Welcome to AutoNation's Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Robert Quartaro, Vice President of Investor Relations for AutoNation. Please go ahead.

Good morning. Welcome to AutoNation's fourth quarter and full year 2017 conference call and webcast. Leading our call today will be Mike Jackson, our Chairman, Chief Executive Officer and President; Cheryl Miller, our Chief Financial Officer; Lance Iserman, our EVP of Sales and Chief Operating Officer; and Scott Arnold, our EVP of Customer Care and Brand Extensions. Following their remarks, we will open up the call for questions. Chris [ph] and I will 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. Certain statements and information on this call including any statements regarding our financial results and objectives constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks including economic conditions and applicable regulations that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued earlier today and in our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. And now, I'll turn the call over to AutoNation's Chairman, Chief Executive Officer and President, Mike Jackson.

Good morning, and thank you for joining us. Today we reported all-time record EPS for continuing operations of $1.64, an increase of 44% relative to fourth quarter of 2016. Fourth quarter 2017 EPS operations included a benefit of $0.45 per share on the recent tax reform bill, and the net gain is $0.17 per share related to business and property divestitures. Looking forward to 2016 EPS, continuing operations included a gain of $0.19 per share related to business divestitures and a benefit of $0.09 per share related to legal settlement. For the full year, EPS and continuing operations was $4.43, an increase of 6% over the prior year. Fourth quarter 2017 total revenues was $5.7 billion, an increase of 4% compared to year ago period, same-store revenue for the quarter was $5.6 billion compared to $5.4 billion in the same year ago period, an increase of 4%. Same-store gross profit was $851 million for the quarter compared to $794 million in the fourth quarter of 2016, an increase of 7%. AutoNation's comprehensive brand extension strategy continues to gain momentum, same-store total variable operations gross profit on per vehicle retail basis was $3,380, an increase of $125 or 4% compared to a year ago period and up $135 or 4% sequentially. Our roughly 4 million vehicles off lease in 2018 with an estimated average price of approximately $25,000. We expect new vehicle unit sales to be approximately $16.8 million for the industry in 2018. Our assumption is based on the mix shift from new to nearly new vehicles through an increase and off lease people returning for more. I'll now turn to call over to our Executive Vice President and Chief Financial Officer, Cheryl Miller.

Thank you, Mike, and good morning, ladies and gentlemen. For the fourth quarter, we've reported net income from continuing operations of $153 million or $1.64 per share versus net income of $116 million or $1.14 per share during the fourth quarter of 2016, a 44% increase on a per share basis. As previously disclosed, the tax reform bill will have an effect on both, our fourth quarter and future results. The fourth quarter 2017 results included a benefit of $0.45 per share due to a one-time impact on our deferred tax liability. Looking forward, we anticipate a benefit of approximately $75 million to $100 million or approximately $0.80 to $1.10 per share for the full year 2018 resulting from the decrease in the corporate federal tax rate. Taking into consideration the loss with certain deductions, we expect our 2018 effective annual tax rate will be reduced by approximately 12 to 13 percentage points. In the fourth quarter, revenue increased $203 million or 4% compared to the prior year and gross profit group $58 million or 7%. SG&A as a percentage of gross profit was 71.7% for the quarter which represents a 50 basis point decrease compared to the year ago period as solid growth profit growth led to SG&A leverage. In the first quarter of 2018 we currently expect SG&A as a percentage of gross profit to be elevated at approximately 75% driven by a brand extension investments including launch related costs for our new aftermarket collision parts business, the initial phase of which will be fully in place by the second quarter and the timing of stock compensation expense compared to the prior year. However for the full year 2018, we expect SG&A as a percentage of gross profit to be roughly flat with the full year 2017. In…

