Good morning. Welcome to Lithia & Driveway's Second Quarter 2023 Conference Call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Amit Marwaha, Director of Investor Relations. Please begin.

Thank you for joining us for our second quarter earnings call for 2023. With me today are Bryan DeBoer, President and CEO; Chris Holzshu, Executive Vice President and COO; Tina Miller, senior Vice President and CFO; and Chuck Lietz, Senior Vice President of Driveway Finance. Today's discussion 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. 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 a reconciliation to comparable GAAP measures. We have also posted an update investor presentation on our website, investors.lithiadriveway.com, highlighting our second quarter results. With that, I would like to turn the call over to Bryan DeBoer, President and CEO.

Thank you, Amit. Good morning and welcome to our second quarter earnings call. We appreciate everyone joining us today and for the opportunity to update you on our business strategy, growth and progress towards our 2025 plan and beyond. In Q2, Lithia & Driveway grew revenues to $8.1 billion, up 12% from 2022, resulting in adjusted diluted earnings per share of $10.91. Sequentially, GPUs were a little stronger than expected for both new and used vehicles, and F&I margins remained stable. Thus far in 2023, GPUs for new vehicles have come down approximately $100 per month, half of our original expectations. We remain focused on growth and profitability and we look to gain further efficiencies across our businesses. Our model is dynamic and diversified, allowing our vehicle operations and stores to adjust with local market dynamics. This provides customers a variety of products and services, allowing us to serve customers across a wide set of demographics and manufacturing partners. By offering a variety of channels to interact with customers, our model fosters a responsive and adaptive culture that consistently delivers the best experience for our customers, wherever, whenever and however they desire. Sustainable vehicles sales continued to gain momentum in the quarter, up almost 50% over the prior year, and now representing nearly 10% of our overall new and used vehicle sales. MUVs on our GreenCars.com channel was also up 73%, which reinforces the propensity for consumers to continue to explore sustainable options for their next vehicle purchase. in Q2, SG&A as a percentage of gross profit was 60.4% versus 62.7%. Sequentially, adjusted for the impact of our adjacencies, our core business SG&A as a percentage of gross profit was approximately 58% in the quarter. This demonstrates the effectiveness of our cost cutting efforts and they're flowing through to our…

Thank you, Bryan and good morning. We appreciate the efforts our operational teams put forth in the first half of 2023 and their continued drive towards executing on our strategic plan. We remain disciplined on delivering a customer-centric experience with the convenience of an omnichannel offering that drives profitability, cash flow, sustained growth, and the best-in-class returns to our shareholders. As it relates to the second quarter, several factors led to our better-than-expected results. These include a progressive focus on consumer optionality, and sales and service, sustained pent-ups of interest in new and used vehicles, better-than-expected resilience in GPUs, sustained strength in our high-margin fixed operations business and improvements in our cost structure. We continue to see healthy demand for new vehicles even as rates and average vehicle prices continue to rise as customer resiliency and continued investment in transportation needs moderate the related increases in monthly payments. We're also seeing inventory availability at all OEMs improve and gradual increases in incentives continue to give relief to consumers impacted by the higher rate environment. The gradual rebuilding of new inventories underway will continue as the year progresses, which will give consumers more selection and will continue to support pent-up demand. We continued to outperform in most markets and saw favorable market conditions in our Northeast, Southeast and South Central regions or regions four, five and six. We also saw some recovery in the Southwest or region Two, our largest region, the Northwest and North Central regions, or regions One and Three continued to experience tepid growth, but our specific locations outperformed the market and gained share. Regardless of the macro or market level dynamics, our focus remains on local leadership, who are accustomed to delivering market share gains and improving operating leverage and profitability throughout the business cycle. Our ability…

