Lithia Motors, Inc. (LAD) Q2 2008 Earnings Report, Transcript and Summary

Welcome to the Lithia Motors second quarter 2008 earnings call. (Operator Instructions) It is now my pleasure to turn the call over to your host [Dan Westhauser Kent]. [Dan Westhauser Kent]: Welcome to Lithia Motors second quarter 2008 conference call. Before we begin, the company wants you to know this conference call includes some forward-looking statements. These statements are necessarily subject to risks and uncertainty and actual results could differ materially due to certain risk factors. These risk factors are included in our second quarter and year end earnings press releases, and in the company's filings with the SEC. Now I'd like to thank you for joining us for our second quarter 2008 earnings conference call. Presenting the call today are Sid DeBoer, Chairman and CEO of Lithia and Jeff DeBoer, our Chief Financial Officer. At the end of their remarks, we'll open the call to questions. We also have with us today for Q&A Brian DeBoer, our President and Chief Operating Officer and Dick Heimann, our Vice Chairman. Now it is my pleasure to turn the call over to Lithia's Chairman and CEO, Sid DeBoer.

Our second quarter non-GAAP net income from continuing operations was $1.8 million or $0.10 per share. These results show steady, sequential improvement from the fourth quarter '07 loss of $0.16 and a first quarter loss of $0.03, and all the while economic conditions have been worsening. As you probably read in the press release, accounting requirements dictated that we record a significant charge related to asset impairments that we will talk more about later on in the call. The non cash charge explains the large loss based on the GAAP financial result. As expected, the second quarter provided a difficult environment in the economy. Continued housing declines, credit market concerns, and high gas prices have weighed on just about every sector of our economy and auto retail certainly has been no exception. You might remember on our third quarter conference call last year, just when the credit markets were beginning to show distress, and oil had risen to $80 a barrel, we announced cost cuts and strategy shifts to prepare for a prolonged downturn. Although we were ahead of many forecasters in anticipating a slowdown in vehicle demand in '08, no one could have envisioned the combination of events that took place in the second quarter of this year. As we move into the equally difficult second half of the year, I want you to know that we are preparing for continued slow vehicle demand into 2009 by bringing our expenses into balance with our conservative view of vehicle demand. In the 40 plus years that I've been in the auto retailing, I've never experienced this sudden upheaval in the car market that we have just seen since May. Our previous steady efforts to cut costs required a more dramatic response because of what happened beginning in May for those market conditions. On June 2, we announced a comprehensive restructuring plan that focused on right sizing this company to a new operating environment. We told you how we expected $18 million in annualized savings with head count reductions, consolidation of duties, corporate overhead reductions, and office centralization. We expect to have these efforts completed by the end of August. We're more than pleased to announce that all of that $18 million in annualized cost reductions have been found and have been completed through July. And also, in the process of making these cuts, we've identified another $4 million in the annualized costs that are earmarked for reduction by the end of the year. The other elements of the restructuring plan were to reduce our debt domestic exposure within our business units by divesting of 10 to 15 underperforming stores, deferring all of our uncommitted capital expenditures, selling unnecessary property and assets including some aircraft, financing all unfinanced real estate, postponing acquisitions until prices drop further, significantly adjusting vehicle pricing to match current demand, adjusting our inventory mix to meet consumer shift in preference for smaller, more fuel efficient, new and used vehicles, and deferring the investment in our new L2 auto stores. The breakdown of the revised total of $22 million in annualized cost reductions is as follows: store level personnel have been reduced by $8.1 million since January. Support service personnel have been reduced by almost $10 million - $9.8 million. Benefits and corporate overhead have been or will be reduced by $2.6 million. Service, body and parts expenses will be reduced by $1.4 million. All of these costs come right off the SG&A line and 90% of them have already occurred just since January. In addition to these SG&A reductions, we have in place an ambitious but realistic plan to reduce our current inventory by the end of the this September to levels that will allow us to realize almost $8 million more in annualized interest expense reductions. These numbers are not included in the $22 million just mentioned, but are part of our broader restructuring plan. About 25% of those inventory reductions already occurred in July. Our plan to reduce our domestic exposure is also moving forward. We set out a plan in June to begin divesting 10 to 15 of our underperforming stores. That number was settled in at 14 stores to be divested. One of them is already sold as we announced and we have signed agreements to sell six more. We have actual signed agreements to six more of that 14. We have also entered into a non solicited agreement to sell two additional domestic stores that were not even on the original list. There is still a demand for domestic dealerships, independent, private entrepreneurs, even in this economic climate. We have uncommitted capital expenditures that have been deferred or cancelled including some store remodels and a few lease hold improvements. This has preserved approximately $60 million of our cash in '08 and in 2009. Lithia had been investing in future retail sites for both Lithia and L2 that had been intended to fuel our growth engine. Because we have shifted our focus for the current time to our balance sheet during this time, we have put these properties in addition to our airplanes totaling $22.8 million up for sale, and have buy/sell agreements pending on some of them at this time. Our plans for growth through development and acquisitions will resume once the time is right to do so. Lithia has been able to monetize some of the assets that have been on our books, but carried at below market values. This has given us the opportunity to raise capital at competitive rates even as credit markets are tough. Since January, we have financed $65 million worth of our own real estate. Lithia's key strategy of owning our retail facilities has and will continue to provide us with capital when we need it. The depreciated value of our real estate portfolio in continuing operations has a book value of over $300 million, which we are confident would appraise for more, on which we have real estate debt of approximately $220 million, leaving substantial room for additional financing to be completed throughout the remainder of the year. We are dealing with getting our inventory in balance, as I spoke earlier, and have re-priced our entire inventory to meet the current market conditions. Overall, our new car margins actually have held steady because of manufacture incentives being increased, and this has helped to soften the blow on many of the price cuts. We believe that our used car margins will improve later in the year as we work through the current inventory and balances. As you can see, they are lower than our norm. Our L2 auto division has been now fully integrated into our Lithia operations. The separate organization structure has been dismantled because our existing managers can operate it without the overhead of an additional management staff. This has resulted in eliminated costs associated with maintaining a separate retailing and inventory management group. In fact, we are integrating our Loveland, Colorado store with the Lithia Denver/Fort Collins group, and our Cedar Rapids L2 store was converted to an exclusive Kia outlet that focuses on selling both Kia and used cars in volume. Our Amarillo and Lubbock stores are still in operation. That is a brief update on how our restructuring plans are progressing. We are right sizing our company to achieve our desired profit margins and to reflect the current economic environment. We're really proud of our dedicated Lithia team members who continue to work together to achieve this common goal. We cannot do it without their commitment to making this company stronger for all of us. So then, to our entire group from our support services employees to our store managers, to our store teams, to our management team, I want to personally say thank you, and I know I speak for all of senior management when I say that. I will now turn the call over to Jeff, our CFO who will comment further on the company's financials.

