Group 1 Automotive, Inc.
Q2 2008 Earnings Call Transcript

Published: 29 Jul 2008

[Operator:]

Welcome to the Group 1 Automotive second quarter 2008 earnings conference call (Operator Instructions). I would now like to turn the conference over to Pete DeLongchamps, Vice President of Manufacturer Relations and Public Affairs.

[Peter DeLongchamps:]

Good morning everyone and welcome to the Group 1 Automotive 2008 Second Quarter Conference Call. Before we begin I’d like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties which may cause the company’s actual results in future periods to differ materially from forecasted results. Those risks include but are not limited to risks associate with pricing, volume and the conditions of markets. Those and other risks are described in the company’s filings with the Securities and Exchange Commission over the past 12 months. Copies of these filings are available from both the SEC and the company. In addition, certain non-GAAP financial measures are defined under SEC rules and may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. I’d now like to turn the call over to our President and CEO, Mr. Earl Hesterberg.

[Earl Hesterberg:]

In a moment I will turn the call over to our CFO John Rickel, who will provide Group 1 financial results. After he is finished I will go over our updated guidance and then open up the call for questions. Before I turn the call over to John, I will begin by telling you what we observed during the quarter. The overall selling environment certainly got more challenging during the second quarter. Beginning with Memorial Day weekend, the market took another significant step down. Customer traffic declined further as consumer confidence was again shaken due to the higher gasoline prices and issues surrounding the financial markets. The major shift in car versus truck sales that has resulted from higher gas prices is unprecedented in terms of the magnitude and speed of the mix shift. For the second quarter, 62% of our new vehicle unit sales were cars. This was nearly 7 percentage points more than in the same period last year. Conversely, truck sales fell from 45% of unit sales to 48% for the period. The result of this rapid switch in customer preference is significant declines in secondary market valuations for trucks and large SUVs and a large imbalance between supply and demand for both new and used units. On the new vehicle side, beginning in June, we’ve seen a number of the manufacturers respond with higher incentives to try to address some of this imbalance. These changes are creating many challenges in our business for perfectly sizing our operations, determining inventory stocking and helping customers with residual value issues. Any one who has financed a large truck or SUV in the past several years is almost certainly upside down on their loan. As a result, we’ve seen our volume in margins for new and used vehicles impacted adversely. The mixed shift coupled with general slow down meant that dealerships that are more dependent on truck sales, Ford, Dodge, Chevrolet, were particularly hard hit. Geographically California remains weak, but does not appear to be slowing further while Florida and the Southeast deteriorated again this quarter. Our business in Texas and the Northeast held up better, but no region of the country was immune to the slow down. In the midst of these challenges we did have several bright spots. We have continued to be profitable and grow in our more controllable parts and service and financing insurance businesses. The parts and services business has historically been relatively stable during sales downturns and we believe that this business should remain solid through this current decline. Parts and service profits covered approximately 70% to 80% of our total fixed costs and is therefore the core of our business. Our total parts and service sales increased 9.2% for the quarter with a 4.8% increase on a same store basis. Gross profits in this area were up 7.7% for the quarter as we experience improvements in all areas of this business. In addition with our continued focus on strategic improvements in the finance and insurance business, we continue to grow our profit per retail unit, which at $1,078.00 per unit was up $74.00 from the same period a year ago. Now let us turn to inventories. Our new vehicle inventory improves 4 days to 66-day supply from the end of the first quarter and increased 8 days from the prior year period. Cars accounted for 37% while trucks made up 63% of the inventory. Although we saw improvements in our new vehicle day’s supply we clearly need to continue shifting our mix to match consumer demand. Noting our used vehicle inventory, our supply of used vehicles at quarter end fell one day to 28 days from both the first quarter and the prior year period. While we are still below our 37-day supply target, we are satisfied with this level given the current environment. Turning to second quarter brand mix

[John Rickel:]

