Douglas Dutton: Hi, good morning, team. So I have a question on the Driveway finance book, now at about $3.3 billion. Is there a level that this book has to be at to achieve that profitability target by the end of the year? Is that $3.7 billion, $4 billion? Is it more or less? Just curious there.
Chuck Lietz: Thanks, Doug. This is Chuck. Relative to the size of our book, we feel very comfortable that we can achieve the profitability at that $3.3 billion. As a credit business, most of our revenue streams are fixed, and we’ve already subsequently fixed our cost of funds. So this is a business that’s very predictable. It’s very consistent. And we feel very confident even at sort of about a $3.5 billion level that we can achieve our path to profitability in this year, which we’re very excited about.
Bryan DeBoer: Chuck is very humble. I’m going to give him some big kudos here. It’s been a four year journey to get to profitability. And I think from this point forward, we’re looking like we can achieve profitability on a month basis without any outlying changes, which is great. As a side note, in March, we did make over $2 million in the month, okay? There was a little bit of anomaly that still showed — would have showed profitability. But things look good. Delinquencies are down. And the pains that we took and the times of elevated GPUs were the right time because those are massive barriers to entry to anyone getting into this business is you have to establish CECL reserves, okay? So now we’re finally to the point where our net interest margins are outrunning those CECL reserves, and now we can play around with penetration rates to truly capture that additional $1,500 or so.
On every car deal that we put into DFC over the life of that loan, it’s $1,500 more than what we make on sending it to a third party.
Douglas Dutton: Excellent. Thanks, team. And then just one more for me here. As we get through the year-end and less vehicles are coming off lease from the past two or three years, how should we think about used vehicle sales and GPUs reacting to this lack of supply? You mentioned the firefight analogy earlier. Is it going to continue to be a firefight like that, where profitability is crimped? And do you see offsets to that on presumably better new vehicle volumes?
Bryan DeBoer: Yes. Thanks, Doug, for your questions, too. This is Bryan again I think most importantly, inventory supply, I believe, boils back down to people, okay? It’s a belief and it’s the ability to find vehicles. And whether there’s less off-leased vehicles or not, it’s not what’s most important. We can find vehicles with good people that are mining for cars deeper through this five to six channels that we typically mine vehicles. There is 10 million less units available out there, which is a given. But remember this, we’re in the plus nine year-old vehicles, which is really important to remember of the 37 million units that are available — that are being sold out there a year today, which is depressed still by about 10%, okay?
63% of the vehicles of the 37 million vehicles are over 9 years old, okay? That’s where we focus our money. Those units turn at 4 times the speed of a certified vehicle. They turn at 2 times the speed of a core vehicle. And we make about the same amount of money on about half the investment, meaning that the vehicles average selling price is about half. Obviously, if you combine those together, the return on a value auto vehicle can be as much as 5 time to 8 times over what it is on a certified vehicle. So when it comes to Lithia & Driveway, that’s our real focus, and we get those vehicles as of trade-ins off of our core vehicle product. So a little bit of a waterfall effect. Hopefully, that gives you some color on that, Doug.
Douglas Dutton: Appreciate it. Thanks, team.
Bryan DeBoer: You bet.
Operator: Our next question comes from Chris Bottiglieri with BNP. Please proceed with your question.
Chris Bottiglieri: Thanks for taking the question. One follow-up question and one bigger-picture question. Thanks for the help on the color for Pendragon. Can you give us a sense for the restructuring, like you closed the used car store, there’s a headcount number you defined. Can you give us a sense like what the impact on SG&A gross will be in used? Like how many units you’d be giving up by closing these businesses? Just on how to model the business, that seems pretty disruptive. That would be helpful color, if you could provide any.
Chris Holzshu: Yes. This is Chris again. I think right now, we’re right in the middle of that restructuring and really getting our arms around the business and really trying to focus the teams on evaluating what performance in each one of the locations looks like. And so yes, like some of the things that you alluded to are happening. We’re right in the middle of those, like the car store shutdown and actually submit — potentially selling some of those assets out. But we’re going to continue to work through that in Q2 and have a solid plan that we’re really focused on, getting to kind of what more of a steady-state business would look like in the second half of 2024 here.
Chris Bottiglieri: Great. Thank you. Then I have a bigger picture question. So you guys are the best class operator and your estimated gross is only 300 basis points below pre-COVID despite some mix benefit from larger stores, and your GPUs have more room to fall. So my question is, it would seem that most of the dealers pre-COVID in aggregate were barely profitable. Hard to tell if it’s understated as small business isn’t private. But if profitability goes back to pre-COVID or even lower for these private dealers, what do you think happens in the industry? Like what are some of the puts and takes? How does this benefit look in that scenario?
