Good morning, and welcome to Lithia Motors' Fourth Quarter 2016 Conference Call. Management may make statements about future events, including financial projections and expectations about the company's product, markets and growth. Such statements are forward looking and subject to risks and uncertainties that could cause actual results to differ materially from the statements made. The company discloses material risk and uncertainties in its filings with the Securities and Exchange Commission. The company urges you to carefully consider these disclosures and not to place undue reliance on forward-looking statements. Management undertakes no duty to update any forward-looking statements, which are made as of the date of this release. Management may also discuss non-GAAP financial measures. Please refer to the text of the earnings release for reconciliation to comparable GAAP measures. I would now like to introduce Bryan DeBoer, President and CEO. Mr. DeBoer, you may begin the conference.

Good morning and thank you for joining us today. On the call with me are Chris Holzshu, Executive Vice President; and John North, Senior Vice President and CFO. We will be providing some brief prepared remarks and then open the call up for your questions. Earlier today, we reported record adjusted earnings of $1.86 per share or $47 million for the first quarter. We grew sales in all business lines, increasing total revenue 15% to $2.3 billion. For the full year, we increased adjusted earnings 6% to a record $7.42 per share or $189.5 million. We grew revenue over $800 million or 10% to $8.7 billion. While 60 stores achieved record profitability this year, significant opportunities remain in the roughly 90 stores that did not achieve record performance. As we continue our significant acquisition cadence, we remained focused on growing new vehicle unit sales. This strategy strengthens our manufacturer partnerships and garners their ongoing support as well as generates future used vehicle and fixed operations opportunities. While this may result in slightly compressed margins and incremental selling expense, it will reward us with greater organic and acquisition growth potential in the future. Said simply, our model creates a larger base of stores with greater aggregate cash flow, diversification of brand and geography, economies of scale, and opportunities for earnings improvements as the stores season. All numbers from this point forward will be on a same-store basis. In the quarter, new vehicle revenues increased 4%. Our unit sales increased 2%, better than the national results which were unchanged from the prior year, resulting in a quarterly SAAR of 18 million units. Our average selling price increased 2% compared to the fourth quarter of 2015. Gross profit per new vehicle retailed was $1,925 compared to $2,097 in the fourth quarter of 2015,…

Thanks, Bryan. At December 31, 2016, we had approximately $188 million in cash and available credit as well as unfinanced real estate that could provide another $168 million in 60 to 90 days for an estimated total liquidity of $356 million. At the end of the fourth quarter, we were in compliance with all our debt covenants. We were aggressive buyers of our stock last year, deploying $113 million to repurchase over 1.4 million shares or 6% of our outstanding float at an average price of approximately $80 per share. After these repurchases, we have approximately $193 million remaining under our current authorization and we will remain opportunistic on repurchases in the future. In 2016, as Bryan stated, we acquired estimated annual revenues of over $1 billion, investing approximately $118 million on an equity basis and at the low end of our 10% to 20% of revenue acquisition investment guideline. Our free cash flow, as outlined in our investor presentation, was $36 million for the fourth quarter of 2016. Capital expenditures, which reduced this free cash flow figure, were $19 million for the quarter. For the full year, we generated $186 million in free cash flow after the approximately $100 million we spent on CapEx. That brings the cumulative 2016 investment for both acquired stores and share repurchases to $231 million. Net of the $186 million in free cash flow generated this year, we borrowed approximately $45 million this year on our credit facilities. As a result, at year-end, our net debt to EBITDA is just over 2 times which remains among the lowest in our sector. We predict free cash flow after capital expenditures of nearly $200 million in 2017. This cash flow, coupled with the significant availability on our credit facility and through unfinanced real estate, means we remain in good shape to accommodate incremental investments in both our own shares and an additional acquisition as opportunities arise. We continue to see our 2017 earnings in the range of $8 to $8.30 per share, unchanged from our estimate in October. Our 2017 outlook represents an increase of 10% in earnings per share and serves as a good baseline assumption for our earnings growth objectives in subsequent years. For the assumptions related to our earnings guidance, please refer to today's press release at lithiainvestorrelations.com. And now, a few comments from Chris.

