher penetration of finance products. The…

Closing off on AM Finance, business' attractive offerings are driving strong customer take up and we continue to expect attractive ROEs in the business driven by profitability growth, and moderating equity requirements. Moving to Slide nine, after sales. Represents nearly one half of our gross profits continued its impressive revenue and gross profit momentum. Gross profit for the quarter of close to 600,000,000 was an AutoNation record. Our results reflect higher repair order count, higher value repair order, and improved labor productivity. For the quarter, same store revenue increased 5% and gross profit was up 4%. And for the full year, same store revenue increased 6% and gross profit increased 7%. The improvement in fourth quarter's gross profit was led by customer pay, which increased by 8% and warranty, which increased 6%. Internal reconditioning was modestly lower in the quarter reflecting lower used vehicle sales as we've discussed. Our fourth quarter gross margin was stable versus 2020 at 48.3%, Now this reflects higher growth in the wholesale parts business which has more modest margins than the rest of the aftersales business. But it was offset by improvements in growth rates and customer pay, were up 70 basis points. We remain focused on the points technology to drive additional volume and productivity on and on hiring. Developing and retaining our technicians. As Mike mentioned, these efforts have helped to increase our franchise technician headcount by more than 3% from a year ago on a same store basis reflecting better technician retention. The increased the increased technician workforce is key to consistently delivering mid single digit growth and after sales gross profit. To Slide 10, adjusted free cash flow for the year was 1,050,000,000.00 or 125% of our adjusted net income. Adjusted free cash flow increased by nearly $300,000,000 a year ago…

Yeah. Thanks, Tom. So in summary, 2025 was a year of growth for AutoNation. Organic growth was volume up, revenue up and after sales margin up. Acquisition growth with the addition of five dealerships with great brands cash flow growth, as Tom mentioned, with adjusted free cash flow over 1,000,000,000 up 39% Capital allocation, think in the year was very balanced and disciplined and all of this in combination resulted in that increase in adjusted net income and improvements in adjusted EPS of over 16% that both Tom and I have been talking about. And I think capped off a very solid year of growth. For AutoNation. And I'd like to thank all of colleagues and associates in the business for everything that they did. So just briefly turning and looking ahead to twenty twenty six and just some of the commentary that we have. We obviously expect to move in line with the market. And, we think the market will be slightly down in 2020. '6 compared to 2025, but there could be some benefits. From known tailwinds around withholding tax rates, refunds, and bonus depreciation? But that's our expectations we sit here today. From a new unit profitability, we think it will remain fairly stable for the 2025 levels. That's expectation at least for the the coming few months. And we believe that the used vehicle market is going to still remain constrained to some extent, but we think it will show improvements year over year. From our CFS business, we spent some time talking about that on the call. But what's important for us is to maintain the performance that we have. And that's a big, big focus for all of us, but being very aware of customer sensitivity to monthly payments which clearly is a key topic for the business. And for us going forward, we're going to continue to expand AM Finance portfolio and grow its profitability. That will drive more SG and A leverage that Tom mentioned in his commentary. And then just finally turning to aftersales, I'd like to bank our aftersales. Colleagues across the entire business for the record that they delivered in Q4. We think we're well positioned, frankly, to continue that growth in mid single digit growth numbers. And I think we have believers, and we're certainly putting the resource in place to help facilitate that. I think all of that will enable us to continue to deliver strong cash flow. And obviously, be able to deploy significant capital We've got a strong financial position. Tom mentioned our investment grade balance sheet. I think our operations are disciplined. I think we can continue to do that, continue to improve productivity Ultimately, the aim is to continue the growth that I mentioned before. So with that, I'm going to open it up for questions, if I may.

Yeah. Adam, if you could please remind, the audience how to get in queue.

Of course. If you'd like to ask a question today, please press star followed by one on your telephone keypad. If you find your question has been answered or you'd like to withdraw, please press star followed by two. First question today comes from Rajat Gupta from JPMorgan. Rajat, your line is open. Please go ahead. Great. Thanks for taking the

Just had a couple, you know, just first on on the new car business. The unit numbers seem a little weaker, you know, than than some of the peers, you know, some of the industry metrics. Although, the profitability was was better. I'm curious Was there a temporary trade off decision that you made in the quarter? Around, you know, profitability versus sales, or or was it just a function of know, comparisons and just your regional and brand mix, that might have driven that 10% same store decline. I have a quick, follow-up. Thanks.

