Good morning. My name is Chris and I'll be your conference operator today. At this time, I would like to welcome everyone to AutoNation's Fourth Quarter and Full Year Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Robert Quartaro, Vice President of Investor Relations, begin your conference.

Thank you. Good morning and welcome to AutoNation's fourth quarter and full year 2019 conference call and webcast. Leading our call today will be Cheryl Miller, our Chief Executive Officer and President; and Joe Lower, our Chief Financial Officer. Following their remarks, we will open up the call for questions. 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 anticipated 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 changes in 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 Chief Executive Officer and President, Cheryl Miller.

Good morning and thanks for joining us. AutoNation's financial results this quarter again reflect our focus on operational excellence and delivering a peerless customer experience. Low unemployment and three interest rate cuts by the Federal Reserve have supported consumer demand and reduced our inventory carrying costs, and we believe industry-combined new and used vehicle sales for 2020 will be in line with last year. Today, we reported record fourth quarter earnings from continuing operations of $1.74 per share. Same-store fourth quarter 2019 revenue totaled $5.5 billion, an increase of 4% compared to the year-ago period. Same-store gross profit of $886 million increased by 7% compared to the year-ago period driven by growth in all of our business sectors; New Vehicles, Used Vehicles, Customer Care, and Customer Financial Services. We continue to manage our inventory levels to meet customer demand, and we are in great shape for the upcoming selling season. Due to our disciplined inventory management, new vehicle inventory decreased over 11,000 units year-over-year. For the quarter, same-store total variable gross profit per vehicle retailed was up $215 or 6% compared to the same period a year ago. We were pleased that our new unit sales were in line with industry retail sales while increasing new vehicle margins. Same-store new vehicle gross profit per vehicle retailed increased $80 or 5% on a year-over-year basis. We remain committed to executing at a high level and seeking the optimal balance between new vehicle pricing and volume. Same-store used vehicle gross profit was up 21% and same-store used vehicle gross profit per vehicle retailed increased $122 or 9% on a year-over-year basis. We expect consumer demand to continue for nearly new vehicles as customers find value and relative affordability in the used vehicle sector. We're excited about our used business where our multichannel…

Thank you, Cheryl, and good morning, everyone. Before I address our financial performance, I just want to share how excited I am to join the AutoNation team and that I'm looking forward to working together with our associates, analysts, investors, and all of our key stakeholders going forward. Now to the financial results. For the fourth quarter, we reported net income from continuing operations of $158 million or $1.74 per share versus $93 million or $1.02 per share during the fourth quarter of 2018. This represents a 71% increase on a per-share basis. The fourth quarter 2019 results included net gains from store and property divestitures of $20 million after-tax or $0.22 per share and a noncash gain related to our investment in Vroom of $19 million after-tax or $0.21 per share. Fourth quarter 2018 results included net gains from store and property divestitures of $13 million after-tax or $0.15 per share and restructuring-related charges of $7 million after-tax or $0.08 per share. During the fourth quarter, same-store revenue increased $208 million or 4% compared to the prior year. On a total store basis, revenue increased $137 million or 3% and gross profit increased $48 million or 6%. Strong margins and gross profit growth, as well as disciplined cost management, continued to drive SG&A leverage in the fourth quarter. SG&A as a percentage of gross profit was 72.0% for the quarter, which represents a 250 basis point decrease compared to the year-ago period. As a reminder, we incurred approximately $9 million of restructuring-related charges in the fourth quarter of 2018, which benefited the year-over-year comparison by 110 basis points. Looking to 2020, we expect our SG&A to gross profit to be equal to or below our full year 2019 level as we continue to manage expenses while investing in our…

Thanks Joe. Our fourth quarter results are clear evidence of the progress we are making in driving profitable growth across our business. We've continued to deliver strong execution through improving new vehicle gross margins while also continuing to grow our used customer financial services and customer care businesses. We will continue to seek the optimal balance between pricing and volume while we maintain our emphasis on providing a peerless customer experience. I'm encouraged by the progress we're making within our brand extension strategies and the strong operational focus and cost management discipline we have demonstrated. Before we open the call for questions, I would like to personally thank AutoNation's over 25,000 associates from coast to coast for all of their hard work and to congratulate them on being the number one Most Recognized Group by J.D. Power's Dealers of Excellence as well as being ranked number one in Reputation Management for Auto Retail by Reputation.com. And operator, we will now take the questions from the audience.

