Hello everyone, and welcome to the AutoNation Incorporation Fourth Quarter 2023 Earnings Conference Call. My name is Bruno, and I will be your operator for today's call. I will now hand it over to your host, Derek Fiebig, Vice President of Investor Relations. Please go ahead.

Thank you, Bruno, and good morning, everyone. And welcome to AutoNation's fourth quarter 2023 conference call. Leading our call today will be Mike Manley, our Chief Executive Officer; and Tom Szlosek, our Chief Financial Officer. Following their remarks, we'll open up the call for questions. Before we begin, I'd like to remind you that certain statements and information on this call, 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 are contained in our press release issued today, and in our filings with the SEC. Certain non-GAAP financial measures as defined under SEC rules will be discussed on this call. Reconciliations are provided in our materials and on our website at investors.autonation.com. With that I'll turn the call over to Mike.

Yes, thanks Derek, and good morning, everybody. Thank you for joining us today. I'm on Slide 3 and I'm going to provide some opening remarks before I hand over to Tom, who is going to take you through our fourth quarter results in greater detail. Now, as we know, there continue to be mixed economic signals in the economy, and concerns over affordability. But from our perspective, consumer demand for new vehicles remains robust. During the quarter, our total new vehicle revenue increased 7%, and unit sales increased 5%. And this reflected strong import growth, as well as the seasonal uplift in Premium Luxury sales. New vehicle margins continue to decline, but the rate of moderation in the fourth quarter, which is approximately $120 per month was more modest than earlier quarters. Total new vehicle inventory levels of 76 days increased from 19 last year and 31 in the third quarter. We have 66 days of domestic brands, 29 days of luxury and 24 days of import brands. Inventory levels are expected to continue to grow in 2024, and as such, we expect to see a continued moderation of new vehicle margin, which we anticipate will be roughly the same pace as we experienced in Q4. Turning to used vehicles, same-store units decreased 8% a year ago, while total units were down 4%, which reflects the growth of AN USA stores in the year. The more recent sequential comparisons have a slightly better than the market. Now, we're managing several critical variables in the used market at the moment. Firstly, we continue to see tight availability and this has been with us throughout 2023 and will no doubt continue into 2024. And notwithstanding the inventory availability, we are seeing used vehicle depreciation, which is broadly back to normal historical levels. The mix between price is also normalizing, and as a result, we are seeing lower demand and higher price used vehicles, partly because of affordability and partly because new vehicles are becoming more available with lower net transaction prices, which is often accompanied by subsidized lending rates, which makes new products more compelling for a number of our customers. Tom is going to give you some of the specifics on unit sales by pricing band. Our inventory turns on used vehicles declined modestly during the quarter. The mix change I just noted, combined with slower turns moderated our used PVR. We expect these market conditions to continue into 2024, and as a result, we expect our Q1 2024 used margins to be in the same range as our Q4 results. Now, we've maintained our industry-leading performance in customer financial services in the quarter. As the team continued to do an outstanding job to overcome a higher interest rate environment, by maintaining solid growth in product sales per unit sold compared to a year ago. This performance combined with a 2% increase in total retail units sold resulted in higher CFS gross profit. After sales delivered a record fourth quarter for revenue and margin. Total store revenue was up 11%, and our gross profit was up 13%. Growth came from all major categories. The greater complexity of vehicles is leading to higher values per repair order. And this, coupled with increased numbers of repair orders from a year ago, resulted in what I think is an excellent performance. The strength of our balance sheet and cash generation, which Tom will discuss, allowed us to deploy an additional $150 million towards share repurchases during the quarter, repurchasing more than 1.1 million shares. Now, aside from the solid quarter from a financial perspective, there were few other highlights I'd like to touch on. We continue to focus on our customers and are working to garner greater share of customers' wallets. As such, during the quarter, we continued integrating AutoNation Finance across our portfolio, including the launch into nearly all of our franchise stores. We also continued with the rollout of our AN USA stores, opening locations in Plano, Texas and Fort Myers, Florida during the quarter. We opened additional stores in Florida early this year with Wesley Chapel, Sanford and Jacksonville, adding to density in these markets. I think our business model is resilient, working well and we continue to deliver strong financial performance. Now, this performance has of course been made possible by our 24,000 plus AutoNation associates who take care of our customers every day. And I think the team efforts continue to be recognized by outside parties because of this. And this year AutoNation once again made Fortune's Most Admired list, jumping four spots to number three in the Specialty Retailer Section. Congratulations to everybody. Thank you for the things that you do for us. And with that, Tom, I'm going to hand over to you. Thank you.

