Stephanie Moore: Great, thank you so much.
Stephen M. Scherr: No problem.
Operator: Thank you. One moment please. Our next question comes from the line of Ryan Brinkman of J.P. Morgan. Your line is open.
Ryan Brinkman: Alright, thanks for taking my question. I wanted to ask on the softer trend of earnings in 4Q apart from the onetime charge related to the plan to sell 20,000 electric vehicles. I’m curious in order to help us better understand the jumping off point as we head into 2024, the annualized rate of EBITDA, I guess, how much of the shortfall excluding the charge may have nevertheless still related to the EV fleet headaches that should significantly ameliorate given the sale, such as higher damage repair costs or maybe even the RPD pressures that bled over from having too many EVs in the RAC fleet versus how much of the shortfall in 4Q ex the charge might be more of a recurring nature, such as normal course depreciation on the EVs you are retaining or on the rest of the portfolio or incrementally softer non-EV, RPD, etcetera.
How do you think about these considerations and after taking them into account and excluding the charge, how should investors be thinking about the sequential trend in EBITDA results generally from 4Q to 1Q this year relative to the more typical 4Q to 1Q seasonal pattern?
Stephen M. Scherr: Well, I would say that remember, we spoke about several points of margin as the effect of EV relative to ICE. So think about that as a $70 million to $80 million drag in the quarter in the context of overall cost. I would say that wholly independent of the specific entry categories of expense, and I made this comment earlier, I think the implication has manifested in the fourth quarter of the EV challenge, which in part motivated us to take the charge and the action that we did is the spillover effect and the distraction on the field more broadly. It meant that we were running with personnel higher than we needed to. It meant that we were incurring transport costs higher than we needed to. All of those or both of those, I should say, are not linked, if you will to the EV itself and the way in which we refer to several points of margin.
But the spillover effect on our cost base was becoming to widespread and therefore, taking a bolder action to arrest that trend by pulling down a third of the fleet was the choice that we made. But I’m giving you that because there’s an effect that’s related to the EV fleet, then there’s sort of the collateral impact on broader cost that was there. And I think you’re equally right in the context of uplift to RPD that we can get by virtue of, if you will, removing sort of the worst performers among the EV fleet in terms of RPD and the like.
Ryan Brinkman: Okay. And maybe just delving in on that last topic there, so could you help us with dimensioning the step-down in those repair costs and the cadence or pace of that step down, you did suggest that it would drop by more than a third of the repair cost, given that these are the more problematic vehicles, but then what are the other kind of knock-on benefits there like Tesla was supplying a certain amount of parts that wasn’t sufficient. But now it will be more sufficient and then also, there’s the efforts that you talked about on the 3Q call, I don’t know maybe on vertical integration or something, just given all of these factors, do you have an estimate for the dollar savings in 2024 versus 2023, I don’t know, in EBITDA or in DOE per transaction day or something like that?
Stephen M. Scherr: Well, listen, they should trend lower. And remember that there were a series of steps that we were taking to try to address both the elevated damage and the elevated cost of damage, including as Justin referenced. We just didn’t begin to negotiate with the OEMs on lower labor and lower parts cost. But at the end of the day, that was not going to make a sufficient difference, to sort of put us back on track as fast as we wanted. So therefore, the reduction mattered. It also means though that those measures that we were taking will have greater effect on the balance of the two thirds of the EVs that are there. And if they don’t, then we’ll move more aggressively on that fleet size. But the effect of the cost out, if you will, on the EVs is more effective against 65% of the standing fleet as opposed to 100%.
And again, taking out the biggest defenders of RPD and the biggest offenders of damaged incident and therefore, cost will translate into what I was saying before, which is probably a 50% reduction in that, notwithstanding only removing a third of the fleet itself.
Ryan Brinkman: That’s very helpful, thanks. And then just lastly, I know there was some discussion earlier about normalized earnings, but just maybe looking beyond all this noise, maybe out two years from now or something like that, what would you say is the normalized earnings power, I mean, I know there’s some EBITDA numbers, what about like — have you looked at it on an EBITDA per car basis just given sort of any structural change in the size of the market or in market share? And when you compare EBITDA per car normalized versus pre-pandemic, what are the big differences there, is it because we’ve got the RPD tailwind or what improvement do you expect that there is and what are the biggest drivers of the improvement?
Stephen M. Scherr: Well, I mean, listen, from a methodology point of view to try to get back to what you would view to be a normal number, you need to reverse or pull back the benefit of the EV sale right, of $250 million as we’ve been forecasting over the two years and sort of start yourself from there. And then it will be a question of the pace of achievement of the $500 million that we’ve talked about, which is both revenue and productivity and cost. I think that there ought to be heightened confidence in the ability to take the cost out and ascertain the productivity gains as we represented we will do to the tune of $250 million by the end of 2024. And so half of that $500 million should be seen by the end of 2024, right, with progress on the $250 million of EV.
So listen, it’s hard for me to sort of put myself in your place and understand the assumptions you want to make about the broader market and the like. But there’s $250 million of EV and there’s $500 million to be had. Of that $500 million, $250 million is in the first year, namely 2024. I think you then need to make assumptions about whether you believe that the deceleration in rate decline and the extent to which we are 40% better than where we were pre-pandemic holds, I don’t see a reason why it shouldn’t as we hit sort of a more normalized position. I think that — as it relates to residuals and how that weighs on the industry, no less ourselves, again, there you need to take stock of the fact that while we have seen precipitous decline off of the very elevated levels that existed in 2022, the reality is, is that the age of cars on U.S. roads right now was less than 10 years pre-pandemic.
It’s now at about 12.5 years. Number two, there’s a structural short of good quality used cars because they weren’t made in the pandemic. So off-lease cars are lower. If you further believe that we will come upon a market toward the back half of the year, where auto loans will be more attainable and at lower price, that cocktail of factors should lead you to believe that there is at the very least stability in residuals, if not an uptick that could come at the back half. Again, we’re not gaming, if you will, or modeling necessarily for that. I’m just giving you in response to your question, sort of a sense of where do I think rate is, where do I think residuals are kind of wholly independent of the tactical moves that we’re making to reduce cost.
Ryan Brinkman: Very helpful. Thank you very much.
Operator: Thank you. One moment please. Our next question comes from the line of Lizzie Dove of Goldman Sachs. Your line is open.
Elizabeth Dove: Hi there. Thank you for taking the question. You noted that you’re prioritizing RPD over utilization this year and you’ve also talked to stable RPD repeatedly during this call. But wondering if you could just clarify how you’re thinking about that, whether that reflects the change in strategy, and what exactly do you mean by stable I think, if I look at the numbers this quarter, it may be down kind of mid-single digits and so I just want to see kind of how you kind of think about it into 2024 and the kind of range of outcomes for RPD?
