00:02 Good morning and welcome to the Lithia & Driveway First Quarter 2022 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. 00:17 I would now like to turn the call over to Jack Evert, Director of FP&A. Please begin.

00:22 Thank you. Presenting today are Bryan DeBoer, President and CEO; Chris Holzshu, Executive Vice President and COO; Tina Miller, Senior Vice President and CFO; and Chuck Lietz, Vice President of Driveway Finance. 00:38 Today's discussions may include statements about future events, financial projections, and expectations about the company's products, markets, and growth. Such statements are forward-looking and subject to risks and uncertainties that could cause actual results to materially differ from the statements made. We disclose those risks and uncertainties we deem to be material in our filings with the Securities and Exchange Commission. We urge you to carefully consider these disclosures and not to place undue reliance on forward-looking statements. 01:10 We undertake no duty to update any forward-looking statements, which are made as of the date of this release. Our results discussed today include references to non-GAAP financial measures. Please refer to the text of today's press release for reconciliation to comparable GAAP measures. We have also posted an updated investor presentation to our website, investors.lithiadriveway.com, highlighting our first quarter results. 01:36 With that, I would like to turn the call over to Bryan DeBoer, President and CEO.

01:40 Thank you, Jack. Good morning and welcome everyone. Earlier today, we reported the highest adjusted first quarter EPS in company history at $11.96 per share, a 103% increase over last year. Record first quarter revenues of $6.7 billion were driven by strong performance across the Lithia channel and growing contributions from Driveway. 02:07 The first quarter reflected the responsiveness and adaptability of our model, elevated GPUs earned in new and used and F&I business lines, along with the increased contributions from after sales generated $551 million in adjusted EBITDA providing significant optionality in our plan execution. We accelerated investment in Driveway and Driveway Finance or DFC while maintaining our aggressive acquisition cadence. 02:38 Last quarter, we shared our updated plan to generate $50 billion in revenue and $55 to $60 in EPS by 2025, and we are excited with the progress being made. Total revenues increased 54% over last year driven by contributions from acquired businesses. Driveway sales grew sequentially through the quarter reaching the milestone of 1 million monthly unique visitors or MUVs in February and completing 3,100 transactions in the month of March for an annual run rate of 37,000 transactions. We're really excited about our consumer thirst for Driveway and the momentum that continues to build. 03:22 In the first quarter, we retailed or wholesaled 4,250 units that contributed over $120 million in revenue. We continue to target $1 billion in incremental revenue through Driveway in 2022. This represents shop transactions and the subsequent retail and wholesale of sale transactions, as similarly reported by our e-commerce peers. In addition, we retailed over 30,000 vehicles for approximately $1.2 billion in the quarter through our Lithia e-commerce channels. 03:58 Driveway Finance achieved milestones within the quarter originating over $100 million in loans in a month and becoming LAD’s…

17:12 Thanks, Brian. DFC is now Lithia’s number one lender, and in the first quarter, this translated to a penetration rate to 6.2%. Loans to prime or near prime customers with a FICO score above 660, accounted for 67% of the loans, while loans to subprime customers with a FICO score below 620 accounted for 7% of DFC’s loans. Used vehicles accounted for 78% of the 8,600 plus origination, up from 65% a year ago. 17:45 DFC is top of funnel, which from a risk management perspective is highly beneficial, particularly in a rising rate environments as we continue to leverage LAD’s vast transactional data to evaluate and adjust our lending practices. During the quarter, DFC modified our credit policies to mitigate risk by limiting loans with elevated LTVs and selectively adjusted our offer rates to reflect the impact of rising interest rates. The average FICO score in Q1, organically increased to 677 with DFC not seeing any degradation in yield helping DFC maintain an appropriate readjusted return. 18:26 For the quarter, DFC’s pre-tax loss was $2.1 million, as our interest rate margin of $13.6 million reflected a yield of 8.5%, which was offset by an increase in the loss provision driven by the growth of originations. For 2022, we are guiding a mid-7% penetration rate with a 10% rate exiting December and an average loan balance of $30,000 with a 70-30 used to new mix. Due to the recording of CECL reserves, we forecast a net loss of $9 million to be generated. DFC’s growing penetration impacts 2022 F&I revenues, but it's important to note that the interest income earned and recognized over the life of the loan is at least 3 times the amount earned from third-party commissioned on a fully discounted basis. 19:20 I encourage you to review Slide 11 in our deck for long-term guidance. With DFC’s current operational platform scaling concurrently with LAD’s growth, the opportunity to achieve our penetration rate targets while striking the optimal balance of capital requirements, risk mitigation, financial objectives and maintaining the relationships with our current strategic lending partners is high. DFC's contribution today is masked due to the growth of our CECL reserves, which are outpacing the interest income earned on the portfolio in the short term. If originations stopped growing and stayed flat at the $100 million per month, we saw in March, DFC would breakeven on a monthly basis in August and start contributing earnings. 20:09 As a reminder, we see a clear pathway for DFC to contribute $650 million in earnings at a future state of 15% to 20% penetration on our $50 billion revenue base. As a captive lender, the earnings growth will be fueled by capturing a greater share of the vehicles we are already selling. 20:29 Now I'd like to turn the call over to Chris.

