AutoNation, Inc. (AN) Q2 2012 Earnings Report, Transcript and Summary

Thank you for standing by and welcome to AutoNation's Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect. I would now turn the call over to Miss Cheryl Scully, Treasurer and Vice President of Investor Relations for AutoNation. Ma'am, you may begin.

Good morning, and welcome to AutoNation's second quarter 2012 conference call and webcast. Leading our call today will be Mike Jackson, our Chairman and Chief Executive Officer; Mike Maroone, our President and Chief Operating Officer; and Mike Short, our Chief Financial Officer. Following their remarks, we will open up the call for questions. Kate Keyser-Pearlman and I will also be available by phone following the call to address any additional questions that you may have. Before we begin, let me read our brief statement regarding forward-looking comments and the use of non-GAAP financial measures. Certain statements and information on this call will constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks, which may cause the actual results or performance to differ materially from expectations. Additional discussions of factors that could cause actual results to differ materially are contained in our SEC filings. Certain non-GAAP financial measures, as defined under SEC rules, will be discussed on this call. Reconciliations are provided in our press release, which is available on our website at investors.autonation.com. And now I'll turn the call over to AutoNation's Chairman and Chief Executive Officer, Mike Jackson.

Good morning. Thank you for joining us. Today, we reported an all-time record quarterly adjusted earnings per share from continuing operations of $0.66 for the second quarter, a 35% increase as compared to $0.49 for the same period in the prior year. Second quarter 2012 revenue totaled $3.9 billion compared to $3.3 billion in the year-ago period, an increase of 17%, driven primarily by stronger retail new vehicle unit sales. In the second quarter, total U.S. industry new vehicle retail sales increased 15%, based on CNW Research. In comparison, during the same period, AutoNation's new vehicle unit sales increased 29%. Our improved operating leverage in the second quarter reflects our disciplined focus on expense management as well as long-term investments in centralized processes. We have effectively leveraged our scale to drive cost savings and deliver improved shareholder returns. We've continued to focus on investments in technology and best practices which revolve around the customer experience, leading to efficiencies in our operations. These investments in the customer experience have continued to improve the productivity of our associates. In the second quarter, we saw a revenue growth of 17%, with a headcount increase of just over 2%. In the second quarter, we saw Import inventories return to normal and Import unit sales growth of 44% over the same period last year when both Toyota and Honda were dealing with a limited supply of parts for production due to the earthquake. As we previously have discussed, the recovery is driven by a replacement demand as the age of the fleet on the road has now increased to 11 years old. Also, manufacturers have stepped up the launch pace of new models. Finally, the credit environment is very strong, with low interest rates and ample credit availability. AutoNation is well positioned to capitalize on recovery with an optimal brand and market mix and a disciplined cost structure. We continue to demonstrate our ability to drive strong shareholder returns during the multiyear recovery in auto retail. I'll now turn the call over to our Chief Financial Officer, Mike Short.

Thank you, Mike, and good morning, ladies and gentlemen. For the second quarter, we reported adjusted net income from continuing operations of $82 million or $0.66 per share versus $73 million or $0.49 per share during the second quarter of 2011, a 35% improvement on a per-share basis. Our second quarter results for the year exclude $2.6 million or $0.02 per share related to a franchise impairment. There were no other adjustments to net income in the prior-year period. Adjustments to net income are included in the reconciliations provided in our press release. In the second quarter, revenue increased $568 million or 17% compared to the prior year and gross profit improved by $45 million or 8%. SG&A, as a percentage of gross profit, was 69.8% for the quarter, which represents 180-basis-point improvement compared to the year-ago period. We're pleased with these results and continue to focus on improving operating leverage across our business. Net new vehicle floorplan was a benefit of $8.2 million, an improvement of $4.8 million from the second quarter of 2011, primarily due to higher floorplan assistance, driven by increased vehicle sales as well as negotiated -- as well as lower negotiated floorplan interest rates compared to the year -- to the prior-year period. Floorplan debt was $2.1 billion at quarter end, an increase of approximately $110 million from March 31, 2012, in line with inventory levels. Non-vehicle interest expense was $22.5 million for the quarter, an increase of $6.6 million, compared to the $15.9 million in the second quarter of 2011 due to higher debt levels and a shift towards longer-term fixed rate debt. We had $530 million of outstanding borrowings under the revolving credit facility at the end of June. On June 30, our total non-vehicle debt balance was $2 billion, an increase of…