Thanks, Chris. Since launching our captive finance division over three years ago, DFC has continued to refine its underwriting process to align with current market conditions. Early last year, we pivoted towards underwriting higher-quality paper to mitigate stress in the general economy and potential volatility in the used vehicle market. To put this into perspective, on a year-over-year basis, the portfolio weighted average FICO score increased from 684 to 715 and the front-end LTVs have fallen from nearly 101.4% to 95.8%. DFC was able to improve credit quality while at the same time increasing our yield as the year-to-date portfolio weighted average APR rose from 8.3% to 8.8% as the captive lender for Lithia & Driveway combined with our proprietary data, this enabled us to outperform traditional lenders, giving us the opportunity to earn a higher return on assets over time. It's important to remember DFC is part of a broader customer-centric strategy for Lithia. It complements the core dealership business and our omnichannel strategy at driveway. Additionally, we're well positioned for further growth as Lithia moves into other mobility verticals and regions. Ultimately, a robust captive finance business provides LAD with a countercyclical and diversified earnings stream that also increases customer attachment and retention rates. Turning to the quarter results. the portfolio grew to over $2.8 billion. We originated $558 million in loans, equivalent to a penetration rate of 12.1%. For the full year, we expect penetration rates to be approximately 12%. We realized a 53 basis point increase in the weighted average APR sequentially. The reduction in the penetration rate from the previous quarter is primarily a result of the focus on yield along with units acquired through the purchase of Jardine. As a reminder, we are presently not originating loans in the UK. In Q2, DFC posted…

Thanks, Chuck and thank you everyone for joining us today. In the second quarter, we reported adjusted EBITDA of $503 million, down 9% from last year. This result was driven by the impact of higher flooring interest costs and investments across our adjacencies, offset by the strength in new vehicle demand and parts and service. We ended the quarter with net leverage, excluding floor plan and debt related to DFC at two times. during the quarter, we generated free cash flows of $354 million and $731 million year-to-date. We have defined free cash flows as EBITDA plus stock-based compensation and reduced by interest and income taxes paid in cash. We're on track to deploy these cash flows in line with our capital allocation strategy, namely 65% toward acquisitions, 25% directed to internal investments including capital expenditures, and 10% for shareholder return in the form of dividends and share repurchases when they are appropriate and opportunistic. The acquisitions completed in the second quarter were funded through a combination of free cash flows and our working capital facilities. We reiterate our goal to maintain financial discipline with leverage below three times and remain committed to achieving an investment grade rating over time while prioritizing growth and acquisitions in the near term. Through the first half of 2023, we have seen more orderly trends around inventory, resulting in GPU declines being slower than originally anticipated. While DFC has the slightly larger loss outlook Chuck mentioned earlier, we expect this to be offset by the positive top-line trends and our ability to continue to leverage our cost structure and drive profitability. We are well positioned and have sufficient liquidity to achieve our 2025 plan. We remain focused on our growth trajectory while preserving the quality of the balance sheet and reaching profitability in our maturing adjacencies. as we work toward achieving over $55 in earnings per share as part of our 2025 plan and further profitability expansion in the long term, we are driven by our culture of growth and high performance to generate value for our shareholders. This concludes our prepared remarks. With that, I'll turn the call over to the audience for questions. Operator?

thank you. [Operator Instructions] Our first question is from Daniel Imbro with Stephens. Please proceed.

Hey. good morning, everybody. Thanks for taking our questions.

Good morning, Daniel.

Bryan, I want to start on the new side of the business. Obviously, you mentioned GPUs have held in better than feared and maybe even, despite the inventory build, GPUs hung in better than some of your peers. Just curious, can you talk about any updated thinking on the pace of reduction you mentioned right now. it's been about $100 a month. And then how have inventories trended here into July? Any notable change in any of your OEM mix here quarter-to-date?

Great. I'll let Chris speak to inventory in just a second. I think in terms of looking forward on where we see GPUs going, I think we still are in the camp that GPUs will normalize. We still believe it's somewhere between $300 and $500 above pre-COVID levels. That feels like the right number of what supply and demand, once it eventually levels out, will look like. I would say, in the shorter term, I think the $100 reduction, or about half of what we originally expected throughout the rest of summer and probably into early fall is a good number in terms of GPU reductions on new cars. I think once we hit October, November, December again, and we get normal seasonality, I think the $200 helps take us back closer to that normalized state that I spoke to at the start. Chris, you want to talk about inventories?

