David Hult: Yes, and I would say percentage of MSRP, it’s just like you’d expect certain models that have a single day supply, certainly holding to MSRP and vehicles that we have, say, north of a 40-day supply of vehicles, we’re certainly discounting at this point.
Operator: Our next question is from John Murphy with Bank of America. Please proceed with your question.
John Murphy: Good morning, guys. I just wanted to get into one thing about your new vehicle affordability. And everybody claims that it’s a real issue. And it is for the consumer, but it may be not such a big issue for you because you’re putting up record profits or near record profits. And things are pretty healthy for you in the business. So as you think about somebody coming in and they’re challenged from an affordability perspective and buying a new vehicle, what’s the process and how successful are you in transitioning them to buying a used vehicle and/or transitioning them into parts and service customer, two avenues where you make pretty good profits relative to even the new vehicle side?
Dan Clara: John, good morning. This is Dan. So from the first aspect of the affordability from a new car perspective, we’re starting to see, I would say, slowly but surely in taking a faster pace for a lack of a better term, the leasing aspect of it. So as you see the challenging or the opportunity on the price of a new car that leasing coming back really allows consumer to be able to get into that car that they want for a lower payment. And we all know the benefits that’s going to have from a used car perspective three years down the road getting those lease returns back. We know that the first car that we sell at our dealership is all done from the sales department, but the second, third, fourth, and so on is all done through service.
So that turnover if I may that we do transaction wise from sales to service is extremely important. Not just on making sure that that we respect people’s time, that’s why we put so much focus on the cycle time making sure that when they come in for that first service, they’re getting in and out and getting their services completed because we know that to the extent that we respect people’s time, their loyalty is going to continue to grow with us. And then as I mentioned earlier comment if we do a good job in the service retention we’re going to continue to sell the cars in the years to come.
David Hult: John, the one thing I would add that we did see in the first quarter related to pressure and pricing some of our domestics was really we had an imbalance of inventory in the sense of, there were heavy contented vehicles that were built during the chip shortage, everyone went with the heavy content in the vehicles. And in the first quarter, especially on the domestic side, people were looking for less expensive trucks than what we had. And there was a slow approach on incentives there. So I think we’re certainly seeing it on the truck side in the sense of people looking for a little bit less expensive less contented truck.
John Murphy: Okay. And maybe if I can follow-up on this, but I’m curious, if somebody comes in and they’re challenged on buying a new vehicle, can you or have you been able to transition those folks into buying a used vehicle that they can afford? I mean, what’s the success on that? I mean, you don’t have the right vehicle to sell them on the new vehicle side, which is harder and harder with pricing and affordability at the moment. Are you having success in working — walking those guys across to the used vehicle department and selling them a vehicle there? Or is that just fundamentally a different consumer?
David Hult: Yes, John, I’ll answer it. It’s not, and it’s usually a portion of your sales get transitioned to pre-owned. As you can see, we have a lower day supply of pre-owned than we do new, and it’s more so about model mix than anything else an overall day supply. So there’s no easy answer to your question. People constantly flip from new to pre-owned, but it’s about having the right pre-owned vehicle that they’re looking for in that segment. So we do it successfully, naturally when the availability is there when it’s not there that’s obviously an issue that we have.
John Murphy: Got it. And I apologize, I got on the call late, on the parts and service side, I mean, the same-store sales were very strong. Is tech availability the gating factor or is there something else if she looking — should be thinking about sort of as the constraint on that sale — the same-store sales growing there?
Dan Clara: Yes. This is Dan again. The tech availability we will take every technician that is available out there for us. We’ll now — we all know how competitive this labor market is but we put a tremendous amount of emphasis not only in having good relationships with the local technical institutes where we’re able to hire future technicians at a very entry level point, if I may and then developing them from within. So that has — that is working out well for us in many of our markets. But certainly, we’re not shying away from actively going after more technicians because we have the bay capacity and we just need to fill it out with more technicians.
David Hult: John, the one thing I would add, it’s a choppy market in a lot of ways economically, but with the average age of the car over 12 years, history has shown those folks tend to hold onto to their cars and invest in parts and service. So again, we see parts and service being healthy for many years to come.
John Murphy: Okay. And then just lastly on the SG&A cost save side, I mean, how much opportunity is there to take cost out at this point, David? Or is it really just a function of holding the line on costs and letting grosses improve over time as volume comes back?
