SAH
#Well, I think it's what <UNK> said before.
We just generated more gross and we have a lot of fixed cost, probably more fixed cost than our peer group, and especially in the comp area.
So all of that was, you know, incremental throughput so that was a big driver.
Now, we did get some pickups on the top side throughout the year.
You're going to have up and downs on medical, legal.
We had a clean quarter in those areas on the corporate side.
So it's sustainable from a standpoint of once you start generating that gross it flows through easier because we're more fixed than variable.
Yes, and our pre-owned business is really rolling which is generating more gross obviously from an F&I perspective and so front-end gross and related gross is from F&I and fixed operations from an internal perspective.
It just makes a big difference and the moves that we have made in order to generate that gross from that ---+ from that area has really made a big difference in the other areas, too, which ---+ which when you're expenses tend to be more fixed than variable that makes a big difference.
Yes.
And some things to look at if you do your homework and look at our liquidity, you know, we have basically tucked away $100 million in liquidity to pay off our $22 million debt.
And, you know, that's not showing up on anyone's radar anywhere, but it's there.
It's real.
And then if you look at real estate, you know in 2000---+ in 2007, we didn't own any real estate.
You know, today we own almost 40% of our real estate.
If you take just an 80/20 mortgage rate on that, you have got 20% equity minimum in all of that real estate that nobody is giving us any credit for, but what we're building here is ---+ is a foundation for the future to have them bulletproof balance sheet and, you know, we're creating a tremendous amount of value.
While yes, it's sexy to be able to go out and buy deals, you know, all the time, that's not our strategy.
If that's what investors are looking for, they need to go invest somewhere else in the peer group.
If they are looking for a long-term investment and they're interested in ---+ in our EchoPark, which I think is really going to be our future for Sonic Automotive, I think there's a tremendous opportunity in the pre-owned market.
You know, CarMax is out there which we really hold them in very high esteem.
They're the big 400-pound gorilla and they have how much of a market.
They have 1.5% ---+
About 4% of the market they're in, 2% nationally.
1.
5% percent nationally, and their market share is bigger than ours, Penske, and AutoNation combined.
You know, think about that.
So that's the direction that we're going in.
Why should we go out and buy Mercedes stores and BMW stores at ten times EBIT when we're trading at ten times net.
You know, it's diluted.
It doesn't work.
So we're investing in pre-owned market.
We're buying our shares back and we're returning capital to our shareholders.
Well, not right now.
The market is just too big and there\
Hey, <UNK>.
Morning.
Well, we have rolled out all of this in the Charlotte market so we did it all at the exact same time, but have no intention of rolling it all out at the exact same time.
It's like drinking from a fire hydrant, right.
Just too much for the stores to consume at one time.
The CRM tool, the appraisal tool, the desking tool, the F&I tool, the inventory and management tools, the compensation, the branding ---+ I would say that all of them with the exception of really heavy focus brand advertising and the pricing tool are all installed and we're very happy with.
But even all the tools that we're happy with we're not going to roll them out at one time because it's still too much for the stores to absorb, so beginning in the first quarter, we will start you know with the CRM, the appraisal, and the desking tool for our Management Team to begin to use and we'll roll that out over a period of two years.
Within that same time frame we'll come back, you know, nine to twelve months later and begin rolling out our F&I tool which is really making a big difference in these stores in helping you know, our ---+ our experience guys or sales associates perform from an F&I perspective.
Until the pricing tool is ready, we're not rolling it out.
You know what, we've got to get that and get comfortable with it and again, like I said earlier, we're six months away from bringing that to a position where I think we're going to be comfortable with it.
Not simultaneously, no.
We have a ---+ a training team.
We're going to start on the west ---+ we have kind of two divisions.
We're going to start on the West Coast and East Coast and meet in the middle, and it's going to take us a couple years to get the CRM, the appraisal, and the desking tool in place.
That's not something you can do overnight.
It is a huge undertaking ---+ a big, big change in culture from a technology perspective.
And so we will very slowly, very methodically install these processes to make sure that we dot our I's and cross our T's and execute ---+ and we're executing at a level that's totally acceptable.
I can say that this ---+ this is <UNK>.
We've had numerous manufacture partners in going through the system and the technology and, in fact, yesterday we had Mr.
[Resonit] in town from California and he was absolutely blown away as have been our manufacturer partners by the system and the ease of use and how integrated everything is.
So yes, I would say that we're trying to err on the side of caution in being conservative in our rollout.
You know, it is a big change in culture.
And as <UNK> said, it's like, you know, drinking out of a fire hose when you go into a dealership and you plug this new technology and processes and pay plans and everything into a dealership so it just take time and then it has to mature.
You know, once you get it in.
Yes.
I mean look, a lot of it depends on ---+ on your brands mix.
For us, I think we're not going to get any lower, but as long as BMW and Toyota ---+ as long as the Toyota mix doesn't include a big day supply of trucks, you're going to have margin compression.
That's all there is to it and ---+ I don't see their truck inventory getting better overnight.
And BMW, look they're introducing new products.
Like I said earlier, we got an 85-day to 90-day display of BMWs on the ground.
We're not going to have anymore day supply on the ground, I can promise you that.
But you know, as long as their day supply is up, I think that their margins are going to be where they are now but as that begins to come down, law of supply and demand ---+ you know, your margins are going to go up.
I don't think for Sonic Automotive and our brands mix you will see our new car PRs get any lower.
In fact, you made the comment given the quarter our PRs will go up, but as we get into the first and second quarter, you know, there may be some softening from where we were in the first quarter but certainly not to where we are at the end of the Q3.
Yes.
It should ---+ it should help it.
I mean EchoPark's running, you know, new, used and recon combined at $3,300, something like that.
So that's ---+ that's ---+ excuse me.
I meant used F&I and recon.
We didn't start selling new at EchoPark.
And so it should help it, you know, the used car margins are better so it should help it, especially versus the import and domestic stores.
But what's really going to be fun is just the extra gross dollars it's going to bring to the table just because we're selling so many cars.
That's going to make a big difference.
Yes.
It's actually ---+ we just incurred higher-than-expected expenses in Q1, too.
It isn't that it was lower.
What you are seeing now is expected.
We just had higher exposure in Q1 and Q2.
Thank you.
Great.
Well, I just want to thank everybody for take time out today to join us on our Q3 call.
Hope you have a wonderful day.
Thank you.