We currently have 13 states in our same store sales mix. You can refer to our press release for the contribution by geographic region. Our regional diversification continues to serve us well. The only state that has a disproportionate volume is Texas, which represents approximately 26% of our same store sales. As it happens, Texas has also shown the least declines in sales of all our regions and was down 5.6% from last year. States that have the most benefit of oil and agricultural commodities are currently our best states, such as Texas, Iowa, Nebraska and Alaska. The four states in our same store sales mix that showed the biggest declines were Idaho, Oregon, Colorado and California. With all the talk of economic turmoil, it is important that we maintain some perspective on this subject. We feel confided that consumers, particularly those in our markets will continue to buy the vehicles they need and want. For example, according to J.D. Power, for the past two years, 11 of the top 20 selling models in the U.S. were light trucks. Although that number has recently trended down, the past six months showed that eight of the top selling 20 models are still in the light truck segment, with Ford F Series and the Chevy Silverado, both retaining the top two selling positions so far this year. As you can see, the demand has shifted, but it has certainly not disappeared. For Lithia specifically, our truck SUV cross over minivan segment represents 64% of our total new vehicle sales year to date, compared to 69% percent last year in the same period. On a quarterly basis, this truck/SUV cross over minivan decreased from 68% to 59% of total unit sales in the second quarter. So we are seeing a shift and this shift is interestingly happening across both domestic and import lines. Our domestic import mix for the quarter on a same store unit basis was 54% domestic and 46% import, in contrast to the second quarter last year when it was 60/40 split. So we've moved it from 60% domestic down to 54%. Now let's talk about inventory. As of the end of June, our new vehicle inventories were 10 days higher than the five year historical average [inaudible]. We are working hard to keep levels down during these difficult times, but we have more work to do as Sid outlined earlier. Used vehicles have been more of a challenge due mostly to the mix of inventory. Our supply of used vehicles at the end of the quarter was 16 days above historical average levels for June over the last five years. We are working hard with our team to respond quickly to the changes in consumer demand that created the inventory issues. Through the reduction of used vehicle inventory, we estimate to generate approximately $30 million to $40 million of cash in the third quarter. In the finance and insurance business, we continue to show strength. Our S&I per vehicle for the second quarter was $1,095 which is $46 lower per vehicle than the second quarter of last year. We had penetration rates for the financing of vehicles of 76%, service contracts 41% and our lifetime oil and filter product at 36%. All of these areas are flat with last years' numbers except for service contracts and life time oil which are down 300 and 100 basis points respectively. Our service and parts business continues to be a stable profit center for Lithia, as it does for other auto retailers. In a sales environment that was down 16% to 20% for Lithia, our service and parts has continued to remain relatively steady with same store sales down 2.9% year to date. For the quarter, same store service and parts sales were down 2.9%. As you can see, even in a down sales environment such as this one, our customers are still servicing their vehicles. Margins on service and parts are down 40 basis points in the second quarter from 2007, which we attribute to a higher proportion of lower margins, parts and accessory sales. Warranty work accounts for approximately 19% of the company's same store service and parts sales. Same store warranty sales in the second quarter was down 5.5% with domestic brand warranty work decreasing 2.6% and import warranty work decreasing by 9.9% for the quarter. Sales in the customer paying service and parts business which represent 81% of this business were down 2.3% in the quarter. New vehicle margins as Sid mentioned, were actually up 20 basis points this quarter compared to last year at 7.8%. We attribute this to shifting demand and the margin differences between cars and trucks. In the second quarter, the margin on new cars went up 150 basis points to 9.2% from 7.7% last year in the second quarter. Additionally, truck margins came in 50 basis points higher than last year at 7.5%, due mostly to manufacture incentives and our pricing strategy. We make $380 less in gross dollars on a car compared to