Thomas Szlosek: Yes. The thing I would add to that is, as Mike mentioned, we do have some investments in AN USA as those stores rollout, you don’t get to a full run-rate of profitability for about a year, so that can dampen the SG&A rate and also the investments that Mike has mentioned, strategic investments. And also advertising is — we’ve seen some inflation there. I would say we probably would be in longer term basis, mid 60s kind of level relative to gross profit. But we are paying close attention. As we mentioned, we’ve done some — we’ve taken some modest actions in the fourth quarter to address and take advantage of some delayering opportunities in the regions, as well as to economize some of those support functions. So it’s a pretty important area for us we continue to drive productivity where we can.
Rajat Gupta: Got it, got it, that’s helpful color. And just on capital allocation. Obviously, we’ve seen looks like very steady and like pretty elevated look buybacks over the last few years. Curious like how that toggle between M&A and buyback looks today based on what you’re seeing in the pipeline for deals and related multiples. Curious if we should expect any shift in strategy there, maybe more get toward M&A versus historically buyback. Thanks.
Thomas Szlosek: Yes, it’s great question. Thank you. The greatest job is that we generate a lot of cash. So it gives us optionality. And you’re probably very familiar with how we’ve allocated capital over the last two or three years. I don’t think there is any material change in how we’re looking at it. The focus is on maximizing shareholder return. When we do see allocation opportunities, whether it’s internally the CapEx or to M&A opportunities we think we’re pretty disciplined in terms of our analytical evaluation, and our cooperation of synergies. And where the deals look like, it would be accretive and meet our hurdle rates and we’ll go after them aggressively. But we also have had great success with share repurchases and feel that that’s going to continue to be an important part of our capital allocation playbook.
Rajat Gupta: Are you seeing any changes in our existing multiples [indiscernible] last few months? Any change in turn or any increasing propensity like for sellers to offload. Curious, like if you think in the market you’ve seen that shifted on the M&A side.
Thomas Szlosek: Can you clarify you’re muffled a little bit in your question, I’m sorry.
Rajat Gupta: Yes, I just wanted to ask like, have you seen any changes in the multiples or devaluation of some of the assets that are out there in the market from an M&A perspective. Over the last few months.
Thomas Szlosek: Yes, as you can imagine sellers tend to have amnesia when it comes to where the prices used to be before. In all these run-ups in the last few years. But I don’t think there’s been any market change in valuations, maybe here and there, but we’re not seeing anybody walk away from last year’s crisis per se or anything like that.
Michael Manley: No, but it’s also true to say that, our conversations around the basis for people’s valuations are heavily pointed in the last 12 months and trading conditions in our view moving forward. And as we move frankly throughout last year and as we move further into this year, obviously the TTM is going to reflect the reality of the fact that there’s a normalization in margins and ultimately it will impact values. And that’s something we’re very much looking for and something that we’re talking to people about. But as Tom said, at this moment in time, obviously, people are holding on as much as they possibly can to 2022.
Rajat Gupta: Got it, got it. That’s helpful color. Thank you and good luck.
Operator: Our next question comes from Michael Ward from Freedom Capital. Michael, your line is now open.
Michael Ward: Thanks very much. Good morning, everyone. Mike, I think in your comments you mentioned that on the parts and services side complexity has led to higher content. Can you quantify either some of the content you’re talking about or the retention rates you’re getting on the parts and service side, with the increased complexity vehicles.
Michael Manley: So the work that [indiscernible] has been doing with his team shows us that, even though the frequency of service and repair in our — so let me say service. I’ll come back to repair comment in a minute. Drops loyalty goes up fairly significantly. And the time that the vehicle is in the shop goes up significantly. So as we were thinking about this transition to electrified vehicles, we were very concerned as many people were about to drop-off from the parts and services that hasn’t been what we’ve experienced so far for those two reasons. In terms of repair, obviously, the profile of that is changing. Some of the repairs now have done remotely. And we really I think are still looking at that and learning about that. But at this moment in time, if we look at the population of our customers and their vehicles, the combination of higher loyalties and longer time in shop is outweighing has been better than our expectation. Let me put it that way.
Michael Ward: Along with that, could you give an update on RepairSmith and where that stands and what are your growth objectives with it as you go forward?
Michael Manley: Yes, absolutely. Well, we’ve rebounded RepairSmith, which was not unexpected that is now AutoNation Mobile Services. It’s integrated — it’s progressively being integrated alongside AN USA because as you know, many standalone used car sales don’t have an after-sales provision. And in the same way as we aligned AutoNation Finance with AN USA, we were aligning RepairSmith to be the provider of refurbishment and service maintenance warranty needs for those customers. We’ve opened up now our relationships with multiple fleet customers across the country and introducing mobile services to those guys and expanding the products that the fleet offers. I would say at this moment in time, there’s a lot of work for us to do. That integration work will probably continue through the balance of this year. We see a lot of growth that we now need to drive up our returns.