Let me preface my remarks by explaining that we’re in the second quarter. We disposed of three domestic dealerships encompassing seven franchises in Albuquerque, New Mexico. After evaluating all quantitative and qualitative aspects we determined that the reporting of this disposition of discontinued operations was appropriate as the sale constituted the complete exit of the market and the elimination of clearly distinguishable cash flows with no significant continued involvement. As such our operating results and financial position for all periods presented and discussed on this call have been appropriately adjusted to reflect the continuing operations of the company. The three months ended June 30, 2008 we recognized a $1.3 million loss related to discontinued operations or $0.06 per diluted share. For the second quarter of 2008 our net income from continuing operations was $18.5 million or $0.82 per diluted share. Included in these results was a $535,000.00 after tax lease termination charge related to the relocation of several of our dealership franchises from one to multiple facilities. Excluding this lease termination charge, our net income from continuing operations was $19 million or $0.84 per diluted share. Our results for the second quarter of 2007 included a $326,000 after tax charge for a lease termination and a $232,000 after tax asset impairment charge. As disclosed in the reconciliation of certain non-GAAP financial measures included with our financial tables, excluding these charges from both periods, our net income from continuing operations decreased 23.4% from $24.8 million in the same period a year ago and the earnings per diluted share were down 19.2% from $1.04 per diluted share in the same period. Our second quarter consolidated revenues totaled $1.6 billion a decrease of $63.2 million or 3.8% compared to the same period a year ago primarily as a result of a 6.6% decline in our retail new vehicle business. In addition, consistent with our strategy, we continued to reduce our wholesale used vehicle business, which was down 17.3% or $14.1 million for the second quarter of 2008 versus second quarter 2007. These declines were partially offset by increases of 7/10 of a percent I our used retail business, 9.2% in our parts and service business, and 1.8% in our finance and insurance business. Overall our consolidated gross margin of 15.9% was 60 basis points improvement from the second quarter of 2007, more than explained by the shift in revenue mix on a year-over-year basis towards our higher margin segments. A partial offset were declined from the margins of several of our businesses, specifically in our parts and service business, reflecting faster growth in our wholesale parts inclusion businesses where margins are lower on a relative basis. Total margin for this business declined 80 basis points to 53.8%. Margins were also lower in our new and used vehicle businesses, declining 50 and 20 basis points respectively. SG&A expense as a percent of gross profit increased 160 basis points from 76.1% in the second quarter of 2007 to 77.7% in 2008, as our consolidated SG&A expenses increased 1.7% to $195.3 million and gross profit declined $766,000.00. As I previously mentioned, we realized an $870,000 pre tax charge related to the termination of facility lease associated with the relocation of several of our dealership franchises. This charge is included in our SG&A expenses for the three and six months ended June 30, 2008. Consolidated floor plan interest expense increased 8% in the second quarter of 2008 to $12.4 million as compared to the same period a year ago. This increase was primarily attributable to a $242.4 million increase in our rated average borrowings reflecting higher inventory levels. The decline in our weighted average floor plan interest rate of 129 basis points provided a substantial offset. Other interest expense increased $925,000 from 15.1% to $7.1 million for the second quarter of 2008 as our weighted average borrowings of other debt increased to $169 million. The increase primarily reflects the $50 million of borrowings remaining outstanding under the acquisition line of our credit facility after we paid down $15 million of borrowings during the quarter as well as a $115.3 million increase in outstanding borrowings under our mortgage facility as of June 30, 2008 as we continued to execute our strategy of owning more of our real estate. The increase in interest expense from the mortgage facility and the acquisition line was partially offset by a 62 basis point decline in our weighted average interest rate and the reduction of $55.1 million of our senior subordinated notes over the past 12-months. Manufacturers interest assistance, which we report as a reduction of new vehicle cost of sales at the time the vehicles are sold was 63.3% of total floor plan interest cost for the second quarter of 2008, a 21.3 percentage point decline from the 84.6% level of coverage experienced in the second quarter a year ago. The decline stems primarily from the impact of our $500 million of fixed rate swaps that we had in place at June 30, 2008 at a weighted average interest rate of 4.8%. We reflect the monthly contract settlement of these swaps as a component of floor plan interest expense. Turning now to same store results

[Earl Hesterberg:]

With declining new vehicle sales and near record lows being reported for consumer confidence, we are revising our 2008 earnings guidance. Although we continue to see our parts and service business remain more stable, we do anticipate new vehicle sales to remain weak through out the balance of this year and into much of 2009. Given this, we are revising our 2008 full year earnings guidance to a range of $2.65 to $2.95 per diluted share from continuing operations. Guidance is based on the following revised assumptions

[Operator:]

(Operator Instructions) Your first question comes from John Murphy with Merrill Lynch.

[John Murphy:]

I was just wondering if you could talk a little bit about what’s going on with Chrysler and the pull back in leasing in the US. I know it’s only a small part of your business mix, but just how that impacts the dealers ability to sell these vehicles and if GM and Ford were to follow suit, or GMAC and Ford Motor Credit were to follow suit, how that would impact your business?

