Good morning, ladies and gentlemen, and welcome to the Group 1 Automotive's Third Quarter Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. This time, I'd like to turn your conference call over to Mr. Pete Delongchamps, Vice President of Financial Services and Manufacturer Relations. Sir, please go ahead.

Thank you, Jamie, and good morning, everyone, and welcome to today's call. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume and the conditions of markets. Those and other risks are described in the company's filings with the Securities and Exchange Commission over the last 12 months. Also, copies of these filings are available from both the SEC and the company. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating with me today on the call, Earl Hesterberg, our President and Chief Executive Officer; John Rickel, our Senior Vice President and Chief Financial Officer; and Lance Parker, our Vice President and Corporate Controller. Also, please note that all comparisons in the prepared remarks are to the same prior year period, unless otherwise stated. I'd now like to hand the call over to Earl.

Thank you, Pete, and good morning, everyone. This morning, Group 1 reported another all-time record breaking quarter in revenues, gross profit, net income and diluted earnings per common share. Diluted earnings per common share were $1.32 on record net income of $31.3 million. These record profits were driven, to a large degree, by a 25.9% increase in our revenues, which totaled $2 billion for the third quarter. I'm proud to report that Group 1's new and used retail vehicle unit sales have significantly outpaced U.S. industry retail sales this year, consistent with our strategy of capitalizing on the recovery of the U.S. auto market and on key Japanese brands. Our New Vehicle unit sales increased 34% for the quarter versus the 17% retail growth reported by LMC Automotive forecasting in the third quarter. Our strong rating of Japanese brands was a positive factor, but our unit sales increased nearly every brand we offer. New Vehicle gross profit grew 18.5% on the 34% increase in unit sales, while gross profit decreased $252 from $1,927 per unit. As we previously discussed, New Vehicle gross profit per unit was boosted last year by the inventory shortages following the natural disasters in Japan. As midline Japanese brand sales have rebounded, profits per unit have declined some. Our average sales price also decreased 1.2% to $33,050, reflecting the mixed shift from luxury brands to midline imports and a 390 basis point shift from trucks to cars. Used Vehicle unit retail sales continued to be strong, increasing 19.5% to 22,433 vehicles. Used retail gross profit grew 17.7% on 22.6% higher revenues, as gross profit per unit fell slightly to $1,682. The average selling price increased 2.6% to $20,612, partially due to our certified preowned business growing 150 basis points, that account for 33.5% of our used…

Thank you, Earl, and good morning, everyone. My following comments will be on a year-over-year basis unless otherwise noted. Our net income for the third quarter of 2012 rose $7.5 million or 31.6% on a comparable basis to $31.3 million, which is the best quarter in our company's history. While there are no adjustments made to third quarter 2012 results, the prior year's third quarter results excluded $2.3 million of after-tax noncash asset impairment charges. As previously announced, in early September, we incurred moderate inventory and property damage at several of our Gulf Coast dealerships as a result of Hurricane Isaac. The pretax insurance deductible expense recognized in the quarter totaled $600,000. These charges were offset by a gain recognized on the disposition of a Lincoln franchise, so no net adjustments were required this quarter. Earnings per diluted common share improved 30.7% on a comparable basis, $1.32, which is also the best quarter in our company's history. This result continues to highlight the improvements we've made to our processes and cost structure and demonstrates the leverage those improvements are delivering as new and used vehicle sales volumes continue to increase. On a consolidated basis, we delivered record revenues in the third quarter of $2 billion, which were up $406.2 million or 25.9%. This record reflects increases in each of our business segments. New Vehicle revenues increased 32.3% to $1.14 billion. Our Used Vehicle retail revenues improved 22.6% to $462.4 million. Used Vehicle wholesale revenues grew 13.6% to $78.4 million. While our F&I revenues rose 34.9% to $59.5 million or $1,220 per retail unit sold, which is yet again the company's best-ever quarterly F&I performance. Revenues from our Parts & Service business improved $14.9 million or 7.1% to $225 million. Our total gross profit increased $42.5 million or 17.1% to $291.2…