a truck. However, the average sales price on a car is a full $10,000 lower than a truck, resulting in a higher percentage margin. Used retail vehicle margins were down as Sid mentioned by 340 basis points from second quarter last year to 11.1% due to a shift in consumer demand and efforts to keep our inventory moving towards the higher demand vehicles. On a sequential basis, from the first quarter 2008, revenues increased 8.1% in total to $665 million while operating expenses were reduced $4.1 million to $91.4 million excluding the $4.5 million in impaired asset projects in the second quarter from the cancellation of construction projects. Some of the significant areas where we saw changes in our continuing operations and SG&A were as follows. For the six months 2008, training and travel expenses were reduced $1.6 million. Salaries, bonuses, benefits and commission reductions totaled $11.8 million compared to the prior year. Our overall gross margin decreased by 10 basis points from second quarter 2007, largely due to the lower used vehicle margins that we explained earlier. Operating margins were lower by 150 basis points to 2.1%, excluding the impairment charges in the second quarter, but were up 50 basis points from the first quarter of this year. Now we'll turn to the balance sheet and the capital side of our business. We realized positive cash flow from operations of $15.3 million in the first half of 2008, and we anticipate that our cost cutting measures will continue to increase our cash flows from operations despite the current economic environment. Since the beginning of the year, we have reduced the outstanding debt on our credit line from $184 million to $138 million. Our store sales that Sid outlined earlier are estimated to generate over $35 million in total net cash proceeds given the disposition of stores, so $35 million. Further reduction of used vehicles as we mentioned, there's another $30 million to $40 million of cash coming in. All of these steps in addition to the real estate financing create proceeds to further reduce the outstanding borrowings on the line of credit and to help retire the $85 million in subordinated convertible notes due in May 2009. Additionally, we have negotiated more flexible debt covenants with our bank group in order to continue to operate effectively in this difficult economic environment. The credit committees of the four lenders of our bank group have met and approved the requested changes. We thank them for their efforts. We expect to sign and file this amendment to our credit agreement with the filing of our Form 10-Q. For the quarter, the total of flooring and other interest expense as a percentage of revenue was 1.8%, and was 30 basis points higher than last year. For the quarter, we had a decrease in flooring expense of approximately $2.1 million. The decrease in this expense is largely due to live board interest rate being lower than last year. Lower interest rates contributed $2.6 million to the decrease and lower volumes – our volumes had a positive effect of $400,000 while and increase of $900,000 was related to our interest rate swap. The second quarter other interest expense increased by approximately $1.2 million, essentially all of which was due to higher outstanding balances on our lines of credit. Including all fixed rate debt obligations and hedges, approximately 48% of our total debt now has fixed rates. Including swaps, our average annual interest rate on all debt is 5.4%. Looking at the balance sheet, we had $21 million in cash and approximately $38 million of contracts in transit for a total of $59.4 million at the end of the quarter. Our long term debt to total cap ratio excluding real estate is 39%. I'd like to break out our total non flooring debt as of June 30 for you. The convertible notes, $85 million, the line of credit $138 million, mortgages $220 million, other $20 million for a total of $463 million. Our non financeable CapEx for the full year of 2007 last year, was $23 million. For 2008, with the reductions that Sid has indicated, we've managed to cut this back to a range of $20 million to $25 million with the possibility of it being a little lower. Our current book value per share is $13.05 which does not include any appreciation in the real estate values above our carrying values. Recent pending and completed store sales have indicated that franchise value and blue sky exists, particularly with import and luxury brands and domestic stores in stronger market areas. Additionally, this applies to many stores acquired prior to 2002 when GAAP did not require franchise value to be allocated at the time of purchase. That concludes the presentation portion of the conference call. We'd like to thank you all for joining us and we open the floor to questions.

