So the answer to your question is, truthfully, I expect a return to very similar margins to 2019. And by the way, that would include the impact in my view of battery-electric vehicles and hybrid electric vehicles. How that happens is very much going to depend on, how the OEMs are thinking about the mix of the beds, the hybrids and the combustion engines through the balance of this year and how they’re going to achieve that target. It’s a very — it is not an easy question to answer, so that’s my best effort. But I would say what we are doing in our business is to really focus on those areas where we have more control and more opportunity and those areas CFS, used, as we talked about, obviously after-sales and how we can provide more products and services to the customers that we have won over many, many years of being in the marketplace.
And then to make sure that our new vehicles, we’re not an outlier, either with lower margins or poor market-share. We obviously control our costs, because to a large extent how the new vehicle market developed as you can completely understand even though we’re a very large player in this industry. We’re still a tiny player in terms of the total new vehicle market. So I think we have to be realistic about the things we can do.
Douglas Dutton: Okay, that’s helpful color. I appreciate you giving the detail there. Just to be crystal clear here, a slightly lower growth from EVs as a lot of us now expect for at least 2024 through maybe 2025, 2026 would actually be a positive, that’s the correct way to think about that?
Michael Manley: Yes, based on the margins we saw developed last year. That’s exactly how I would think about it.
Douglas Dutton: Okay. Thanks, team.
Operator: Our next question comes from Colin Langan from Wells Fargo. Colin your line is open.
Colin Langan: Great, thanks for taking my questions. I think you mentioned in your comments, as CFS is supposed to be strong I mean how should we be thinking about that because I mean I think that there’s more leasing, I think that puts a little bit of pressure on — there’s possible normalization of vehicles, maybe on mass market, we might put pressure on that, does that still going to be up year-over-year? Or should we think about just moderating a bit as we go into next year?
Michael Manley: Yes. Thanks for the question, Colin. Yes, in my commentary I was referencing a little bit higher lease penetration in the CFS comments. I think on balance, leases are accretive to what we’re trying to accomplish, yes. I mean maybe you sell a little bit fewer products on a CFS perspective, but it’s not massive. I mean it is outweighed by the fact that we have a shot at getting the used car once it comes off-lease. It also helps with vehicle affordability. We have typically third party finances taking a residual risk. So it’s a net-net a win-win for us on leasing. And I would think of it that way, we’ve been able to manage through with CFS over the years with higher leasing volume.
Colin Langan: Got it. And then just going back to your comments to the last question on expecting profitability to sort of normalize to pre-COVID 2019 levels. Is that already pretty much there on the domestics? If I look at the Q4 margin, the percent margin looks pretty similar to pre-COVID. So is that kind of driving some of those thoughts is that — those companies that have already kind of restocked a lot of the inventory are already kind of back to normal levels?
Michael Manley: Yes, the answer to your question is that, it’s pretty much there for some of our OEMs.
Colin Langan: Got it. All right. Thanks for taking my questions.
Michael Manley: You’re welcome.
Operator: We currently have no further questions. So I would like to hand the call back to management team for closing remarks. Over to you.
Michael Manley: So firstly, thanks. Thanks for your questions. I’m just going to touch on the margin question that I’ve received earlier. One of the things that I think is relevant and important as you think about our performance going forward. AN USA is a valuable addition to our Company, our organization, particularly where we have areas of significant density. Where used vehicle margin does not perform in the same way for obvious reasons as our franchise businesses. So when you think about $1,800 that we discussed, don’t think about that in the context of AN USA. The way that they source their vehicles is very different. The way that they can attach manufacturer and OEM programs is significantly different. So their whole business model, including the capital invested is very, very different.
So as you think about my comments on $1,800 margin, make sure you factor in the impact of AN USA on our average margins going forward, because they will not and have not been at that level. And I don’t anticipate that any time going forward. But with that said, when I think about 2024 just but it’s clearly going to as have its normal mix of headwinds and tailwinds. But for me, after a very significant year in 2023 a planned leadership transition, I’m feeling positive about our development as we enter this year. We have Jeff Parent joined our Group, as you know, as a Chief Operating Officer. Tom came in last year. CMO joined us, Rich Lennox, who joined earlier in 2023. So from my point of view, our leadership team, that year of transition, which was planned is now complete.
And I think all of the members that we’ve added bring vast experience to AutoNation. And these guys along with their colleagues who sit on our executive leadership team certainly going to help us build on our success and position our Company well for the future. And really, that enables us, I think, to really look at how the investments that we’ve made in various parts of our businesses are performing and understand how we can get to a period of growth in some of those and in others, how we can make sure that we’re driving up our margins. So with that, thank you for joining the call. We’ll see how the year goes, and I look forward to talking to many of you between now and most of you next quarter.
Operator: Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines. Thank you.