Thanks, John. To wrap up our prepared remarks, this is Group 1's fourth consecutive record-breaking quarter. Once again, we delivered all-time high top line results, while leveraging our cost to drive record net profit and earnings for our shareholders. I'm proud that our operating team has outpaced the industry in both New and Used retail unit sales so far this year. Going forward, our plans include gaining market share in both New and Used retail vehicle sales where we are averaging more than $3,000 combined front- and back-end gross profit per unit; expanding our profitable Parts & Service business; leveraging our scale and costs; and acquiring strategic operations that will augment our diversified brand and geographic mix, while keeping our balance sheet strong. That concludes our prepared remarks. I'll now turn the call over to the operator to begin the question-and-answer session. Operator.

[Operator Instructions] Our first question comes from John Murphy from Bank of America.

A first question on the average transaction price. It sounds like you were down 1.2%. It's a little bit different than what we're hearing from automakers and other data feeds. It sounds like pricing is actually positive. I just want to make sure, this decline that you're seeing is purely a function of mix? Or is there anything else going on at the dealer level where there's -- you're seeing pricing pressure that the automakers are not seeing?

No. And this is just a function of mix with Toyota and Honda being so strong. Those are more car-driven brands than truck-driven brands.

So absent the shift mix, you think pricing is reasonably strong at this point?

Well, pricing for the OEMs, I think based on our margins, you can tell that we've -- these are our margins. I think you can see it's fairly competitive at the retail end, but I don't think there's been any real change in the pricing levels now, currently from an OEM viewpoint.

Okay. Second, on the Parts & Service gross margin, 52.5%, I mean, it's pretty high at this point, is that a function of mix as well? And as we see more warranty work come back into the next couple of years that might come down, or this is kind of a level in the low 50s sustainable?

John, this is John Rickel. We're comfortable kind of in this range around 52%. Clearly, the way we account for the growing internal work with the reconditioning, in particular, on used vehicles, certainly supports that. The warranty work, we think, is on kind of a longer-term secular decline. You get recalls from time to time that helps pump it up. But the margins on recalls are not far off what we get on customer pace. I think the bigger part of the story is the ongoing support from the internal work.

And these higher numbers you think are just better utilization and throughput in your service base that's really going to continue going forward?

Yes, we're comfortable with this margin level.

Got you. The F&I PVR above $1,200. Once again, that's pretty impressive and at the higher end of the range, where it's been historically. Is this because you're getting better penetration on financing in your dealerships? Or is there something else going on here that's allowing you to really breakthrough that sort of that glass ceiling of $1,000 we used to think of?

John, it's Pete Delongchamps. Our penetration rates are actually relatively stable. But I think we're doing a much job with overall penetrations with our products. I think we've also continued to further our lender relationships, which is certainly very helpful. And then we've got laser-like focus on process and compliance, and that's also made a big difference in the way that we approach some of our underperforming stores. So it's a combination of a lot of different things, but we're pleased that $1,200 level.

And then just lastly, on acquisition, some other dealer groups have backed off acquisitions citing that they're somewhat prohibitively expensive, yet you guys are getting hot and heavy on acquisitions, which appears to be a good thing for both short-term and long-term growth. I'm just curious what you're seeing as far as pricing in the market and if we should expect -- continue to see a rapid pace going into 2013 with acquisition similar to what you've done in '12?

John, I don't think the environment has changed that much. I don't think we have bought any of the overpriced dealerships, because we can't afford to do that and deliver for our shareholders. But it's still our intention and desire to grow the company, and that's still our preferred use of our cash, and we still have good liquidity, as John mentioned. So I -- we'll continue to work that direction. It is difficult, and it has been difficult. But over a period of a year or so, we've been able to find ways to grow our company. We're going to continue to try to do that. I believe over time, we'll be able to.