(Operator Instructions) Your first question comes from Analyst for Rexford Henderson – Raymond James Analyst for Rexford Henderson – Raymond James: The first one has to do with some of the write down charges. I'm trying to understand. Talking about $32.8 million after tax related to some of the franchise. I'm wondering if you wouldn't mind breaking out what dealerships those were, what brands they were and maybe comparing, contrast that to what type of dealerships are in the for sale pipeline, and maybe get a feel there, what types of brands.

We go through a pretty comprehensive model on the analysis and our forecasts and so forth, and adjust things based on the trends that we're seeing, and historical trends and so forth, and we go through every store and every brand and analyze that. And then we compare that to our market cap and our risk premium and so forth. And then we have to write down basically according to the accounting rules anything that was not justifiable compared to that market cap. The brands in the stores are mainly domestic stores pretty much. Import and luxury stores, we don't see a lot of impairment on, and that's really the simple answer to that question.

The majority of them are focused on domestic stores. The only time that we're looking at an import store is if it's combined with domestic stores that we believe that we need to exit the market because it may be too small of an import store. So those are the only times we would look at an import store as a divestiture. Everything else is focused on Chrysler, Ford and General Motors. Analyst for Rexford Henderson – Raymond James: In moving over to the inventory side, I know we've got a breakdown of what the sales look like. Any chance of getting what the inventory looks like as far as trucks versus cars out there?