Okay, perfect. Thanks, Mike. I'm turning to Slide 4, to comment on our fourth quarter P&L. Total revenue increased slightly, as growth in new vehicle and after-sales revenue more than offset lower used vehicle revenue. As expected, gross profit was down 5% and margin was 18% for the quarter. Strong growth in after sales partially offset declines for new and used vehicles, which I'll address in later slides. Adjusted SG&A increased 5% to $791 million, with stable core spending and incremental costs related to our growth initiatives. This resulted in adjusted operating income of $368 million for the quarter, which decreased 22% from a year ago. Below the operating line, our fourth quarter results were impacted by higher interest expense for both floorplan and non-vehicle debt, and benefited from lower income tax expense. The fourth quarter floorplan interest expense of $47 million was up from $20 million a year ago, reflecting higher rates and inventory levels as expected. As a reminder, we reflect floorplan assistance received from OEMs in gross margin. In the fourth quarter, the increased assistance helped to offset partially the increase in floorplan interest expense. Interest expense for non-vehicle debt was $46 million for the quarter, up from $38 million a year ago. The increase reflects increased borrowing and higher rates. Income tax expense for the quarter was $62 million compared to $91 million in 2022, reflecting lower taxable income and a modestly lower income tax rate. All in this resulted in adjusted net income of $216 million compared to adjusted net income of $319 million a year ago. The impact of our share repurchase activity partially offset the EPS effect of the lower net income. Total shares repurchased over the year decreased our average shares outstanding by 14% to 42.9 million shares in the fourth quarter, our adjusted EPS was $5.02 for the quarter. Starting with Slide 5, I'd like to build on the color Mike gave on the performance in our various revenue categories for the quarter. New vehicle volumes were up 8%, which includes increases of 16% on imports, 3% on Premium Luxury and flat domestic units. New vehicle gross profit PVRs continue to moderate. While selling prices were stable, vehicle costs were higher. The rate of decline in the fourth quarter and gross profit PVRs was about $335 per unit, which slowed from approximately $600 per unit sequential decline in recent quarters. This reflected the higher seasonal premium luxury mix and a more stable, although still less than ideal environment for battery electric vehicles. New vehicle inventory levels, including vehicles in transit have increased from 18,100 units in 2022 to 35,300 units at the end of 2023. Moving on to Slide 6. In used vehicles, we had a unit volume decline of 4% from a year ago, as Mike mentioned on a total store basis and 8% on a same-store basis. There continues to be a shift to lower priced used vehicles. Our same-store unit sales of used vehicles priced under $20,000 increased 7%. While used vehicles over $40,000 increased 20%, and used vehicles priced from $20,000 to $40,000 were down 11%. From a segment standpoint, used unit volume performance was strongest in our import brands. Year-over-year unit sales and gross profit PVRs in used vehicles were adversely impacted by the pricing dynamics I mentioned and reflect an overall softer used-car pricing environment. Used vehicle inventory levels increased sequentially and year-over-year, reflecting our stepped-up buying activity in anticipation of the customary spike in the first quarter used car volume. As Mike mentioned, we expect our first quarter PVRs to be at or slightly below fourth quarter levels, reflecting a conscious effort to align inventory levels and churn rate with the market. Used PVR improvement is expected late in the first quarter as the fourth quarter inventory is fully churned. Used vehicle sales and profitability continue to be a big area of focus for us as we emphasize effective sourcing, pricing and speed, while optimizing customer satisfaction. I'm now on Slide 7 in customer financial services, our industry-leading performance continued. As you can see, gross profit PVRs for CFS remained strong and would have been even stronger after the shifting of economics related to AutoNation's finance lending. The upfront fees previously received from non-recourse third-party lenders are now deferred over the life of the AutoNation Finance loan. New vehicle product attachment and finance penetration in CFS remains strong and increased from a year ago. We have seen an increase in leasing, which represents 23% of new sales in the fourth quarter compared to 13% last year. This is a minor headwind for CFS, PVR at least vehicles historically had a lower CFS attachment rate. For used vehicles, there were slight decreases from a year ago on both the product side of CFS, as higher interest rates consumed more of our customers' monthly payment capacity. As Mike mentioned an ambition to fully supporting all AN USA stores, we now have AutoNation Finance present in nearly all franchise stores. In the fourth quarter, we originated approximately $110 million in loans, up from $63 million in the third quarter. The AutoNation Finance business continues to improve in all dimensions, including penetration in our stores, profitability and delinquency rate. Let's move to Slide 8. After-sales represents about 44% of our total gross profit in the quarter, and continues to grow with total store revenue increasing 11% to $1.1 billion or 9% on a same-store basis. Customer pay, warranty and internal all experienced double-digit year-over-year growth. The value per order is improving, and our total number of repair orders have also increased. Gross profit grew 13% year-over-year on a total store basis and 12% on a same-store basis. Total gross profit was up double digits for customer pay, warranty, and internal. Our gross profit margins were up more than 70 basis points to 47%, reflecting higher repair orders, our value repair orders and scale benefits from the increase in the number of repair orders. For the full year, our after-sales gross profit was more than $2.1 billion, which is up more than $500 million from 2019. This high margin business is a key part of our continued engagement with our customers, and we're focused on capacity utilization and technician development to support the continued growth of the business. Importantly, our total technician workforce increased 6% from a year ago on a same-store basis and 11% in total. Moving to Slide 9, our adjusted operating income was 5.4% for the quarter, down from last year, but up more than 150 basis points from pre-pandemic levels. The decrease from 2022 mostly reflects the moderation in new vehicle unit profitability, which was expected and is consistent with the industry, as well as higher SG&A. Growth in SG&A reflects investments for growth, increased advertising spend and inflation. Normalized SG&A as a percentage of gross profit is expected to remain lower than pre-pandemic levels. During the fourth quarter, we recognized about $7 million of severance expenses as we streamlined our regional field team and rationalized some support functions. On Slide 10, you can see our adjusted free cash flow for the year was $969 million compared to $1.5 billion a year ago. The change year-over-year is consistent with our change in EBITDA. A reconciliation for adjusted free cash flow is included in the appendix of this presentation. Year-over-year, our total inventory increased by approximately $1 billion, which was largely funded by higher trade floorplan financing and non-trade floorplan financing, which increased $424 million from a year ago. While we expect a continued normalization of new inventory levels, we are focused on the velocity with which we turn our overall vehicle inventory. Consistent with the expansion of AutoNation Finance, our net auto loans receivable increased by $230 million, and we expect continued growth in this portfolio. CapEx for the full year was $410 million compared to $329 million a year ago, reflecting primarily capacity growth at franchise stores, IT spending and facility electrification infrastructure. This resulted in an adjusted free cash flow of $969 million and a strong conversion of 94% of our adjusted net income. Slide 11 shows our capital allocation for the years 2022 and 2023. In 2023, we had a balanced mix of reinvestments and returns to shareholders. CapEx of $410 million was about $80 million higher than 2022, as I mentioned. M&A investments, which occurred earlier in the year totaled $271 million. With significant cash flow generation and strong balance sheet, we returned $864 million to shareholders via share repurchases, reducing our shares outstanding by 13%. We have an additional $320 million remaining under our current board authorization for share repurchases. At quarter end, our leverage was 2.19 times EBITDA, the lower end of our 2 times to 3 times target, and we continue to maintain our investment grade credit rating. Moving forward, we'll continue to allocate capital to maximize shareholder value, considering both near term market conditions, the M&A landscape, particularly for core franchise operation and the longer term direction of the industry. Now I'll turn the call back over to Mike to provide some commentary regarding 2024.