Thanks, Mike, and good morning. In the second quarter, we saw revenue growth in all business sectors and gross profit increases in new vehicles, Customer Care and finance and insurance, along with a strong operating margin of 4.2%, an all-time record adjusted earnings per share for the third consecutive quarter. As I continue my comments, we'll be on a same-store basis in compared to the period 1 year ago unless noted otherwise. We reported strong new vehicle sales in the second quarter with a 29% increase compared to 1 year ago, which was significantly ahead of industry retail sales, which according to CNW Research, were up 15% for the same period. AutoNation retailed 66,800 new vehicles in the quarter, an increase of 15,000 units, with growth in all 3 segments. Particularly, the Import segment, where on a total store basis, volume was up 44%. Its inventory was normalized compared to the quarter 1 year ago when Japanese production disruption occurred. Domestic segment, new vehicle sales volume increased 17%, followed by Premium Luxury which was up 16%. Relative to geography, overall, it was a very good quarter in almost every market where we operate, with California, Colorado, Texas and Florida continuing to show strong year-over-year improvement. On a same-store basis, our California new vehicle volume increased nearly 40%, Colorado was up 35% and Texas and Florida were each up nearly 30%. New vehicle revenue increased $446 million, or 26% to $2.2 billion. Revenue per new vehicle retailed was $32,800, down about $900 or 3%, due in part to a shift in mix toward Japanese models which have a lower price point. Gross profit per new vehicle retailed of $2,173 declined 18%, or $465, compared to the quarter 1 year ago, and new vehicle gross profit as a percent of revenue is…

Thanks, Mike. Second quarter industry selling rate was 14.1 million units, a 16% improvement over prior year. As we look at the rest of 2012, we believe that improvement in new vehicle sales year-over-year will continue and. I have a planning assumption for 2012 industry new vehicle sales in the mid-14 million unit range. We believe that the accelerated product launches replacement demand and robust consumer credit will continue to support a strong sales environment. Thank you, and we will now be happy to take your questions.

[Operator Instructions] The first question is coming from Rick Nelson of Stephens.

Mike, kind of -- the new car side, the unit growth, that'll be tough order. Do you think that sort of level can be maintained into the third quarter, where comparisons would appear to be potentially even easier given the supply constraints 1 year ago?

Yes, obviously, I just confirmed that we still believe it'll be in the mid-14s. So anywhere from 14,250,000 to 14,750,000, somewhere in there. I think the third quarter is going to be fine. I think the only questionable period or risky period is how the year closes and nothing to do with the automotive recovery or underlying drivers, just simply the election and the fiscal cliff and all the real drama that will come with that. And at the end of the day, I believe there will be a grand bargain, but it could even bake in to the beginning of next year and how disruptive that will be to the economy and to business, nobody really knows. But I think we're on a journey back to 16 million units. The only question is the pace with which we get there. And so -- but we think it's mid-14 million for this year. And really, the risk is in the fourth quarter, not the third.

And then if you could comment on inventory as it appears, the Japanese imports that we've normalized there, we're hearing about some issues and challenges on the Luxury side, and how do you see that shaking up?

Mike Maroone can talk about it in detail, but I would say in principle, the inventory situation compared to 5 years ago, we're in an entirely new world. When something is not selling, the manufacturer stops making it rather than putting on additional shifts. The quality of the inventory, as far as its configuration, is dramatically higher. Manufacturers are really trying to produce exactly what people would like to buy, and the absolute levels of inventory are totally acceptable. But Mike, you can talk about specific manufacturers.