Thank you, John. As I move forward in my expanded role, fostering a high-performing entrepreneurial culture and alignment with our rapid growth trajectory remains the backbone of our plan. We now have almost 12,000 employees, an increase of nearly 300% from 2010. In 2016, we hired or promoted approximately 400 managers, and with continued growth, we estimate we will have 800 management positions ready to fill annually by 2020. Our culture attracts the top managers in the industry; those who achieve high performance, while striving to become more independent. The highest recognition of this accomplishment is to be named a member of the Lithia Partners Group. Currently, 28 store leaders are partners who live our core values, maximize potential of their stores, develop future leaders and strive to continue to grow in their local markets. Our fourth quarter adjusted SG&A as a percentage of gross profit on a same-store basis was an estimated 69%, an increase of 90 basis points over the fourth quarter last year. On a consolidated basis, including the effect of recent high positions, our adjusted SG&A as a percentage of gross profit was 70.1%. Our largest line item in SG&A is personnel expense, where we invested nearly $600 million in 2016. We continue to emphasize a culture of high-performing entrepreneurial leadership in every store with employees who live our core values each and every day. As our stores improve productivity and leaders unlock ways to increase efficiency, we can manage this cost down over time, using our transparent store-level measurement system. This allows our stores to quickly manage trends and inspire all levels of the organization to improve. Finally, we believe increasing the number of millennials in our sales and service roles is critical for our future success and aligns our people with the fastest-growing consumer demographic. This will result in more associates utilizing technology that improves productivity and provides an exceptional customer experience. We look forward to updating you in the future on our efforts to accelerate our personnel, the most valuable and important resource in our organization. This concludes our prepared remarks, and we'd now like to open the call to questions. Operator?

Thank you. At this time, we'll be conducting the question-and-answer session. The first question comes from Steven Dyer with Craig-Hallum. Please proceed with your question.

Thanks. Good morning, guys.

Morning, Steve.

Hey, Steve.

Sorry if I missed this. Can you talk a little bit about – I mean, throughput looked a touch lighter than it has in recent quarters. Was that sort of an internal decision again or was there external factors there?

Hey, Steve. Good morning. This is Chris. Hey. As we continue to focus on, obviously, managing the leverage that we get in each one of our stores, I think we kind of have a mixed bag. I mean, one is we have a number of acquisitions that while they're rolling into same-store results are still within that one to three-year timeline that we look to in order to maximize the performance of each one of those stores. And so, as we mentioned, we picked about $1.5 billion in revenue over the last three years. And probably a third of that is coming into same-store comps which we don't feel like we've maximized the opportunities that we have there. The other bag that we have is related to existing stores that are in markets that are seeing some volatility in registrations, moderating sales. And I think what we're working on right now is trying to identify the right mix of personnel, our largest expense, in order to maximize that opportunity. But if you look at same-store throughput, I mean what we saw in the same-store comp basis was about a $15 million increase in growth. And we saw about $2.2 million in the incremental operating profit, meaning that we left about $4 million on the table. I think half of that's related to execution and half of that's related to some non-recurring kind of one-time reserve adjustments that we're working through. The good news is, is that on our two largest expenses, whether it's personnel and advertising, we actually saw a slight decrease as a percentage of growth. We just didn't get the leverage that we had hoped to. So, we understand exactly the stores that have opportunities. We're working with those management teams right now to help them identify ways that they can improve that throughput in their stores, and we'll continue to push through that in 2017.

Great. Thanks, Chris. M&A, obviously, is a focus and you touched on that. I mean, there's a lot of sort of noise lately about valuations coming in and so forth. Can you just maybe anecdotally talk about your pipeline and how you think about it into this year maybe versus last or the year before?