Yeah. Rajat, this is Mike. I think there are a number of things that were taking into consideration. Firstly, we mentioned that we saw year over year end, in fact quarter over quarter a reduction in OEM dealer facing incentives. We offset some of that with margin because obviously, impact net transaction price. But particularly year over year, that reduction in we had to be very careful in our consideration and balance between volume and margin. In fact, the largest drop, by the way, was dealers OEM dealer support for hybrid and battery electric vehicles as you can imagine. That was one dynamic that we saw in the quarter. The second one was if you think about where the key reduction came from us, EVs and bebs represented about 30% of our mix. Q4 twenty twenty four. That dropped to 20% in Q4 twenty twenty five. That's 60% reduction in EV volume. So the biggest impact on that 10 that you referenced by far came from electrified powertrains I think the combination of those things and the way that we were trying to make sure we had a good balance between, our market share performance, but also margin led to what we delivered, which was I think, a good a good sequential improvement in new vehicle margin. And also reflective of some of the things we were trying to do in the business. And it was two things really that resulted in the position that we ended with.

Understood. Understood. That that's helpful. And then just, you know, maybe for Tom, you know, on on automation finance, Really, really quick and, you know, good progress there in terms of the maturity of that portfolio. I'm curious, how should we think about the cadence of profitability over the next year or maybe, you know, the year beyond? I mean, I I are we at a point in your trade off between penetration pace versus portfolio maturity that it's safe to expect a continued inflection in the profitability here. I'm curious, like, how you plan to balance that. You know, any guardrails you can give us you know, maybe even around net interest margin or or loss ratios also would be helpful. Thanks.

Thanks, Rajat. Yeah. We're we're really happy with the the growth that we're seeing in the portfolio. I mean, the growth rates I mean, let's put it this way. The the doubling of the portfolio you know, is is a real harbinger for the future. And, you know, we don't we don't realize all those benefits in the in the year it doubles. As you realize because of the you know, the charges, the upfront charges for CECL and so forth. As as we mentioned, $6 million we achieved in the fourth quarter And I think that's probably a a decent starting point as you look you know, on a quarterly basis through 2026. So that that, you know, will give you some you know, a nice starting point for what the what the P and L will look like for for ANF. I I think we're we're reasonably confident on net interest margin. The portfolio from a delinquency perspective and risk perspective is well managed by the team. Delinquency, as I've said, will grow as you know, it's it's mostly a brand new portfolio. So you start to see your delinquencies as it matures, but we've got that factored in. So I so I believe that our performance trajectory the income improvement will will continue. We'll be in a good position throughout you know, 2026.

Got it. Got it. Do you do you expect to maintain these What what's the upper end you have in mind on penetration? For the for the portfolio? Or immediate I think it's

I mean, it's it's it's really strong on on the used side, as you know. I mean, on on the on on the new side, we we're we're partnering with our OEMs as well, you know, from a financing perspective. Yeah. So as we grow, continue to grow our our used business, we we do see opportunity to drive further penetration. We got great partnerships It's a great programs with our our lending partners outside of ANF, but I think we're gonna you know, help continue this trajectory. But let me just add just some color to it if I may, Tom. I think he's I I think Tom's exactly right. There are a few things that are that that that are important to us. One is we work in partnership with all of our OEM which means we're very, very clear with our teams about that relationship. And frankly, we cannot compete with an OEM cap tip because of the way that they subsidize either their leases, obviously, or their finance and and that is not our job to do. We've improved our penetration in what we call the market that is open for us to be competitive in, and that is those new vehicles, those few new vehicles that don't qualify wouldn't benefit our customers wouldn't benefit from subsidized finance. And, obviously, all of our used vehicle volume that falls within the buy box that we've established for the company. We're very, very disciplined in that buy box, and our penetration has improved over the years, but we still have headroom to improve even further. The constraint really on our growth, even though it was very good, was well balanced, between Jeff Butler, who's our CEO of that business, and Tom. To make sure that in terms of the way we're thinking about allocation of resources in the business, we had balance. But it could have grown faster than it did. But I'm I was very pleased with the discipline that they said. So I do think that there is opportunity from a penetration point of view And as we mentioned earlier, my penetration mainly is coming from the used car market and as I we think there'll be some stability in volumes in that area.