[Operator Instructions] And our first question is from Stephanie Benjamin with SunTrust. Your line is open.

Hi good afternoon.

Hey Stephanie.

I was hoping you could discuss a little bit on the strong performance you continue to see in the F&I segment or -- and just really how you view that can continue kind of going forward. So, maybe you can give us an update of where we are in the brand extension strategy. And just as you face very tough comps in 2020, just how you're looking at the ability for that to kind of really grow at such a nice clip would be helpful. Thank you.

So, Customer Financial Services was our first brand extension. As you've noted, we maintained the all-time record performance in that area. We'd remind you that we still expect strong performance, but as a reminder, we continue to see a migration from new to nearly new and into the used part of the business, which has a lower dollar profit contribution for Customer Financial Services. So, as we go forward, we expect continued strength, but the dollar weighting as you shift towards used does see some pressure in dollars, but your aggregate gross profit dollars should stay strong in that area.

And then maybe just broadly, give us an update on just the brand extension strategy and what we should look for in 2020 would also be helpful in just kind of the progress you made in 2019 and where we're at now in 2020. And then within that, is there an ability where we should start to see maybe some expansion of your USA stores now that you are at least broke even in the three that you have as of right now or the handful that you have now? Thank you.

Yes. So, we have five AutoNation USA stores. And if you zoom out for a second, our broader brand extensions were in customer care with parts, with auto gear, also with auctions, with AutoNation USA as well. So, with AutoNation USA, we're pleased with where we are. Our focus right now is volume but sustainable volume. In that, we've got the five stores today, and we will consider broadly through used. We've got the multichannel strategy between digital, franchise stores, and AutoNation USA. So, we'll consider organic as well as possible acquisitions to grow out used. Within the customer care part of the business, we continue to focus on penetration; you see strong customer pay from us with respect to brand extensions contributing to that as well as solid performance in our auction. So, we feel very good about the brand extension strategy, and certainly, you see our first brand extension that continue to do extremely well, Customer Financial Services. And as an adder within our strong used profit for the quarter, part of our brand strategy and our brand extension strategy was One Price in used and We'll Buy Your Car. So, those are some additional things we feel very good about that help contribute to the results in the quarter.

Great. Thank you so much. And I'll leave it at that.

Great. Thanks Stephanie.

Your next question is from John Murphy with Bank of America Merrill Lynch. Your line is open.

A first question, if we think about the used and customer care opportunity, Cheryl. I mean, I think there is some concern, and it's certainly, you're not getting the benefit for in the stock, even though it's up today, that the used in parts and service or customer care business will fade as the fleet ages and these nearly new vehicles might not be as available to you as they are right now. It seems like it's -- that theory is way overblown, at least in my opinion. So, I'm just curious, as you think about this over the next couple of years, do you think this used business and the customer care will still be an opportunity for you? As you think about how old you can go maybe in the age spectrum, is there an effort to maybe go a little dip, a little bit older in the age spectrum just to open up the addressable market in a big way?

So John, great question. We actually expanded on the age spectrum, a number of years ago as we pushed in customer pay, but vehicles keep getting more complex. So as we think about calibration opportunities, as we look at electric, as we look at hybrid, just the complexity that you see in Level 3, not to mention some of the work that we're doing with Waymo in servicing autonomous vehicles. So, we feel really good about customer care in the future, particularly for franchise dealers. And for us, covering over 30 brands and having the technicians that we do, we feel like we're really well-positioned in that area. And with used vehicles, there's still a good pipeline of off-lease vehicles coming in. So, we expect that to remain strong for this year. And certainly, between our digital strategies, our franchisees, and AutoNation USA, we hit a number of channels, and that helps us sell different types of used vehicles as well. And we also source over 70% of our vehicles internally. So, we feel like from a used standpoint, we have a good competitive advantage in that.