Rick, you're correct in calling up Premium Luxury. There's a little bit more pressure in Premium Luxury, but we still have between a 40- and 45-days supply of most products there. We have a 60-days supply in aggregate for our total inventory. But there is pressure in certain product lines for certain manufacturers. Just for example, BMW certainly has had some production issues with the 3 Series launch. I think those are behind us. And I think you'll see our inventories build nicely in the fall. And as you know, the end of the year is really the time to shine in Premium Luxury, and I'm confident that we'll have the inventory to meet the demand. But that's probably the primary tight spot. There's also some select other gaps, but all in all, we're very pleased with our inventory and are continuing to buy aggressively.

If I could just ask one more in the finance, and I know you called that out as a driver of debt recovery. In terms of looking at prime, the near-prime and the sub-prime, do you think we're back at prerecession levels or do we still have a way to go on the sub-prime?

No, I would describe it this way. I think as far as automotive finance, we're fully back to '06, and the availability is just terrific. But what is different, of course, is using home equity lines as a piggy bank, those days are over. And that has nothing to do with auto finance, but it certainly was part of the business that people could use home equity for down payments or even to pay for the entire car. So that game is over. So I think in a period where sales were depressed, you had a certain savings from individuals in order to make some sort of appropriate down payment, and now we're through that, that the people have a down payment. And so the decision point that the consumer is at is they've postponed replacing the car. It's now very old. They've postponed a lot of maintenance work. They have saved some money, so do they spend money fixing this old clunker or do they do something? And it's very positive, constructive conversation on the showroom floor whether it's a -- just going from a very old car to a something that's newer or a brand-new car, and then you have exciting products and great financing. It is the combination that's driving the business.

Next question is coming from John Murphy, Bank of America.

Just the -- first question, I mean, your sales pace increase on the new vehicle side was really basically double the industry in the quarter. I'm just trying to understand, is that a function of geography in brands or is there something else going on at AutoNation where you were able to really take some market share from your competing dealers?

There's 3 factors there, John. I would say the first and most important factor is the brand mix. So we were overly impacted by the situation with the Japanese last year in that 50% of our unit volume is with the Japanese brand. And so therefore this year, of course, relative to the industry, we will outperform with the recovery of the Japanese, we were up 44% with the Japanese. We were also disproportionately impacted with our geographic mix. We were ground zero for the housing meltdown in our big states, Florida, California, Arizona and Nevada. What we now see is that housing has stabilized in those markets and there are the first indications of a housing recovery, and we had excellent performance in those markets this past quarter. And finally, we are indeed taking share, and Mr. Maroone can talk about that and the drivers of that.

John, we've been very aggressive this year. We've been aggressive buying inventory, we've been aggressive marketing, and we're really pleased with our performance. We felt we had an opportunity. And I think it goes back to what Mike Jackson's objectives were when we entered the downturn, and that's to come out as a stronger company. So he and our board allowed us to continue to invest in acquiring talent, we invested in facilities, we invested in IT, and of course, continued to invest in process. And I think it paid off for us very nicely.

So if I was to weight those for you, John, just back of the envelope, I would say it's 50% the Japanese situation, then the geography is probably another 30% and taking market share is probably 20%.

Okay, that's incredibly helpful. Then a second question just on the parts and service business because it appears to be sort of reaccelerating here. I think you -- last quarter, you were up about 4% same-store; this quarter you're up about 5%. There's been -- this year, the UIOs have declined, yet you seem to be trumping that quite handily. We've also heard a lot of noise about some weakness in the aftermarket in general from some of the retailers and even the tire companies. So just curious what you're seeing in your parts and service space, what's going on there, what the consumers are coming in for and what kind of efforts that you're putting forth there to really outpace what appears to be a weak aftermarket in general?

I'll start. This is Mike Jackson again. Starting with the big picture, no question that the dramatic decline in units in operation has been a headwind for our Customer Care business for the last several years. And we can really feel that we're at the trough at the moment. And the rate of decline has slowed significantly and you can feel a bottoming out. And we are certain that a headwind will become a tailwind going into next year. Like anything in life, when we face this difficult headwind, we redoubled our efforts and focus on Customer Care and we're determined to come out of this tumultuous period stronger than we went into it. And that included structural changes here with our organization, creating a separate division for Customer Care, with a single area of focus with an executive to lead that effort with Alan McLaren joining us from Mercedes Benz. And Mike, you can talk about some of the specific initiatives we have underway.