Understood. Understood. Great. Thanks for all the color, and good luck.

The next question comes from John Babcock at Barclays. John, please go ahead. Your line is open.

Hey, good morning, and thanks for taking my questions. I guess just quickly, just on capital spending. Is there any reason to think that 26,000,000 would be any different, from 25? And then also, you could just talk about the M and A market, how that looks right now and and how you plan to balance out with share buybacks near head, that'd be great.

Yeah. Thanks, John. Thanks for the question. From a from a CapEx perspective, I think we're I I think 2025 levels are a reasonable starting point for 2026. I mean, it's pretty pretty locked down in terms of the spending that that we do. As you know, it's it's mostly you know, maintaining our our properties and and keeping up with OEM requirements on, you know, latest, you know, models to stores. We've got some service growth as well that we're, you know, supporting. But I think I think the levels that we spent at in in '25 are sustainable, for 2000, '26. In terms of m and a, and and Mike's is involved in this as I am, so it'd be good to hear his commentary as well. But know, we we had a had a really strong year. We saw a number of opportunities across you know, all four quarters in 2025 in terms of you know, opportunities. I think we were selective Like, you you saw where we spent our money in terms of regions and brands and as Mike said, you know, we've got we we ended up with some high very high quality brands and you know, in territories where we have density. Where we think we can create operating synergies. And I'm I'm confident that, you know, 2026, there'll be you know, continued opportunities for us in the dealership space. And remain disciplined. I mean, we'll go for the ones that you know, pencil out for us. And then allow us to take advantage of you know, where we're present and and where we can drive operating synergies.

Well, I think it was pretty completely answered, but just add some color on the process that we have. Like all organizations, when we think about the capital deployed, we have a number of hurdle rates, but the key one for us is on a per shareholder basis. What are we able to return thinking about it from individual shareholder perspective. Which to a large extent can be an interesting hurdle to have when you think about m and a. The good news is there are opportunities where not only does the business that we're interested in deliver reasonably that we can bring significant synergies to it. And, obviously, that's not something that is, usually or or very easily apparent when you first think about purchase prices of some of these assets. But it is clearly a big consideration for us because we have, significant invested resources and capabilities that we obviously get leverage in the businesses that we're adding so long as we're adding them into geographies and densities that make sense, and and that is a big part of the calculation. We're also thinking about the incremental EBITDA that is delivered from these acquisitions and how we can leverage that in the business for further return to our shareholders, whether it is through revenue or net income growth or whether it is in terms of share repurchases. So I think there are opportunities that are coming to the market. It is reasonably buoyant, in my view. We are, like everybody would tell you, very selective. And very clear on the hurdles of what makes an attractive target or not. I think that's the best I can add to what Tom said.

Thanks for that color. Then just one follow on. I am just kind of curious. How did how did hybrid GPUs trend in the quarter? And then also, what are your expectations on when EV electric vehicle GPUs might start to normalize with typical combustion engine vehicles Any color on that would be helpful. Yes. Well, as I already mentioned, on comments, we saw quite a significant flow pullback in terms of incentive contribution from our OEMs in terms of dealer support incentives. So let me get the exact numbers for you so that I can be completely completely accurate with you. So from overall GPUs on hybrids And were largely flat. Tom my numbers on that on HEBs. Reduced on battery electric vehicles in Q4. But we obviously benefited from a very significant mix change in the quarter from a stabilization of mines I think if the if the industry stabilizes around two to 3% penetration and that will be based upon a proper demand and supply balance then I think you will begin to see some improvement in margins both on battery electric vehicles in particular, but that, in my view, is not gonna happen in 2026. Think it will take longer for that, but I do think you will see improvement in hybrid margins throughout 2026. With a with a better balance because many people find that a much more attractive powertrain combination. Than just battery electric vehicles.

