Operator: We’ll go next to Craig Kennison with Baird. Please go ahead.
Craig Kennison: I had a question on AI. At your Analyst Day a few months ago, you highlighted several ways in which your tech team was driving innovation. I guess I’m wondering, very big picture, whether you see AI as a technology that is going to level the playing field for other used car retailers or rather might be a wedge technology that really does ultimately separate winners from losers.
Bill Nash: Yes. Well, thank you for the question, Craig. Well, first of all, I think we kind of have to separate AI versus generative AI because AI has been around a long time. We’ve been leveraging it for a long time in a lot of different aspects of the business. And when we talked about it most recently at the day that you’re referring, it was really more generative AI. And I think at some point, folks will be embracing generative AI. I think the early adopters are the ones that get the benefit in the near term. And as you referenced, I mean, we’re leveraging in a lot of different spots. We’re leveraging in our creative. We’re leveraging it in our coding. We’re working on some generative AI assistance on a knowledge base for our CECs, which we think is going to be really powerful.
We’re leveraging it on a conversational search. We’ve got some tests going on right now where instead of typing in key search things, we can actually do conversational search with consumers. So again, I don’t — I think it’s one of those things that’s kind of going to be at the end of the day, you just need to have it. And if you don’t, you’re going to be at a disadvantage. So, I think those that embrace it earlier actually get an early benefit of embracing it.
Operator: We’ll turn now to Rajat Gupta with JPMorgan.
Rajat Gupta: I had a follow-up question on CAF around net interest margin. Should we look at that 5.9% as a loan exposure and stable around that level going forward? I just wanted to clarify that and just have one quick follow-up on SG&A.
Jon Daniels: Sure. Yes. I appreciate the question, Rajat. Yes, I think that’s a fair thought, right? I mean we signaled a couple of quarters ago that we felt like that 6% range was about where we’re going to level off. Remember, we’re coming off of relatively historic high. So, we’ve been pleased that our ability to pass this rate along to the customer. Obviously, there was a shock in the interest rate market. So said it was coming, those higher interest rates were coming and it clearly has helped us to level off. So, we’re pleased where we sit right now. And I think we would anticipate stabilizing at this level. Obviously, all bets are off with where the Fed heads, hopefully, rates aren’t going up. If they remain stable, we think we’re in a good spot.
If they come down and turn down as a reminder, typically rate increases lag when rates go up and rate decreases lag when rates come down. So hopefully, potentially, we could enjoy some added margin on the way down. But right now, I think we’re in a stable spot.
Bill Nash: Yes, Rajat, I just would add. Look, I think Jon has done a good job of kind of saying, look, we expect to be in this range. We said we were 6, 1 in the last couple of quarters, give us a little wiggle room depending on what the cost of funds in here, it’s down a little bit, but it’s really reflected the cost of funds. So I think the way we think about it is it’s really no change in story, as Jon said.
Rajat Gupta: Understood. And just on SG&A, I mean, it looks like there are some continued actions you are taking there on the head count side. Can you give us a sense of what areas are these taking place at? Is it the CECs, or salespeople or Edmond? And any — and is this an indication of your view on the market backdrop in any way in the near to medium term? And relatedly, could you quantify how much the impact was from the bonus accruals this quarter as well?
Enrique Mayor-Mora: That was a multi-pronged question there for that. If I miss one, just…
Rajat Gupta: Sorry.
Enrique Mayor-Mora: If I miss one, just remind what the question was in terms of where the reductions have been when it comes to compensation, which I think was your first question. It’s really been across the board. We’ve had — compared to last year, almost a 10% decrease in our head count when it comes to SG&A. And that’s been across the board in our CECs. It’s been in the business office and the stores and the field sales consultants down as well. So what you’re really looking at is tight control of our overhead in compensation, better metric to sales, but also really driving efficiency. We continue to see quarter-over-quarter year-over-year improvements in the efficiency of the omni model. And we’ve talked about that on two of the three metrics that we track in terms of the impact of omni on total units, so used plus wholesale were more efficient than we used to be at this point.
When you look at as a percent of total gross profit, we’re more efficient than we used to be versus when we launched omni. And one indicator, we’re still not as efficient, but we’re working our way there is the omni operating model as compared on a per retail unit basis. Our goal is to be more efficient, but we’re not quite there yet. So we feel really good about the progress we’re making. And what that really does, that focus on efficiency positions us really well for when sales rebound and they will. And when they do, we do expect to flow through those sales at a stronger clip I think that was one of your questions.