There's a lot that's going on, John. I'll call out a few. One is we've made some real investments in collision and are really seeing a nice growth in the collision business. We have consolidated some parts wholesale opportunities and finding ways to use our size and scale. And lastly, our tire business, which is up about 25%, we've got a very effective and efficient tire operations in every single store, which we were just developing 1 year ago, and I think there's a nice payoff. But there's a real retail focus here. As Mike said, we've added some real talent in the organization and we're really pleased that we're growing 5% at a time where we're hitting the bottom of the UIO cycle, which we expect to begin to increase the end of this year and into '13. So we're very optimistic about our efforts and we'll continue to look for ways to invest in our capabilities.

Okay. And then just lastly on SG&A, you guys continue to surprise on the positive side there. And we sort of used to, as a rough rule of thumb historically, think about SG&A as about half-fixed and half-variable. Are we at the point where you've cut real deep here, you're going to get much better leverage and we should think about maybe 3 quarters fixed and 1 quarter variable? I'm just trying to ballpark this, because you do continue to surprise to the upside there?

Yes, John, again, Mike Jackson to make a basic statement. We really view it as a productivity drive. We -- we're not trying to cut or squeeze. We really want to put in place a system of productivity that we can attract talent and the talent that's with us can really be successful, both with their career and with their earning capacity, and that leads to great morale in the company. So -- and we have achieved that. So that's a great place to be and we have our associates today, who are -- the whole culture is how do we do it smarter, better, faster next year than we did it the year before and how do we find I call it win-win, or win-win-win, win for the customer, win for the associate and win for the company. That's a very different approach than a pure cost-cutting approach. And it's difficult to predict exactly when all that falls through, but the trend line is absolutely in the right direction. And Mr. Short, why don't you add something?

Sure. Thanks, Mike. And John, we've been focusing on this productivity theme for many, many years with the investments and the shared service center. We are almost complete with the extended model. We'll be complete before the end of the year with the Florida region, which is the last region to go in. And that has allowed us to take some of our costs and make them more fixed, adding lower cost structure. And to Mike's point, it’s as much a focus on how do we get our business to generate gross as it is to how do we get our business to operate at a lower cost level. I think just in terms of main themes on SG&A, we know that we've operated below 70% of gross profit in the past and it's been our target to get there, so we're very gratified to see the organization at that level or essentially meeting that 70% threshold right now. And we think that there's room to go beyond that. In terms of how do you think about the cost structure going forward, a 50% variables is fairly close, and our goal was to continue to deliver about 50% of the increase in gross profit as a flow-through to the bottom line. So we continue to focus on that. And I think if you go back over time, you'll see that we've consistently executed at that level. So we're very pleased with the contribution from all the associates against that productivity initiative.

The next question is coming from Simeon Gutman, Crédit Suisse. Simeon Gutman - Crédit Suisse AG, Research Division: If you look at the new vehicle comp in the quarter, is there any way you can provide some color on how the growth was driven among the different credit groups, whether it was the prime, sub-prime or the non-prime?

Simeon, it's Mike Maroone. We're seeing real competition in all 3 of those segments. So sub-prime, which was the last to be restored, is now very robust. I think it's still rational, but I don't think we're seeing any particular growth in any of those segments. The sub-prime was restored last year, and we just see great competition, we see big lenders that really believe they can get good returns on automotive credit. And the competition's good, so I think it's a -- I think all 3 are fueling the recovery. Simeon Gutman - Crédit Suisse AG, Research Division: Okay, that's helpful. And then just on the topic of replacement demand, does that mean that when you're selling a new car, are you seeing a lot more trade-in and at least the self-sourcing of used, is that improving and should that continue?