20:33 Thank you, Chuck. Our operational teams continued last year's momentum and delivered another record performance and we are confident that our team remains nimble and will continue to adapt to the changing market dynamics and evolving supply chain developments by OEM, by region, and by market. The entrepreneurial mindset of our teams is driving this environment and we are excited for the future state we have built under our mission of Growth Powered by People for Lithia and Driveway. 20:58 With the sales levels of the last two years well below normal we continue to see strong demand for new and used vehicles. Tight new vehicle inventory supply impacted our ability to satisfy the demand for every manufacturer, with same-store revenues down 3% and volumes down 17%. We expect that pent-up demand will convert into sales as the availability of inventory improves. In this constantly changing environment, our decentralized model and culture of taking personal ownership at the local market level has allowed our 22,000 associates to mitigate these headwinds and increase profitability with total new gross profit per unit including F&I increasing over 84% from last year and consistent with the fourth quarter. 21:44 Turning to used vehicles. The strength of our model in terms of top of funnel inventory procurement, reconditioning expertise and carrying inventory that matches all levels of consumer affordability enabled us to increase revenues 31% over last year and down only 1% on volume. This outperformance of the market was led by our core and value auto sales, which increased almost 3%, offsetting the headwinds faced and the availability of certified pre-owned vehicles. 22:11 In addition, Driveway Sell, our procurement channel helped us resupply inventory in the quarter and will continue to contribute to the competitive advantage of our omnichannel strategy as the vehicles…

25:57 Thank you, Chris. For the quarter, we generated $551 million in adjusted EBITDA, a 108% increase over last year, and $461 (ph) million in free cash flows, defined as adjusted EBITDA plus stock-based compensation, less the following items paid in cash, interest, income taxes, dividends and capital expenditures. 26:20 Over the last 12 months, we have generated over $1.3 billion in free cash flows, which if fully deployed to fund network growth would support the acquisition of up to $5.2 billion in annualized revenues. We target maintaining leverage between 2 times and 3 times and remain committed to obtaining an investment grade credit rating, which would be another sizable competitive cost advantage. 26:42 As of quarter end, our ratio of net debt to adjusted EBITDA was 1.35 times. And as a reminder, this does not include pro forma contributions from acquired businesses that have been operated for less than a year. Our disciplined capital management provides us ample opportunity to fund our accelerated growth and acquisitions Driveway and DFC while being positioned well for the future. 27:07 With the elevated earnings environment and our current liquidity position, we funded DFC’s portfolio growth through a mix of working capital and availability on our ABS warehouse lines. Our targets for the deployment of our free cash flow remains unchanged at 65% toward acquisitions, 25% toward internal investments, including Driveway and DFC along with capital expenditures, modernization and diversification, and 10% towards shareholder return in the form of dividends and share repurchases. 27:37 We have repurchased approximately 515,000 shares so far in 2022 at an average price of $292.80. With $572 million remaining on our authorization, we have optionality to take advantage of market volatility and opportunistically repurchase shares going forward to provide immediate shareholder return. Factoring in last year's activity, we have repurchased approximately 4% of our float. 27:58 Additionally, earlier this morning, we announced a 20% increase to our dividend to $0.42 per share. We are well positioned for accelerated disciplined growth on the path toward achieving our plan to reach $50 billion in revenue and $55 to $60 in EPS by 2025, with even more significant upside in the future. 28:25 This concludes our prepared remarks. We would now like to open the call for questions. Operator.

28:31 Thank you. [Operator Instructions] Our first question is from Daniel Imbro with Stephens, Inc. Please proceed.