[Earl Hesterberg:]

Of our Chrysler business, leasing is only about 7%. We tend to be in heavy truck states and pickup trucks haven’t been big leases overall, at least not for us. It is certainly psychologically damaging because there is a lease market out there. That’s not a good thing for dealers to hear, but this trend is not unexpected. I tell you what was unexpected is that somebody totally withdrew from leasing vehicles, because there’s always going to be a lease market out there, but you saw BMW take a 270 million Euro hit a few months ago, maybe you’ve seen Ford Credit with their $2 billion hit, even Honda had a hit in their earnings announcement. It’s just the fact that the market shifted too much towards a heavy percent of leasing. This happened a decade or so ago and also it had to shake out. I think it became the incentive tactic of choice and that got things out of balance, so I don’t expect most of the major captive credit companies to get out of the leasing business, but I do expect them to temper it down to a lower percent of their sales. If you noticed BMW incentive programs almost immediately after their announcement they went to a very strong array of sublimed interest rates 0.9 APR, they didn’t say anything they just clearly put an aggressive marketing program together to start moving the dealers away from so much leasing and it’s been very successful, our BMW business has held up very well. I would expect to see more approaches like that because there are certain segments of the market that are always going to want to lease and so it’s another obstacle in a touch market, but it’s something that we’ll be able to work through.

[John Murphy:]

You mentioned on your used vehicles terms, I think you said, were 27 or 28 days which is incredibly fast; target was a little bit higher than that. Doesn’t it make sense to keep these terms incredibly low given what’s going on in the used market and with residuals here? Is that something that’s been actively done or is it just because of the mix of vehicles that were in your inventory there was a high demand for those?

[Randy Callison:]

We’re being very conservative with our used car inventories. We’re very comfortable with that based upon it being lower than our target and you’re right, you need to be conservative in this rapidly changing environment.

[John Murphy:]

Lastly on you cost cutting rationalization actions, it seems like on an absolute basis, you’re doing a lot of good things with cost here, but some of your larger competitors have announced big, new, restructuring actions. Is there anything that you feel like you need to do or what you’re doing is enough right now in the environment we’re in?

[Earl Hesterberg:]

No I don’t think we’ve done enough, but we have been attacking this since about November of ’06 when California started to turn down. To us it’s more of a continuous action than to just tell you we’re going to do something across the board magnitude. I’d like to do that, but then when I get into the individual pieces I see the brand variation and the geographic variation and it’s just hard to do a haircut on everyone. For example, we reduced advertising expense ’07 versus ’06, 15%. A lot of that was efficiency, a little of that was downsizing. I think in the last quarter we reduced our advertising expense 10% from second quarter ’07. That was more sizing the business with a reduced level of gross profit this year and it’s probably more like 20% in some of the domestic brands and no reduction in Honda in some of the brands that are still selling. We do have more to do because the market took another step down in a lot of places in the second quarter, but we think it’s a continuous job, not a big stair step haircut announcement.

[Operator:]

Your next question comes from Rick Nelson with Stephens Inc.

[Rick Nelson:]

Can you talk about customer pay and warranty, what’s happening there and why your results are perhaps better than some of your peers?

[Randy Callison:]

Well thank you Rick, yes we were very pleased with our parts and service business this quarter. Customer pay was up 3.9%, as I believe John said and warranty was up 2% for the quarter, that’s same store basis with both numbers. That’s our second quarter with warranty being either flat or slightly up, which is very encouraging because as you remember last year we had some decreases in warranty income as we traveled through the year, so it’s too early top predict but we may be flattening out on warranty now and we’re definitely growing our customer pay business, which is where we focus most of our time.

[Rick Nelson:]

Can you also talk about inventory, the mix of cars and trucks and how long you think it’s going to take to get that into balance?

[Earl Hesterberg:]

Yes we clearly still have too many trucks and we can’t even break it down specifically because we have so much argument over what’s a truck now with all these cross overs and Hedges and Flexes and Acadias and Journeys and things like that, but we need to put a big dent in this in the third quarter, but I’m afraid it’s going to be a second half of the year job to do, but when you get into the fourth quarter the model years start to change and it costs everybody more money; so that’s our top priority right now is to get as much of that back in line in the third quarter as possible before the model year changes.

[Rick Nelson:]

Just some clarification on dealership dispositions, are some of those in discontinued operations and others are not?