Well, I think it will. I -- we're seeing cars with higher mileage. We're seeing older cars, which I think reflects the pent-up demand in the replacement need that Mike Jackson speaks to. And for our part, we're just finding more ways to retail those cars rather than wholesale. We've now got 27 of our Value Vehicle Outlets open. We're now testing another concept with a premium value outlet that we're opening. And so we're seeing the trades and our ideas to monetize the trades and not to go outside the network to buy a lot of inventory. And so I think it's very been very successful for us. And then when we get that inventory, we really look at it and say, "How do we optimize the inventory? Which franchises and locations can we get the best value from?" And as I mentioned in my comments, we moved 10,000 vehicles last quarter, and I think that speaks to the size and scale that we have as a company. Simeon Gutman - Crédit Suisse AG, Research Division: Okay. And then staying on the used car theme, do you have an outlook or sense for the gross profits? I think year-over-year, we saw this normalization which was expected, just given how good things were 1 year ago. But it looks like the depreciation may have started a little earlier than normal, and it's starting and it's happened for a couple of months now. Do you think the depreciation will be above-average given that and given the shift that we are seeing with new car sales so strong?

We've seen in the last couple of months -- we're seeing a little bit of softening in prices, but it's very consistent with the seasonality we've experienced over our careers. I think the used vehicle business is still a great opportunity. The margins do seem to fluctuate a little bit quarter-to-quarter, but I think we can be confident we'll be in the low 9s to 10% margin as a percent of revenue. And we're running our inventories very lean, we're running -- this quarter, we ended with a 31-days supply. David Koehler is overseeing our sales operation, doing a good job of keeping us lean. And when we do that, we're not as susceptible to fluctuations in price. Simeon Gutman - Crédit Suisse AG, Research Division: Okay. And then lastly, for Mike Short, the leverage ratio at 3.05 I think, how do you feel about that versus sort of where the buyback is and what sort of limitations or what's the comfort range of where you can flex that to in the context of the buyback?

Yes, I mean we think having a strong balance sheet allows you to be opportunistic. Over the last year, we bought back almost $1 billion in stock at just below $35 a share. So we've been aggressive and tried to be -- create value, create some opportunities for our shareholders. And we continue to believe that our balance sheet is strong and we have room relative to our covenants, and we'll continue to try to be opportunistic. In terms of actually communicating specific targets about how high we do want to take the ratio, we've avoided that, because obviously, we don't want to tie our hands in any way.

The next question is coming from Adi Oberoi of Goldman Sachs.

First of all, on the margins in the new business, obviously, there was a little bit of a sequential decline. And are you guys feeling the pressure off the competition in the market just because of the stair step incentives that some OEMs have redeployed and that is creating some extra competition in the market at the dealer level?

This is Mike Jackson. Of course, the biggest reason for the change in margin is the comparison with the prior year, an extraordinary situation. And the sequential decline I think is very minor.

10 basis points.

10 basis points. But in principle, you're right, it's-- there's still a lot of competition out there in the marketplace. Stair steps are still used by certain manufacturers. They are definitely a old-school practice that wreaks havoc with customers and with the margins and feeds a lot of distrust in the marketplace. And really have no reason to be in today's marketplace, so we have to struggle and deal with those. But yes, it remains competitive out there, even though you have growing demand.

Great. And the second question, on the used to new ratio, this is the first time you guys went below 0.7 after quite a while now. So as the new continues to pick up, do you think -- how should we think about the used and new going forward, given that -- do you think used will grow at a slower pace or you will put some more measures so that the used to new ticks back up to the -- above the 0.7 mark?

It's Mike Maroone. We're very focused on the used car business. I think that the -- the changes, really, are more a recovery in the new vehicle business, specifically in the Japanese brand. But we are very committed to the used car business. As I mentioned earlier, we're trying to retail more of our trades than ever before. We’ve put more resources in used, and I think we'll continue to enjoy good growth. We grew the volume at about 7.5%, and I think at prior quarter, we were maybe about 10%, 11%. So we're still seeing good, strong growth. I think the new vehicle is the -- maybe a little bit of a distorted number, but we're really committed to the used car business and have a lot of talent and focus on that area.