Thank you, Cheryl, and good morning. My comments today will be on a same-store basis as compared to the prior year unless otherwise noted. We're extremely proud of the growth in our business since the launch of our comprehensive brand extended strategy. Gross profit for variable operations was $476 million, an increase of 8%. Same-store total variable growth was $3,380 on a per vehicle retail basis, an increase of $125 or 4% compared to the same period a year ago. I would also note that total variable gross profit per vehicle reached to $135 or 4% sequentially. Retail vehicle unit volume was 3% compared to the -- was up 3% compared to the fourth quarter last year. The implementation of one price and AutoNation's ground 360 brand extension is just what drove our outstanding performance in the quarter. Used vehicle gross profit was $74 million, up 16% compared to the fourth quarter of 2016. Used vehicles retail grew $54,600, up 2%, retail used vehicle gross profit was $1,353 on a per vehicle retail basis which was an increase of 7% compared to the fourth quarter of 2016. We anticipate continued growth in our used vehicle sector with a continued development of AutoNation Pre-Owned 360. New vehicle gross profit was $158 million, down 3%. We retailed 86,100 new vehicles, an increase of 4% compared to the industry which saw a 3% decline compared to the same period a year ago. New vehicle gross profit was $1,836 on a per vehicle retail basis, down 7%, primarily driven by margin pressure and our domestic segments. Customer financial services total gross profit was $244 million, up 14%. We set an all-time record in customer financial services gross profit on a per vehicle retail basis of $1,732, an increase of $170 or 11%. Our strong performance was driven by improved AutoNation branded product penetration. We see more opportunities to increase AutoNation branded customer financial services products penetration as we continue to improve our bottom quartile stores through training and development. I would like to provide an update on our AutoNation newest based stores. In 2017 we opened 3 AutoNation newest base stores. We opened our fourth location in Houston market in January and our fifth AutoNation U.S. based store located in our Las Vegas market, it's slated to open by the end of the first quarter. Also by the end of the first quarter we'll open our fourth AutoNation auto auction which will be in Atlanta. I'll now turn the call over to Scott Arnold, our Executive Vice President of Customer Care and Brand Extensions.

Thanks, Lance, and good morning, everyone. My comments today will be on a same-store basis compared to same period a year ago unless otherwise stated. We saw strong customer care performance for the quarter driven in part by the ramp up of AutoNation's part and accessory initiatives including AutoNation precision parts and AutoNation auto gear. Customer care gross profit was $369 million, up 6% compared to $347 million in Q4 2016. Customer pay gross was $154 million, up 9% year-over-year. Warranty gross was $78 million, up 3% year-over-year and collision gross was $32 million, up 8%. I would like to provide a recap on our customer care brand extensions. For the full year 2017 we have built or acquired 8 additional AutoNation collision center. This brings our collision center network count to 76 collision centers from coast to coast. We plan to build or acquire at least 10 additional collision centers by the end of 2018. AutoNation is among the largest collision providers in the country. We've increased our parts offering through AutoNation auto gear, we now have over 26 high quality accessory brands representing over 60,000 accessory parts to consumer. I'm excited to share that we have recently began to launch more AutoNation collision parts line. Our aftermarket collision parts offering builds a key demand with our wholesale customers and complement our existing OEM offering. We currently have six distribution centers in place, four of which are operational and the remaining two will be coming online by the end of the first quarter. We will continue to expand our distribution network to support our national wholesale footprint creating more opportunities to offer both OEM and AutoNation collision parts to all of our wholesale customers. We continue to expect our brand extensions in customer care to contribute approximately $100 million in incremental gross profit in 2018; the pace will start slower and will accelerate throughout the year. We expect customer care same-store gross profit growth for 2018 in the high single digit range. We are excited about the early results of our brand extensions, the opportunities that affords our associates the uniqueness of the offerings and the differentiated experience they create for our customers. I'll now turn the call back to Mike Jackson, our Chairman, Chief Executive Officer and President.