We've made a lot of progress as Brian indicated, and we've aggressively reduced inventory mix, and mark down prices, and we've gotten them very close to being in line. They got out of line in May and June, April, May, June was really the time period. And the end of June and July we've really tackled that and its very close to being in line with where we want. A little more progress. By the end of July, I think we'll have it right in line. Analyst for Rexford Henderson – Raymond James: Any measurement of where that is as far as a percent breakdown? The other one just dealt with some of the debt covenants. You said you were going to file some of the details in the upcoming Q. Am I correct there?

Yes. Analyst for Rexford Henderson – Raymond James: And that would seem to settle some of the concerns surrounding the dividend. Is it fair to assume that the dividend is still relatively safe in your opinion?

We're making no comments about the dividend today. We'll have the information on that as it's needed.

We could announce the dividend for the second quarter though.

Going forward, we'll decide as we need it.

The inventory information I have is only through June so the progress we made in July is not in these numbers. At the end of June, we had 74% of our total inventory in trucks, SUV's, minivans and cross over's. And the sales number is around 64% total as compared to 64% on the total sales number in inventory. But like I said, that number is closer to the 64 because of the huge progress we made in July.

July was a big move for us.

The numbers on our new vehicle inventory dollars, we reduced the inventory from the end of June to the end of July by approximately 10%, and the used vehicle inventory we reduced the inventory by almost 30%. So the big happenings here were in mid April. The valuations on trucks and SUV's were so dramatic when we typically see an up tick in values, and we didn't see that. We thought it was somewhat temporary, so we kind of sat on it for a little bit. And now we've reacted to it since mid June. And it looks like it's strengthening again.

Your next question comes from Richard Kwas – Wachovia Richard Kwas – Wachovia: You mentioned some of the factors that made you re-evaluate the good will and franchise value. What are the triggers that we should look forward to that will make you have to rehash the goodwill in the future quarters?

There's a little bit of franchise value left and $45 million so something, that's it. Richard Kwas – Wachovia: What triggers it? Is it the stock price?

You do the cash flow test, and if you fail that looking forward in any way, even by $0.50, and even last time we tested we were $28 a share. And we were at $18 in the past. But when you do a restructuring which we just did, that requires you to retest it. So we had to retest it. And it starts with that $5.00 stock price, if you don't need the cash flow test. So it doesn't work very well from that bottom up, so the result is, we write it off. It doesn't mean there isn't value there. We believe that there is goodwill, not goodwill as it were. We [inaudible] as blue sky now. But the reality is, those stores are still worth what they were before we changed the write down. Whatever they're worth, they're worth. Richard Kwas – Wachovia: You said you have $46 million or so in franchise value left?

It's on the balance sheet. And that was only created since '02. In '02, they changed the rules where you couldn't just pile everything into goodwill. You had to begin to identify something for franchise value and something for goodwill, so all stores we bought before 2002, there's no franchise value on the books for.

The thing has appreciated because you can never write anything up. A lot of these stores are worth more than we paid for them but we can't write that up.

It is in the balance when you total them up. Anything that's above value, you write down. Richard Kwas – Wachovia: So we're pretty much done with that.

I would think so. There is no more goodwill, so it's 100%. Richard Kwas – Wachovia: You talked about cutting inventory June end. I imagine the margins are going to be pretty low on sales, based on sales that you've done here given the market. Is that a fair assumption?

We don't have data for July so it won't be up certainly, but we think we can manage the margins in these ranges we saw in June.

We tackled this issue in June as well, and the margins were low in June as well. Still profitable, high single digits, pretty good actually but not double digits. Still very profitable.

I think the important thing is to react quickly now, get things in line so we can make money with the fresh inventories. Richard Kwas – Wachovia: How do you feel about Chrysler with the truck overhang, the sales rate declines and their lack of car product out there to meet consumer demands? What are you doing? How are you working with them? Is there any way you can get a better allocation of cars?