That's very helpful. Then just a second question on floorplan interest expense. Obviously, you did a great job of managing inventory down, and rates are helping a bit. I mean how should we think about that in 2020? And are you getting sort of a more rational response from your business partners being the automakers and trying to keep inventory reasonably tight to support pricing? I'm just -- it seems like a dynamic has shifted there into the positive as well.

We have done a really good job there. So, we are not getting inventory push. So, we feel like the OEMs are in pretty good shape with the way that they're managing production. So, we're down to 52 days supply. We think that's a healthy level. That's down 11,000 units year-over-year. And certainly, between the reduced inventory levels and the rate cuts, that provides a good tailwind for us. We continue to make sure that we manage the consumer demand, but we feel really good about how that's positioned and we feel good about prior model year inventory as well, and that's something that we actively manage.

So, it seems like -- to put it in context, it seems like it should be a sort of a tailwind similar to what we saw in the fourth quarter going to 2020, just the rates are lower and inventory's being managed better. Is that a reasonably fair statement?

Absolutely. So, we feel like there's good opportunity there to have that continued tailwind. But in addition to that, it also helped support customer demand. So, as you look at new and used units, we're expecting the aggregate level, $57 million, across the two to be the same in 2020 as what we saw in 2019. And part of that is supported by lower interest rates that the customers see on their loans as well. So, we get a benefit both from floorplan rates as well as rates that the consumer sees when they're coming in.

And then just lastly, real quick on SG&A. I know you sound like it's going to be relatively flat to maybe slightly down as a percent of growth on a year-over-year basis. But in the past, you've operated closer to 70%, sometimes dip below that. Is there something structurally that is different about the business now that will keep you from getting there? Or eventually as you get through all these initiatives, we could see a drift-down to those levels again?

It's important that we keep investing in the brand extension strategy as well as continued development of digital. So, I think these levels are the right amount to make sure we're investing for the future. So, we want to make sure that we're running the business today but that we also have a foot into the future. And in order to do that, I think you'll see us around these levels over time. We continue to think longer term, 70% is sustainable, but we don't want to miss the opportunity and cut ourselves short on investing today for the future.

Great. Thank you very much.

Thanks John.

Your next question is from Rick Nelson with Stephens. Your line is open.

Thanks. Good morning. Cheryl, you've pulled down debt balances quite a bit this year. I'm curious if that's an ongoing strategy as we look to 2020 and if you have a targeted leverage ratio in mind.

The reason debt balances came down is because of the strong cash flow generation. So, that's a great thing and a reminder about the strength of the business model as we had growth across all of the sectors. Certainly, we're operating on the lower end of leverage, and that came down pretty quickly. So, we were 2.6 times and within a quarter, given strong cash flow generation came down to 2.2 times. We're certainly going to continue to opportunistically deploy capital, and the great thing is our balance sheet is in incredible shape. So, we will be able to consider and move quickly on different opportunities within brand extensions and just future strategy for the business, and there's no better place to do that from -- than from a position of strength when you also are enjoying access to low cost capital. So, no particular target. You've seen us operate at or slightly below these levels in the past, but certainly, post that, we always continue to deploy capital.

Got you. And your appetite for acquisitions, albeit brand extensions has been a big focus, but are acquisitions part of the future?

We're always open to acquisitions. We're going to be prudent on price. Particularly on the new vehicle franchise side, we have slowed our disposition. So, we had a number of years where we trim portfolio in certain brands and other pieces of that. So, we're really largely done that disposition strategy, there could be some opportunistic moves there. In terms of acquisitions, there's always assets in certain markets that we would find attractive. But again, we're going to be disciplined on price, and we'll also be open to looking at additional opportunities. So, Waymo was a good example of an area in which we have a foot in the future. Vroom, we actually had an investment and a foot in the future. And so if there's other acquisition or partnership opportunities that could require some capital, it's certainly something that we'll consider as well as assets in the used vehicle space, if they make sense.