Thanks, Scott. We are very optimistic about slow growth environment for business in the U.S. which includes the recently signed tax reform bill as a U.S. based company. Our employees, customers and shareholders will benefit greatly from reduction in our corporate tax rate. We estimate approximately 90% of the automotive retailers that pass-through entities for income tax purposes. The reduction in these entities top marginal rate from 39 to 29 is less than AutoNation's expected tax savings. And therefore, we do not expect to see dealer discounting to consumers as a result of tax reform. What an extraordinary year 2017 was; we thought of two catastrophic hurricanes, two of our large and watch our associates stepped up with this challenge to assist their fellows to [indiscernible] the community. We continue to roll out our brand extension which included opening 3 AutoNation U.S. stores, 8 AutoNation collision centers and 2 AutoNation's [ph]. We were thrilled with the early results of our brand extension initiative which are noticeable in this quarter with all-time record $1,732 for things through our customer financial services, gross profit for vehicle retail, same-store customer care gross profit up 6%, same-store used vehicle gross profit up 16%. It is evident by the continued growth we saw in the fourth quarter and we made the right decision to launch our comprehensive brands; extension strategy which includes branded customers financial service product, one price AutoNation three own 350, AutoNation precision part and AutoNation auto-yield. AutoNation's commitment to its brand, associates, customers and shareholders it drives closer is what receive the company, the industry leader he is today and will be tomorrow. Now I'd like to take your questions.

[Operator Instructions] David Tamberrino from Goldman Sachs, you may ask your question.

Mike, you just noted that you don't expect to see dealers discounting so you don't expect to have that benefit of tax reform really competed away; you know, absent the outline changes in strategy you've been going through over the last two or three years, where is that incremental cash flow that you're going to be having running through the P&L is going to be allocated to; is it potential returns to shareholders or is it really ramping up -- I think maybe accelerating that strategic investment?

Yes, a couple of commentary of my experience with private caps that are structured as that pass through entity. Tax discussion never occurred at the store level, that was always above the store and I just don't see how that deep into the store and results in a change of how store is from. From everything I know and experience, certainly going forward with a reformed fair or USA company tax rate, it puts AutoNation in the position where we've demonstrated -- I would say a considerable amount of expertise and capital allocations; to take fundamentally the same strategy and push forward with it. We will invest in our business first, our brand, our initiatives and then look opportunistically after share repurchase and acquisitions; exactly how that plays out is very difficult to predict, if you would ask me a year ago how 2017 would have unfolded, I wouldn't be able to protect it but clearly we had a unique share repurchase opportunity in the third quarter and took full advantage of it repurchasing $400 million worth of stock in a relatively short period of time. So it just puts us in a position to do everything that we're doing well, even to a greater degree.

Got it. Shifting gears, you're thinking about the industry being about 16.8 this year, I think that's probably around where our consensus estimates are. What are you hearing from your OEM partners; is it similar while the industry is going to be down, here is all the new products for launching then we're going to expect it to be growing 3%, 4% or growing above market? And is that kind of a line that you hear from every OEM or they are little bit more disciplined or sounding more disciplined seeing that we're going to be down year-over-year again, most likely?

I think there is a certain acceptance that expenses are at their limit of utility and that returns or incremental investments is highly questionable and the future price tag is quite acknowledged at this point. You combine that with -- manufacturers are very focused on shifting the mix closer and closer to what consumers really want to purchase aligning both of their developments, pipeline and their production; and so now they are years into adapting this significant shift towards SUVs and so their profitability is in a very good shape even with a slight moderation on volume. So they can be a bit more selective in what they do in fleet, and I think you see that with their manufacturers and I think they can expect that the alternate course of pushing instead you can hire isn't the appropriate way to go. That's my stand coming back from the automotive [indiscernible], the Detroit Motor Show and talking to everyone like you never know and we'll see how it develops.

Just lastly, you mentioned the off lease potentially being some diversion of sales; what do you think the mix of that off lease vehicle coming back? Is it going to be more closely aligned with what customers are looking for from the crossover and utility segment versus passenger cars or is it still probably off balance to what the customers are looking for?

Absolutely off balance, because the way you have to think about it is these are vehicles that were put in the marketplace three of four years ago; and the shift that already started was brought back then and has only accelerated since then. So it's not ideal and that then will be reflected in the pricing. But it's a value point for consumers in a volume of choice that they never had before; but you're absolutely right, it's not on an ideal align it would -- where there is extensive group [ph].

James Albertine from Consumer Edge, you may ask your question.