And Earl, do you think there's an ultimate target for the size of your company that you're gearing towards? Just trying to understand what the upper limits are eventually. And obviously, this is a number of years out before I would assume you'd hit that. But where do you ultimately think you might go as far as the store count or the revenue base, and when we should think about -- you kind of hit the brakes on that, really just running the business for cash and just pure straight return to shareholders that cash flow?

Well, we've never really tried to identify a target size for the company. What we target is consistent annual shareholder growth of 15% for the year or more, which we've been, obviously, able to do particularly with the market recovering. And we think part of that consistent return to shareholders. And more than 15% a year, even when the market is flattened out a bit, the best formula to get there is continue to grow our company and deploy our cash flow that way. So that's in our DNA, but I can't tell you that we want to be a $10 billion company or a 250-store company. We just -- our job is to find good opportunities for our shareholders as fast as we can find them and to a degree we can afford them.

Our next question comes from Rick Nelson from Stephens Incorporated.

I'd like to ask you about market share with your major brands kind and those same-store basis, sort of understanding the retail market was up 21% year-over-year. Your same-store new car sales were up 22%. I guess, I expected a little more given your brand mix heavily skewed toward Toyota.

Yes, we gained significant share on most of our key brands. Our Toyota sales were up about 44%. Our Honda sales, almost 52%. Another -- one of our key partners, Ford, are up 15%. So we gained share in most of our key brands and not just in New but Used. So that's a big part of our success, I think, not just this past quarter but this year. The only business that was softer than I would like to see, our BMW business was about flat. I think that will change in the fourth quarter as we now have some all-wheel-drive, 3-Series vehicles to sell in the northern half of the country. And that's been -- customers in the northern half of the country been waiting for the all-wheel-drive, and that's a big part of our BMW line.

Right. And those truck [ph] rates you cited-- were the same store?

Yes.

Okay, terrific. I would like to cover the margin side on a new car. I understand the mixed shift pressuring the margin. But if you could discuss where you're seeing pressure on a like brand basis, and where you're seeing more stability?

Well, I think the obvious place, obviously, is Toyota and Honda, with their supply this year, and those brands are trying to recover market share. But that dynamic basically sucks everyone in to that highly competitive game. Nissan, obviously, is trying to defend their market share. Ford, General Motors and Chrysler, have to compete also. So all the volume brands, I think, are a bit more competitive this year. And the dynamic is driven by Toyota and Honda, I believe.

How about the cars -- the luxury cars? Are you able to retain more margin there?

Yes, absolutely, we have been. Although I think that it's going to be a very competitive fourth quarter in the luxury brand business. There's better supply, I think, for the luxury brands in the fourth quarter than in the second and third quarter, but certainly versus fourth quarter last year. And I think there's a pretty big competitive dynamic between BMW and Mercedes at the moment. But thus far, I think our luxury margins have held up recently well.

Any commentary on October sales? And your thoughts about the full year? Do you have SAAR estimate at this point?

Well, our SAAR estimate rate will be $14.4 million, which hopefully we'll get more accurate as we have more months behind us. But I'm afraid I don't have anything brilliant to contribute to October. I -- My first point of reference is analyst reports by you and your colleagues who, those who choose to predict the SAAR, which seems to be mid-14 to high 14, if I'm reading all your reports. But I would say that a lot of this business occurs in the last week of the month. So midmonth data isn't all that helpful for me, usually. But I don't see any dynamic that is positive or negative that has really changed the pace of the market. So it still seems to be fairly stable and pretty good business right now for all of us.

Okay, got you. And finally, if I could ask you about finance market, particularly subprime, what you're seeing there, what the opportunity might be?

Well, I think, there's -- Rick it's Pete Delongchamps . There's plenty of opportunity. We talked about before the lenders have become more full spectrum. And as you know, we've consolidated some of our lending base. But today, getting consumers financed through reputable banks is not an issue.

Our next question comes from Ravi Shanker from Morgan Stanley.