Michael Ward: Just last, one last question on the M&A front. You took a look at Pendragon, does that suggest that as you look out over the next couple of years that expansion outside of the U.S. could be in the cards?
Michael Manley: I think it goes back to Tom’s comments, I thought he summed it up really well. We are looking at opportunities that come across. That’s been a very, very consistent way. We liked what we saw with Pendragon at the price that we had indicated in the marketplace. And at that point we thought it was good, but clearly that move was not for us. So I would tell you that we have an eye to a number of opportunities at this point in time.
Michael Ward: Beautiful. Thank you very much.
Operator: Our next question comes from Bret Jordan from Jefferies. Brett, your line is now open.
Bret Jordan: Hey, good morning guys. On the mobile services question, I guess you’re talking about expanding the products offered. Could you talk maybe a bit about the logistics of the mobile services, what can you do in that format and I guess from a staffing standpoint, cold, rainy days, probably not appealing to work outdoors. But what are you seeing as far as building up that model?
Michael Manley: Yes. Well, the good news is that, if you think about our geographic footprint, we are in — we are largely — the vast majority of our business who is in states, where you can operate full 12 months without certainly six plus months. But I take your point. So obviously, services, maintenance and repair work is given. We are in the process of expanding to tires. We are in the process of expanding to glass. And as you know, we have a very good business in our collision centers and that will include calibration. So there are multiple things that these bands so quick can do. And that’s effectively what we’re doing. We had already done some pilot work on glass which was successful, in some of our Texas businesses, so that’s going to be expanded throughout this year.
Tires, there is a demand for tires, which can easily be done from a properly equipped van. So there is quite expansion in terms of products that you — that we can offer. And as you can imagine, as we grow AutoNation USA and they are as successful as they have been in terms of CFS, many of those CFS products are associated with extended warranties or maintenance contracts, and we’re now able to completely fulfill them ourselves rather than those customers may be migrating to a competitor to have that work done. So I’m very excited about mobile services. It’s a business that we — as I said centering in those markets where we already have density in a customer base is now associated clearly with our brand, which I think does bring a degree of credibility, which is important when you think about around timing effort on someone’s drive and I think it will help us.
So let’s see how we develop it this year.
Bret Jordan: Okay, thanks. A quick question on domestic DSO at 66 days, could you talk about the sort of spread between the manufacturers and that inventory exposure and obviously, I think there has been a lot of talk about Stellantis maybe increasing their promotional level or decreasing pricing. Are you seeing anything that’s sort of changing as far as I guess promotional cadence reasonably?
Michael Manley: I’m not seeing any changes from my perspective. I think we’re coming into traditional months where all of the domestics will focus heavily on their own trucks. That’s normal, that I think is something that will continue this the different seasons in the year is not going to change. I think that if you think about the percentage of sales by vehicle segment, it is natural that those OEMs who have a very high percentage of sales in trucks, whether it’s medium or heavy are going to have a higher day supply purely because of the selection required. And even though the length of the day supply has increased, it is significantly lower than it’s been historically.
Bret Jordan: Great. Thank you.
Operator: [Operator Instructions] Our next question comes from Douglas Dutton from Evercore. Douglas, your line is now open.
Douglas Dutton: Hi team. Thanks for having me on. Congrats on the quarter. Two quick questions from me. Just first on the new vehicle PVR point and the normalization, that we continue to see, is it fair to think that there may actually be a higher trough cycle over cycle, maybe remaining at about a 20% to 30% premium over 2019 levels. I’m just curious if perhaps you are beginning to see some structural reasons that a decrease to pre-COVID levels may not be the reality. Given the rate of change on profit per unit has begun to slow like Tom mentioned as the fourth quarter was actually the best sequential in three quarters.
Michael Manley: Yes, Doug, welcome. Lot of moving pieces in that question, as you know, one of the things that, I think we have to really watch closely this year is what’s happening with battery-electric vehicles and hybrid. And as you know, all of the OEMs at this moment in time are working towards a set of GHG targets, which vary by state and that may well change depending on what happens later this year, and as we move forward. But there is and has been a significant impact on margin as battery electric vehicles have continued to grow in terms of the share that they represent. I mean their increased share roughly doubled from the end of 2022 through to 2023. And as a result of that, that had an impact on the combustion. I will not talk about margins, obviously.