Yes. Good morning, Daniel. This is Chris. The inventory question is hard to answer only because when you look at an average day supply, the split on that goes from a six-day supply on a mainline import and then an 83-day supply on a large domestic. And so what it is, is the given that takes between all the Ms that make an average. But what we do know is the lower priced vehicles that are affordable for consumers and the affordability is a big piece of this that are on the ground are turning faster than heavy content vehicles and more expensive vehicles. So that's where our inventory sits today.

Great. That's helpful. And then from a follow-up, I want to touch on SG&A, maybe Tina or Bryan, SG&A really impressed, beat our numbers even as GPUs normalized. Was there anything anomalous in the results this quarter to call out, that was one time, or are you just capturing more efficiencies? And if you are, maybe you talk about when we think about the stores other than headcount reductions. Can you offer examples maybe where you're improving the cost structure just as we try to underwrite or think about sustainability?

Hi, Daniel. this is Bryan. There are no anomalies in the SG&A in the quarter. More importantly, that $150 million in the stores that we had earmarked about three quarters ago and the $15 million in support services are pretty well underway. We think that we've got that now all under control. I think the thing that maybe was slightly different than what we expected. We did see a little bit better strength in what we call our region Two, which was the Southwest, which was nice to see. And if you remember last quarter, we were getting hit pretty hard in the upper Midwest and the two western regions. Now, we're only getting hit a little bit in the Upper Midwest and the Northwest. So, that's good signs. I think when you think about the structural changes that we can make in the business going forward, I think it boils down to the two thirds of our SG&A costs are variable personnel expenses. And I think what driveway does and what our other strategies employ are thinking about the cost and improving the productivity of those people. What we know is we have the best people in the industry. They're very efficient. they understand how to respond to the marketplace. And maybe most importantly, they measure their success not solely by the financial results, but also by the trust they earn in their customers. And that's a little different of how to get there. And when you focus on that, you do start to focus on high performance and you're able to then reduce those bottom third of associates that maybe aren't getting there and redeploy them or move them on to some other place. Whatever our future holds, it is focused on the personnel cost and making sure that we leverage the best talent within our organization at a higher level. And I think that's what we're really seeing in the quarter.

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

Great. Good morning. Thanks for taking the question. I wanted to ask the first one on used cars. obviously, like to Daniel's question, like it rebounded - the GPUs rebounded off a lower base, and we saw that at some of the independent peers as well. But any way to think about the trajectory of the trade-off between volumes versus GPUs for the remainder of the year? As you get more trades, but then lower leases. is there any opportunity to do more active sourcing to drive more volumes? Any thoughts on that would be helpful. And I have a follow-up.

Hey, Rajat. Good morning. It's Chris. Great question. I think all this right now really comes back to the whole idea of the consumer and the affordability for consumer. I think the example that we see on that on new, as you know, our luxury sales are up 15%, import sales up five, domestic down six. I mean, that tells you kind of where the consumers are at on the new car side and what we're seeing on volumes. we see the same thing on the used car side. When you look at your CPO volumes, they're down 2%. But our core product, or that kind of three to seven-year-old product, which is 60% of our sales is down 18% and that really comes back to your point on procurement. So really, those high demand vehicles, which I think are the most competitive set right now that you have not only for new car dealers, but also standalone used car dealers, it's a procurement opportunity for us in a time when consumers are kind of taking a headwind a little bit on where things are going with interest rates, where they're at with negative equity, being that they bought a lot of vehicles three years to four years ago, or I should say one years to three years ago when the market was really hot on the new car side. It's trying to figure out, how do we provide the right vehicle to the right customer at the right time? And I think that's the huge benefit that we have as an omnichannel retailer, where we have 1,400 finance specialists that help identify the right vehicles with the customer that they can afford at the right time. And so procurement is a big piece of this. As we mentioned, 70% of our used inventory is coming in off of trade. So, the 30% that we have to go get outside of the trade channels is what we need to continue to focus on and accelerate.

Got it, got it. Did you see the used car comps getting better here going forward? Or do you think like it's going to remain tough for a bit, and you're taking into account like some of the procurement initiatives that you have?