Earl, if I can just follow up on something you said earlier in this conversation about the pricing. You said that you're not seeing too much difference from the OEMs in pricing. But what are you seeing from the dealers? Because so far, and this earnings season, where you are seeing a couple of dealers kind of beat our expectations on top line but missed on pricing. You guys were kind of the opposite. And some of the other dealers that I've spoken about and trying to gain share potentially at the cost of pricing. Are you seeing a lot of that in the market or is that more isolated?

I think that the auto retailers, dealers, whether they're public or private are all fairly aggressive right now, including ourselves. So I think everyone is trying to take advantage of a better market. And there's more fish in the pond, so we're all fishing harder.

Understood. And also if I can follow up on the acquisitions, can you just give a little bit more color there on how you see those kind of evolving? Because you had some pretty good examples and a very good track record of leveraging a lot more out of somebody's acquisitions than you had going in. So the revenue targets you've given us, I mean, do you think that these acquisitions stay at this level for a while? Or do you think you can get a lot more of them?

I can't really give you any assurance one way or the other. It's such a dynamic market, and you have to be so opportunistic. I can only tell you that we're going to approach it in the same manner we have, and that is we're going to look hard to find them. But I will admit that it's challenging, because the selling prices in the market, at least the asking prices are high, and the real estate challenge still exists. Commercial real estate just doesn't have the same value at the moment that it had prerecession. So there's still a lot of challenges to doing deals. We've been fortunate that we've been able to. And we're going to try to continue that. That's about what I can tell you.

Okay. And finally, John, housekeeping question for you. And you kind of alluded to this in your comments, but can you give us the full impact of Hurricane Isaac from both a cost and an opportunity perspective?

Yes, Ravi, this is John. From a cost perspective, in direct cost that we can measure was the insurance deductible. Turned out to be a little bit higher than what we've indicated in the press release. We ended up with about $600,000 of insurance cost and primarily around some roof damage where we have a little bit higher deductibles on roofs. On the revenue piece, it's always hard. The new and the used vehicle sales probably defer, and they end up coming back. What we lost was the best part of a week at 12 dealerships on the Parts & Service. And once again, hard to calculate, but certainly, that capacity, if you can't get back, so I would say that's probably the main impact on the revenue side was that loss in the Parts & Service area.

Have you seen that kind of rebound in 4Q so far?

Yes, I think we're back to a stable level. We lost some business, I just couldn't tell you how much.

Our next question comes from Patrick Archambault from Goldman Sachs.

I have, I guess, one just on used. You've seen the Manheim start to soften. Can you just give us a sense of how that's playing out for you? I mean, margin seems to come in line with the expectations for this quarter, but how does that affect you going forward? Can you potentially capture some of that acquisition cost in savings? And then I guess, I just have a follow up on Parts & Service.

Yes, Pat, it's Earl. Yes, the values did soften down in the quarter, particularly early in the quarter. Some of that was -- they were obviously high, but there's a seasonal turn also that occurs this time every year. We actually lost a little money at wholesale for the quarter, which is first time in a long time. I wasn't particularly happy about that. We actually lost a little money in wholesale in the first 2 months of the quarter. By the third month, we got that straightened out, and we're back in the black. So the idea -- one of the reasons we run our used car business so tightly with 30-day supply, which I think you can see over the years, plus or minus a day, that's usually what we have, so we can reload with cheaper cars very quickly. And as you go into the winter, obviously, the prices of used cars do decrease. You want to be able to buy as many as you can at that lower price level. So we very much want that and very much been a change in the market. Most of it's seasonal, probably a little bit more than that. So we have to stay nimble and use the data available to us, so we can continue to buy on the market, not have to flush out too much inventory that we bought above-market prices some period of time ago.

Okay, so right. I mean, so hopefully, like the non-recurrence of some of the inventory coming down is positive. But I guess, my question is, are you finding that prices are coming down as much as customer prices are coming down as much as acquisition costs is? Or is there kind of an opportunity there, perhaps in future quarters?

