AutoNation, Inc. Morgan Stanley's 14th Annual Laguna Conference

Yeah, thanks, Daniela. Great to be here. This is being webcast and I would like to remind people that certain statements made during this presentation, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially as contained in our filings with the SEC.

Thanks, Daniela. Thanks for having us here. I have no disclosures to read. We are excited to be at the conference. It is always great to come out and enjoy the atmosphere here and see colleagues. I think AutoNation is, as everybody appreciates, one of the leading retailers. When you ask about what is important to us, I know we will get into a little bit more description of the business, but for us, meeting customers where they are is probably the most important part of our business. What that means is there is an ongoing shift in the way people buy cars. It is not always they are going to walk into a dealership. It starts all the way back in the research that they are doing and the online activity that they go through.

For us, it is to understand that, influence that, but just to meet them where they are and then transact the way they want to transact. It is not always just a physical transaction. There is a lot that is done online these days. There is more that can be done online. We are investing in that, but I think that is a big part of the strategy that we have in place. I think secondly, I would say that we have a very attractive and growing installed base. When I say installed base, these are vehicles that we have sold over the years, over the last 2, 3 decades. We track every single vehicle we have sold, and we want to know where customers are in their vehicle usage cycle and where they are in their buying cycle.

We want to look for opportunities to be the first one they think of when they are trading out a car, trading up, when they need servicing, when they need financial products. I think that is probably our second most important priority. I would say thirdly, it is running the business well. We have important constituents, the most important of which is our customers. We want them thinking highly of us, we want them to have a good experience. Our OEMs are very critical to us as well. We represent roughly 30 OEMs, and being in good stead with them is critical. I think if we are doing the first thing I mentioned, treating our customers well, I think the OEMs will be happy.

For us, that means being able to get allocations of vehicles, that means being able to participate in M&A activity because at the end of the day, they have a say in who gets to buy which franchise. So doing that well. Then our people, our associates. When you look across AutoNation, you have 25,000 associates. Many of them are customer-facing, whether you are a customer service technician or advisor, and our sales teams. Treating them all well, compensating them the way they need to be compensated, and keeping them motivated is critical. So, those are, I think, the 3 things that we are working on to continue the growth path that we have.

Yeah, I think that's a great question. If you take a step back and look at, I always look at it from a financial perspective, and you look at an auto retailer, like us, our profitability might not surprise you, but only 20% of our profit really comes from the actual margin on selling a vehicle, whether it's a new or used vehicle. 80% of the profit comes from service, and it comes from the financial service products that we have, including AutoNation Finance. That's a fundamental tenet. It's the focus of everybody on the upfront, the movement of the vehicle into the installed base where you then can get the service activity, sell financial services products and have a relationship with a customer over their lifetime. That's the way we think of it and the way we approach it.

I think the other important aspect to appreciate if you're not familiar with retail auto is the way the balance sheet is like a CFO's dream. When you sell a car, our vehicle sales are probably close to, how to say, 20 out of our $27 billion in revenue, roughly, order of magnitude. We get paid in two or three days. So there's not a lot of credit exposure on our balance sheet. Services, as I said, a large part of our profitability, we get paid that day. So I don't have a significant amount of credit exposure receivables on my balance sheet. On top of that, when you look at inventory, we have a lot of vehicles. We carry 25,000 used vehicles. We have more than that on new vehicles, but they're financed.

There's floor plan financing, and so the toll on your balance sheet is quite limited. It's like a net working capital of zero or sometimes a negative. The business model that I described with having a customer purchase a vehicle, giving us the opportunity to sell them products and services for that vehicle, and then having the opportunity to service them over the life of that vehicle is the name of the game for us. All places are important, but the end result is a P&L and a balance sheet that is, I think, quite attractive.