Sure, Steve. This is Bryan. It's an exciting market because I think most of the markets across the country have started to plateau or even finding some lower registration numbers, which means that sellers seem to be more realistic on pricing. Again, we have upwards of over $10 billion in revenue that's under discussions, which is a large number as it was last quarter. Relative to a few years ago, I think it's fair to say that pricing is more in line with what buyers are willing to pay and I believe sellers are willing to take, which is an exciting time. And I think it's why we're focusing so much on continuing to increase market share to gain our manufacturers' support on an ongoing basis.

Got it. Okay. And then last question for me and I'll hop back in the queue. You threw out $1.20 number. I think it was $1.20 in additional EPS from acquired stores. Could you just go over that again? I didn't write fast enough.

Yeah, Steve. This is John. I mean, basically, if you go back and look at 2013 which was, I would say, the year before we brought DCH into the fold, our operating margin ran about 4.7%. We did a 4.1% op margin for full-year 2017. So, if you just do the incremental math on us kind of getting all of our incremental acquisitions integrated in that and you calculate the EPS benefits, that'd be $1.20. Keep in mind, that also would probably also be impacted by increases in revenue. So, I think often a lot of those stores that we're looking to improve are going to see incremental boost in revenue as well, which might be a kicker.

Got it. And then maybe remind me, is there any structural reason why some of the new stores can't get to that level, whether it be geography or metropolitan focus, et cetera? Or is it sort of legit to think that eventually they can all sort of get there?

Steve, Bryan again. The stores that we buy are strong franchises, which means that when we buy a store we look at the registrations, which means it has the potential to get to where it needs to. It means the rents are in line and everything is appropriate. It's a matter of the people equation and helping them see the light as to how to get to that higher level. And like Chris said, that can take one to three years at times, but we believe the underlying assets are extremely strong, like the original base of Lithia and DCH stores.

Okay. Perfect. Thanks, guys.

Thanks, Steve.

Our next question comes from Rick Nelson with Stephens, Incorporated. Please proceed with your question.

Hi. Thanks and good morning. The acquisitions you did in 2016, $1.1 billion in revs you brought (18:12) in, how does the EBIT margin on those acquired stores compare to the same-store EBIT margins?

So, Rick, Bryan again. Let me walk through the basic pricing strategies. So, when we buy stores, we look if the stores are performing at about half maximum of what we believe we can do with it. So, a typical store that Lithia buys in those ones of the, what, $1.15 billion that we acquired in 2016 were somewhere south of 2%. So, I would guess in the 1.7% to 1.8%. We can aggregate those and get those to you offline. But they're probably in the 1.8% relative to our 4.1% operating margin.

And how quick, Bryan, do you think you can get those up to the core operating margin?

I think when we look at the last six years of acquisitions, I would say that about 75% of those are now what we would call a seasoned store, which means they're operating at company averages. I would then say that the remaining 25% have some to be desired, which are mostly the one- to three-year-old acquisitions, which still have a lot of opportunity. If you take DCH, for instance, DCH, I believe, what, they had in SG&A of around mid-80s and now they're mid-70s in SG&A, which would imply that they were – I think they were 1.3% to 1.5% operating margin and now are pushing into the high 2 percentile range. So, that's kind of showing the opportunities that are there. DCH moved very quickly and almost doubled their operating margins within the first 12 months. I think they're at a state now that they're going to have to dig a little deeper to reach to the 3% to 4%. But I think because we were able to move so quickly, the opportunities over the coming years are still high, that we can achieve company averages or possibly even beyond, because their ability to leverage their rent expenses is better than a traditional Lithia store, because they have the ability to conquest market share from the same franchise within that metropolitan area. So, I think to summarize, we're probably about 1.7% to 1.8% is what our 2016 acquisitions are. But I think you also got to go back and look at six years or $7 billion of both organic and acquisition growth, which two-thirds of it was acquisition growth, and all of those are integrating at a different speed, and you get then a blended impact on our 4.1% operating margin with that potential to be really upwards of that 4.7% to 5% that I think traditionally we've been able to achieve.

Okay. Any reason why DCH wouldn't be able to attain those company averages?