There's always an opportunity as you go through the winter, if you manage your business carefully. You want to stock up with cars at the low price in the winter, so you're ready for the spring selling season in March. And you don't want to have too heavy of an inventory as you're going into the lowest part of the pricing curve in the winter. So, yes, there's an opportunity for all retailers if you run your business well.

Okay. And just on P&S, I mean, the business did slow, and I think you explained why. I mean, there was affected by some of the dealerships that were impacted by the hurricane. But what do you see kind of a sustainable growth rate as for that business? I mean, recently, it's kind of had its puts and takes but what sort of a sustainable run rate that we should be thinking about?

In the near term, probably low-single digits, but our goal would be to try to make it more mid-single digits. We didn't do well on customer pay. Our customer pay business was flat, rather than growing. And we believe the majority of that was, what John mentioned, losing some business along the Gulf Coast. The encouraging part was that warning came up a bit for us. Warning was almost flat, whereas -- and so that was a little bit better dynamic for us. Our body shop business was up 3.6%, which is okay. But I think we can grow faster there also. So our goal will be to push it toward 5% realistically. If we can grow about 3% probably what the market will generate at this time.

Our next question comes from Simeon Gutman from Crédit Suisse.

Quick question, follow-up, Pete, regarding credit. I think you mentioned that, I guess, credit is going well. I guess about a year ago, it felt like there was an inflection where credit was expanding a little more rapidly. Curious, is there another layer? Does it feel just from, I guess, the lending environment, feel like there's even more lending to come and the sub-prime availability is even going to get better from here?

For us, I don't think so. There may be availability, but as we've talked about, what we're really focusing is making sure our business is going towards the OEM financial service partners that we have, and then really leveraging our relationship with the larger banks. We have a couple of regional banks that we use in credit unions. But we think that where the lending situation is today, that we can really expand opportunities by focusing on our best partners. So for us, I don't think there's additional layer to come. We're very happy with the relationships we have, and our business is growing as is theirs.

Okay. And then, Earl mentioned the wholesale lost money in the first couple of months and there were some issues that got fixed. Was that the market issue, or was that operational issues, if you can clarify? If not, no problem.

I believe the market majority of that was market issue with the change in the Manheim price index. But I'd like to believe we can always do better. We should always do better than the market. So I think we could've done better also. But maybe that's just me. But I believe the majority of this market. you have to work harder to do better, let's put it that way.

Okay. And then on throughput, it looks like the number was decent. And I realized that the numbers we look at are imperfect, because it has some noise from new business and acquisitions that come on. I don't know if there's some adjustment that you can show or talk about just how from an efficiency standpoint the business performed?

Yes, I mean, this is John Rickel. On a same-store basis, which we think is the right way to look at SG&A flow-through, our calculation is we got 48%, which is pretty close to our metric kind of $0.50 on the incremental gross profit dollars. So we felt reasonably good about that, and we did have one kind of lumpy item it's in the operating result that is an operating item, but we did have to true-up our accruals for workers comp and liability insurance. That added about $2.4 million of added expense within the quarter that clearly pulled that down a little bit.

Our next question comes from James Albertine from Stifel, Nicolaus.

Quickly on the Used side. Just wanted to understand, you mentioned that CPO sales of, I think, you said 33% year-over-year, but could you just parse that out by the segments? How will you break it down, CPO? And then maybe 3- to 8-year old vehicles and then beyond that?

Well, I don't -- Yes, Jim, this is John. I think, maybe a little misunderstanding there. What we said was that the percentage of CPOs was at 33.5%, it was up 150 basis points from same period a year ago. So we had a little bit stronger mix of certified preowned, but I don't think the growth was -- I think that confuses with the growth.

Okay. Could you provide the growth level then by segment, or is that just something you don't want to get into detail?

We don't have that by segment, I'm sorry.

Okay. And then I just wanted to understand a little bit on the M&A side how you prioritize -- given your existing mix, how you prioritize brands and then separately geographies? And then as a follow-up to that, maybe a little bit more detail as to the thought process behind some of the dispositions that you wrote about here recently.