Got you. And finally, if I could ask you, what drove the gains in Vroom?

So, that was based on a capital raise at a higher valuation. So, we're pleased with that and pleased with the opportunity to continue to test and learn there.

Okay. Thanks and good luck.

Thanks Rick.

Your next question comes from Rajat Gupta with JPMorgan. Your line is open.

Good morning. Thanks for taking my question and also welcome to Joe. I had a question on parts and services, particularly on the customer pay side of things. You've obviously expanded your product portfolio there. You got a breadth of products that you're offering. One of the aftermarket retailers last week talked about some slowing in the first quarter due to the warm weather. And then we also talked about some inflation-related tailwinds in 2019 potentially lapping this year. Just trying to get a sense of what you are seeing out there. And what's your outlook for 2020 in parts and services overall and then also across the different categories like customer pay and your wholesale and things like that? I know warranty is difficult to predict, but any visibility you have on like the other buckets, if you could share? Thanks.

Sure. Our outlook is that we expect that to remain solid, likely in the mid-single-digit level. Given the fact that we have largely a Sunbelt footprint, we're not as affected by the warm weather. The warm weather is actually good for us overall with sales, and we see inflation being reasonable. And certainly, with the tariff situation where it is, we think that's in a reasonable spot. Warranty, as you mentioned, is difficult to predict, but we do think we have an opportunity to continue with our strong OEM business as well as with our aftermarket parts business. So, we view it as a very solid year, very solid potential year in customer care.

Got it. And on the capital allocation side, maybe just a follow-up on your expression. You talked about some acquisitions on the new side. What kind of assets would you be looking at? Is there any color you could provide there?

At this point, we're still evaluating the landscape, but we would definitely be open to looking at assets within used, and certainly, we'll always continue to opportunistically look within new, but it has to be the right brand and right markets.

Got it. That's helpful. And then just lastly, on the used side, what really drove like the big acceleration here in the fourth quarter? It looks like GPUs and volumes were solid. But AutoNation USA looks like there's some breakeven. So, it looks like a lot of that came from just the franchisee side of things. What -- is there like -- could you dissect that performance a little bit? That will be all from my side.

Yes, really down to strong operational execution and the continuation of the strategy with One Price, which customers love. So, that helps the brand as well as We'll Buy Your Car. So, we've increased our We'll Buy Your Car purchases. Our AutoNation USA stores have higher penetrations than We'll Buy Your Car, and that's something that we're continuing to focus on throughout the base franchise business as well. So, those two things helped lift used volume. In addition to just the general consumer shifting towards nearly new. So, new vehicle prices in the last five years are up about $5,000. So that 15% increase in prices when customers come in does shift them over to used. That being said, we were pleased with the fact that our new vehicle units were down about 3% at retail in the fourth quarter, which was actually pretty consistent with the industry average, which was down about 2%.

Got it. Great. Thanks a lot.

Great. Thank you.

Your next question is from Chris Bottiglieri with Wolfe Research. Your line is open.

Hey, thanks for taking the question. I want to follow-up on a question -- answer you gave earlier on the complexity of vehicles. Just wondering if you could help maybe contextualize or quantify that for us. Maybe specifically, when you look at similar model years, right, in your parts and service divisions, how are the retention rates for the battery electric vehicles, the hybrids and other vehicles that you would describe as complex? How are the retention rates of those vehicles compared to traditional ICE vehicles?

I will put into context to say that the actual amount of vehicles on the road in electric and hybrid remains very small. So, as I think about the over 275 million car parked today, the type of complexity that we're referring to is things like aluminum that take out weight, right? So, there's additional tooling in aluminum, recalibration, particularly in our collision business and just the compacting of the parts within the vehicles as you pull weight out. So, that's the main focus in terms of vehicle complexity and some of the Level 3 features we're seeing in the vehicles. As we get to electric, we've cared for electric vehicles for a number of years. So, that's not actually new to us starting back with the hybrids into some of the electrics that we have out many years ago. In BMW, you had the i3 and i8. So, we have specialized technicians. We have master technicians. We have technicians that also work on autonomous. And so we're well-positioned, I'd say, particularly versus the independent to continue to take share as electric and hybrid becomes more common but also just as manufacturers roll out additional L2 and L3 features in the cars. And a lot of calibration work needs to be done in the industry as well.

