Glenn Chin: I went into. David, as I mentioned, our opening comments, talking about our diversified business model and being able to weather the storm, we view it, and jokingly here in the office, talk about it’s like in the movie Forrest Gump when they survived the storm.
David Smith: And as — this is David. As I mentioned in our opening comments, you’re talking about our diversified business model and being able to weather the storm. We view it in jokingly here in the office talk about, it’s like in the movie Forrest Gump, when they survived the storm, you’ve seen these other stores — these other competitors closing. It’s not as if the used vehicle market has just been disintegrated forever. It’s not — we think it’s going to be stronger there. It’s a much larger market than the new vehicle market historically. And we just — as we said, we see a tremendous opportunity for EchoPark in the future.
Danny Wieland: Yeah. And one more point to add, this is Danny. Glenn, I think you mentioned in your note this morning that even just going from the $83 million adjusted EBITDA loss at EchoPark in 2023 to zero is north of $1.50 of EPS benefit. And we’ve called out that we expect to be positive for the full year next year. So there’s a big opportunity to offset — at least somewhat offset the normalization, continued normalization of franchised earnings just by getting back to zero let alone positive EBITDA on the EchoPark segment.
Glenn Chin: Yeah. Understood. Okay. Thanks. And then just last for me. If you can just comment on the spread between wholesale and retail used pricing, has it normalized and what you guys might see doing for the rest of this year?
Jeff Dyke: No, it’s not normalized. I think wholesale prices in the fourth quarter dropped like 9%. Retail dropped 2%. And as you know, there’s a seven, eight week lag there. There’s still a lot of high percentage of no sales in the auction lanes, I think that’s running north of 40%, but down from 50%. And so everybody is still trying to find their way through this, the back edges of the storm. But we expect those two things to catch up with each other as we move into March and April and May. And again, put some wind in the sales of, of EchoPark and the industry. Used vehicle business should be getting better, as we move forward.
Glenn Chin: So in other words, yes, so, so that spread should be widening, correct?
Jeff Dyke: Yes, that’s exactly right.
Glenn Chin: Yeah. Okay. Very good. Thanks for all the comments.
Jeff Dyke: Thank you. Appreciate the questions.
Operator: Thank you. Our next question is come from the line of Michael Ward with Freedom Capital. Please proceed with your questions.
Michael Ward: Thanks very much. Good morning, everyone.
David Smith: Good morning.
Michael Ward: Just put that zero in a little bit on EchoPark on the SG&A side. So we’ve seen a big improvement in SG&A costs second half versus first of 2023. As we go into 2024, I assume the run rate is even lower, as we go into Q1 with getting where of some of the Northwest stores. Is that correct?
Jeff Dyke: Yes, 100%.
Michael Ward: Okay.
Jeff Dyke: And I think we called out on the pages that David referenced somewhere in EchoPark SG&A percentage in the 80% range with a mature store being south of 70%. And we expect that as we mature, we expect — that’s where we expect to be. And, and honestly, that’s where we were, if not better, prior to COVID hitting. So, all these things are coming back into life for us, which is just fantastic.
Danny Wieland: Yeah. That’s a total segment level. At the store level, we’ve seen at our more mature stores, both in 2019, are getting back toward a sub-60. I mean they’re among the best of our entire portfolio in terms of SG&A to gross and SG&A leverage because of the comp structure in that market.
Michael Ward: And what did you end — how many locations do you have at EchoPark at year-end?
Danny Wieland: 18.
Michael Ward: 18?
Danny Wieland: We’ve had 25 at year-end, but with the seven closures in January today, we sit at 18.
Jeff Dyke: Sorry, I’ve already forgot about our quest for Motorsports.
Michael Ward: Thanks very much.
Operator: Thank you. Our next question is come from the line of Bret Jordan with Jeffries. Please proceed with your questions.
Bret Jordan: Hey. Good morning, guys.
David Smith: Good morning.
Jeff Dyke: Good morning.
Bret Jordan: Could you talk about the impact of lease recovery on F&I? Obviously, it’s been at a pretty low rate on lease penetration, but it would seem that has less F&I packaged in that transaction. Is that factored into your flat F&I going forward?
Jeff Dyke: Meaning if leases improve and penetration improves?
Bret Jordan: Yeah.
Jeff Dyke: It’s not going to make a difference, I don’t think. It is factored in, and we’re going to be in that $2,400 range or north of that, I think, is the back half of the year gets here as we continue to improve, especially on a total Company basis because we’re seeing great improvement at EchoPark, even in the current margin rate — current interest rate environment, as we zero in and focus on execution there. There’s a lot of topside — there’s a lot of Ops opportunity from our perspective and from an F&I perspective. And we should be able to hit that $2,400 number or higher as we move forward.
Bret Jordan: Is there any F&I attached to leasing? Or is it pretty much not a cap — not a thing there?
Jeff Dyke: No, there’s F&I in it. It’s just not at the level that you would with, with — when someone is financing a car traditionally.
Bret Jordan: Okay. And then on the customer pay parts and service side, up 9%, do you — what was the number between price and traffic in that 9%?
Danny Wieland: About a third of that. This is Danny. About a third of that comes from higher repair order volume and two-thirds is coming from passing along higher labor costs, higher parts costs, the effects of inflation as we’ve seen over the last several quarters.
Bret Jordan: Okay. Great. Thank you.
Operator: Thank you. There are no further questions at this time. I’d now like to hand the call back over to David Smith for any closing remarks.
David Smith: Thank you very much, and thank you, everyone, for participating in the call, and we look forward to speaking with you our next quarter. Thank you.
Operator: Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