Certainly, this is Earl. Yes, we, obviously, prioritize geographies where we already operate. And I think that footprint's pretty clear. And including the U.K., we would intend to grow our U.K. business when possible. We're not as limited by brands as we probably have been most of my 7.5 years in Group 1. Now we have been very successful in the last year to 1.5 years with some acquisition of Ford dealerships. And Ford's become a great partner with our company. And last year, we bought a Cadillac-Buick-GMC dealership, which a few years ago, I wouldn't have thought we would have done that, and it's performed incredibly well. So we're much more open on brand than we've ever been before. And clearly, we have a great partnership with Volkswagen Group that's emerged over the last 1.5 years or so.

Okay. And any incremental color on the dispositions?

Those were just simply dealerships that we're not providing a good return on investment for our shareholders. So at that point, if it becomes frozen capital, we'd rather free it up and deploy it for the type of dealerships I just discussed, such as the 2 Hyundai dealerships we bought in the most recent quarter, which is another good partnership for our company.

The only thing, Jim, that I would add is that a couple of those were also -- to free up real estate for more productive uses. The ones that are in the middle of a campus, which will allow us to expand some of the other stores. And the one here in Houston, was really about making room for our Lexus expansion. So part of it's also real estate-related.

Our next question comes from Matt Nemer from Wells Fargo Securities.

So just a couple questions. First, starting with new grosses. As you look out of the next few quarters, do you expect us to be down year-over-year until we go up against the second quarter of '13 or '12? And then in Q4, do you expect grosses to be down sequentially? Or do you think they will be up with the mix just back to the luxury and the improved luxury availability?

I would hope, Matt -- this is Earl, by the way. I would hope that the luxury mix should get in December and at the end of the year would be a positive mix factor. But I mentioned a little bit earlier on the call, I do foresee a little more luxury competition in the fourth quarter this year. But I think as we look in the year ahead, grosses should be should be plus or minus, pretty stable.

Matt, this is John Rickle. A couple kind of additional thoughts on that. I think, sequentially, as I indicated in my comments is the way to think about it, so I think, if you look at what we've run in the second, third quarter is probably not a bad way to think about modeling fourth quarter. And I don't think you're going to have a big change up or down from that. Clearly, we'll get some help in the U.S. market from a little bit better luxury. December's usually a big luxury, but don't forget, we've now got more U.K. exposure, and we're not going to have the same contribution from the U.K. in that same period.

Yes, there's a September plate change. There's no plate change in the fourth quarter in the U.K., so that's a good point.

So that's why I think you're probably best-served to just think about it as kind of the same level we had in third quarter for New Vehicle margins.

And just a quick follow-up to that, how much does the plate change in September drive the overall 3Q gross up in terms of the mix to those luxury units, and I assume higher gross transactions in the U.K.?

Matt, I haven't actually run the math to give you a specific number. I mean, it was, obviously, a positive contribution, because that's one of the 2 strongest months of the year in U.K. And, those were they're all luxury stores, and I don't have a specific dollar amount I could share with you.

Okay. And then my second question is I'm wondering if you can provide any qualitative or maybe quantitative commentary about what you're seeing in truck sales and if you think that trucks in your markets are getting any benefit from the stabilized, and maybe slowly improving housing environment.

This is Earl, Matt. I can't say I've seen any lift in the truck market. But I would say that it's certainly stable, and we would expect it to continue to be stable to up. General Motors has a product launch, and Chrysler has a product launch with the Ram. So I think some of the underlying either stability or strength of the truck market is getting buried by Honda and Toyota and Volkswagen driving these -- the car mix up quite a bit. But there's nothing wrong with the truck business at the moment. And fuel prices are not a drag that may have been in certain times over the past 2 or 3 years.