[John Rickel:]

Yes the only ones that are in discontinued operations are the seven franchises or three dealerships that we exited in Albuquerque, New Mexico, so those would be the only ones that are in the disco line.

[Rick Nelson:]

And of the dealerships that you have sold, is there blue sky or goodwill associated with those or are they going on real estate values or what sort of —.

[John Rickel:]

There was goodwill associated with those.

[Operator:]

Your next question comes from Matthew Fassler with Goldman Sachs.

[Matthew Fassler:]

The question I would like to ask you relates largely to your gross margin; both your second quarter experience and some color on what the upcoming quarters might look like. Your gross margins barely budged sequentially from the first quarter, despite what seemed to be a tougher selling environment, so can you just give us a little more color on how they were able to hold and whether you think that the inventory and position that you have, that might create a lot of liability in the second half of the year relative to the first half after that line item?

[Earl Hesterberg:]

On the new vehicle side, which is where the most extreme pressure is, we actually saw some pretty decent expansion in the gross margins of cars, primarily import cars. Now I won’t tell you if it’s ever going to expand enough where it will be like selling a Ford Expedition in the good ole days. But, we’ve had Toyota on the car margins significantly improve and that’s just a function of supply and demand. Truck margins are still probably weakening a little bit, but as the incentive support for these big trucks and SUVs has increased from the manufacturers, in some cases, it’s $8, $9,000.00 total some customer and some dealer cash, it may allow the new vehicle truck margins to kind of flatten out, although it is at a low level. That is the dynamic in the new vehicle margins. Within our parts and service gross margins, we had a slight deterioration this quarter, but that’s because our collision and our wholesale business grew as a percent of total and those are lower margin businesses, but the individual segment margins are pretty steady in the parts and service business.

[Matthew Fassler:]

Secondly, your comments on California, was the stabilization evident in new, was it evident in used and were different parts of the state acting differently?

[John Rickel:]

We are basically in Southern California with the exception of a Toyota dealership I Sacramento, so we basically speak from kind of a Los Angeles market perspective. I am a little reluctant to say It’s stable because this is the third time we’re telling you It’s stabilized, I think its taken three steps down in the last 18 months, but yes both new and used seem to have stabilized for now.

[Operator:]

Your next question comes from Scott Stemper [ph] with Sedody & Company.

[Scott Stemper [ph]:]

Could you maybe dig a little bit more into parts and service, your collision business seems to have a nice pop in this quarter. Could you maybe talk about some trends there, whether you’re seeing increased collision rates?

[Earl Hesterberg:]

It’s not a function of collision rates, at least not that I’m aware of. It’s more that we’ve been investing some money in that business. Over the last year or two we closed down a couple of our smaller, less profitable shops and put more focus on our bigger shops and we’ve had a nice year-over-year increase. That’s just a matter of focus and a little bit of investment.

[Scott Stemper [ph]:]

What percentage of your parts and service is collision?

[Randy Callison:]

11.4% for the second quarter, same store.

[Scott Stemper [ph]:]

And maybe just get it back to the F&I for a minute, you guys did a good job there of offsetting the new car decline. Could you maybe just dig a little bit deeper into what’s driving the higher rates per vehicle?

[Randy Callison:]

Two things one we renegotiated some of our cost structure last year and we’re still seeing the positive impact of that, but second quarter of this year we also had expansion in our penetration rates across essentially all product offerings; so it’s really a combination of the two. A little bit lower cost structure, but a little bit higher penetrations.

[Scott Stemper [ph]:]

As far as when you guys take in trade ins, whether it’s a truck or an SUV, could you talk about how you’re going about to disposal of those? Have you taken alternative means beyond what you normally do to try to minimize the wholesale losses?

[Earl Hesterberg:]

I think everyone in the market has probably been a little conservative on appraising trade-ins for the last year just because of the continual decrease week-by-week, or month-by-month at the auctions. We may be sending some vehicles to auction a little bit quicker and clearly I think everyone is retailing out at more used vehicles at a lower margin more quickly so they don’t have to go to the auction in 60-days and find out exactly how much it has dropped in that period of time. It think there is a little bit of quicker liquidation in both retail and wholesale that we’re doing across our company.

[Operator:]

Your next question comes from Matt Nemer with Thomas Weisel Partners.

[Matt Nemer:]

My first question is on the ASPs, the average revenue per unit on both new and used. It looked like it held relatively steady year-over-year and I was just curious, given the decline in trucks if that’s related to dispositions or if you could sort of clarify that.