Tom, just Yeah. Just yeah. Yeah. On the sequentials, you know, we've been very stable in terms of hybrid electric as a relative to total revenues or total unit sales on on new roughly 20% a quarter, and that that has remained. Very stable. We have seen a decline in in bevs themselves in favor of ICE engines probably to the extent of five to 6% from first quarter to fourth quarter. Okay. Thanks. I'll get back in queue.

The next question comes from Geoff Lick at Stephens. Geoff, please go ahead. Your line is open.

Good morning. Thanks for taking my question. Mike, as you point out in your several times in the prepared remarks, obviously, there's a lot of extraordinary items this year in terms of pull forwards and obviously, the compare from last year. After the election. I was just wondering if you could just break down the year, you know, thinking of 2025 as the base and now you're as you go in, is there any particular callouts in terms of parts of the year or items that you would kinda call out, hey. This is gonna be a particularly more challenging compare or, hey. Things get a little easier. Here or there? Just wondering your perspective there, just kind of thinking of you know, an extraordinary year of 2025 is not what you're comparing against.

I think it's a great question. You know, we we obviously we obviously saw the dynamics of various different announcements impact in March, April. For example, when tariffs really became very much front of mind. And then as we approached for those electrified powertrains, the end the end of incentives, there's a the two key points where I think when we think about comps, we just need to be mindful just need to be mindful of that. I do think that there's a when I review the year, what I feel we did well was really to navigate those events. Obviously, you feel good when you're in a period of of pullback. But when that goes away, you try and make sure that you fill that vacuum as as effectively as you can to continue the performance and the momentum in the business. And I think the demonstration from us and our results over the full year showed that even in a turbulent year, we can continue to perform at a reasonable level. And deliver the results to our shareholders. And I'm pleased about that because you know, as we came into 2025, I think none of us had the expectations of how it would actually play out. We obviously think 2026 will be more stable, but I I'm there's no way I can call that. What I can tell you is that we have a business model that's that I think is is robust, a business model that is disciplined. What gets thrown at us will not only navigate, but we'll try and find those areas where we can maximize the opportunities that that come I think this year, we're gonna be, as we have always done, focused on affordability, frankly. You know, we we all know what's happened with net transaction prices over the last few years and and how that's impacted monthly payments. And it's been a topic of discussion both on our calls, but with other people calls as well. And I think we're gonna be everybody will be very mindful of that and seeing how that may move through the year as as really an indicator of whatever strength is in the new retail market and and used market as well. So that's kind of my top of mind thoughts in response to your question.

And then just a quick follow-up. I was wondering maybe you could put your OEM hat back on. As we get into the second half of this year, there's going be a sizable year over year increase in lease returns Just thinking about what that how that might impact you know, the dealership business, but also some of these lease returns are gonna be deeply underwater. Specifically the EV ones. Just wondering how you see the that dynamic of how the OEMs will handle that and how that will affect the franchise business?

Well, I would imagine every single OEM is already provided for that. Frankly, because I don't think it's we don't need to get there and it suddenly be a surprise. I think it is very well forecasted. I think it's very evident from some of the early signs that we are seeing. And any OEM should have assessed that in their portfolio and should have provided for it. There have been a number of very large provisions that have been announced, and and I'm not sure it it also continue it also would cover forward looking liabilities such as residual values. I think increased lease returns into the business is a very, very good thing. I think the important part of that is that they return to market at a correct market price and that the OEMs work with the dealers to try and make sure that that that is a stable price in the marketplace. And not transfer some of the liability that may be there in terms of actual residual values onto the dealers and ultimately to some extent onto consumers. So, firstly, in summary, it's well known that there are certain models, certain powertrains, where the original residual value estimates are incorrect. Think they're well known. They should be provided for. And I think the dealers will benefit from those lease returns and work with their OEMs to try and get a reasonable fair price for those vehicles in the marketplace. We're certainly looking forward to the benefits that come from improved lease returns in our business.

Thanks very much for the, the quest answers, and, look best of luck on 2026.