I think if George was sitting, he'd boldly say that we're confident that we can get to those numbers. I think it takes a little bit of a change in methodology and a tweaking of expenses to gain productivities in the two-thirds of our highest cost, which is personnel. And I think it takes incremental improvements in both F&I, service and parts margins and new vehicles margins. And that's an exciting thing that still – what we would call, still have lots of fruit on the vines to be able to improve our company, and that's why we illustrated that $1.20 or possibly even more, because along with that will come volume and revenue increases.

Okay. Are you still targeting those kind of flow-throughs in the 40%-plus range?

Yes.

Okay. Thanks a lot and good luck.

Thanks, Rick.

Our next question is from John Murphy with BAM Asset Management (sic) [Bank of America Merrill Lynch] (22:51). Please proceed with your question.

Hi. This is Liz Suzuki for John at BofA. Could you just talk about how the composition of front-end growth has changed over the last few years and what you expect going forward? It seems like F&I per vehicle has clearly increased pretty impressively, but new and used GPU has been coming down over time. So, just curious whether you expect that trend to continue and how much more that could shift?

Liz, this is Bryan. I think the idea of front-end gross average being offset by F&I improvements is a model that we like to be able to gain market share. So, our focus is to continue to attack margins, to create more units that give us more trade-ins and create more service business for the long term. So, we think it's a small sacrifice to be able to gain and have flow through to the bottom line in future years. I don't believe that in the future it will be quite as difficult because we are dealing with markets that we're having to really push volumes because the markets are down so considerable, especially in our energy states. And I think that has some short-term implications and really has now for a couple of years. But it seems to be accelerating as well. In fact, an example of what we're fighting, I think if you look at the Texas market, Texas as a whole is only down 4%, and that's total registrations in our markets from all dealers. We're down – let me see here, the West Texas markets are down 16%, which is the energy, where the aggregated markets in Texas are only down 4%, we're down about 4% as well, which shows that we're in about, what, 75% of our business is from West Texas in the energy part of the state. So, we're able to combat it, which means we're increasing our market share. But with 16% declines in the overall registrations, it's pretty brutal to margins to be able to maintain it and you hope to pick it back up in the other areas of the business. Now, that's just one example. I could run through other states if you like as well.

No. It's really helpful. Thanks. And were there any noteworthy stair-step programs this quarter that your dealerships participated in that helped drive the volume growth? And are you seeing any changes from the automakers in terms of their attitudes towards stair-steps and their expectations for your dealerships?

Good question, Liz. I think the fourth quarter, typically, is a large volume-based incentive for the luxury franchises. And I think the other mainstream franchises, there's not big stair-step changes. We did see a little bit of an uptick in incentives from our manufacturers, which means they may believe that they need to boost the market a little bit. But it wasn't a major amount.

Thanks. And just one more housekeeping item. You may have mentioned this and I might have missed it, but usually in your press release, there's an EPS outlook for the upcoming quarter. I didn't see a first quarter 2017 in there. Would you mind just giving your thoughts on what you expect for the retail environment in the first quarter?

Yeah, Liz, this is John. I think we announced back in August that we were going to move away from providing quarterly guidance in our outlook. So, starting back in October, we introduced 2017, we didn't give a quarterly number. And we think that's consistent with a longer-term view of the business for us, really trying to look at it from an annual basis as opposed to playing the quarterly game. But I would say that it's on track, on target, relative to our expectations for that $8 to $8.30 range.

Great. Thanks very much.

Thanks, Liz.

Our next question comes from Michael Montani with Evercore. Please proceed with your question.

Hey. Good morning, guys. Just wanted to ask, I guess, first off, if I could, where are you seeing the best opportunities for deals today? Is it metro markets or more rural? And then also, how do you think about opportunities for international expansion? And what are some of the risks that you may have to manage if you did go international?