We're working hard with them. They're a great partner yet, certainly still engaged in trying to deal with their inventory issues and their issues with what they have that's building. Thankfully, they have a new truck and since Ford delayed theirs, there will be some people that want the features that that truck has, and that's going to help some. We created some '08 inventory for '09 orders instead of taking some '08, so that helped some. It's a great partnership but I can't fix their decisions they made five years ago to invest in truck and SUV and they've got to wrestle with that, and they're doing all they can to get car production up, make deals with Nissan, work through whatever issues they can. I have every confidence that they will do well in the future.

And they're incentivizing in their vehicles just like every other manufacturer to an appropriate level where we can get rid of them and not only on the vehicle side with the customer incentives but the dealer incentives, financing incentives on older units. We have $500, $1,000 on older units from the manufacturer, and that's all part of what you'd normally expect. It's all very good and what we'd expect of the retailer.

It's not positive obviously. It's a concern and we'll work our way through it. We certainly don't have a lot of orders. Richard Kwas – Wachovia: On L2, you mentioned the Texas stores are kind of running in line [inaudible] with dealer stores. You're not opening any new stores. You're converting the other stores back to traditional store format. What is the reason for keeping the two stores in Texas open at this point? Is that just because of the strength of the market?

Yes. You absolutely hit it, Rich. The market there is very strong. We believe there's still positive upside and obviously, we can minimize our losses there. Obviously in a start up you expect to have losses for the first, I think we announced 12 months, 9 to 12 months. Obviously in this environment, and obviously where the rest of our earnings are, we thought it crucial to make sure we minimize the losses as much as possible, so we looked for other avenues of how we could re-divert those stores. And those two stores in Texas obviously have great locations, have great opportunities and are moving forward very strongly. Richard Kwas – Wachovia: It seems your sales are down, margins are down. You were talking about lower margin type stuff coming through on a customer pay side. Is that changing much relative to the second quarter? Is it getting worse?

July was actually better. July numbers for service and parts were back on track. I think a lot of that is just consumers getting hit by gas bills and delaying some service work. It's a thrill of buying cars [inaudible] and then back into buying service and parts. We're doing really well on that side. Ron Stoner, our Vice President in charge of that has done a terrific job of developing new products and marketing techniques and even in the face of the domestic mix we have which is challenging. We're getting, we think great progress there. The Ross star direct service mailings are beginning to produce as well. We saw a presentation on that today to our current owner body trying to get people who have not come back, to return to our stores. We're improving that ratio markedly, measuring at each store. We cleaned up our whole data base. We have 1.5 million customers that have purchased from Lithia, and we want at least half of those people to come back regularly and we're not getting that yet. So there's a lot of opportunity to continue to solicit them and build that part of the business. Obviously, that's what carried us through past recessions - used cars, and service and parts, and we're going there. Richard Kwas – Wachovia: It sounds like in these discretionary parts and services, things have stabilized a bit.

Yes.

Your next question comes from Matt Nemer – Thomas Wiesel Partners Matt Nemer – Thomas Wiesel Partners: Following up on the used inventory which it sounds like it ended up a little bit higher than average, than the five year average, do you plan to get aggressive on that if you haven't in the current quarter? Do you think we've hit bottom on used and wholesale profits per vehicle in the second quarter or do you think the gross profit dollar amounts get down a little more here in the third before they recover.

They're going to dip a little more before they recover. Matt Nemer – Thomas Wiesel Partners: On parts and service, are you at all surprised that the customer pay took the dip that it did? If you go back and look at some of the slide shows for all the public companies, it seems like people never really expected it to go negative based on past experience. What is your experience?

2.3% was the decline and I don't think anyone expected banks to be going under and all the issues we're going through with oil prices. I think it's pretty good actually.

I think it's the cost of gas that changed and the fear of it going even higher. Thankfully, I don't know if you guys saw it but gas has come down $0.20, $30 in most of the communities we're doing business in, and hopefully that wipes that fear out. They're afraid of $6.00 a gallon gas, and they start saving money. I can't afford to even change my oil. I think some of that was there and it's obviously an over-reaction because we're seeing an up tick in July again, and I think we're right on track to continue to grow that business. Matt Nemer – Thomas Wiesel Partners: I had a few questions on the new credit line and where that would be after some of auction sales. So your balance was 138. Do we subtract the 35 from stores, 65 from real estate and 35 from inventory? Because that leaves you close to 0.