I wanted to ask a question on the used to new vehicle retail ratio? If I'm doing this math correctly, it looks like it was about 63% or 0.6 to 0.1 which was down a little bit year-over-year. The fourth quarter is not a big season for used deals but I wanted to understand kind of -- your ability to focus more on used in the event that new vehicle sales or perhaps weaker than many are anticipating in 2018. So can you offset the weakness in new vehicles and sort of add incremental units on the used side?

First, we had an excellent volume performance in new during the quarter and Lance can talk some of the drivers behind that in a moment. I'll take a quarter like this rest of my career but I don't think I'm going to get it; we had an increasing gross profit all in our pre-own business, sales store of 16%. Now every quarter is going to be a little different where you find the optimal time between margin and volume. Also we are much more effective tax in our wholesale -- management of our wholesale operation. So very good operational execution as combined with finding the optimal line between volume and profit lead to an outstanding result. So I think overtime you will see our Pre-Owned business is growing faster than our new business but in a particular quarter it went the other way but the results all-in are outstanding and I wouldn't change a thing. Lance, why don't you talk about what happened in the vehicle business.

So in new we released our strength throughout the all three regions. So it wasn't concentrated in one particular area but we definitely capitalized on it and we performed well in our Echannels, and our own phone channels, on our conversion right and that's really what drove it. So we -- but it was across the board, it was not focused in a particular area, it was across the enterprise.

And if I may as a follow-up; exceptional results certainly on the F&I-PVR side, that feeling you keep pushing it higher, it seems every quarter now above $1,700 a unit sort of outstanding relative to where we thought it would be at this point. Can you help parse out sort of the dynamics there between new and used that are contributing to that result? And if we do see overtime a greater switch to CPO or used vehicles from new; what impact you would expect that to have on the F&I-PVR?

Overall, they parted for the increased performance in our F&I, it's not that we're making more money on originating the finance contract, that number is relatively steady but the adoption rate of AutoNation branded product from served contract for other items is steadily going up and therefore taking the results to higher level. So it's very encouraging, very satisfying results to see the difference that a brand and branded product can make for us in this field of business. It is our most mature branded initiative that we started first with; as a matter of fact it was successfully what we achieved with these product that gave us the confidence to then move into other items. If you see a significant shift to a new and used -- Lance, you want to talk about that?

I think that will affect our margins. We do have a higher margin in new than we do in used on CFS. So any steps of that nature will impact us.

Michael [ph] you may ask your question from MN Retail.

Just wanted to ask first off if I could for a little additional color on the F&I side. Can you talk about sort of the top 20% of the stores or 25%; what kind of F&I per unit are you all seeing there so we can get a better hand along the potential?

I don't think we have that handy.

Yes, I think that when I think about it too -- obviously luxury stores are going to have in many cases a higher dollar PBR because of the price of the vehicle. Certain states tends to view higher on a PBR basis as well. So what we focus on across the portfolio and driving that is comparable source, so similar brand market. If there is underperformance that's where we target that bottom [ph]. I would say there is brand differences in PBRs, also depending on what brands leave more, that have a different PBR than loans; do we look at all the different elements and I would say we're the biggest pickup and so this has been on the product penetration, as well as the incremental profitability that we're earning from the branded product and that's been substantially -- you've seen that come into play over the last two to three years and you see that bearing out the results.

Understood. Is there any way to think about percentage retention goals because so far I feel that all the numbers you've given are really gross but you're clearly giving some of it back to your employees. And then on AutoNation U.S. day ramp, can you share some of the unit volume that you're seeing from these stores?

Yes, especially on the tax savings, those are net numbers; so when we talk publicly about the savings that was really on a net basis. So if you think about the context of our total F&I, certainly we thought it was very important to make sure that we encourage our employees, and especially our long senior [ph] employees for the 401(k) rather than a one-time bonus but the numbers that we've talked about are on a net basis. We had already in our forecast and planning for the brand extension other which are well underway. And into Mike's point we'll continue to use the tax savings you deploy to additional parts of [indiscernible] but also opportunistically whether it's acquisitions or share repurchases and again that depends on prevailing prices in the market. AutoNation's USA, still days, as planned mentioned we're really talking about four or five stores at this point challenging, if you compare the early results because of those stores were impacted and so when you look at the impact of the hurricane in Corporates and Houston certainly you can't extract late those trends from the early results. But they tune there, but I said from [indiscernible] standpoint, currently the U.S. stores are not material to the overall volume. The tax savings, most of that will drop through in opportunistic capital allocations, similar to how you manage that.