Michael, Bryan. We're seeing almost 2/3 of the acquisition in what we would consider a pretty opportune market, because our personnel quality is pretty high and that's in the Northeast region. The other third is spread across the country. We've also focused our attention, to some extent, on larger groups which we believe that it's been easier to integrate them and they typically come with a management team that can be culturally symbiotic with Lithia, which – or DCH -- which has been very beneficial to be able to get off quickly and be able to start focusing on generating additional sales or revenues that ultimately flow through to the bottom line, which has been beneficial. We will still keep doing the staple diet, one, two acquisitions in our traditional regional or metropolitan areas. If we look internationally, we've now spent some considerable time looking at a few English-speaking countries, getting to know their dealer body, learning about the nuances of their countries, but more importantly meeting teams that we believe can be beneficial to the organization where we're not the ones trying to learn about a new country. They're there to stand beside us to help provide us the value necessary and the knowledge necessary to be able to effectively operate within those countries. I still believe that it's on a longer-term horizon, probably in the next two to five years. But I think most importantly, we know that it's feasible and we believe that the nuances of those countries and differences are something that we could easily manage. So, we're not fearful of those any longer.

Got it. Thank you for that. And then a little bit of a separate note, but we've been hearing that Chrysler was looking to add potentially 400 new dealerships in the U.S. I'm wondering if you guys can comment at all on what kind of overlap you see with your existing footprint, and then also potential actions that you might be able to take to mitigate any potential profit headwind that could provide.

That's good, Michael, because somehow it went from 300 to 400. But I think the number was 300 markets where they were looking at adding multiple hundreds of stores to. The top-300 markets are really considered the top about 75 metropolitan areas in the country, because they break down like in LA into, I believe, 18 different submarkets. So, fortunately, for Lithia, we only have one Chrysler store, and that's Temecula, that could be impacted. We don't believe it will be, because they added a point in Lake Elsinore about four years ago, and we believe that now it's saturated. Outside of that, we believe that we're on the receiving side of new points and currently have a number of stores that we're in discussions on or in development of facilities that we should be able to talk about in the very near future that are in those top-75 markets or so.

Okay. Great. And just the last thing I had was if you can discuss a little bit the initiatives to continue to grow F&I per unit. I mean, obviously, rising interest rates probably isn't helpful, but then you can get better attach rates and obviously menu selling. So, just if you could share some of the thoughts around that that give you guys confidence there.

Yeah. Hey, Michael, Chris. I think, like everything we look at, we look at the individual stores and really the individual groups that we have and what their F&I performance looks like. And while we're seeing an incremental improvement on a year-over-year basis, we feel confident that we still have lots of opportunity. And our focus is trying to get the right people and the right products and motivate them with the right compensation to make sure that they maximize every opportunity that we have on new and used vehicles. To give you a little color on that, if I look – broke the three groups out there that we have right now that we're working on enhancing, I mean, the Lithia Group is currently doing around $1,350 a copy. The DCH Group is doing about an $1,150 a copy. And then our recent acquisitions are doing – including the Carbone Auto Group -- are dong somewhere south of $900. So, what we're really trying to do is focus on maintaining the products and the performance that we have in our Lithia core stores, continuing to push DCH, which has come a long way over the last 24 months to continue to find incremental opportunity there. And then, obviously, bring on acquisitions and get the synergies that we found and with the products and the people that we have to help push the performance with recent acquisitions. And so, that's the way we're looking at it and we feel confident that we can continue to find additional opportunities in the future.

Thank you. That's helpful color.

Thanks, Michael.

Our next question comes from Chris Bottiglieri with Wolfe Research. Please proceed with your question.

Hi. Thanks for taking my question. Want to ask about longer term in terms of the risks on the volume-based strategy, take it down that front-end GPUs. One of your peers seems to be employing a similar strategy. Just wanted to get a sense: do you think there's a structural advantage that the large dealer groups have to be able to afford this strategy, or do you think this become more prevalent to the point where perhaps you don't get the same volume, but you're still losing front-end?