[Earl Hesterberg:]

I don’t know if we can clarify that or not. Clearly the current mix is moving — maybe Randy has it.

[Randy Callison:]

Yes this is Randy; I don’t have the break out between care and truck. The total number, new vehicle average cost, remains about the same.

[Matt Nemer:]

Also I was wondering if on SG&A you could give us the rent in that number so we can look at year-over-year expenses, X changes and the way you finance your properties.

[John Rickel:]

Yes Matt, this is John. If you’ll give me just one second to dig that out If you want to go on with another question, I’ll come back to you on that one?

[Matt Nemer:]

Sure, I’ve got one more housekeeping one for you though, which is, is there a way to also break out the percentage of domestic brand new vehicle sales that are leased? I think you gave the Chrysler number but I didn’t hear a total big three number; then also the percentage of credit that you have extended by the captive finance companies. It looks like some of your credit lines are syndicates and I’m just wondering if there’s a way to break out what piece of it has been extended by the captives.

[John Rickel:]

On our wholesale line the only silo we have is with Ford Motor Credit and it’ s for a total of $300 million, but we don’t nearly use that, how much is gone, there’s probably about $125 to $135 drawn at any point in time.

[Earl Hesterberg:]

All the rest of our wholesale flooring is with a bank syndicate, which does include a couple captive such as Toyota, Nissan, and BMW within our syndicate of banks, but the only distinct captive financing we do is Ford Credit.

[John Rickel:]

Matt, on your rent question, we had $12.9 million of rent expense during the quarter and that was down $1 million 4 from the same period a year ago.

[Randy Callison:]

On your lease question, we just don’t lease very many domestic vehicles. As Earl stated earlier Chrysler is about 7%, Ford’s about 7% and General Motors is somewhat less than that.

[Operator:]

Your next question comes from Richard Kwas of Wachovia Securities.

[Richard Kwas:]

Earl on the new vehicle inventory do you expect to be fully aligned with where consumer demand is by the end of the year?

[Earl Hesterberg:]

Yes I would expect that. That’s no small task, but we need to get that done. I think we’re down to about five months to go, I guess, but yes, I think we need to get that done. We can’t let this drag out.

[Richard Kwas:]

I know it’s a bit of a moving target, but what do you think the appropriate past car/truck mix is going to be going forward? What are you shooing for I guess?

[Earl Hesterberg:]

I don’t really know, because the market determines that. We’re clearly not done with this shift, because there is a lack of supply of a lot of these fuel efficient vehicles and it’s not just Toyota Priuses and Toyota Corolla’s and Honda Civics’, I mean we’ve been sold out of Ford Focus’s and Ford Fusion’s and Chevrolet Malibu’s are doing well and even smaller Jeeps in the Jeep line, I don’t know if it’s Compass or Patriot, those things have been sold out at our dealerships. Although I guess you would count those small Jeeps as a truck, but I think there’s more shift to come when the fuel-efficient car supplies increase a bit.

[Richard Kwas:]

I think 63% of the inventory was truck at the end of the quarter. What would you classify as being your traditional truck mix there, of that 63%? You know kind of [interposing].

[Earl Hesterberg:]

Most of it, quite frankly, because we’re so heavy in Texas and Oklahoma and when I say traditional truck I mean full size pick up and SUVs from Ford Explorer on up

[Richard Kwas:]

On the used vehicle inventory, I know you turn that pretty quickly, but are you overweight trucks there right now or are you pretty happy with the balance?

[Earl Hesterberg:]

Not in what we have in inventory because that’s a lot of what we’re liquidating quickly, but we’re certainly overweight in appraisals. I mean what you’re appraising every day on these lots, if you try to do a car deal, it’s trucks and SUVs, people aren’t trading in Honda Civics. What we are actually keeping to retail on our lot is quite in balance.

[Richard Kwas:]

Are you starting to turn people away when they bring in trucks or how are you balancing that with, [interposing].

[Earl Hesterberg:]

You certainly try not to. We wouldn’t be making new car deals if we weren’t stretching for some of these trades, but that’s where the danger is in the market. But that’s one of the toughest things right now and it’s one of the things that customers are reacting to is the appraisal numbers on their trucks and SUVs, they are just in a state of shock when they come in to try to buy a Honda Civic and trade I a big SUV how little it’s worth. We rehash those things every day on every trade that we don’t get. When we make an appraisal and we don’t make the deal, we keep rehashing those deals every day to see if we went as far as we can.