Rajat, this is Bryan again. I think definitely, if you remember, two quarters ago that we said that we had difficult used car comps coming in. When we had a shortage of new cars. All of our stores converted to selling used cars, which inflated those numbers. if you think about it from a supply chain as well, we got 8 million vehicles that aren't in the marketplace that are used. So, as supply comes back, more people can trade in cars that they've held on to a year to two years longer than they typically would hold on to them. So, really important thing to realize is that as SAAR returns back to 17 million, that frees up the used car inventories and the core product that Chris was speaking to.

Our next question is from John Murphy with bank of America. Please proceed.

Good morning, everybody. Just a first question, you said something very interesting about the success of your acquisitions. And externally, it looks like everything is going very well - clearly is going pretty well, but you mentioned you had 98% success rate. I'm just curious how you measure that and call an acquisition a success. And what the other 2% that may not be considered success? What does that mean? And when you think about what's going on with the integration of Jardine, maybe you can give us an update of how that's going or progressing.

Great. Hi, John. This is Bryan. I think it's important to remember that we've always established a 15% after tax return as the definition of success. Typically, we were running at about 85% success rate. We optimized our network, meaning we sold, what 34 stores over the last three years, which took out a lot of what we would call the underperforming smaller stores. I think our average store size other than two was about a $20 million revenue store when our average revenue in currently of our business is about $100 million. Okay. So, we got rid of the stores that were underperforming. So, we do measure the stores that are currently within our network, not the stores that we divested. So, there is another 5% to 8% that came through the selling of those stores. But today, we do sit at 98%. Yes. earnings may be still a little bit high. but generally speaking, virtually all of those stores are considerably above the 15%. I mean, we have transactions that are returning today at almost 80%, 90% after tax, meaning that we paid six months to eight months of revenue or of earnings for those businesses like those Kia stores in Texas. And there's a number of examples. So, when we think about the success rate, it is truly of the portfolio that's sitting there. In terms of jardine, I think that was the second question, I think it's neat to see that the trough SAAR is recovering. We have a big tailwind that's occurring in the United Kingdom, which is nice to see. I think there's some supply issues. We're getting some early reads on what agency could look like with Mercedes efforts in the United Kingdom, which is great learnings in terms of the entire customer lifecycle and how a manufacturer and a retailer can work together to create better experiences for our consumers. It's great. Chris and I were actually over in the United Kingdom what was it? Three weeks ago?

Yes.

And Neil, our CEO or president in the United Kingdom, had a leadership conference that he invited us to. And we got to do a really fun song and dance on stage with Neil and then hang out with his leadership team, but we bought a wonderful organization that is culturally a perfect fit for our organization. In fact, Neil brought his family over for what - two weeks and was really excited to be able to go to Redding, California, because he has the Redding, UK. anyway, he didn't actually end up going there, but really good combination of people and we really look forward to the continued development of his customer base and growth in Western Europe and United Kingdom over the next half decade or so.

And if I can squeeze in one follow-up, you mentioned that it sounds like Chrysler inventory or Stellantis inventory is on the high side. I'm just curious if you're seeing any pricing pressure or incentives coming in to help move that or is it clear to you that this is sort of buffer stock in front of a potential UAW strike in September.

I think the big thing to keep in mind there, John, that UAW strike, it could help stabilize our margins, which is quite nice. It may be part of the reason why I may hedge a little bit of that $100 declines. If we do get that strike with certain manufacturers, it could be a nice thing to help stabilize those GPUs for a little bit longer. But all in all, I mean, they are on the right path way. Chris, do you have anything to add on?

No, I didn't actually say Stellantis. So, good guess on that one. And I really think it is about inventory mix and incentives. As they continue to recover, we are seeing a recovery, but the general incentives are down still a 50% of what they were kind of pre-COVID. So, I think as you see supply come back, you're seeing and fleet kind of rebuild. That's the other side of it. As the fleet cycle gets filled, I think you're going to see a lot more incentives come back to consumers, which goes back to supporting the affordability question that our finance specialists continue to try to answer for each of our consumers.

Thanks, John.

Our next question is from Colin Langan with Wells Fargo. Please proceed.

Great. Thanks for taking my questions. Maybe, just to follow up on that, any color on how the GPUs on new for domestic import and luxury are trending? I mean, if inventory is pretty close to back to normal, are the domestics kind of back to pre-COVID levels and the imports, where margins are keeping elevated margins?

