Is because we believe that our share price is more valuable than what it’s trading at. So that balancing act, we’ll try to give you color as to where we sit today. But today, if you noticed, we bought back $40 million or so of shares in the quarter, primarily, because when acquisitions are at 10 times and we can buy our shares back at 7 times, we’re going to buy our shares back, okay? So the market will ultimately dictate it. So for our ideas of how to diagnose, I think we’re going to stick with probably $2 billion to $4 billion in domestic U.S. automotive growth is key, okay? And that should get us to about 50% to 70% allocation of our capital to M&A, okay. And then, you can balance out that 20% is probably the difference that falls into the buyback pool.
Rajat Gupta: Got it. And then on the leverage, where do you think you can take the leverage on the balance sheet to from 1.8 times? Could you go as high as three times?
Tina Miller: Yes. Rajat, this is Tina. I mean, we target being below three times levered, which is the financial discipline we’ve always had. I think that will continue to hold true. It gives us space to do some constructive work, whether it’s M&A or buyback, but we want to keep that disciplined balance sheet.
Bryan DeBoer: Thanks Rajat.
Operator: Our next question is from Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed with your question.
Ryan Sigdahl: Hi. Good morning, guys.
Bryan DeBoer: Good morning, Ryan.
Ryan Sigdahl: Two on Driveway. So first, in past quarters, you’ve given the impact or quantified it, whether it be SG&A to gross profit ratio of, say, 300 bps, or the dollars, but curious if you’re willing to do that in Q4. And then secondly, how do you think about the investment in Driveway and digital in 2024? And what primary KPIs you’re watching either pull back, or lean into market and customer acquisition spend there?
Bryan DeBoer: Sure, Ryan. If you noticed in the script, that we ended up blending it together with vehicle operations, because that is just truly another channel that is important for us. We are – it’s important to us that, the burn rate becomes something that’s manageable. Our burn rate year-over-year is down about 30%, 35%, with another 30% to 35% expected, by the end of the year. But it does create an ecosystem that we believe is the center of the Lithia & Driveway universe. Now today, we sit with about 13 different functions that are there in the Driveway customer portal. And we intend to build that out with 118 different touch points throughout the life cycle with our consumers, that they can exist and coexist in both Driveway, as well as our traditional store base, as the ecosystem to be able to put things at people’s fingertips that, they need during their ownership life cycle, okay?
And that is deep. About a quarter of those are monetizable touch points, okay? The other 75% is truly – it’s just value-adds and that’s when we talk about the deep value-adds. We’re looking at it from the customer perspective. So Driveway, you’ll see in a separate selling channel, that’s one price and is home delivery and it’s convenient and transparent and so on. But you’re also going to see, the functionality within that website add those additional 100, or so functions. To be able to provide that to all users within the Lithia & Driveway ecosystem, to be able to access that and subscribe, to different things and schedule their service, and pay their payments in the finance company, or vice versa and know what the valuations, of their trade-ins are.
And I think as we think about the longer-term vision. It’s really Driveway as a customer-facing solution that someday we’ll integrate with the Pinewood solutions and help us build an ecosystem that customers are used to and believe is infectious and wants to be there a couple of times a week rather than once every three to five years.
Ryan Sigdahl: That’s great. Thanks, Bryan. Good luck, guys.
Bryan DeBoer: Thanks, Ryan.
Operator: Our next question is from Colin Langan with Wells Fargo. Please proceed with your question.
Colin Langan: Oh, thanks for taking my questions. If I look sequentially, it was a bigger step down in new GPU. How should we think about that trending as we go through this year? I think you noted – you said in your comments said that you kind of eventually expect to get to sort of pre-crisis levels. Should that be over the next couple of quarters or any thoughts on the pace of that?
Bryan DeBoer: Hi Colin, this is Bryan. So, I think the easiest way to think about it, let’s talk about what we believe is steady state and normalized. We think that total deal average is around $4,500, about $2,500 on the front end, and that’s blended, new and used, okay, and just under $2,000 on the back end. Today, we sit at almost $1,200 above that on new. And we sit about $500 below that unused, okay? So that balancing act will come back in. We achieved about – we dropped about $150 a month over the last quarter, which is a little bit accelerated rate from where we originally were looking at throughout the last year. We assume that by now we would be back to normalized state. Now the other thing, to keep in mind is that Q4 and Q1 are typically seasonally a little bit tougher quarters, okay?
In fact, Q4 is usually the weakest in terms of GPU. So, we do have some seasonality on our side. So, I would say that over the next quarter or two, we should see about a $100 drop per month. But I would say that once we get into the second half of the year, whatever is left will normalize by year-end, okay? Because I think if we go through another seasonally slow period, which will be in fall of next year, it should be back to some type of normalized level. And I think as Chris mentioned, it would sure be nice to be able to be at that level. So, we could truly be able to see what’s effectively happening within different franchises in different areas of the country to be able to truly manage performance, whereas it’s been a little tricky managing performance, over the past couple of years just because GPU’s been behaving so, differently by manufacturer and by region.
Colin Langan: Got it. That was very clear, very helpful. On the used side, you did mention those were sort of lows. How should we think about that? Does that sort of bounce back as you get sort of the inventory realigned? Or is that going to drag on through the rest of this year or is it a short-term or long-term sort of issue?
Bryan DeBoer: Colin, it’s interesting, because you’d think with the shortage in supply, that margins would be quite stable. But I think everyone is chasing inventory, which is driving the ultimate price cost up more, which is affecting margins. And then there – when you go through the typical seasonality of the winter months, you typically go into that panic mode that I don’t want my inventories to be out of line when I hit the spring months and selling season. So typically, by the end of February, start of March, we start to see recovery in the used car market, and would hope to see that in the next couple of weeks. And I don’t know if Chris or Adam has any additional color on that.
Chris Holzshu: No, well said, Bryan. Okay.
Bryan DeBoer: Thanks, Colin.
Operator: [Operator Instructions] Our next question is from Kate McShane with Goldman Sachs. Please proceed with your question.
Mark Jordan: This is Mark Jordan on for Kate McShane. In your slide deck, it notes that you expect same-store sales growth in the low to mid-single-digit range in the near term. Can you break that out for us and how we should think about pricing and units for both new and used?
Tina Miller: I think pricing, in terms of like new vehicle, we’re seeing good tailwinds, this is Tina, by the way. In terms of growth with that, with the imports coming back in terms of volume, we saw a strong growth in that, as we hit the fourth quarter. And I think that will continue somewhat as supply continues to normalize across the different brands that we have. From a used vehicle perspective, as we’ve mentioned in the last couple of quarters, that’s been a tougher market. And from an ASP perspective, they’ve been relatively high. And so sequentially, we’ve seen those be pretty flat as you’re thinking about modeling those out. Bryan, did you have some additional commentary?
Bryan DeBoer: I think short-term, we’re looking at new in the mid to high single-digit range. On used, we’re looking to be flat, okay, year-over-year, okay? Now we’re a little bit below that right now at the minus six, but we think with the coming selling season, we should be able to recover as we lap those comps.
Operator: Thank you. Our next question is from Chris Bottiglieri with BNP Paribas. Please proceed with your question.