28:59 Hey. Good morning, everybody. Thanks for taking our questions.

29:04 Good morning, Daniel.

29:05 Bryan, I wanted to start on just inventory, the days inventory on new actually stepped up. I think up to the high-20s. It seems like it's above peer levels, but GPUs also stepped up. So can you maybe break down what drove that sequential step up in GPU even as inventory improved a bit?

29:23 Yeah. Good morning, Daniel, this is actually, Chris. I think the first kind of highlighted comment we would make is that demand just continues to exceed any supply we have with any OEM. And so while, we are seeing a little step up in inventory DSO, we still have really an unlimited supply of new car customers out there right now ready to make those decisions. And as an example, we started the month with 13,000 vehicles on the ground and we sold around 24,700 in a month, which was an increase month over month of around 4,300 units. We received 23,700 units, which was an increase of 1,800, but even with that increase in supply the demand out ran the supply again and we're sitting with ending inventory of 12,000 units on the ground ready to sell. And so, this situation is very fluid, the line of sight on it is very near -- near-term and I think we just have to take month to month and get every vehicle we can and sell every one that comes in with high turn and received more allocation than some of our competitors.

30:30 Okay. Chris was just speaking about new as well. We ended at 50-day supply unused and we're pretty active in being able to find that, find vehicles including the zero to 10-year-old vehicles that we’re able to get off of lease a lot easier than some of our peers.

30:46 Got it. That's really helpful. And then, one for Tina or maybe actually for Chuck, but on Driveway Finance, I appreciate the detailed long-term outlook in the slides. So can you talk about any changes you're seeing in credit performance in any areas of the credit spectrum? And if you had to tighten your lending standards, how would that affect the long-term projections you provided today in the slide deck?

31:09 Yeah. Thanks, Daniel. This is Chuck. Great questions. So first part of your question was regarding our lending sort of credit policies and practices. As I had mentioned in my comments, we did actually in the first quarter limits for some of our lower credit spectrum LTVs or loan to value to a lower percentage, which should limit our risk and mitigate some of our exposure. 31:36 And then to the second part of our question -- your question, relative to long-term performance. I think it's critical to note that we will continue to take advantage of Lithia’s top of funnel position of having a tremendous amount of data that we can react on a real time basis to make sure that we're not taking an undue risk/return ratio and that's really the critical part -- is that we will change our credit policies and credit discipline to make sure that we maintain our fiscal risk adjusted fully burdened rate of returns and hurdle rates and that will, what that will be what will allow us to continue to hit our projections regardless of the economic cycle as we go forward versus our projections.

32:22 That's really helpful. And if I could sneak one more in there. Affordability and maybe used demand has been really topical to Bryan, could you address maybe how that progressed through the quarter and then any changes you've seen through March or maybe even into April tax refunds that got paid? Thanks.

32:37 Sure, Daniel. We haven't seen any material changes in affordability as of yet. We're assuming that at some point those funds that much of the population receives do begin to run out, but for the time being, it looks pretty good. I think in April, we're trending up about 9% in unit sales in used. So it still looks strong and the balance between certified core and value is still looking similar.

33:07 That's great. Thanks so much for the color, guys and best of luck.

33:10 Thanks, Daniel.

33:14 Our next question is from Rajat Gupta with JPMorgan. Please proceed.

33:20 Great. Thanks for taking my question. There have been a lot of emerging concerns that the economy might run into a mild recession or we might see a slowdown in the consumer. Could you give us a sense of like how you expect the business to perform, if you do run into some sort of a mild recession here maybe later this year or early next year? Maybe if you could help address investors' concern around like what levers you have in the business to offset pressures on the volume side of the business and also like other parts of the business. Just what would be the puts and takes? We need to start there and I have a couple of follow-ups.