I think, again, this is chris, it's a mixed bag. I mean, when you look at what's happening on, let's say, General Motors sales up 3% versus Chrysler sales down 14 for us. And so the GPUs kind of follow the general trends that you're seeing based on supply and demand. And so more inventory generally means more discounting and we're kind of watching it out. Like I said, there's a day supply shift of a differential between six days on an import and 83 days on a domestic. And so kind of everything falls out in between there. We can give you some basics on domestic gross profit. this is not GPUs. this is gross profit. This is GPU. Oh, great. Domestics are down 9%. Imports were finally starting to get a pretty good amount of supply, meaning I think, in the month of May, we were up 53% in Honda sales and Toyota sales were quite strong in June. So, their recovery was quite nice too. But our import GPUs are down 25%. A lot of that is just having the supply to loosen things up a little bit and luxury is down about the same as imports.

Yes. and if you think about the big push that we have right now from our OEMs, it's turned. So, as they're building more inventory, we're expected to turn it. So, as soon as vehicles are on the ground in order to earn your allocation, the way the system works is you have to move them faster than your competition. So, there's a lot of incentive right now to meet that affordability equation for consumers.

Got it. Thanks for that color. Maybe, if you could talk about DFC, I think the last guidance was a $40 million loss, now it's $50 million to $55 million. I think you're close to $40 million already. So, does that mean we start seeing improvements already in Q3 and any color when that actually we should kind of think of it as turning positive?

Yes. Thanks, Colin, this is Chuck. Your numbers that you quoted are correct. Last quarter, we were giving loss guidance of around $40 million, and now, we've moved that up to $50 million to $55 million. That's really being caused by three primary issues, the first of which is just the decline in used car wholesale values. And if you look at sort of some of the used car indices; year-over-year, used car values are down about 10% and we're definitely seeing the effects of that on some of our recovery trends, which is really driving the majority of that moving off the profit guidance. In terms of when this will turn around, we still feel very confident and that it'll be next year when we start to see really a breakeven point for DFC. And then that puts us well on our way to achieving the end state goal of $650 million that we still confirmed in our comments.

Thanks, Colin.

Our next question is from Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed.

Good morning, guys. I just want to ask one more on you, I know we've talked a lot about it. but when I look at you guys versus the peers that have reported this quarter, I mean, very divergent trends here with nice sequential improvement for you guys, contrary to them and what we're seeing in the industry. I guess, any finer point that you can put on kind of your outperformance on the used GPU side.

I think, Ryan, most importantly, we continue to grow our e-commerce business and even though driveway is 98% all new customers, it does set a new bar for our stores in how they think about optionality and their offerings to their consumers, which is helping them expand their reach in their local markets as well, meaning that they'll deliver cars. I think we delivered 6% of our total vehicle population to people's homes, which is different than it was four years ago, which allows us to expand that reach, which is the original intent of the strategy. It's neat to think Ryan about our future, because it's filled with massive opportunities and determination. And I think most importantly, it's both an iterating and an unwavering commitment to our strategy. That's what Lithia & Driveway is all about. And you bring it up as are there other things that we do as used. I think most importantly, the Lithia's strategy, though maybe back in 2020, it sounded complex. We're at execution phase today, okay? The things that Chuck talked about are part of who we are today. Okay, and it's going to bring an additional 20%-30% profit, which builds that flywheel effect of what Lithia & Driveway are all about, which allows us to be more competitive on acquisitions, provide greater service through the lifecycle to the consumers and ultimately, builds a model in an industry that's totally unconsolidated, that's different and is going to be more difficult as time goes on and as our strategies begin to take hold and become profitable, that competitors will eventually see that the plan that we've developed and are now fully executing on is a good strategy, a right strategy, a safe strategy and ultimately, a great strategy for the consumer.

Hey, Bryan. I'd add to that just kind of more on the tactical side operationally. Bryan's pretty humble in this, but he was a big used car dealer, and the D&A in the organization that we had as Bryan kind of transitioned into his leadership role was really to focus us all in every one of our locations on used car procurement. And so the idea that used cars is a big part of the focus that we have operationally in every single meeting and every single store, it's a big part of the D&A that we have across the organization now in North America with Canada, and then now into the UK with Neil. So, I think, it's a big focus area for us as well. So, thanks for that, Bryan.