The next question comes from Daniela Haigian from Morgan Stanley. Daniela, please go ahead. Your line is open.

Thank you. Good morning, everyone. So you you touched on this a little bit in the in the prior question, but how are you viewing affordability pressures as it relates to consumer credit availability as we enter this new year? You also mentioned consumer sensitivity to monthly payments. Have you seen any change in consumer behavior in the aftersales business, whether it's willingness to pay for certain repair orders or or otherwise?

Yeah. I I as I said earlier, obviously, depends how far you wanna go back, but people still referring back six years now to pre pandemic. But we've seen significant compound growth in monthly payments that have basically been driven by a combination of average transaction price, but some differences in in charged APR. I think there will be some relief in charged APR as we get into this year, further into this year, particularly towards the back end. But there's no doubt that affordability is front of mind. I think the OEMs are going to look at how they can provide more affordable models in the market marketplace either through decontenting because they are also absorbing, as you know, whatever the residual tariff impact will be on their, cost of goods sold as well. So I think that, they're they're gonna try and manage that without significantly impacting net transaction price and maybe with some maybe with repackaging. I think as a result of that, that's one of the reasons why we think the new car market in particular will probably be down somewhere between 25% for the year. We anticipate that that's in our view. We think that we will perform at a minimum in line with that, maybe slightly better. We think that there is pent up demand that will hold the used car market relatively stable. Albeit there may well be some shifting down to slightly lower prices in in there. In terms of consumer behavior, we haven't really seen much behavior. In the aftersales business, it's very competitive. We have seen over the last few years, and Christian tracks this religiously with his team, we have seen much, much more attention to the cost and pricing of service and parts within the business. And we know we compete with non franchise providers of service and parts because our growth really is targeted on improving our penetration in the three year old plus aftersales market. And to do that, you obviously have to provide great convenience, great service, but you've gotta be very competitive on price. So we can achieve that without an impact on our margin. And the aftersales team, I think, did a good job. We talked about the improved improvement in in aftersales margin. We just gotta keep keep doing that. There is no right to that business. We have to conquest it. And to do that, it's a combination of price and service. So they're much, much more price sensitive particularly as the as the vehicle gets a bit older. And you just have to be aware of it and respond accordingly.

That's helpful. And then digging more into the used market, have you seen any mix shifts or do expect to see your strategy evolve in terms of older or newer within that that segment, especially as off lease volumes begin to return later this year? And then you also spoke to an opportunity to acquire more competitively in that market. So any commentary or color there would be helpful. Thank you.

Yeah. So firstly, if you take our results, I think we performed really well in $40,000 plus vehicles. We saw growth in that segment, and it's it's a segment that I think we're very strong in. Where we did not perform really to market was in that particularly that sub $20,000 price range. And some of that is because when we think about vehicles we want to sell to our customers, many of those vehicles don't fit the profile that we wanna put in the marketplace. And I think chasing volume of a four use car is not we wanna do for the brand. But notwithstanding that, we are looking very, very carefully at how we can achieve a slightly different balance in terms of price segments if our used vehicles, which would naturally mean stocking vehicles of a lower price band, say sub, the purpose of this discussion, $30,000. But how do we do that and get the right inventory? That is a very, very competitive that's a very, very competitive marketplace, as you can imagine, and this is where we've got to leverage our scale and our reach. And the way we would do that is our ability to respond to customers very quickly when they're looking for values. Our ability to be flexible in terms of how we can go and get those vehicles or have those vehicles drop dropped off, the speed of our payment, and the fact that when you sell a vehicle to automation, you're selling it to an investment grade company, and and you you you get certainty with that. So I think we got to we got to leverage the infrastructure and the teams we have So in summary, I think there is mix shifting that we should be aware of, and we should also make sure that we are playing in that, which is say, sub $30,000 vehicles, and we've got to leverage our strength to be on. more successful at acquiring inventory in that area. And that's what Chris and team is focused

Thank you.