Got you. That's helpful. And then I want to follow up on the retention initiative that you're rolling out now -- not retention, the kind of off-line Buy Your Car appraisal tool. Can you talk about that end market? Are you seeing any signs that like competition for trades is getting more competitive? Obviously, newer initiative for you, but just kind of curious of how you'd look at that market today.

Yes, we self-source 70% of our vehicles, and we'd actually like to continue to do that. So, we have great retail locations. We've got a great digital presence. So, that combination for us is extremely helpful in sourcing, and that's an initiative where we continue to drive the awareness to customers that will buy your car even if you don't buy it from us. So, for franchise new, not every customer is aware of that proposition. So, it's something that we're continuing to drive both in our marketing and then online and in-stores, when customers come in. So, we think there's a continued opportunity for sourcing in that area.

Got you. Then the economics when you compare those for the trade-ins versus off-lease vehicles or auction? Like how do the unit economics look between the two?

Definitely higher unit economics for self-sourced vehicles. The good thing for us is we own several auctions as well. So, any vehicles that are traded in from our stores, we take a second look. And so we really want to make sure that we're retailing every vehicle that we can rather than doing anything through wholesale and we feel like our sourcing is definitely an advantage in that area. And also reconditioning, so we earn the profitability from reconditioning for vehicles that are traded in with us as well.

Got you, that's helpful. Thank you.

Your next question is from Armintas Sinkevicius with Morgan Stanley. Your line is open.

Great. Good morning. Thank you for taking the question. When I'm looking at new, last year, we had a bit of a shift in strategy through the course of the year, an emphasis on profitability early on, striking a balance later on in the year between profitability and volumes. How should we be thinking about your plan for new vehicles into 2020?

We like the balance point that we're at now. If you remember at the beginning of 2019, we were lagging the industry in retail unit sales as we pull through additional PVR. As we ended the year, we had a much better balance between the two, and we were still able to maintain the PVR. So, we like the spot that we're in today with respect to the strategy. I think it was important for us to stabilize net new PVR last year. But now that, that's been accomplished, I think we have a nice balance between volume and PVR, and you saw that pulling through in the numbers.

Okay. And on AutoNation USA, for Sonic, for instance, the turning point for that company was when EchoPark turned profitable. You've now had three consecutive quarters of breakeven. What are some reasons that you would pursue this with more bigger than you are today? What would cause you to look at it that way?

Yes, we're continuing to focus on additional We'll Buy Your Car volume. We want to make sure with AutoNation USA; our goal was to get additional volumes through this the store, to make sure it's sustainable. In any given time period, you can always, through marketing or other means, artificially put volume through, but we wanted to make sure we have a sustainable path as we look at the next phase of rollout of used broadly, whether that's digital, whether that's additional organic moves within franchise or expansion of AutoNation USA through greenfields or potential acquisitions.

Okay. And just to touch on the other element of your multichannel strategy, what are your initiatives for digital in 2020?

Yes, we've continued to do additional We'll Buy Your Car in digital. We've continued to improve our website and put additional features on them as well. So, it's really a continued evolution, starting back when we did AutoNation Express, really a continuation of that strategy and our mobile strategy in both new and used.

Okay, great. Thank you for taking the questions.

Thank you.

Your next question is from Bret Jordan with Jefferies. Your line is open.

Hey good morning guys.

Good morning Bret.

A question on the parts business, I guess, my usual question. As you've got a bit more experience, whether it be internally sourcing your own parts or selling to third parties, I guess, where do you feel you are in that parts rollout? And I think maybe you've done a supply test with one of the collision consolidators out there. Could you give us some update as far as how you're doing selling parts to outside your network?