Thanks, Ryan.

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

Hi. Good morning. Thanks for taking our questions. We were wondering if you were seeing any issues with prospective customers getting approved for financing at current rates or if you're seeing just more cash buyers in the current environment.

Hey, Kate, this is Chuck. From a financing perspective, we're not really seeing a major shift in terms of cash buyers versus financed buyers. I mean, our overall credit quality tends to be more in the mid-tier prime segment, and that segment is stressed. But the reality is that on an average loan, the average monthly payment increase on a $30,000 vehicle is only about $40. And usually, a consumer can still cash flow that. So, we haven't really seen a big shift towards more cash buyers. Most of our consumers are able to get financing, but we are seeing a little bit higher percentage of shift vehicles, where they might have to move off of the vehicle that they initially started on, onto a more affordable vehicle. And that really goes back to what Chris has talked about earlier about the shift more to affordable vehicles. So, we don't really see a big trend though in the financing mix. Thanks for your question.

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

Hey. good morning, guys.

Hey, Bret.

Hey, Bret.

could you talk about what you're seeing on lease origination trends as inventory comes back? Are you seeing more of an OE push to lease cars?

Yes. this is Chris again. I mean, absolutely, I think that is a really big focus that we have from all of our OEMs right now to try to get back to leasing penetrations that we lost really kind of in that COVID environment. And so, yes, across the board, leasing is a big focus, because everybody's focused on this whole idea of customer lifecycle and loyalty, and leasing definitely gives you a higher propensity to stay attached to that consumer and regenerate future sales as you transition into leasing. There's another interesting nuance about pricing. By giving incentives on LAVs or lease multiple factors, which is the equivalent interest rate, it's not as conspicuous as it is to put $2,000 on the hood of a truck. Are you following me? So, it is a way to be able to stabilize margins and maybe, help create an experience for the consumer that's more focused on the product and a little less focused on the negotiations, which is a really important thing that we're all working on to try to combat the effects of the direct to consumer manufacturers that really get to just sell the product. Okay. And I think the more that we can do as an industry to align with our manufacturer partners to take away the price negotiation as much as we possibly can and focus it on how greater products our manufacturers are building, because they are quite special. And as we commented on, we're now at 10% sustainable vehicle sales as a company and it's actually close to 15% on new vehicles, which is totally faster than I think any of us thought that that could happen. Now, we're obviously fairly centered in the West Coast, which has higher penetration rates as well.

Our next question is from Adam Jonas with Morgan Stanley. Please proceed.

Hey, Bryan. Thanks, everybody and congrats on you and the team for making the skeptics look like total fools. It comes naturally to me, Bryan. It comes naturally to me.

Thanks, Adam.

Yes. Two questions. First, on used, it seems like a bit of a buyer strike at the margin in the market due to higher prices. I would be interested in what your team prioritizes going forward in terms of if I gave you the choice between boosting affordability while sacrificing some GPU versus looking to protect the nice GPU and sacrificing some of the volume to do so. I know you can toggle, but just curious where you would be leaning.

I think, Adam, the way that we designed our model is to make sure that we have all levels of affordability covered. So, we're not in that category that if they don't buy a new car, we don't get the business. If they don't buy a certified car, we get the business, right. They move to core product like Chris talked to. If they can't afford a core product, then they move to value auto, which goes all the way up to 20 years old. So we, as a retailer and as a broadband retailer, I think, don't worry as much about the affordability cycles, because we do offer such a differing range of affordability. I mean, at the top end of the range, you got BEVs that are averaging about $900 a unit if they're leased and about $800 a unit on a payment basis if they're financed. So, then you go all the way down to the over eight-year-old bucket, which is an average of less than $380 payment. A lot of different abilities to be able to maintain customers within the Lithia, driveway and greenCars portfolios, where we don't have to deal with that quite as much as a retailer as maybe a manufacturer does when they're thinking about their product cycles seven years out.

Our next question is from Ron Josey with Citi. Please proceed.

All right. thanks. Hi, Ron. He has an underutilized network.

Ron, your phone is cutting out. We're not hearing you very well.

