AutoNation, Inc. (NYSE:AN) Q4 2022 Earnings Call Transcript

Page 4 of 11

Daniel Imbro: Yes. Hey, good morning, guys. Thanks for taking the questions. Joe, I wanted to follow-up on one of the answers to the last questions. I think you talked about confidence in OEM partners, maybe just the high 30s to 40 days. I’m just curious what gives you guys the confidence that the OEM partners are going to be disciplined this cycle? Historically, if I think do it, maybe they’ve been a little less disciplined as supply comes back online. So curious maybe what’s changing in the conversations? What gives you confidence in that? And then to a dovetail onto it, if that is what you expect, kind of where would you expect new GPUs to shake out maybe for the year? Or what’s the exit rate you’re planning on for 2023? Just based on that day supply outlook you provided?

Mike Manley: I mean, you may think it, but we actually don’t have daily, weekly, monthly conversations with the OEMs of that this complexity of inventory levels we talk to them periodically. So we can understand what their hopes and aspirations are both on a volume market share, but also then the production to support that basis. But I tell you what I — when I look back, what I think has been really interesting is number of the new what would happen. It’s all of a sudden there was an industry-wide correction of inventory. Nobody had any clue. Everybody was too scared to do it. Because if you do it as an individual OEM, you get crushed. So circumstances create a situation where everybody got affected at the same rate and there was a reset across the industry.

Prior to that in my life anyway and I’m not the best example frankly of this, but prior to that in my life, your whole concept of profitability was keep your plants churn in as hard and fast and as efficient. And as you can, churn, churn, churn, churn, churn, sales guys, let you sales guys buying the marketplace for share and that was if you like, that was a predominant. And again, I have to speak myself, I can’t speak for the OEMs you guys talked to those, but that was a predominant. You know, the future, so you get this opportunity to reset it, right? And the opportunity comes and people suddenly realize that, yes, this whole concept of supply and demand actually maybe coming in there. I think it worked for everybody. And I obviously think that people learn, and so I wouldn’t say, as your confidence level 100%, Mike, do you want to go on to FanDuel and take it back?

No, I actually don’t want to do that. But I do believe that within the different pressures that are on an OEM, remember, they had very large union relationships, very large investments that they recognize, that is a balance that’s what I believe. I think they’re all intelligent people, they wouldn’t be able to run those complex businesses if they won’t. But I’m hoping that, that prevails.

Daniel Imbro: Got it. And then Joe any follow-up question on kind of where you expect GPUs to end this year given that inventory, kind of, expectation?

Joe Lower: So obviously, we’re not going to predict an absolute level. And obviously there was some talk about the expectation of some level of pressure as inventory builds, but consistent with a view that the business can be run at 30 to 45 days that’s consistent with an expectation that PVRs, while moderating are going to be above pre-pandemic levels. And that should be a sustainable model provided everyone cooperates in much of the way that Mike, kind of, alluded to. The work process is pessimistic, but also very pragmatic about the whole thing.

Daniel Imbro: Got it. And then want to

Joe Lower: I think that’s brilliant we are cautiously optimistic. We’re cautiously optimistic, but we ain’t going to do it by the final moment.

Page 4 of 11