34:07 Sure, Rajat. Good question. I think most importantly consumer confidence currently is at lowest level in almost 24 months. So we're already seeing the impact of that. Unfortunately the supplies are balancing that out. Even though the consumer confidence numbers are pretty low, we still see a robust environment and we imagine that later this year and maybe even into next year that may begin to soften a little bit, but more importantly, we've built our model off of multiple verticals to create optionality with consumers. That is the most in part -- important part of the Lithia & Driveway strategy that we now have Lithia that's robust and growing its network. We have Driveway that provides consumers with in-home transparent experiences in a one-priced environment with considerable numbers of cars and now in both new and used vehicles allowing us to reach deeper into the U.S. population, whereas two years ago or a year and a half ago, we really only touched about 1% of the U.S. population. 35:00 Today, we actively touch almost 28% of the population, now with national advertising and feel like national advertising in the different regions like on March Madness. We're now touching close to 100% of the country. So our ability to bring optionality to new consumers and conquest incremental customers into our business and keep them in that lifecycle through sales shop and service is an important part of our design. 35:42 Lastly, I would comment on this, when we think about consumer demand changes or consumer shifts in behaviors, we are seeing a nice shift to sustainability. I mean, we were reaching almost 5% market share as a country in BEVs which was quite special. We sold over 10,000 sustainable vehicles in the quarter and it made up 7% of our volume. GreenCars is a commodity that is capturing affinity customers that are looking for sustainability and GreenCars will become not only the current leading educational source, but it will become the leading marketplace for sustainable vehicles, not only nationally, but internationally.

36:28 Got it. Great. Thanks. Thanks for that color. Maybe on parts and services, strong, strong growth here in the first quarter. Could you maybe give us a sense of how you expect this to progress through the rest of the year, maybe across a different buckets. What you're seeing currently and going forward as well, like, which buckets do you expect to recover faster or slower across customer pay, warranty, collision et cetera.? And I have one more follow-up.

37:01 Hey, Rajat. It’s Chris. Obviously, miles driven is up, giving -- going post-pandemic and seeing people actually out on the road again, definitely creates an environment where the service opportunities come more front of mind on vehicles, maybe that have had some deferred maintenance based on periods of lockdown. In addition, we have 270 million of UIO in our car park and because of where we're at on the new vehicle supply chain, the aging of those vehicles continues to run past the 13-year mark that we've had for history. And I think the results of those things, those items, led to what you saw in the quarter were CP was up 15%, warranty was down slightly, which again if you see two years now of reduced SAAR, you’re going to expect to see some warranty decreases over the coming months. 37:52 Wholesale parts was up dramatically, which tells you that there is a lot of one-off shops that are doing work lower down the chain for consumers that also had repair needs. And then lastly, our collision centers where we get more vehicles on the road. They tend to bump into each other from time to time. And so I think as far as looking forward into 2022 and beyond, I think we have a good run rate in this countercyclical fixed ops business that we have and we expect to see more of the same through the back half of the year.

38:25 Got it. Great. Just lastly on capital allocation, obviously, the balance sheet continues to delever here. What you are seeing today in the M&A environment, is it still like a favorable time or are you still getting like favorable multiples for the deals you're looking at? And also like, given where we are just from the economy perspective, what would be a more near term preference in terms of M&A versus buyback given where the shares that we are trading today versus what you're seeing in the M&A market of that? Thanks.

39:06 Sure, Rajat. This is Bryan again. On the M&A market, we're definitely seeing balances in pricing. So we now have either closed or have under contract $3 billion so far year-to-date. That's a big number. It's a little higher than what we expected. Most importantly, we do not adjust our disciplines, okay. We're finding partners that are excited about joining us at multiples that we look at on a normalized basis to be able to do that. 39:37 Now, we do also balance our stock price, okay and look at the volatility in our space, which is obviously quite high to allow us to utilize capital in the best possible way, okay. And when we're buying back, it doesn't mean that, that we think that that's the right stock price. It just means that we've measured the volatility and hit it at an opportune time to be able to do that. 40:04 Now, even with the $3 billion through the first half of the year run rate, which should put us somewhere between 5 and 6 coming out of the year. And buying shares back at a similar cadence of the 4% that we've bought back of our float over the last 4 months to 5 months. We still have plenty of capital that's being generated, so it's important to remember. We generated almost $500 million in free cash flows in a quarter, okay. So when you do look at that this isn't the same as a start-up that's losing money. When we spend our money on capital, we get network, okay. When we spend it on acquisitions, I mean we get network that network persist forever and allows us to get closer to the customer, okay. 40:48 Others that lose money, the money has gone. Okay, so we kind of look at the fact that we make a couple of billion dollars in free cash flows and then apply that to our network or apply it to a less share count to be able to get there whereas, there is a lot of dilution in start-ups of how they think about their business relative to where we both end up in the long run, which ultimately will reflect in what the consumers are going to expect in terms of pricing, in terms of the major cost advantages that we sit here with in our design that we're executing now on quite well.