This is John. We've seen good growth in a number of the pick-up brands. Ford had a very good quarter in pick-up growth. We saw strength in Dodge with the Ram trucks. And Toyota also had a very strong quarter. So we are seeing some strength in the pick-up segment. And interesting enough, the fuel prices up as much as they were, we saw a good growth in both pickup and SUVs in the quarter.

Okay, great. And then just lastly, I'm wondering if you can comment about any centralization initiatives you have for 2013? I know that you're pretty close to being finished with centralized accounting, but maybe you could talk to inbound call centers or any other initiatives that you're sort of thinking about for next year that are centralization -- around centralization?

Matt, this is John Rickel. The main focus for 2013 will be finishing up our accounting consolidation. As you indicated, we're in the middle of that right now. And by kind of the summer of next year, we'll be completed with that. And all of our transactional accounting will be based here in Houston. So that's really -- the key focus right now is to get that completed.

And longer-term, are there other kind of major opportunities to centralize or bring some kind of group efficiencies to the network?

Yes, there are, Matt, definitely. This is Earl, but I don't really want to talk about them right now for competitive reasons.

And Our next question comes from Brett Hoselton from KeyBanc.

I was hoping you could characterize BMW inventory levels during the third quarter and maybe contrast that with inventory levels that you anticipate or have going into the fourth quarter here?

Yes, this is Earl. Our BMW inventory levels have probably been -- they've been actually just about right. They've been thin on key models for a couple of years, whether it was X5, X3, 5-Series knowing new dynamic this year was, as I mentioned earlier, the all-wheel-drive 3-Series has not enabled us to capture the momentum with the new 3-Series in the northern half of the country. And those vehicles are now arriving at BMW dealerships. In addition, it appears that overall BMW inventory is going to be better in this quarter, the fourth quarter, than it's been in a long time, and that would be across most all of their model lines. So I would think that the fourth quarter will be much better BMW quarter, certainly for Group 1.

Okay. And then Used Vehicle gross profit per unit. As I look at Slide 9, we've kind of seen a general degradation decline in gross profit per unit in the Used Vehicle side since about 2007. I guess -- so my question was can you talk a little bit about the outlook. Do you anticipate that it's going to continue to decline? Or do you think you're going to see it sort of to bottom out here around 1,700 where it's kind of where it's been for the past few quarters?

My feeling is that it should be bottoming out. Some part of that has just been the difficulty in finding good quality used cars and the fact that we -- we're still only getting about 60% of our inventory from trade-ins and still supplementing it a bit. But the other thing is we've been pushing hard. We've been pushing our used car business hard. We're up 11% in the quarter. The industry was up 6%, and that follows 18.5%, 15.5% the first two quarters, which is way above the market. So we've been pushing to gain share in the used business also.

Brett, this is John. The other thing -- and I agree with everything that Earl said. The only thing I would add is that one of the things that should start to help us, as we go into next year is that the return of off-lease vehicles begin to pick up pace. Those are fabulous units for us to turn into certified pre-owns and really good used car pieces. That's been of the things we really been kind of short on is good late-model used cars. And with leasing, finally starting to gain traction again, it should start to get a better supply of those starting next year, which should be one of the things that will help that split of how many extra cars we're apt to supplement at auction. If we can continue to pick up cars there, that should help us -- so I agree with Earl. I think that you kind of hopefully at a low point here.

And then similar question on Slide 11. F&I trending up since 2009. You're around $1,200 right now. And so is there still an opportunity to see another $50, $100 out of F&I? Or do you think that you're more likely to see a plateau in this around $1,200 range?

I think I'll the give Pete an objective of that $100 you mentioned. But I think there's still a little bit upside. We just know that we can perform a little bit of an upside, but I think we can perform a little bit better, but $100 is probably overstating it. But nothing wrong with going for another $20 or $30.

And ladies and gentlemen, at this time, our question-and-answer session has concluded. I'd like to turn the call back over to Mr. Earl Hesterberg for any closing remarks.

Thanks to all of you for joining us today. We look forward to updating you on our fourth quarter and full year earnings results next February. Have a good day.

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your telephone lines.