We've always had great relationships and sold a lot of parts outside of our network, both on OEM and Precision Parts. So, our goal is to make sure we continue to provide great quality OEM parts, and in many cases, we think there's a continued opportunity to do that with a number of collision players on the OEM side as well as potentially through some of our aftermarket Collision Parts. So, in aftermarket Collision Parts, I'd say we're still in relatively early innings of that, although we certainly have continued to mature that business. And on Precision Parts, we continue to be focused on penetration within reconditioning of the vehicles using some of those parts, in particular, as well as certain non-warranty customer type.

Okay. And then a question, I guess, sort of follow-up. This is a big picture on customer pay service. I guess as you've had more experience, what is with the complexity which the ticket looking like? I guess, what's a five or six-year-old hybrid cost to maintain versus a comparable five or six-year-old internal combustion? As you get more of these complex vehicles, will you see sort of inflation in the annual service spend?

So, on hybrid, you have both an engine and a battery. So, hybrid certainly has higher spend because you get the benefit of both. There's not enough electric on the road today, quite honestly, to have the full trends built out now. But I will say that vehicles with sensors have a lot of calibration in collision or even in conventional repair. There's a lot more calibration work that we're needing to do than what we've seen in the past, and certainly, that has an impact on the ticket price. And for us, being able to use high-quality OEM parts and also in certain cases to use precision parts gives us some opportunity from a gross profit and a gross margin standpoint as well.

Okay. And then last question, I think in your prepared remarks, you'd mentioned the auction business a couple of times around the brand extensions. Is that something that you're ramping up? And I guess, maybe when you think about your own in-house auction volumes of your wholesale products versus maybe where you were a couple of years ago, are you selling much more yourself? And are you doing auctions for third parties as well?

Yes, we do auction for third parties as well. We're happy with our footprint of auctions today, and we continue to use them as an advantage within our business. And again, when we get -- we send our vehicles to our auctions, we also look to do consignment in our auctions. We've been successful in certain markets getting additional consignment vehicles. In particular, our first auction out in California and L.A. markets been out there where there's a higher degree of consignment. So, we're happy with the business. We're happy with the footprint that we have today, and it's been incremental. It's not something that we have current plans to do further expansion on.

Okay. Thank you.

Thank you.

Your next question is from Derek Glynn with Consumer Edge Research. Your line is open.

Yes, I just wanted to try to get some more context on finance and insurance. You're almost at $2,000 PVR on average across the company. What does that look like in your best-performing stores versus worst performing stores? Can you give us a sense of what that spread looks like?

I'd say the biggest spread is, what does it look like across brands remembering that it's tied to the average sales price. So, part of what helps drive the PVR is, in fact, particularly in new that you've seen a 15% increase in transaction prices over the last five years. With variation between markets, I would say, we continue to see strength in -- Texas tends to be a stronger market for our Customer Financial Services, generally, but we do look across brands and across stores. We have a menu-driven, very transparent selling process, and that also aids us with customer acceptance and Customer Financial Services.

Okay, got it. And also I had a question on advertising. Can you just walk us through your approach there to marketing your vehicles? How do you think about competing from an advertising standpoint, where today, many of these smaller independence on the used side are getting a lot of visibility on their inventory through online channels? Just want to get your take there, and if advertising is something you'd lean into or if there's any efficiencies to be had there as you think about 2020.

We've spent years optimizing advertising, both online as well as television. The combination of those 2 actually helps drive really good results, and we've done that by directing traffic directly to autonation.com, by directing traffic, certainly, through our OEM websites and all the different properties we have. We've done that with third-party lead generation as well and we've been very selective about who we use in monitoring, tagging and tracking the results of each provider. And as you've seen, there's been a lot of changes in third-party lead generation over the years, and it's important network constantly optimizing that. So, advertising is a huge part of what we're doing. We also partner extremely closely with all of our over 30 OEM partners on that. So, we focus on high-quality and high close rates. And certainly, we have the highest close rates on our self-generated organic traffic through autonation.com.

Got it. Thank you.

And we own all of our inventory. So, the great thing is when you see something online from us, we actually have it on our sites.