We've got to pay the 85 off so that's what we're doing, is building a cushion for that. Matt Nemer – Thomas Wiesel Partners: The plan is to essentially take that credit line close to zero and then you'll add the 85 to it.

That's the goal at this point. Matt Nemer – Thomas Wiesel Partners: What's the availability on that line at the current EBITDA run rate? I think the total line is $700 million but I'm assuming that might be restricted in some way.

The total line was $300 million always at that point and we don't need that line at all, so that was for growth.

We have more than we need, Matt.

They had a non use fee on that so we'll adjust some of those things. When we file those, we'll give you all those details, but there'll be room on that credit line to pay off as long as we continue to bring up additional capital like this. I think there's actually room even if we didn't. Matt Nemer – Thomas Wiesel Partners: On the amendments, is there anything that we should be aware of that we'll see in the interest expense line going forward, like a waiver fee, and can you give us any sense for what the rates are going to do post?

I think until we sign and file the amendment, I'd prefer not to give details. It'll all be in that, and it's nothing alarming. It's all within the expectations and nothing alarming. Matt Nemer – Thomas Wiesel Partners: I just wanted to get the same store units because I don't see it in your press release.

Did we miss it somehow?

We can get that to you.

Your next question comes from Unidentified Analyst – Sidoti & Co. Unidentified Analyst – Sidoti & Co: Could you talk about where you would eventually like to see, or resolve these divestitures that are going to be going on where your foreign and luxury mix will be versus domestic once you've divested these 15 dealerships.

It basically reverses. In a 24 month period of time we go to a 60% import/luxury and a 40% domestic.

And we don't know how far that needs to go in the future but we'll continue to work on it.

It's a combination of the attrition and declining same store sales on domestics, and the sale of domestic stores that gets us there. One thing we don't have to do anything, it just happens, and the other one, proactively selling domestic stores. Unidentified Analyst – Sidoti & Co: And where will your Chrysler exposure be as far as a percentage of your car sales.

It came down to 33% from 40%. 32% actually. That's not including the Chrysler stores that are in the 14 for sale, and there's about half of them that are Chrysler stores. So that will come down more. Those are smaller Chrysler stores. They're not in our core markets.

And in all fairness, we may sell more stores than we have currently listed. As you noticed in the press release we received unsolicited offers on two other stores that were domestic. One is a Chrysler/Dodge store or Dodge store, and those things go on. So we're not turning down any offers for legitimate people buying something that we can get along without right now. So yes, I don't think that that domestic shift is over by any means.

It's basically sheer ROI and what you think you're doing now and what you're going to be able to do in the future. So we look at that basically as a re-acquisition. If someone offers us something and it makes more sense to take the cash out of it, then we'll look at that as an opportunity. Unidentified Analyst – Sidoti & Co: I missed what you guys said about keeping a couple of stores in Texas. The other locations you talk about merging with existing locations?

We've covered in that press release, I think. It's in there about the Loveland store and the Denver group is taking that over. And the other one, the Kia store, the one in Cedar Rapids.

That's right next to a Toyota store in Cedar Rapids there, and there's a tremendous amount of traffic. So we think the store's going to do real well. It just really helped to get some parts and service volume in it in the back end and build something so the losses would be less in the start up phase, and Kia requires a separate place there, so we found a solution. Unidentified Analyst - Sidoti & Co: With [inaudible] in these stores, is the basic premise changing? The sales tactics, or is it still going to maintain that box mentality?

Right now the two stores in Amarillo and Lubbock are using...

They're fundamentally the same. We've modified a little bit, but it's fundamentally the same.

I would now like to turn this call back over to your host, Sid DeBeor for closing comments.

Thank you all for listening and we'll continue to update as necessary and we'll continue our hard work in getting this company and keeping it right on track for profitability and future growth. Thank you.