Brian Sponheimer from Gabelli, you may ask your question.

On the used profit on a per vehicle basis, specifically the margin we saw sequential tick down at levels that you all saw more in the beginning of the year, I think that that's one of the concerns right now, just on -- just today. Can you talk about that in a little bit way -- you're not as concerned as -- so you were in March or June this past year?

I'd say overall, again increasing same-store pre-owned gross profit by 16%. I'll take the rest of my career. I kind of already explained we're always looking for the optimal line balance between volume gross profit. I will also say that all in when we consider front-end growth and F&I products, we believe that we've increased sequentially on pre-owned. Lance, anything to add on that?

Yes, I would just say that one of things that had so much impact on the quarter was -- supplying the Houston market with inventory and vehicles that we moved from other stores and vehicles that we've purchased. We had -- maybe oversupply in that market, and so we had to work through that as the demand kind of diminished as the quarter went on; so working through that in December and in the beginning of the fourth quarter, so that will go a little bit of it.

And then I want to make sure I heard it right; is the expectation for -- on the same-store basis high single-digit customer care revenues in 2018. What's really driving that from both, an underlying perspective and then also some of your brand extension measures?

Gross profit was -- we expect high single digit in customer care in 2018. We continue to operate our core business as efficiently and strongly as we can and we believe brand extensions now are starting to contribute to our core business and we think that will continue to ramp up to 2018 to take us to that high single-digit.

And then just one more if I can sneak it in; just -- Mike, how far through this $100 million and making no profit from those brand extension measures you think you are at present?

Most of that will be realized during 2018, so you didn't see much of that in 2017. Obviously, if you look at Q4 you had a very solid profit margin within service but most of that incrementality will ramp up for the course of 2018; so I would think of that as a little bit of backend loaded and again, as I mentioned, with SG&A think of that as a little front-end loaded, particularly as we go through the launch cost saves through the first quarter of the collision parts initiative in particular.

Rick Nelson from Stephens, you may I ask your question.

Can you discuss the opportunity to get more aggressive on pricing to potentially drive more volume and more F&I opportunity?

Rick, line was not clear as far as the question coming through.

I think it was an F&I pricing question on whether we have the pricing opportunity within F&I.

Exactly. That seems to be a competitive advantage for the company and one you could potentially pass on to the customer, drive more volume.

And I think that's some of what you see with respect to the product we sell but I think the way we tried to drive value to the customer wasn't just through pricing but through general service deliveries; so if you think about the fact that there's a more deductible of youth service that had any stores under our product and think about the customer service aspect we look not just the pricing opportunity but total customer value proposition within F&I and that's the benefit you've seen over the few years result in that area. And certainly we always continuously evaluate the price of the product in each market, certain markets are regulated, certain markets are not; and we look at the value proposition, so we're constantly looking at the performance of the product, what things are covered/not operating in conjunction with our private label partner on that side as well.

Also like -- to get enough paid time, I don't think it's when you want to say how that's performing relative to your expectations? And also the expansion plans there behind the part of stores that you discussed?

Rick, as Cheryl stated earlier, the two of our early stores in Corpus [ph] and Houston we both negatively and positively affected by the hurricanes, it's very difficult to get a good read on those two particular stores. Our Phoenix store was the third store that opened and that one opened in December; that once you get a better read on uninterrupted growth, those types of thing, so we should be able to give you an date-on that later this year how that goes for me, parents have parents. Thank you, Rick and good luck. Thank you, Rick.

Sure, this is Scott. I can add to that, we are starting to see customer pay traffic come into the store. We're seeing that coming off of the used cars that are being sold. We offer a maintenance at no cost for the consumer when they've purchased a vehicle and so that customer is now starting to come back into the earlier USA stores and showing us as a customer-pay-customer. Yes, we are starting to see the build, it will build slowly first business consistently continue, to move up.