Your next question is from Mike Ward with Benchmark. Your line is open.

Thanks very much. Good morning everyone. I wonder if I could circle back on the debt reduction. I think you have some notes that were due in February, somewhere at $350 million, something like that?

That's correct.

Okay. So, can those notes just be retired with current operations? And then, I guess, you have some additional notes that mature in January of 2021. Is that the ultimate goals over the next year or so where you focus on the debt reduction, wherever it gets you to, and then some of the other things like share repurchases will be on the table as it's opportunistic as the same strategy all along?

Yes. The debt reduction, we did retire the notes with operating cash flow and a little bit of commercial paper, given how low leverage is, but we're always opportunistically considering longer-term financing. So, we like to have the debt laddered out. There's no mandate or need to reduce leverage further per se. So, we think there's much better capital deployment opportunities than just reducing leverage as we go forward.

Okay. Okay. And so if I'm right on the calculation, the notes you just retired were 5.5%. So, you get a kick-down in interest cost for 2020, is that correct?

That's correct on those particular notes.

Okay. Thank you, Cheryl. Appreciate it.

Great. Thanks Mike.

Your next question is from David Whiston with Morningstar. Your line is open.

Thanks. Good morning. Sticking to capital allocation. Lately, you have been paying down debt with cash flow rather than buybacks or no buybacks in the second half of the year. As you know, the company has a history being extremely aggressive with buybacks, but are you guys just temporarily now focused on debt reduction? Are you trying to subtly convey that buybacks won't be like they used to be? And related, Joe, since you're new, if you could talk about your philosophy on buybacks, do you think they are a value or non-value-added thing?

Sure. So, first of all, I think we have continued to try to be opportunistic in share buyback, and we'll continue to going forward. And I think it is, particularly when the stock is undervalued, a particularly effective tool to use as an investment alternative. So, as we've stated, first and foremost, we're always going to prioritize the business and then we're going to look opportunistically is how we can further grow the business and then redeploy capital and share repurchase clearly as a tool we will use as we feel it's warranted by the share price.

Okay. Thank you. And on used vehicles, I read about how there's so much off-lease supply all the time and particularly, you've now got a lot of light truck supply coming off lease. And my question is, is that -- is there ever a point where the too -- there could be too much off-lease supply on trucks and that the pricing could just be weak for you? Or do you really not care because for you guys, it just means more used vehicle sales, but other than also a higher vehicles in operation for service at a later date?

Yes. The great thing we saw in off-lease for 2019 was it was better matched to consumer demand. So if you roll back three years ago, you had a lot of cars coming off lease when the demand had shifted to CUVs. So, we like the off-lease supply that came in 2019. Manheim's estimating off-lease volume to be roughly flat year-over-year in 2020 at a little over 4 million units. So, we think we'll have a healthy supply but not necessarily an oversupply of off-lease volumes. And certainly, we continue to see customer demand and preference for trucks and CUVs.

Okay. And last question is on new vehicles. Your GPU was up 6.4%, but your volume was down 5.1%. So is it fair to say you were just really good at pricing just right this quarter? Or is it really all just a boost from more premium volumes?

If I look at same store, it was down about 3%, and at retail, the industry was down about 2%. So, I think we're right back in that sweet spot from volume and we struck the right balance with pricing matching volumes so that we're not lagging the industry in retail volumes.

Okay. Thanks.

And the last question is from Rajat Gupta with JPMorgan. Your line is open.

Hey thanks for getting me back on the queue. I just had one clarification on the SG&A to growth. You had some onetime severance charges in the third quarter. So, your guidance were flat to down in SG&A growth. Does that take that into account? Or do you think it might be even more from adjusting for that? Thanks.

It takes into the account. So, if you look at our reported SG&A, that's really what we're referencing.

Okay. So 72.6% or lower for year basically in 2020?

Correct.

Correct, for the year.

Got it. Great. Thank you.

All right. Well, thanks, everyone, for joining us today.

Ladies and gentlemen, this does conclude today's conference call. At this time, you may now disconnect.