ABG
#It's <UNK>.
Let me start.
It's very difficult for us to give you a precise forecast on how these incentive programs are going to play out in the future.
And as you've seen our results this quarter, these GPUs are very much a function of what is happening with these sales targets and incentive programs.
Some of them ---+ we've seen some of the manufacturers ---+ certainly one of the manufacturers has made some production cuts.
I think that helps.
We've seen some modifications to some of the incentive programs.
We think that helps.
But I think it would be unrealistic for us to say that we can give you a hard forecast where this goes certainly next quarter or the quarter thereafter.
The only comment I would add to that is one of our domestic partners recently stopped their stairstep program.
So, going into the fourth quarter, we don't have those incentives, and when you look at the fourth quarter of 2015, those incentives certainly existed if you hit the targets.
That's correct.
It's too early to tell.
I would tell you it's a combination of a few things that our F&I team got in the quarter.
It's a combination of chargebacks, some turnover in folks, and in some cases, in some locations, just poor performance in product sales.
We think this quarter was a small setback for us when it comes to F&I, and we are pretty positive about the fourth quarter as it relates to (multiple speakers)
This is <UNK>.
Our tax was moving around a little bit with some discrete items during the quarter, maybe a $0.01, $0.02 pickup on tax rate from discrete items.
For planning purposes, we should be looking at 38% to 38.5% into the fourth quarter and into next year.
They are all factors that we take into account as well.
Again, I come back to it's ---+ we think we can do better in use; we think we can do better with CPO.
It's an area where, quite frankly, we did not live up to our own internal expectations, and it's going to get a tremendous amount of focus from us as we move forward.
Some of the best stores we have run a little bit over 1 to 1, which is well above, obviously, the industry average.
When we ---+ we're trying to look at used vehicles in a holistic approach, and understanding what it generates for parts and service in that internal growth and how we benefit from that.
As far as margin pressure going forward, I think it will look similar to what it looks like right now, but our opportunity is within the volume aspect.
Again, I've said it, I'll say it again.
We are very happy with that CPO increase.
We think there's more opportunity there, and we think some things that we've been working on within the last ---+ within this past quarter will tend to come to fruition, plus the benefit of these stop-sale vehicles actually freeing up.
That's a big question.
Let me take a shot at it and maybe <UNK> and <UNK> have more to add.
Markets are different, just as you would imagine, I think based in part on the strength of the local economy.
Clearly, our stores in Texas are more challenged than the stores we see in Florida, as an example, just the kind of thing you would expect.
But I think brand is also important.
And if we were to sit down together and go through a list of stores and markets, I think brand might jump out at us more here this quarter than markets.
And you see it here in these GPUs.
It's hard for us to absorb this type of a GPU movement and not have a material impact on the bottom line at the store.
If I could just continue, with that in mind, the way we are thinking about the business is let's attack the things that we can control.
As we mentioned earlier, we think there's opportunities for us to do better in F&I.
It's a 100% margin business for us, so it's an area that we continue to focus on.
There's clearly opportunity to grow our used vehicle business.
As I mentioned earlier, I think it's ---+ we didn't live up to our expectations in the quarter.
We think there's a lot of growth opportunity there, and in many ways, that's a key driver across the entire stores, as <UNK> mentioned, because it brings us incremental F&I benefits as well as benefits in parts and service.
And then like <UNK> said earlier, parts and service is where we are making a lot of our investment in people; we are investing in systems; we are putting a lot of our marketing initiatives behind our parts and service areas.
There's a lot of capital that's being invested in our collision centers.
It's an area that we feel very good about.
So, we step back from everything that we see happening, there's still a lot we can control, there's a lot going on, there are a lot of initiatives that will come to fruition, and we feel pretty good about how we can manage through this softness, if you would, as we move forward.
We certainly ---+ obviously, the Luxury segment was up year-over-year and we did have some midline imports that were up year-over-year as well.
You know, we prefer not to mention any of them.
This is <UNK>.
I think, when we look at capital deployment, we take a lot of things into consideration.
We look at our business, the performance throughout the quarter.
We look at the broader markets.
We look at where we are trading from a share buyback perspective.
There's a lot of things taken into consideration.
To answer your specific question from a liquidity standpoint, no.
We are still well within our targets on our leverage ratios.
You can see that with the list of liquidity position I provided.
We have plenty of liquidity.
Quite frankly, we are very well positioned.
We are generating and anticipate generating about $100 million in free cash flow a year and our leverage ratio being net at 2.6 times, we are in a very good position.
As <UNK> mentioned in his prepared remarks, we anticipate that capital allocation will enhance our future share performance or earnings performance.
Maybe if I could just jump in there and give a little more color.
If you were to look at the months across the third quarter, July was a very soft month for us and caused us to reconsider our capital ---+ our share repurchase programs in light of the softness that we saw in July.
August and September actually performed considerably better than July.
From a CPO perspective, like I said, we're up about 7%, but as a percentage of our total business, it runs about 35%, 40% of our total used car sales.
We see that there's opportunity there to grow that number further.
I don't know if I answered fully your question or if I missed a piece of it.
From talking to peers and what I hear in our industry, it doesn't appear to be slowing at this point from what we can see.
It's <UNK>.
I'll start and <UNK> can give us more color.
The issue with stop-sale is that it's concentrated in certain brands.
And we've got a couple of brands where our stop-sale inventories, used vehicle inventories, are in the 15% to 20% range, and that's got an impact on the operations of the store.
We mentioned earlier it is ---+ the situation is improving.
We saw good improvement over the course of the quarter, but until we get this completely behind us, it does cause some disruption, again, in selected brands.
The only thing I would add to that, when you talked about the public and the private side, it really comes down to the brand mix and what someone has, what the impact will be.
Q is ---+ it's a distribution channel that we continue to experiment with.
You're correct.
We are experiencing, especially on the Web.
That's probably where you saw that branding modification that we've made.
It's still Q.
If you were to drive by a store, you would see a very large Q on it.
We are concentrating in the Tampa market, but we are moving to the sub-brand of Q auto Courtesy quality outlet.
And we ---+ our view is that we are going to experiment with this, see how it works.
We've got three of the stores that are using that concept on the Web.
The fourth store is still a pure Q store, so we are continuing to experiment with our positioning.
But our view is that, if we can make that approach successful in that market, we could move to another market, Atlanta for example, and we could still have a model where it's a large Q on the store, but instead of it being a Courtesy quality outlet, it could be a Nalley quality outlet.
I would say it's consistent.
I'll start off.
In one of our brands, we started the quarter with some of those stores at 40% of their inventory on stop-sale.
That same brand is now down to 20%.
The second, if we were to look at where to rank these stores, I think our second-highest brand is in the 17% range, possibly, and then we're going to drop down into the low teens.
But again, this is probably three brands where we see this issue.
You're going to have to help me with the rest of the question.
I missed that.
Absolutely.
This is <UNK>.
We don't have that data all set in front of us right now, but it's certainly something we can talk about and share with in the future.
That concludes today's session.
We appreciate you participating with us, and we look forward to talking to you at the end of next quarter.