And then on the AutoNation initiative, obviously there will be collation and I think you're doing mechanical part as well; where do you see the inventory come into that strategy being? Yes, I guess how far you're going to take the breadth of AutoNation brand to collision part and mechanical and sort of how do we think about working capital in that segment.

So I'll address the parts inventory and working capital I'll leave to Cheryl but we will continue to bring in the parts inventory to support the rollout of our brand extensions, we've brought in AutoNation collision parts, so far precision inventories as well as Auto Gear, but it runs in line with the pace of our sales as our OEM parts due today.

From working capital perspective, I would just note that a lot of this is relatively quick turn; at this point we've got $1.4 billion of liquidity and is that a very favorable pricing term to the -- at the point that we get to enough scale that we think it may make sense to segregated facility, we will continue to consider it but given the favorable liquidity and pricing we have on our unsecured debt today, we don't have a dedicated facility in place at this point.

I guess we heard more about AutoNation collision parts this call than we have previously and your wholesale partners that you're selling to -- I guess is that something we're almost sort of creating a key type model where you're going to be selling into the broader market more aggressively?

I would say I'm not necessarily sure we're creating LKQ model, what we are doing is aligning ourselves with those wholesale operators led by OEM parts and now we will be able to walk-in and offer OEM part, as well as aftermarket parts. So we believe it's extremely complimentary to what we do today. The insurance companies dictate the percentage of aftermarket parts versus the OEM part and so now we have an opportunity to offer both. So I think it's a very comfortable to what we do today.

Our next question comes from Chris Bottiglieri from Wolfe Research.

[Indiscernible] it's still very early, I was wondering if you tried more guide post on what the solution in sales, what types of service and frequency does the agreement tell? And then just finally, eventually AVs are fully electrified, how does those dynamics changed between kind of types of those services?

When our relationship, everything continues to go extremely well on that front and where we are -- as we said before we're doing some of the most complex service as well as the maintenance for them until we expect that to continue to potentially ramp in the future as they ramp their portfolio and profile. And I'll let Scott handle the EV questions in terms of the amount of service on EVs as they are fully electrified.

If you look at how electrification is going to unfold you have mandate that are going to drive the introduction of a dramatic increase in number of electric vehicles, both battery electric vehicles and hybrid. And eventually in a five to ten year horizon there is a sideline to profitability on those vehicles. Now from a customer care point of view, it's ironic but electric vehicles are actually far more complex than straightforward from an internal combustion engine; and those who can handle and repair are fewer. So there could be an increase actually in the need around the field that the customer care with the introduction of all these sophisticated types. Now overtime battery electric vehicles are somewhat simple straightforward, in the context of a shared service though for utilization rate is far higher than different type of vehicle and therefore they're maintenance needs are actually higher because they're going to go through their useful life in a relatively short period of time from the time point of view but from a mileage point of view we'll rack them up by 100,000. So it's not an that we're concerned about.

And one related question of philosophical nature; you address as prepared remarks little bit but obviously the passers still have 25% tax reduction, I know it's lower than you're obtaining but maybe you could walk through some of the qualitative over quantitative rationale for why you think the industry as a whole kind of compete, keeps the excess profits? Is there something to do with time and the mechanics of like tax payments or other reasons that give you comfort that this won't be gradually completed away?

First, I would adjust to the term excess profit but on the back I think the tax rate on retail in the U.S. has been excessive been over it for a decade and never made any sense whatsoever and I think the U.S. corporate tax system has been broken for decades and since Jack was on it [ph]. So I don't see in profit at all and I just know the culture of our competitive set that all tax policy, tax decisions, tax efforts were always outside the store and I just don't see that dynamic mindset all of them we have this excess profit that still give it away. I just don't see that happening. That's my point of view, we'll see.

John [ph] from North Coast Research, you may ask your question.

Mike, I wanted to ask your expectations about gross profit per unit on the use side as we think about 2018? Maybe the point I'm calling out the used volumes -- I think in the release you guys also talked about kind of the rising rate I wanted to think, is it reasonable that you would expect gross profit per unit on the used side, just -- maybe given the -- even the mix of the off-lease returns maybe be pressured for the industry this year or do you think our improvements is the most likely scenario?