41:24 Got it. Very helpful. Thank you and good luck.

41:30 Thanks, Rajat.

41:32 Our next question is from Chris Bottiglieri with Exane BNP Paribas. Please proceed.

41:41 Yes. Thanks for taking the question. Just wanted to ask about the impact of rising rates. I guess, like, to-date have you seen any lenders on average, if you see lenders begin to pass through some of the funding cost to customers yet and if so, how much on average? And then, historically, in rising rate environments what impacts have you seen on your business, when rates have risen, has there any impact you're F&I profit per unit or maybe ability to market loans, has there been any changes to insurance product attach rates, any historical perspective appreciated?

42:16 Yeah, Chris. Great question. This is Chuck. I'm going to handle the lender part of your question, first. So as I mentioned in my prepared comments, we did selectively increase in our rate card for DFC about 25 basis points to 50 basis points, particularly where we felt like the markets has responded in a similar fashion. And I think that's really sort of what I would say is that most lenders are being proactive in terms of raising rates selectively. We don't see a lot of across the board increases, I would say particularly in the prime and the near prime segments of the market, most lenders are staying very competitive and holding the line, but if there are future rate increases, we do expect that to change as we go forward and DFC will continue to react accordingly. 43:06 Bryan, you want to cover the business.

43:08 I'll let Chris run through the business part.

43:09 Yeah. I think what I would add to it is, if you look over the last 12 years, we saw a really modest increase in what customers were willing to accept as far as monthly payment. So 12 years ago, I think on the used side, we ran at somewhere around the $300 payment per month on average. Coming right now into 2022 and it really accelerated right in the middle of the pandemic that average payment in a high demand environment went to $456. And I wouldn't say that that was no interest rate impact and I think the big question that we've been kind of talking back and forth between our finance teams and our operations teams is that $456 going here to stay or is that something that rising interest rates are going to cause the actual payment to change. And so when you go back in time and the last time that we had to talk about rising interest rate environments in a recessionary period, what we saw customers do is they didn't decide to not buy a car, buy a car. If you want to vehicle, you're going to get a vehicle. You may just dropped down in decontented vehicle or dropdown in a model class to make sure that you get a vehicle. 44:18 And I think what the technology advancements that you're seeing in vehicles today a three-year-old newer car that may be step down one level may be more advanced and more technology ahead of where your vehicle was that you bought three years ago, even if it was one up on a class. And so I think this is something that's fluid for us to watch right now, but we are definitely seeing payment levels for consumers at some of the highest that we've ever seen. And the question then is in a higher interest rate environment, our customers going to drop their payment or just drop the evaluation of the vehicle they purchase and we're anticipating launching that throughout the rest of the year.

45:00 Thanks. And then one quick follow-up. You've kind of hit on this a little bit already, but when you look at like your mix, are you seeing any -- and I'm not sure how quick closely monitor this, but are you seeing any material deviations by income, like, are you seeing the high-end consumer with materially stronger patterns on your, call it, low income consumer? Any way to stratify that for us?

45:22 No, Chris, it's very similar to, it's been -- where it's been over the last few years.

45:28 That’s okay. It’s helpful. Thanks, guys.

45:32 Our next question is from John Murphy with Bank of America. Please proceed.

45:39 Good morning, guys. I said one question on the used vehicle side. I think in the revenue mix, wholesale went up from 3.1% to about 5.8% based on what you guys were disclosing, and I know it's on revenue not units, but I'm just curious why that would increase as a percent of the revenue base, if you're trying to retail everything you possibly can and just, it's hard to get these vehicles, I mean why would you wholesale more vehicles?

46:08 John, this is Bryan. I would say that it's because I mean we did purchase about 2,300 vehicles last month, and it's not targeted purchasing. So when we purchase off of Driveway, we buy everything, okay. So whereas before our stores always just bought things that they were looking for or took things on trade that they were more aggressive on for things that they wanted, whereas in Driveway were aggressive on everything, okay, because we have an exit strategy whether it's wholesale or whether it's a retail channel to be able to do that and I'm thinking that probably had a maybe a 100 basis point impact to that number.

46:50 Okay. And then also on used, I mean the percentage margin went down, but GPUs are up, if we saw some normalization or fade in used vehicle pricing probably not coming down too much any time soon just because we're so short of vehicles. But if you saw that price fade to some degree, how well do you think you get held -- hold a $1 GPU and their percent margin would go up. I mean $1 GPU is obviously much more important.