I'm sorry. Is it now better?

Yes.

Oh, great. Sorry, just chris, I was wondering if you can just talk a little bit more about the improvements you've made to the broader network for online just [indiscernible]

Okay. we heard a part of that. I think you were asking the question - this is Bryan, about our underutilized network. I think most importantly, when we did our original design eight, nine years ago, and this is pre-COVID levels of inventories, remember this, okay? We were utilizing about 50% of our storage capacity in our company, meaning that we could sell twice as many cars through the same infrastructure. A part of our design thing is just, a part of why we went online, a part of why we're expanding our customer reach with driveway and greenCars. on the service side, we were only utilizing about a quarter to a third of our total capacity meaning we could recondition a lot more cars or gain or conquest a lot more service business by going in-home to consumers. And I think that's where we really sit today. I think in terms of the network outside of that. We have tried to diversify away from the west, which is one of the least profitable regions domestically in our country in a normalized basis, okay, and tried to focus a little bit more of our attentions on purchasing our businesses in the Southeast and the South Central, and that's working out really well. I didn't hear the 14% number of what you were saying.

Maybe, if you can hear me now, maybe this is better. Otherwise, I'm just asking.

Yes.

Great. Sorry about the connectivity. Just I think I heard 14% growth in e-commerce units, and I was wondering if this was a result of just the transition to more national advertising spend, seeing greater awareness overall, given I think the comment was 80% have never shopped it [ph]. So, any insights on that 14% growth in e-commerce units would be helpful. Thank you, guys.

Yes. Thank you. Yes. this is Chris. I think our big focus continues to be on how do we leverage the whole omnichannel experience for the consumers. And so the 14% that we were referring to was both our driveway channel, our greenCars channel, and our store channels that also do a lot of e-commerce business and a lot of online advertising and direct-to-consumer advertising. And so as we continue to figure out the right way to do exactly what Bryan said was leverage our facilities in the most effective way possible. We can be kind of where our customers want us to be at any point in time, that whole idea of wherever, whenever and however. And so that'll be a continued push for us. I think it's a continued trend that we're going to see as we'll get more e-commerce transactions for the entire Lithia & Driveway platform over time.

Thanks, Ron.

Our final question is from David Whiston with Morningstar. Please proceed.

Hi, David. Hey, Bryan. Hey, everyone. Question on what I think you call your Lithia Partners group, about that recently and how the store GM gets a large amount of lithia stock, if they qualify for that. And I'm just curious, beyond the sock award, what are the main incentives for a store GM to want to be in that? Is it all monetary? Is it prestige with senior leadership? If you could just talk about that a bit. Thanks.

You bet, David. the key monetary factor is what you said, they get about twice as much ownership in our stock, which is special. Most importantly, though they are our guiding light for all stores. So, they get to do like instore visits, they get to mentor new people. They get to go on a trip, which is a big deal once a year. They get to set the tone when it comes to policy or it comes to consumer optionality. We look to them to help guide our future. They also get to be involved with anything to do with their manufacturers, or they can choose to go and be part of Nada or Nicholas Campbell's 20s groups. They basically get to behave and act like a dealer like they own the store. The neat part is now many of the LPG members are now multi-store leaders, meaning that they have an assistant GM or something underneath them that they're growing, okay, which is helping us reduce our ultimate costs. So that additional cost that comes with the stock that we give them. now, they're starting to distribute their costs and we're leveraging them to oversee two, three, four or five stores. There are also great recruiters of people, because of that, that autonomy that goes back to our value or our mission of growth powered by people and the value of take personal ownership, they epitomize that. And our goal is that 100% of our stores and businesses achieve Partners Group award level. Today, we're at about 41% of our qualified stores, you have to be with us for a full year before you actually qualify, okay. And then once you're a partner, you have to win once every three years to be able to maintain the level of LPG member or lithia partners group member that you currently reside at. So really, fun opportunity. Thanks for your question, David and thanks, everyone for joining us today. We look forward to talking to you again, in October.

I would like to turn the conference back over to Amit for a closing comment.

I guess Bryan stole my words. Thank you, everybody, for joining us and we look forward to speaking to you soon.

Thanks all.

Have a good day. Bye-bye.

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