Our goal clearly stable to the group but again, there is a lot of moving pieces here and as we've demonstrated in the fourth quarter you know you try to manage it at the optimal level during the quarter, so there are several different scenarios as output is concerned but we definitely want to increase our gross profit from our pre-owned business, that's -- I'm looking at the total buy. I want more higher gross profit in our pre-owned business than we have the year before, what the exact split is between the various pieces of volume, front-end PBR, F&I PBR, open to constant dynamic discussion as long as we're making the [indiscernible].

And then I wanted to ask about the gross profit per unit -- maybe out of the AutoNation USA stores. Can you maybe give us some color in terms of maybe even combining that with an unit on that side, maybe how that compares to kind of the legacy historic store?

I think Cheryl said it best earlier. We had two stores, both were totally disrupted with our gains, it is very difficult to go on any conclusion; the other two stores are barely open over a month. I think we wait a little bit, someone will give you further reports.

John Murphy from Bank of America, you may go ahead.

Can you talk about the potential for small business to support retail and our fleet sales by taking advantage of recent tax reform to step up investments, particularly on trucks and vans? Did you see any of this whether on sales or orders that roll through in late December or early January? And is this something you anticipate occurring and in this year?

I think overall that the customers is going to benefit when you think about just general customer ability for affordability, certainly when people have more takes on say that puts them in better position relative to buying newer free NVS [ph] or so we think. Generally that's positive, however I would indicate that we have a $16.8 million for the year so it's somewhat tampered but on balance I think it's positive as people start to see the increases in their take home pay and corporate and/or pass-through start to see some benefits in their tax rate as well.

And you came in notably better than your outlook from last quarter for SG&A as a percent of gross profit to be around 73% in 4Q and commented that most of this is driven by gross profit growth and operating leverage, but is there any amount of this that's attributable to be the ongoing investment in AutoNation USA coming along better than expected or efficiencies that you're realizing that you weren't initially anticipating?

Yes, I mean the way I would think about it is certainly when you deliver numbers like 16%, use gross profit growth in the quarter that provide some good leverage to SG&A, we're certainly still in a ramp up phase for the brand extension and as we mentioned in the call remarks, we expect that to increase SG&A in Q1, it will level off through the year and probably be similar to what you saw full year -- 2018 is what you saw full year 2017; so it's general efficiencies in branded and in customer financial services products are in the numbers but you do also have the continue investment and built up the numbers well, and what really gave you some of the Q4 leverage particularly on a year-over-year basis in SG&A was the really strong growth that we delivered in all of our sectors.

And one last housekeeping item, if I may. Do you have any idea of how much more real estate or dealership you have left to sell or is there an expected cadence through 2018 with divestitures?

Yes, when you look at 2018 we expect to generate about $200 million in proceeds and that's really part of that broader capital plan as we invest in the brand extension initiative and stores, and also in building out our solutions footprint. So about $200 million, keep in mind that as we sell some of that we lose revenue, we don't lose a high degree of profitability because again we're being selective in this land where we look at dispositions and portions of portfolio that don't have the same returns as the top performing parts of our portfolio. So $200 million is the total number for the expected proceeds for 2018.

Colin Langan from UBS you may go ahead.

Any color on new margins, initially Q4 is pretty strong with mix and it was down year-over-year, anything there?

Yes, our margins we had especially in domestic and imports, and we still see target based incentives or having to belong some of our manufacturing partner. So those activities are still happening out there, so primarily in those periods and domestic imports. So those are the pressure areas in the fourth quarter.

Any color on SG&A as we go into next year, will be start to normalize on some of the incremental investments in AutoNation's initiatives or should we expect more there?