47:18 Yeah. I think it's important to remember that we buy our inventory monthly and that we run at a 50 day supply. So, any changes in market conditions can be offset quickly by new incoming inventory. In terms of the holding margin, it's truly a function of the demand market. So I would say that it depends on what happens if it's a slow economic impact, it's one thing. If it's something more extreme like Russia, moving into the Western Ukraine or possibly into Eastern Poland or something. Now, you're starting to talk about massive impacts, it could happen quite quickly. And then you now have these major emotional disconnects and consumer. So I don't know that it's -- we can give you an exact indication. I would just look at magnitude and speed of where the demand comes from, because remember, we've been talking about for the last two years that this is a 75% demand cost and 25% inventory costs. Now it's definitely now maybe 50-50 inventory because inventory has prolonged it’s shortages for a much longer period of time.

48:29 Hey, John. This is a reminder as well. As a top of funnel, new car dealer that gets to used vehicles coming in on-trade. We're making about $1,900 more on vehicles that come in from consumers than that we buy at auctions or from other dealers and we turn that much faster. So it's a huge advantage that we have won to react to the issues that Bryan talked about but just to continue to make sure that we have a very profitable and a pipeline of inventory coming in quickly on the used car side.

49:01 And then just, I'm sorry, just one more on the used side, I mean what do you guys think of the Carvana acquisition of the ADESA is a physical auction. Is that impact your sourcing your costs at all or immediate just kind of make a left turn away from those auctions and go to Mannheim and do more consumer direct consumer sourcing. I mean, what's the kind of fall out, and that's a big one -- transaction units.

49:22 Yeah. We're kind of benign to it. I mean we haven't given specific instructions like I believe there is now seven manufacturers that have pulled cars from ADESA, important to remember, and I believe the rest are planning to do it soon, which is part of that profit stream. I would also remember that ADESA lost money pre-COVID and they lost tons of money during COVID. So to us, it was more of a infrastructure play. Now I believe Carvana goes somewhat 22 reconditioning centers to about 70. So even sitting there they still have about a $500 logistical advantage over our network. This sits within 240 miles from the average customer in the country. This still sits at about 550 with 70 locations. So I guess that's how we kind of look at it is, what are the costs advantages that we can transpose into our consumers’ pockets and a little bit different way and maybe what you thought about it but that's another drag I would think on their earnings at some point, especially knowing that most of the inventory is getting pulled.

50:29 That's incredibly helpful. And then just one last one, I mean as you look at the last two years and then this year given the supply constraints, new vehicle demand is going to be a recessionary levels for three years running. I know there's a lot of talk about a potential recession which -- without a lot of data to back it up perfectly honest. If we look at autos, even if we went into a recession isn’t there a good chance that new vehicle volume in the next couple of years could still even be up in the face of that and is in this -- industry that kind of leads the economy out of the trough. So I mean, what do you -- how do you think about all this, it just seems like particularly for autos is a little bit overblown?

51:09 We would agree with you that when we've been running at 13 million, 14 million SARs there is massive pent-up demand. Obviously, the average car in the car park is now almost a year older and despite the fact that maybe we're over earning on GPUs a little bit, if you can add 20% to the volume, which has a trickle-down effect into used vehicles in the service body and parts. We believe there is massive tailwinds coming and we're excited of whatever environment possibly is there even if it's recessionary because I believe it's going to allow more consumers to get into the market that today aren't willing to buy at MSRP, okay, because that's something that's quite important to remember. Okay, and that obviously has its own implications on the 15% or 20% of consumers that have bought over the last 18 months, it may have a little bit more this equity in the coming years. But ultimately, we think that there is more -- there is a lot of tailwinds coming in whatever environment, whether it's continued strength are in demand or whether there is a little bit of softening, which will allow more consumers to come into the market.

52:19 Okay. That's helpful. Thank you very much guys.

52:22 Thanks, John.

52:22 Thanks, John.

52:24 Our next question is from Bret Jordan with Jefferies. Please proceed.

52:30 Hey. Good morning, guys.

52:32 Hi, Bret.

52:32 On that topic of negative equity that you just mentioned, I guess, if there is going to be a move to maybe a lower loan to value in conjunction with maybe some negative equity showing up. Do you see that having any real impact on sort of our national SAR level or is it small enough, it really doesn't count?