That's very helpful. And finally, if you can comment on July auto sales, any early leads on that, please?

We never comment on the current month, what's underway, but we do, as you're well aware, at the end of the month, we'll report our new vehicle retail sales, as to the manufacturers to give you as much information as we can on a timely basis.

The next question is coming from Jamie Albertine, Stifel, Nicolaus. James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division: I wanted to focus on 2 separate questions. One topic on the used side. I just wanted to understand your strategy, I mean, given the lack of late-model supply and the lack of the [indiscernible] vehicles and your ability to retail older vintage, perhaps higher-mileage vehicle, are you able to enhance your acquisition offer or trade-in offer given your scale and breadth relative to competition, so in effect, are you paying more for trade-ins and is that helping consumers make the decision to convert their existing car to a new vehicle?

It's Mike Maroone. We clearly are very aggressive trying to win trade and we do that full knowing that we can move that trade to another location that can allow us to generate a higher revenue and more gross margin. So we're competing vigorously, we have made a conscious attempt to not be a big auction buyer, so that's the source of our product. And we know when we create that transaction, even if we have to step up to that nice trade, we create that transaction and give ourselves an opportunity to have several other transactions, both in the F&I side, the used side of the business, and ultimately, in our Customer Care owner base. So yes, we do step up, but we also are very careful about how many we keep in trade, what our balance is in our inventory. And as I mentioned earlier, staying lean really makes sure that we don't have a surprise coming around the next corner. So we're very aware of the valuations, and I think our critical mass really helps us. James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division: And then as a follow-up to that question, I mean, what are you seeing on sort of a geographic basis in terms of demand on the used side that's helping you to retail the 10,000 vehicles and parts that you're moving between facilities?

From a geographical perspective, I think you're seeing the same kind of things we saw in new, and that's strong recovery in California and Florida, both of which had previously been impacted by the real estate crunch. Texas is a very strong used car market, as is Colorado. So the used car market is really followed to the new car market because that's where the trade-ins are in many cases. James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division: Great. And then my final question, wanted to get an idea or an updated view on the M&A environment. So are potential sellers, in a sense, becoming more rational in terms of the take-out prices that they're expecting or are you seeing, in general, more or less sort of deals come to the table?

It's Mike Maroone. There has not been a lot of deals done in auto retail this year, and I think there's still a price gap between buyers and sellers. In this recovery, auto retailers are certainly making more money and are more optimistic about the future. They still have capital demands with the manufacturers requesting new facility. So there's pressure on both sides, but the stalemate doesn't appear to be broken. But we are talking to people across the country. There are opportunities there. It's just about finding the right price/value combination for both ourselves and the sellers.

The next question is coming from Ravi Shanker, Morgan Stanley.

This is Yejay in for Ravi. First question, I know we're only 1 month into the program, but could you talk a little bit about AutoNation Direct? How the response has been and how you see that relationship with the -- Avis evolving over time?

AutoNation Direct has been very successful for us. And what we really use it for is to test different concepts in retail and to try a number of different ideas in pricing and serving customers. But it's really showing us, though, that our size and scale does work, and as we build these affinity relationships where it’s -- which is the basis of AutoNation Direct's customer flow, it allows us to serve customers in a very alternative way. It's quite a unique opportunity and we're really pleased with it, and we're learning a lot from the AutoNation Direct business.

Great. And as a follow-up on that, the rental guys seem to be pretty focused on moving into the direct-to-retail model. And your partnership with Avis notwithstanding, do you see it as becoming a threat to you guys over time?

I don't see it as a threat, I see it as very few of the rental companies that have an appetite to open a large number of retail locations. I think the Avis test, and it's early in the test, shows that maybe there's an opportunity there for retailers to partner with rental companies to find ways to innovate, and we're excited to go down those roads.

And your last question is coming from Rod Lache of Deutsche Bank.

It's Dan Galves in for Rod today. I apologize, but I missed the split of the business in Customer Care. Did you say customer pay was up 2% year-over-year, and was that gross profit or revenue?