Yes, for the full year we expect it to be relatively flat with 2017 if you look 2017 full year was about 72.5 to make a 0.5 range but we did talk about this year's new component SG&A in Q1, the first is the timing of stock compensation expense, some of that will be in Q1 this year versus Q2 last year based on the timing of our annual meeting. Really just accounting the time difference between the two quarters, so we just talked about that on a comparable basis. And then we have the ramp of the collision parts; so as you look at that ramp days as we're building for that before that's fully ramped up and open and selling at a regular cadence level later on into the year you have a front loading of some of those expenses before you start bringing the growth in. So we expect Q1 to be heavier in SG&A followed by decreases on a comparable basis through the year in SG&A resulting in the same relative level in '18 as it was in '17 because we're continuing to do the brand investment because that's the way we think about the cadence of SG&A through the year and certainly Q4 seasonally tends to be a better SG&A quarter, as well Q4 of this year and that's more similar with what you expect to see in Q4 of '18 compared to a first quarter of 2018.

Just one last question, I guess clarification, comments earlier on about the pass-through trade going from 39 to 29, are those the right rate because I've seen a lot of different estimates out there and how did you come to that period? I've got those numbers right, [indiscernible].

I think basically if you look -- it's hard to tell directly because the way that people structure their entities are different, so if you end up paying things that look like more of an individual rate versus organized by core but we think on average the top rate in that pass-through range ends up being at 29.6% level.

Every car dealer I've spoken to over the past month said that with their tax calculation.

And the other thing I would just caution you on is that the optical top rate depending on the docs and so for example, our corporate tax rate drop by 14 percentage points, however you lose certain deduction. So if you think about the pass-through entities depending on what there the docs and status was pre-reform and post-reform that could have an impact on their ultimate pass-through rate that may differ from location-to-location dealer-to-dealer depending on their state tax rate status, etcetera. So we give that broad estimate but certainly individual rates depending on people's deductibility and circumstances can very substantially.

David Lim from Wells Fargo, you may go ahead.

I just had a quick question. Mike, I think you were saying $16.8 million on sales in 2018 and somewhat -- even with the tax reform from a family perspective, would you see possible upside to that as discretionary spending could go up?

I think, no. That's been -- tax reform I would say 16 [ph] is maybe an optimistic case now, I would say the best case with the possibility we could have pleasant surprise on the upside.

And I know you mentioned this before, during your time in Detroit you did mention or I thought I heard you say that LIMs [ph] are becoming more and more disciplined with senate actions. Even as we finish the first month of 2018 are you still seeing that or are you seeing some -- maybe a lack of discipline on that front?

Well, I've learned from my experience you never judge anything on January, it's a whacky month with the transition from the highest selling rate of the year to the a very low selling rate and cut-off days are complicated with yearend when manufacturers cut all programs, it's a very whacky month, so we thought just get January and February behind us, March is the real deal, it's the spring market and it's usually not much noise in it; so I think as far as making a judgment on all these questions, we'll know after March much better idea how this year is going forward. And I agree with your point, there could be upside to this year, it could happen.

On that $16.8 million, are the OEMs actually planning their production for that number or possibly a higher number or a smaller number?

I think you've seen adjustments on the production side and we've seen that in the inventory, we're -- they have a feeling that it's prudent to think it's roughly $16 million that not count on being over $17 million once again.

Michael [ph] from MN Retail, you may go ahead.

Just a follow-up clarification if I could; have you provided the CapEx outlook for this year? And then when you mentioned high single-digit service gross profit growth, was that same-store or an aggregate?

Same-store on customer care.

And we didn't provide a specific capital outlook but again we've mentioned ramping up through the year and the brand extension which is including some of the collision center acquisitions for build out but some of that will be offset by the $200 million of expected sales, we didn't provide a specific outlook but we expected it to be reasonable in the aggregate considering the production in the asset sales because of the proceeds.

Are there any good guys to know about on the working capital side just because following up on Bret's point there does seem to be some build potentially in parts inventory?

We're in good shape, there is certainly some seasonality to working capital there as an example and captives become more automated in some ways with econtract and that can help us reduce our contract to transit which is the type of thing that can be used as an offset for some of the working capital bills. And again at the appropriate time and scale we could certainly put in place and are prepared to do that if it seems prudent from a pricing and other perspective specific working capital facilities related to part but where we are today from materiality perspective and given the rate and facilities we have in place, we have not pursued that at this point.

Thank you everyone for joining us today. We very much appreciate all your questions. Thank you.

This concludes today's conference. Thank you all for joining.