Chris, Bryan. I believe, and I believe our team believes, that we're at a pivot point where we believe the volume is at the right level where we're growing market share, we're gaining manufacturing support to continue to grow our base of business, which gives us greater opportunity in the future for improvement, while still not having to dig deeper into margins. What we're seeing is clear transparency with the consumer as well as the competitors. So, it's become really commoditized where we're having to sell cars at a certain price, and it's a low price. But we don't believe that it's going to change because currently it's still sitting at a couple hundred dollars over invoice. Most of the rest of the margins to get us into that 5% to 7% range is coming from incentives that is typically below-the-line incentive and not consumer-facing, which is supported by your manufacturers, meaning that there's marketing incentive to not advertise at certain levels where you actually can't. Plus, there's other types of structural integrity to pricing that should stabilize margins in the current ranges.

Okay. Great. Thanks. And one final unrelated question. Just want to get your overall outlook on the election, and obviously, there's the huge spike in consumer confidence. Have you seen trends kind of normalize, like kind of year-to-date, if you're able to comment on that at all? And then two, just how you're thinking about the puts and takes on policies and just any current thoughts you have there. Thank you.

Chris, Bryan again. We haven't seen any swings because of the election or impacts because of the election. I mean, I think the implications of import taxes and those type of things could change the landscape a little bit, but we also believe that we're fairly diversified. And if anything, we have a robust portfolio of domestic stores, which is pretty typical that we're able to bring that money to the bottom line a little easier than a more efficient and educated consumer in the imports. So, that could have positive implications. But ultimately, we think it's pretty slow-moving and our portfolio is balanced enough that we should be able to respond to it.

Okay. Great. Thanks for your help. Appreciate it.

Thanks, Chris.

Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.

Hey. Good morning, guys.

Good morning.

A question, I guess, on the regional performance. You mentioned that your units were up to against the national SAAR pretty close to flat, and it sounds like you gained a share in Texas. But could you talk, I guess, how your volume trends related to the markets that you are in specifically? And then, I guess, a year ago in the first quarter, it sounded like Texas and Alaska were having some challenges. At what point do we sort of lap the trough year-over-year comparison there?

Bret, this is Bryan. Sure, we can get you that. I think if we – let's start with Texas again. I think reflecting back to the end of last year, we thought it was subsiding and we were only seeing about 7% market declines in the energy part of Texas, whereas it now grew to 16%, which was a little bit of an unexpected result. And again, we were down about 4% in aggregate in Texas. Let me run through the other markets real quickly as well and I'm going to give you these numbers based off the total registrations in the markets that we do business in within those states. Okay? And then what we did in relationship to those same markets with our actual sales. So, Alaska, an energy state, was down 11% in total; we were down 2.6%. Montana, an energy state, was down 7%; we were up slight single digits. I'm going to break California into two parts, because it appears that Northern and Southern behave slightly differently. Northern California, the market was up 2%; we were up 16%, which was a great move, one of the biggest deltas in our numbers, which is great. Southern California, the market was up 1.2%; we were up slightly higher than that. Oregon, the full state was up 4.8% in registrations; we were up just shy of 11%. Washington was just below flat; we were up high-single digits. Idaho – and again, these are markets that we do business in those states – was up 3%; we were up 4.2%, just slightly better. New Jersey was up 1%; we were similar. And Iowa was down slightly and we were similar.

Okay. Thank you. And one, I guess, just housekeeping question. Value Auto down 5%, is that just lack of access to inventory or is there something going on in the lower-end consumer?

You nailed it, Bret. I mean, what we're really dealing with is the drought of vehicles between 2008 and 2010. And therefore, we have a little bit lower supply on those vehicles, but we're still mining form them.

Okay. Great. Thank you.

Thanks, Bret.

Our next question comes from Bill Armstrong with C.L. King & Associates. Please proceed with your question. William R. Armstrong - C.L. King & Associates, Inc.: Good morning, gentlemen. Just a question on F&I, and you touched on this a little bit before with your F&I guidance of $1,270 to $1,295 is roughly flat year-over-year. Is that really kind of a function of mix where you've got the acquired stores that are still ramping up, but still relatively unproductive? And maybe how can we look at it or how should we look at it on a same-store basis?

