Daniel Imbro: Got it. Makes a lot of sense. Maybe just a follow-up on something more in your control on the used side of the business. It does feel like you guys have improved your sourcing, kind of, customer sourcing last few years, maintaining higher GPUs, but unit sales were a bit light there kind of relative to the group. So kind of curious is it becoming more difficult to buy from consumers as vehicle equity normalizes? Or what are your expectations there around your ability to continue self-sourcing enough units to drive outside used growth in the future?
Mike Manley: I have 100% confidence in our ability to self-source there, because I think in Q4, Joe, we have something like 94% sales or about an 90% anyway.
Joe Lower: I have absolutely confidence in that. But that’s not the real answer to the question, I don’t think. First, I do think you’re going to see an increase in new vehicle industry as we talked about. Obviously, as a large player in the franchise new vehicle, retail business that’s going to help us in terms of our sourcing and that’s a competitive advantage against those standalone used car players, which I think has been pointed out most times. But the reality is that roughly 90% of all of the vehicles that are sold, used vehicles that are sold either to franchise dealers or publicly traded used car dealers are under 10-years old, roughly 90%. Of that, 40% of those vehicles are sold between two and three-year old vehicles.
And those vehicles have to be put in the market two and three-years old — two and three-years ago to be available. So it’s absolutely clear that unless the sales profile has been in the used car market in the United States for years is going to dramatically change. We are entering a period of tight supply on two and three and four-year old vehicles, which make up the majority of these car sales. And that’s going to impact wholesale prices and ultimately retail prices, margins I think are going to be fine. They’re going to bounce in and out through the bandwidth that they always bounce in and out, because as wholesale prices move, retail prices move you all know the dynamic. But the reality is that those vehicles are going to be in short supply for a period of time, which will impact those prices.
So for us, what we’re going to do is we’re going to obviously continue on our strength that we buy your car, continue to maximize the trading that we get through our franchise new vehicle sales. And make sure that what we’re doing is appropriately playing in that market to get what we hope is more than our fair share of those vehicles to maintain our sales velocity. We won’t overpay, we will maintain hopefully a 30-day-ish, 35, maybe 40-day-ish supply on used vehicles. So that we can be reactive. And what that may mean is that our volume may come down, but in response to that our teams know that if your volumes coming down, your margin better reflect that scan supply. So that’s the dynamic that we’re in. It began, I think, a few months ago, it’s going to continue into this year.
The bad news, I don’t think it’s bad news, because if we see the same net price that we’re seeing, net transaction price on new vehicles, a solid used vehicle wholesale and retail price is going to help bridge that balance to pay for our customers. So I think it’s just the reality of the business and it’s one that we’ll be facing for the next six months. But not bad news, it is what it is. You just react to it.
Daniel Imbro: Really helpful color. Appreciate it and best of luck.
Mike Manley: Thanks.
Operator: Your next question comes from Rajat Gupta of JPMorgan. My apologies. Our next question comes from Bret Jordan of Jefferies.