Customer pay is up 2% gross, 5% revenue and it's about 43% of our total gross margin. So we're seeing nice top line growth as we're competing for that customer's business. I mentioned tires being up 25%, but we're seeing nice growth on the revenue side. And I think it's the eighth consecutive quarter that we've seen growth in customer pay.

Okay, great. And the other parts to the business, warranty?

The warranty business is down some, but at one time -- or for several quarters, it was down double digits. I think it's down about 5%. Where we're seeing very strong growth is in our wholesale parts business and our collision business. And we're really pleased with that and it's making a big contribution to the gross margin.

Okay, great. And then -- and how do you track -- I know you said units in operation, you feel like it's troughing right now. What definition is best to use for AutoNation's unit in operation, is it like 1 to 5 years or something different?

That's generally the number that's used. We certainly would love to penetrate that market in the 6 to 10, but traditionally, it's been up to 5 years is the pool that's measured, and it's measured by a third party, not by us. And we watch that trend very carefully, and it's giving us tremendous optimism about the future of Customer Care, with both the restoration of that owner base and with the capabilities we're developing here.

Okay, got you. And then Just one question on the F&I business. $1,280 per unit, very high historically. Is there any way to split out kind of where the major strength was there and kind of how do you feel about sustainability of that type of per unit level?

First of all, the F&I numbers vary some by quarter depending on retro-commissions and reserves, so we see -- we do see some fluctuation. We still think there's opportunity there. Our opportunity is always focused on value-added products, specifically service contracts and prepaid maintenance sales. We think that's best for the customer, it's best for customer retention, and that's where the focus of this company is. It's -- we have very strict controls on rate. We have very strict controls on customer disclosures, so it's got to be in value-added products, and that's where we're seeing the primary growth.

Okay, got you. And maybe one more, if I can. Over the course of the quarter, I mean it seemed like there was a bit of a dip in consumer confidence. Do -- how did the quarter flow for you guys in the different businesses in terms of month-by-month?

This is Mike Jackson. We announced our sales every month, so you can see the pacing. There's no question that there is a lot of economic uncertainty there, out there in the overall economy. Employment is a problem, customers talk about it when they come in. But the trump card is they need to do something. They simply cannot go on. They need a new -- they need a better vehicle to run their lives and to get to work, and so they're doing something. So those drivers are taking auto sales and sustaining them despite the economic headwinds that we face.

What do you think it takes to kind of drive the next leg of growth towards the 16 million that you were talking about? I mean, does it have to be an improvement in employment? Or are there any other drivers you see that could move up the -- move the sales up from the 14.5-million range?

I've said this before, and I'll say it again. The next leg that we need is housing, both for the employment that it brings and for the support of truck sales, light vehicle truck sales that come with it. And as I said, we are seeing signs of stabilization in housing, where you still have demographic growth. The pressure is there for household formation. And the inventories of homes are dropping dramatically and the differentiated rate between buying new and renting has balanced, so all the signs are there that housing is going to improve and that will be very beneficial going into next year. Ultimately, to get to the final leg, to 16 million at some point, you need an economy that's growing more than 2%. And I think that's going to take resolution around the fiscal cliff issue, remove that big cloud of uncertainty that's sitting over the U.S. economy. Most likely, that'll happen with some sort of extension in the lame-duck session into the first part of next year, and there'll be some sort of grand bargain in the first part of the year. Because let's face it, you can only do something big right after a presidential election and then there's an excuse for the next 3 years. So everybody knows this really has to be done and the window is there, with a genuine crisis and a genuine need. So it may be disruptive in the short term then, but most likely some sort of grand bargain is struck that'll be very healthy for the U.S. economy. Then housing is hitting its stride and the growth rate improves, with the fiscal cloud removed and we're on our way back to 16 million. But exactly the pace of all that, we really need to see how those 2 issues play out. Thank you, everyone, for your time today. We appreciate you having on the call.

This will conclude today's conference. All parties may disconnect at this time.