Used market. The GPUs in the second half were down versus the previous six quarters, more at the 1,600 level. Do you think this is more of a demand or a supply issue? And and how should we think about that heading into 2026? So Tom, you want to answer this, and then I'll add some color or would you like me to answer? No. Happy to do it. I'll build off of what you said earlier. I mean, you know, you're you're right, John. You know, the fourth quarter was a low mark for the year in terms of used GPU. We were we were disappointed. We we know that some actions that we can take will get us back to the norms that we had in the first and second quarters. We you know, eventually, we expect to be in in target on a longer term basis, 2,000 per unit. Some of it is the basics Mike Mike mentioned. Acquiring at the right price, reconditioning properly, not excessively, and and and getting the, you know, day one pricing correct. The market is tighter, so it's important to move with speed when know, when we're, you know, doing acquisitions. But we do have opportunity. I mean, the short term, getting the right mix, as Mike mentioned, you know, calibrating brands, price points, and the like. Aging, managing our funnel, our our commercial funnel of opportunities all the way through to closure, the second, you know, shorter term opportunity we have. And as as we said, you'd doing reconditioning, you know, efficiently and quickly and getting the vehicles out to the floor longer term. We're really encouraged by the business. We'll be making some investments in it. We do wanna improve the, you know, customer journey, as you know. It's become much more virtual and digital, and and we're putting that capability in place. And and we'll continue to work around too. That's an investment we wanna make. So in summary, you know, we're a lot of attention to the business and you know, know that we'll be driving unit profitability and overall profitability higher.

I think that was a really comprehensive answer. There's not much that I can add but one thing I think that is going to show us the strength of being a new car retailer. That is if you look at sourcing channels, there has been increased competition really across all sourcing channels, not just trading. We buy your car, obviously, auction. That's going to continue. We've been able to offset some of that cost pressure through mix changes as well. In terms of how we source vehicles. And I think that's something that we have the ability to do because we operate a very, very sizable new car sales organization, and, that that is a great and often often undervalued channel because it is still the best channel to source. Excellent used car vehicles. And I think it will think it will play I think there'll be more competition, and I think that will be part that channel will partially offset that partially, not completely. Because you also get price pressure in that channel, which is knock on price pressure from more visible channels, but it will partially offset some of that price pressure And I think Tom answered the rest really really incredibly well. Thanks, Tom.

Okay. Great. Thanks for that. Really good answer. And then on on new GPUs, can you give us a sense of what you're seeing in the marketplace You mentioned that you're seeing sort of continued stabilization and I think the market is going be very encouraged if we see that continue.

Yeah. Thanks, John. I mean, I mean, the third quarter to fourth quarter, Mike talked through the improvement in the overall, the weighted GPU notwithstanding the you know, the pressure we we've got on OEM dealer incentives. We're encouraged as we build our plan for 2026 that there are actions that we can take to continue that stabilization so far. So good. We haven't closed for January. Haven't do expect to see a stable December to January. So off to a good start, I'd say. You know, on that front. It takes, you know, takes discipline. Do this with industry inventory levels also.

Apologies. Please stand by. Adam, can you hear us now?

Can hear you loud and clear. Are we live with all of our guests?

Yeah. We're good. We are. Good. Sorry about that, guys. I don't know. What happened from a technology point of view, but I I will just repeat what I said. I was referencing Raja's question right at the very beginning about the balances, the puts and takes in our business. And I think that's an important one to know as we get into this year. I think what we're trying to build is obviously, a growing after sales base of a pool of customers that we can continue to serve and and drive up our loyalty. That means that we want to make sure that we don't lose pace with the marketplace and to do that, we obviously have to be competitive to make sure that that we stay at a minimum in line in line with market. We do try and balance it where we can balance it. So as that market develops and we see what happens, there may well be more or less pressure on margins. But as Tom said, we have seen stability from third quarter to fourth quarter, and our expectation, particularly in H1, that we think to a large extent that will continue in '26. Yep.

Thanks so much. Thank Yep.

Next question comes from Colin Langan from Wells Fargo. Colin, please go ahead. Your line is open.

Great. Thanks for taking my questions. Just want to ask on after sales growth was 6% on a same store basis, which I think historically, it's you know, go back many years, it was three or 4%. I mean, should we think of that staying at the higher end of sort of mid single? Or you think there's just some, you know, maybe good news this year, some catch up this year from some of the issues last year? And then also on the margin there, margins also have been actually quite strong much higher than they were five years ago. Is that sustainable, or does that moderate a little bit into to '26?

