Now also remember that we’re assuming that’s a 17 million SAAR and it’s a normalized environment, okay, and we’ve always been very clear about that. But ultimately, that’s really a short to midterm part of the game today. Our design isn’t really focused on 25 any longer. It’s focused on $2 of EPS for every $1 billion of revenue, and we’ll let your minds wander on what that can do. And we’ve got that now earmarked between the DMS, the fleet management, Chuck’s area in Driveway Finance Corporation, plus so many other things that when you have an ecosystem as large as ours now, it’s about figuring out how to connect the dots on the ecosystem to make sure that we maximize that performance to get below the 50% SG&A as a percentage of growth. Anything on interest rate?
Tina Miller: Just to add to that, when we think about our return metrics when we’re looking at deployment of capital, we are factoring in what the interest rates are and our hurdle rates have remained similar. So if you think about the acquisitions that we’re looking at and the capital and the profit accretion that we’re looking at, that is factoring where rates are today and the higher for longer sort of tone out there. So that’s baked into how we think about our approach for capital deployment as well.
Operator: Our next question is from Ron Josey with Citi.
Ron Josey: I wanted to ask maybe a few follow-ups on Driveway specifically. I think I heard in the prepared remarks that awareness for Driveway is — brand recognition is on track. Can you just talk to us a little bit more about awareness and brand recognition? And then to that end, Bryan, I think you had just mentioned probably off the cuff that Driveway is getting more traffic than we can handle or expected. Just provide a little more detail there in terms of maybe upside, downside and how you think about just servicing that traffic.
Bryan DeBoer: I think in terms of awareness, the experiences on Driveway are quite accepted by our consumers. And again, these are new consumers of Lithia, over 98% of the consumers haven’t done business with us in the last 1.5 decades. So their awareness is growing relative to what our typical store network looks like. The issue still is that we’re not really getting repeat and referral business yet even though we’re now pushing almost three years in activity, that’s because we have an acute focus on shop and sell and need to expand it into the life cycle and ownership experience post sale. And we’ve done a lot of the geofencing, we built a lot of the aftersales models. We just need to activate them within Driveway and within the network to create greater attachment to the brand.
In terms of the traffic, I think as a young digital retailer, it does take time to build your sales centers to focus on the customers’ needs. And I think it’s imperative that we, as traditional retailers as well, don’t let that pollute our processes and keep it pure with our consumers. Our consumer acceptance rates are quite high. I think we’re at 4.4 on Google Scores, which is up from where we were about a year ago at 4.2. I believe that it could be 4.8 or 4.9 if we can just create this ecosystem in Driveway, like we have in the store that’s more physical, where it’s actually playing in the stores or in the consumer’s house in the same way that we do in the stores. And that’s going to take a little bit more coating and a little bit more repeat and referral business.
But ultimately, the traffic is overly strong, and our care centers are still learning which customers are the best to be able to focus on when there’s that much traffic there. Chris, was there anything else that I missed?
Chris Holzshu: No, Bryan, I just think you nailed that you have shop and sell and then you have service parts, you have your Driveway Finance products. And then eventually, making the connection with RV and kind of the motorcycle businesses that we have. I think that the sky is the limit, but we just have to stay focused on kind of one tactical execution at a time. And as Bryan said, we have some opportunities there to continue to improve that experience.
Operator: Our next question comes from Colin Langan with Wells Fargo.
Colin Langan: Just a follow-up on Pendragon. Can you dive into a bit the DMS opportunity? Because I think you mentioned you’re spending $110 million on DMS. Does that get reduced or do you — since you’d be probably sourcing it through Pinewood, you’d be getting sort of equity stake in the — from that. And how does the US joint venture work, do you actually have sort of stronger interest on that growth?
Bryan DeBoer: So we have a $110 million tech stack, of which about 60% of it is DMS system today. And then you add on your CRMs and your service systems and your used car systems and stuff like that. In terms of how we think about the progression, so we’re going to own somewhere between 17% and 20% of the parent company, Pinewood and then we own 51% of the North American JV, which eventually and if you extrapolate out the 17% to 20% and then add it on to the 51%, we’re about 60% ownership of the North American JV. That’s not where our focus is, okay, because we intend to monetize it with other partners as well. We are not really looking at controlling that, we’re looking at it that it’s a pathway to develop a longer term solution of how to attach our customers to Lithia & Driveway ecosystem in a better way than what we do today.
So when you think about the tech stack, I would say that’s a three to five year venture. We’ve run some base numbers that if — and to be fair, Pinewood isn’t ready to be put into North America, it needs APIs to manufacturers, and it needs the APIs to each of the state agencies in tax codes and DMV codes to be able to move to America, just like when Pinewood moves into a different country. And that will take a couple of years to get there. But if we were to basically extrapolate what a Pinewood charge was at their full profitability, okay, onto Lithia’s tech stack today, it’s about a $30 million savings, okay? Don’t put that in your estimates because we’re not ready to do that yet, okay? That’s a longer term vision of where we get to. I think most importantly, what you have in Pinewood is a cloud-based system that is quite adaptable, that we believe is one of the top three functional systems in the world, okay?
And as such, it’s our pathway to be able to someday glue our different adjacencies together, but more midterm is to create a software as a service company and deemphasize our influence within that company to bring in other partners to ultimately be able to grow from. Colin, do you have a follow-up question on that?
Colin Langan: Well, not related to that, just a quick follow-up overall. Your same store unit sales were up 5%. I think retail SAAR was up 11%. Why the underperformance versus the market, is that a geographical mix issue or any color there?
Bryan DeBoer: Our same-store new was up a little over 5% but you’re absolutely right, and Chris can give you some of the numbers, region or state by state, but we do have a little bit different footprint. It’s still a little bit more depressed in some of the areas that we have footprint.
Chris Holzshu: Just to follow up on that then like we’ve talked about the last several quarters, I think the West is seeing kind of different growth rates than we’re seeing kind of in the Southwest, for example. Northwest region and Southwest region were both up about, we think, about — they were both about flat and then more in the Southwest regions, in the Northeast regions, we were up double digits, kind of above even the SAAR number that you said. So a lot of it is kind of what our mix is and what our franchises are. As Bryan mentioned earlier, 23% domestic, those units are down 11%, whereas your import and luxuries are up about 12%. So mix has a lot to do with that and geography has a lot to do with that. But I think our point is to have a diverse network in all regions. And depending on what’s happening in the economy in each of those markets, we’ll kind of ride that tide.
Operator: Our next question comes from David Whiston with Morningstar.