David Hult: Yes. One of the several positive things we had happen during the quarter in all segments, our production per employee went up even though we were a little bit depressed in some of the sales we had. That’s just really working into our efficiencies with software and where we’re trying to go. I would say that the volatility of the market for the next 12 months to 18 months will make it difficult to look for a lot of opportunities to be lower than where we are. But we think 24 months out with things that we’re working on with our omni-channel and software approach, that there’s another level for us to get to from a productivity per person, which should create a tailwind down the road for us.
Operator: . Our next question comes from Ryan Sigdahl with Graig-Hallum Capital Group. Please proceed with your question.
Ryan Sigdahl: Good morning. Just one question for us on Clicklane. So when I look at the F&I, it increased quite a bit more sequentially than the overall business in the quarter. I get the underlying KPIs are good, but what do you attribute the biggest incremental improvement in Clicklane relative to the retail dealerships, specifically on the F&I piece?
David Hult: Ryan, this is David. It’s interesting because we had the same question. I think the reality is when you’re in the store; people selling products have preconceived notions about what someone’s willing to buy. And I’ve stated it before, I’ll say it again. It’s pretty obvious. People love to buy things but not so much be sold things. The opportunity for them to shop the F&I products on their own are still converting at a great rate. And it doesn’t matter if it’s used; it doesn’t matter if it’s import, domestic or luxury. We’ve been very happy with the self-selection that our consumers are doing because there’s no Asbury employee intervening doing F&I sales. This is solely based on the customer.
Operator: Our next question is from Rajat Gupta with J.P. Morgan. Please proceed with your question.
Rajat Gupta: Great. Thanks for taking the questions. I just wanted to follow-up on the used cars strategy around the volume versus GPU trade-off. I mean, curious like how long you plan to persist with this approach, given you lose the opportunity to book F&I and maybe parts and repair work down the line. So any thoughts on like how long this is going to persist and would you reevaluate this at some point just to maybe retain that customer eventually? And I have a follow-up. Thanks.
David Hult: Rajat, this is David. We evaluate it every month. I would tell you, we will continue to have this approach as long as the inventory availability isn’t there. Again, we think it’s a couple years depressed with COVID and we think next year you’ll start to see some of those cars come back in. So maybe this entire year we ride with that philosophy, but if the market shifts and it changes, we will adjust quickly to it. The benefit of that low day supply allows us to be pretty nimble. I can say if we chased volume other than our margin being down, our SG&A would’ve been up and our profitability would’ve been lower for our shareholders. So again, we’re trying to maximize our returns right now, and based upon current market conditions, we think this is a best approach to give the highest returns and have our lowest SG&A.
Rajat Gupta: Got it. Got it. Good. Thanks for — thanks for clarifying that. And maybe just to get your thoughts on the — these price cuts from Tesla. I’m curious, with this price cuts — with this other round of price cuts more recently, any feedback that you’re hearing from the ground, from the GMs, SMs on how do consumers are reacting to it, anything you’ve heard from the OEMs or need or plans to counter this. Just maybe like what you’re hearing on the ground. Just need what your thoughts are on the implications of this. And that’s all I have.
David Hult:
. : I think traditionally what you’ll see and we’ve seen for the last four decades as inventory starts to build, incentives will start to increase. We’re hopeful selfishly that a lot of those incentives will be driven through leasing because we really think the leasing volume really needs to get back up to speed to get that healthy return or a customer and retention levels.
Rajat Gupta: Got it. Got it. Thanks for the color. Maybe just one last one, sorry. On the 2025 targets, they were reiterated and but looks like used vehicle growth is going to be a big driver of hitting those targets. Over the embedded situation, this year perhaps extending into next year I mean are there any like other offsets that could still get you to those targets maybe more M&A or maybe more persistent new car GPUs. Just as curious around that comfort level with those targets and maybe like just the competence of that have changed versus when you caught initially. Thanks.
David Hult: Sure. This is David again, Rajat. As we stated last quarter, we were on a large acquisition that fell apart at the end. We have looked at other things in the market now. We’re not at a point that we would adjust our 2025 year target. But I — we feel as a team by the end of the year, we’ll have a great line of sight to how we’re tracking towards that 2025 year target. We can control how we’re operating our same-store growth within the market that we’re in. But it’s a little bit challenging with inventory levels and other things going on right now. So I would say look for an update for us at the end of 2025, but a couple acquisitions can put us right back on track for that. So it’s too early for us to make any updates and we intend to do that at the end of the year.
Rajat Gupta: Great. Thanks for all the color and good luck.
David Hult: Thank you.