So I'll give you my my view on that. We talked about the competitive nature of after sales and the fact that what we want to do is to conquest in particular, vehicle park of three year old vehicles. I think what that means is that hourly rate, obviously, needs to be competitive. So the fact that that by its very nature says that we the margins that we delivered are going to be constrained to some extent. Albeit still incredibly healthy, and we're very pleased with them. We do think that there's opportunity for us with different products that we can offer and different ways of communicating with the customer that we can provide more work on a per RO basis That doesn't necessarily drive up margin, per se, but it does help us a lot. With regard to the productivity that we have in our business. So there may be some incremental opportunity on the margin side, but that's not what we bake into our plans. What we bake into our plans is is more sustainable growth. Not margin growth per se. Tom. Yeah. I guess the the other thing is we we have plenty of capacity to support you know, more repair orders. Physical capacity. And as Mike said, our you know, we've been able to grow our technician workforce. But if we can continue that with with minimal additional investment, you know, we have the plant place to support more business, which itself will drive higher margin rates as well, better absorption. So I think we're positioned with the you know, to sustain the, you know, the trends we've had. And you know, continue to and Christian and the team continue to manage this very closely.

Yeah. I think the other thing that you mentioned earlier in your commentary that we should just we should just remind Colin of. You know, between Christian and Gianluca, we have think, been successful at growing our wholesale business. And wholesale, as we know, is much, much more competitive, and the margin is diluted. So I think that that is a that is for us a big area, again, of opportunity of growth and that will have from a headline perspective downward pressure on the margin. So you know, when we talk about after sales margin, I think we need to be clear that you base see a moderation in the margin that we report, and that may well be a mix driven thing. It may not be margin per se through our workshop. So please just bear that in mind when you're thinking about the future and and what Tom and I just said.

Got it. And just secondly, any thoughts on and A? I think in the past, you've talked about 66% to 67% being the right target. Is that still sort of a long term target and any sort of actions that might help you you know, reduce costs into next year that gets you closer to 66?

Yeah. Good question, Colin. Yeah. First of all, reaffirm 66 to 67 is a is a our intended target. We were a bit higher in the fourth quarter and and probably will be a little bit higher as we as we go forward here. At least in the early part of the year. You know, we've made some upfront investments on on advertising and it's really to in the upper funnel, which you know, for us means, you know, creating demand as opposed lower funnel where you're actually trying to capitalize on known demand. And and we feel like we've got some opportunity to drive better you know, upper funnel activity. So that's requiring a little bit of incremental investment here. And it's it's also talked about our loaner pool. We've made we've made some conscious investments in It helps you on the used vehicle side when they come out of the when they come out of the pool. So and we talked about you know, a tight market, but that that gives us a little bit of a relief valve terms of supply. But importantly, it it's also helping us support the the, you know, service business, you know, in its totality. So apart from those, you know, two incremental things, I expect us to you know, continue to drive towards the, you know, lower end of that range we talked about over the long term. And we've got, you know, a a number of different initiatives in place As you know, the biggest component of SG and A is compensation. And it's important for us to have good productivity when it comes to both sales and service. We feel like we've got excellent training programs and standard procedures that we've got the cycle service. To. To drive productivity and and comp and benefits. I meant I talked about advertising. And the the other big category is is just you know, other SG and A. We've got a number number of good initiatives to manage through some of these inflationary things that we're seeing, like energy costs, know, as an example. We're trying to standardize our our usage model around the utilities to offset some of that. So it's it's a it's a it's an effort that we're heavily focused on and and just reiterating where we are in terms of Hopefully, that helps, Collin.

Yeah. Super helpful. Thank you very much for taking my question.

I'll now hand back to the management team for any closing comments.

Yes. Thanks, Adam. Again, thank you very much for joining the call today and all of your questions. And just finally, as I mentioned earlier, I just wanna thank the AutoNation team. For what we delivered. And as usual, then you will know this. That's behind us now. We've got 26 ahead of us, so let's get to it.

Concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.