[Richard Kwas:]

Then John, on F&A, if I recall the comps get more difficult in the second beginning with third quarter and you had some consolidation that occurred second half of last year that’s boosted your revenue per unit., Is that true that you start to go against more difficult comps?

[John Rickel:]

Yes certainly the renegotiation happened about this time last year, so yes a lot of the cost benefit we start to laugh at this point.

[Richard Kwas:]

Do you expect to kind of maintain this level for F&I per unit? Is that kind of what you’re shooting for?

[Earl Hesterberg:]

Yes, that’s what we’re shooting for.

[Operator:]

Your next question comes from Mark Warnsman of Calyon. Mark Warnsman of Calyon Securities (USA) Inc I’m curious how you positioned your dealerships for the arrival of the new F series and the Dodge pickup later this year. Is it going to be a non-event because of the overhang of pickups or is there a way you can work around that?

[Earl Hesterberg:]

Quite frankly it’s a non-event at this point. It was very exciting a couple of months ago, but everyone’s in survival mode right now and our job is to get these current model trucks out the door, because that is severely impacting our profit levels. So, I don’t have too many people spending any time thinking about the great new Dodge and Ford trucks. I think when the market reaches some equilibrium, which is going to take some time yet, then let’s hope there’s some excitement, because there is still a lot of die hard full size truck buyers out there in the market, particularly in Texas and Oklahoma where, around our headquarters here, but that’s a secondary priority at the moment for us. Mark Warnsman of Calyon Securities (USA) Inc Relative to Toyota have you seen any appreciable change in their go to market strategy or just generally tactics in the market?

[Earl Hesterberg:]

The biggest change we’ve seen is they’ve become much more aggressive in cutting production say in the last quarter. To close a truck factory or SUV factory for three months is fairly unprecedented and it’s exactly what needed to happen. They are also working hard to increase Prius and these other things. No, Toyota is a fairly consistent company to deal with, which I think is one of their strengths and that’s all I have noticed.

[Operator:]

Your next question comes from Joe Amaturo with Buckingham Research.

[Joe Amaturo:]

First if this is possible, could you tell us what you’re assuming for the seller in the second half of the year, that you have your guidance built off of?

[John Rickel:]

To basically get to 14, 14 ½ you’re in to kind of the mid to upper 13s to make the math work.

[Joe Amaturo:]

The implied second half guidance suggests a more substantial decline year-over-year in earnings. I guess that’s a function of that lower assumption in the second half?

[John Rickel:]

That’s correct.

[Joe Amaturo:]

Secondly, as it relates to inventories, I know you stated that you didn’t have an exact number for truck, but I think I heard the 66 days outstanding in general and that’s 63% is truck – that would suggest substantially higher than corporate average truck inventories and that would also tie into numbers that we calculate off of OEM data. Is that consistent, I mean is that a fair way to look at it, north of 100 days?

[John Rickel:]

Yes, absolutely.

[Operator:]

Your last question comes from Vick Gindell [ph] with MSP Investors.

[Vick Gindell [ph]:]

I wanted to get a better understanding of how you guys look at the allocation of capital to buying stock back versus buying into new dealerships. My understanding is that new dealership prices really haven’t come down to measure it with the stock, so I imagine that the return of buying back in stock has gotten better versus the capital allocation of buying new dealerships. I was wondering if you could just talk about that.

[Earl Hesterberg:]

The market has shifted this year, but I think we’ve proven over the last year or two that we always have stock buy-backs, particularly at these prices, at the top of our agenda. It’s a board decision that we discuss with the board. We would have loved to have bought some stock back in the last quarter or two this year, but we didn’t have authorization or the ability to do that under some of our debt covenants and further more our priority in the last say six months or so has been to pay down some of our debt. We used quite a bit of our acquisition line for the first time, certainly since I’ve been here, a little over three years, to purchase some dealerships at the end of last year, which were very important for us. They were luxury brand dealerships primarily. So our priority has been to pay that down, but as we can continue to get our balance sheet stronger, I’m sure that a stock buy-back will get more consideration from our management and our board. Those things are important. There probably isn’t the same priority for acquisitions or the same prognosis for acquisitions in this environment that there might have been a year ago. I think it’s fair to say that a stock buy-back would be continually under consideration for us, particularly at the prices we’ve seen in the market so far this year.

[Earl Hesterberg:]

Thanks to all of you for joining us today. We’re looking forward to updating you on our progress on our third quarter earnings call in October. Thanks and have a nice day.