52:55 Bret, you're right, it's small enough, I mean that's why I made the comment, it's 15% to 20% of the consumer base that have transacted. Remember also that when you're calculating that this equity, it's not just this equity on the car they're buying, their offsetting about half of that on over valuations of the trade and that they're dealing with. So you're only taking about half of that problem and carrying it forward on about 15% to 20% of the consumers. So we don't think it will have a material impact even if margins continue for another couple of years.

53:29 Okay. And then a question on this wholesale parts business, I mean obviously pretty significant growth there. Is there anything driving that I guess from a mix standpoint, I mean some of the collision guys have talked about supply chain problems. Are your wholesale parts growth more mechanical or in the collision space or what's driving that strength?

53:51 We did have by shop that was finally up, but I really believe that it's what Chris spoke to, which is really that we got do-it-yourselfers that it's still are working from home and they figure out how to manage their time better and as such they are buying parts directly and we're not putting them on the cars for them or we're selling them to the shops that maybe you're a little bit more cost effective in the normal dealer. Now, we do sell non-OEM parts to consumers as well and we've done that for now almost three decades, okay. So post warranty period we're pretty price competitive in our markets. There's not a lot of aftermarket business leftover after we take it post warranty period.

54:37 Okay. Great. Appreciate it. Thank you.

54:39 Thanks, Bret.

54:41 Our next question is from Kate McShane with Goldman Sachs. Please proceed.

54:47 Hi. Good morning. Thanks for taking our question. Most of our questions have been answered, but just in the sense of just the impact of higher gas prices, I know you've mentioned overall it's had no effect on demand, but has there been any change in mix in terms of demand for larger vehicles and SUVs has that changed at all given the change in gas prices?

55:16 So the one mix shift -- and thanks for your question, Kate. As we were up 58% in sustainable vehicle sales, that's a pretty big unit shift, okay. And that could have some impact from gas prices and obviously, there is affordability issues that come with sustainability. So I think what people having a little bit more money in their pockets, it does create that transition that we're all hoping for a little bit quicker. Outside of our traditional vehicle sales or a mix from more content or bigger vehicles, we're not seeing massive shifts away from large SUV or trucks like we did see what was it about 10 years ago, when we went through the gas crunch a decade or so ago. So today, it looks, it looks pretty stable. But I would expect that as things subside and people are running out of their funds that they received from the government. I would expect that we'll see some subsidize or some mellowing of growth rates in our sustainable vehicles. Now, hopefully, we can continue to take more market share and exceed what the national levels are to be able to conquest market share.

56:44 Thank you.

56:47 Thanks, Kate.

56:49 And our next question is from David Whiston with Morningstar. Please proceed.

56:56 Thanks. Good morning. On DFC, I was just -- you talked, you mentioned on the call earlier that you give customers a tailwind presentation to them. I was just curious how do you present that value opportunity for the customer to choose DFC over one of the many other lending partners out there like a Chase Capital or an Ally, et cetera., is it purely -- I suspect that you're not just purely undercutting them in interest rates, but if you could give a little more detail would be great?

57:26 Thank you, David. This is Chuck. So first, within our environment, we have the direct and indirect lending model. So it's actually our F&I specialists within our dealerships, who actually are placing the paper with the lender of best fit. So they really are looking at each individual consumers needs in terms of how they want to structure the deal in terms of potentially down payment, interest rate, term and other factors to make sure that they have the optimal mix of meeting their needs and their individual financial situation. And then matching that to a lender like DFC, I think one of the big advantages for DFC is that we can communicate with our fellow employees on a real time basis to make sure that when we have optimize what's best for the consumer, we can respond with an offer that fits those needs, and that's one of our big competitive advantages.

58:21 Okay. And then on shifting gears over to the continued growth of Tesla that their direct-to-consumer model, I'm just curious if your either your premium brands or any of your brand stores are getting hurt at all by Tesla’s growth and if not, would there be if there was no chip shortage impacting production?