Yeah. Good morning. This is Chris. We're going to continue to leverage the same guidance philosophy that we've had for the last several years, which is continue to maintain guidance on our current performance and deliver something with a high probability of success. And so, I stated a lot of the opportunities that we have in F&I and we're going to continue to work on those. And as we see those come to fruition in our stores, we'll continue to upside the guidance accordingly. So, we know it's there. We just haven't put it in the guidance. William R. Armstrong - C.L. King & Associates, Inc.: Okay. Understood. On the used car side, you're looking for about 5.5%, the same-store increase. We've got more supply coming in, lower prices, a more attractive value proposition to consumers, do you think there could potentially be some upside there as we move through the year just given those macroeconomic tailwinds?

Thanks for the question, Bill. This is Bryan. I think, most importantly, our gang is very focused on the idea of 75 units per site, which is 9 more units. So now that, based at the 66 that we're at today, is what, about 15% increase. So, I don't know if we can get it this year, but I know a lot of the stores are pushing hard to get to that 75, because I think many of the other stores are ready to move that target up. William R. Armstrong - C.L. King & Associates, Inc.: Okay. Great. Thank you very much.

Thanks, Bill.

Our next question comes from Irina Hodakovsky with KeyBanc. Please proceed with your question.

Thank you. Good morning, everyone. I had a question about your parts and service guidance. You're guiding to 5% growth. You averaged about 9% in 2016. Wondering what bearish indicators you're seeing there to cut your guidance almost in half relative to performance to-date?

Hi, Irina, it's John. Thanks for the question. I think we've talked about this offline, but for the benefit of the group, I would say the one thing that we were careful about with our guidance when it comes to parts and services the impact recalls. Obviously, it's been a pretty robust environment for recall over the last couple of years, and that's been a nice benefit for us. And I think if you go and look at our same-store comps, you'll see warranty has been growing high-double digits for us. And given the changes in the administration and just the fact that it's difficult to predict what that pipeline looks like, we typically don't guide off of that. So, if you look at just the organic customer pay business, that's been up kind of high-single digits, and I think that's the baseline assumption that we're looking at in terms of our outlook there. So, we don't see necessarily a bearish indicator. I think, again, going back to what Chris said, it's just around making sure that we have current trends, current performance and, hopefully, a high probability of success when we lay out our consensus to the Street as we go through the (43:05) year.

Got it. Thank you very much. Appreciate it.

Thanks, Irina.

Our next question comes from James Albertine with Consumer Edge Research. Please proceed with your question.

Hi. Good morning. This is Derek Glynn on for Jamie. Thanks for taking my question. How are you thinking about digital investments and what impact transparent online pricing has in terms of how it could affect margins and what you could do to offset any pressure in this area?

Derek, this is Bryan. I think when we look at our digital marketing strategies, we have three key vendors that we focus our attentions on. I think it's important to also remember that our stores make the decisions, which has created more innovation in our stores whether it's different models that are behaving at different levels of competitiveness, which allows us to be able to move more quickly relative than having a one-size-shoe-fits-all type of solution. Our sales evolution processes were now rolled out in about – in just over a dozen stores. We're seeing great transparency with our consumers from living room to showroom, which has made it a lot easier. Now, to be fair, it has impacted our margins slightly, but we're also seeing that we're able to gain more trust in the consumers, which we believe is going to create a better relation throughout the ownership cycle in service and parts as well as the other reciprocal businesses. So we're excited about what we're going to be able to see there. I think one other thing that's probably important to note as well is if we look at the impact of front-end deal averages on margins, our organization is sitting today with the most organic dry powder and meaning that the stores that we have have more opportunity for earnings potential than they've had since before the DCH days back in 2013 and 2014, which we really believe that that's an important part of our model going forward, whereas in 2012 or 2013 when we only had done a certain amount of acquisitions that it wasn't as big of our mix, where acquisitions was a bigger part of that. Now, obviously, we have acquisitions that we believe is going to be a big part of our future as well. Hey, one other thing to note, Derek, is on Volkswagen, we took in no money in Q4. That will come in, in our company, in Q1, and will be pro forma'd out of earnings as well. And that could be some things if you're looking at differentiation between the peer group.