58:44 So we are not seeing it, okay. And though Tesla's market share continues to grow. We were up in the quarter. BMW was up 31% in unit sales, and Mercedes was down just a touch, okay. So the two big competitors are looking pretty good and the super high lines, I mean, I'm not sure those are that relevant Genesis was up almost double over last year. There is some real key at the rest of it's all premium lux, probably not that relevant even though some of them were up over 100%. So we think that the DTC model is how we mirrored Driveway and GreenCars experiences. And I think that's important to remember, we also, I would imagine one of the largest resellers of Tesla vehicles in the country knowing that we sold the 10,000. You know and to be fair, it's setting a high bar for our manufacturers to aspiring to compete with within today, they're doing a pretty good job a job at it because 70% of those sustainable vehicles we sold in the quarter were from our traditional manufacturers and we're new. Okay. We got every manufacturer pretty much now that has a full EV. They also have plug in hybrids, which are almost 30% lower in cost. In fact, I think I'm buying a BMW X5 hybrid that goes 32 miles on a charge, which it means that pretty much never have to put gas in my car and that's out at $60,000 fully loaded X5 with the federal funds. So we think that they're nicely positioned and most of the mainstream manufacturers have quite a bit of cars coming through as well. 60:33 And I think maybe even more important in terms of the DTC, we are very well aligned with our manufacturer partners from a Tier-1 and Tier-3 level in marketing and from consumer experience from factory to Driveway, that is the right answer for the consumers that will ultimately drive market share for their growth in the sustainability sector as well.

60:56 That's helpful. Just real quick finally, do you guys still own your stake in shifts and if you do what are the long-term plans for that?

61:04 We do. We still, I don't even know what our percentage, I'm going to guess 15%, 16% of shift, it's still a wonderful source to be able to share information and ideas and still like to have that as a resource, knowing that they are 300 miles away and their views on the new world of e-commerce is, it's important to how we think about things and I hope they feel the same about us.

61:36 Okay. Thank you, everyone.

61:37 Thanks, David.

61:40 And our final question is from Glenn Chin with Seaport Research Partners. Please proceed.

61:47 Good morning, folks.

61:50 Hi, Glenn.

61:51 Hi, Bryan. Industry chatter has it that Lithia sold several stores in the quarter. Can you talk to us about why the stores were sold, the annualized revenue they contributed and if you can, the multiples that you're getting on those stores?

62:07 Sure. I think most importantly, we always optimize our network to make sure that it's clean. We bought stores over the years that, that were in groups typically that weren't right for Lithia and it's a matter of divesting those. I believe it was annual run rate of about $90 million, is it, right, Chuck, 90 million, about $90 million were sold in the quarter, okay. And a number of those were assets that we just don't believe our assets that were to some extent salable okay and in this environment, everything is kind of salable. So we took advantage of that and divest of those stores. And you'll see, you'll probably see more of that in the next few quarters. You probably have a half a dozen stores that are typically smaller stores may be located in an area where it's not helping our network, our network at all, meaning, it's a duplicate store, secondary store or it's into smaller market where you're utilizing a General Manager talent and you can reposition them in a better and bigger store.

63:18 Okay. And I think likewise Bryan, you sold several stores also from the – for the own group in the fourth quarter is annualized revenue contribution from that sort of store is also not material, just this portion?

63:35 Yeah. I mean the stuff that was shown in the -- sold in the Carbone Group was a small Chevy and GMC store, a small Hyundai store and what that, Nissan store, is that right? It's immaterial. Yeah. If you know Utica, it's about 300,000 person market, registers about 12,000 13,000 vehicles. So you're talking about new car franchises that sell in the 200 to 300 units a year. Okay. So what we ended up with in the marketplace is a very strong Dodge store and Jeep store, a very strong Ford store, a very strong Honda store and a very strong Subaru store and that's what our footprint will look like going forward in Utica.

64:18 Yeah. Okay. And then just one more, so on the flip side, any movement on the multiples that you're seeing in the marketplace that sort of the asks?

64:30 I would say that the overall market place probably has moved, but with $15 billion in the pipeline, we haven't, okay. Even though, we believe that we're the best buyer for most businesses. We're very discerning. So when we assemble that $15 billion that's assets that fit our network strategy model in the six regional strategy. So we don't typically have to flex on price and most of our sellers are not just looking to sell their business. They are looking to provide opportunities for their team and the people that they build for year and be part of the next evolution of automotive retail of whether that's in network or whether that's in home.

65:19 Okay. Very good. Thanks very much.

65:22 Thanks, Glenn.

65:24 We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.

65:32 Thanks everyone for joining us today. We look forward to updating you on Lithia & Driveway second quarter results in July again. Bye-bye.

65:41 Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.