Okay. Great. Thank you. That's very helpful. And best of luck.

Thanks, Derek.

Thanks, Derek.

Our next question comes from David Whiston with Morningstar. Please proceed with your question.

Thanks. Good morning. First, for Bryan. I want to go back to the question on why Value Autos was down 5%. It sounded like from your answer that there's a supply issue. So does that mean you're going to have to start paying up at auction?

So, the neat thing, David, about our Value Autos -- most of those cars come in on trade-in. So, it's organically determined from what the new vehicle sales were back 8 to 12 years ago, and that's where we're really feeling it, is there's not as many of those trades or people are keeping them. We do buy some of those at auction. But I will tell you this. The value of those vehicles at auction have always been strong. They're very difficult to buy, because it's in a price point that people can pay cash for or that a lot of different dealers want, so the other, what, 2/3 of the marketplace other than new car dealers, right, because the used car market is, what, three used to every one new and new car dealers sell one-to-one. That's who's buying those cars, so it's competitive and their costs to be able to recom those cars used to be a lot lower than our stores, but many of our stores now get it. So, they'll have technicians that are a little bit lower cost as well, so they can get those through the front lines in a safe fashion and still put our name on it and be able to sell them. So, that had some implications. We still believe that about half of our stores have opportunities in the Value Auto segment, and it's something that they really haven't played in yet, and it's really a matter of getting the consumers, your salespeople, and most importantly your service department to believe that you can recondition those vehicles at an affordable level and then get your consumers and your salespeople to really aligned that you're a new player in the marketplace.

That's helpful. And then, another question on no haggle. If I remember right, that's up to each individual store GM, so of your...

Correct.

...I believe it's 154 stores, roughly, what's the ratio of being no haggle?

About 10%.

Just 10%. Do you want to – would you like that higher or...

If our general managers believe it should be higher, absolutely. What we call it is there's a no haggle or low haggle that's about 10% of our business. There's a definitive low haggle or what we would call more variable strategies, meaning that there's another 10% of the stores that have very clear pricing throughout their pricing model online and in the stores. But it's still a higher negotiation than a pure no-haggle type of environment. And I think that's what we find. We want to see that continue to grow because we have seen that over time, once they get their staffing in line, they're able to hire people from outside the industry that can drive down our SG&A costs. And remember, 2/3 of our cost comes from personnel. So, that's a benefit, and there's an ability to now build value and trust in a relationship rather than just focus on price. Now, I would say, the other 80% of the stores, they build value and they build trust, but it comes through a negotiated model, which has more opportunities for failure or disconnects. And I think that's what we're really trying to do is avoid those disconnects and create a great experience with every single customer every single time.

Hey, David, this is Chris. Just to add on to that. I mean one of the keys that we continue to focus on is finding the entrepreneurial leadership that can run each one of our stores, but then figure out a model that balances the results that they're getting through the trends and aligns with the business goals that we have based on our performance management culture. And so, that's what Bryan's referring to is that it's up to them and it's effective if it promotes and builds off of the goals that we have as an organization.

Okay. And Chris, my last question is actually for you. You said you want to hire more millennials. So, what are you doing to combat what is reportedly a negative perception in that generation working in a dealership? Are you offering them more of a salary comp structure than a commission, flexible hours, things like that?

Yeah. David, thanks. Good question. We're doing a lot of things right now, and we're trying a lot of new things and getting a lot of information back from our successful stores, our partner group stores, to find out really what they're doing to promote and find the right talent mix that we have, whether it's millennials or females or people that are looking for more flexible hours. And then we're leveraging that information and sharing it across our platform. And we're going to find out different things that work and continue to promote those within the organization.

Okay. Thanks, guys.

Thanks, David.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Bryan DeBoer for closing comments.

Thank you, everyone, for joining us today, and we look forward to updating you again in April. Bye-Bye.

This concludes today's conference. You may disconnect your lines at this time, and we do thank you for your participation.