Yes, thanks Tom. Yes, we thought it would be helpful just to provide some thoughts regarding 2024 and how we see things progressing. On the new side of the business, as we know vehicle supply is going to continue to return to pre-pandemic levels. Leasing and retail incentives are clearly going to pick up through the year, but I think will remain below pre-pandemic levels in total. So inventory levels will continue to increase over the course of 2024, but we expect demand to be robust. Battery electric vehicle product introduction and customer interest in these vehicles is clearly going to be a key dynamic this year. As widely reported, battery electric vehicle gross profits consistently fell during 2023 and in most instances are lower than similar combustion engine vehicles. As with all things, it's about balance and it does appear OEMs are adjusting their plans and actions to match demand more closely. Frankly, this will be well received. Hybrids are doing well in the marketplace, and we have good exposure to this portion of the market based upon our brand mix. We expect our new margins to continue to moderate over the course of 2024, but at a somewhat slower pace than we experienced in 2023. The used vehicle market will likely remain constrained, as late model used vehicle availability remains limited and additional new vehicles become available. The key is going to be our effectiveness, as always, in purchasing, pricing, and turning our inventory, and we're going to remain nimble in our approach to those things in the market as it develops. I expect our customer financial services to continue to perform well even with pressures coming from overall monthly payments, vehicle mix, and OEM actions to support unit sales. As you've seen, it's a very consistent and clear strength of our organization. After-sales has been and will remain a significant area of focus for us. You saw the results in our Q4 outcome and after strong growth in 2023, obviously. Our year-over-year comps will moderate, but we expect this area of our business to continue to grow attractively. We will, as always, be focused on managing the controllable variables, which includes cash flow and capital deployment. With that, Tom, let's hand it over to Derek to get some questions.

Yes. Bruno, if you could please remind the audience how to get in queue for question-and-answer please?

Sure. We have our first question registered from John Murphy at Bank of America. John, your line is now open.

Good morning, everyone. I wanted to start by asking you, Mike, about after-sales. It's clearly a strong area for us. The efforts to hire more technicians seem to be paying off, and you've mentioned that the share of wallet is increasing. This area appears to have the most potential for growth, aside from moving to the second and third turnover in the used vehicle market. Looking ahead to 2024 and beyond, what do you believe needs to be done to significantly boost this further? Is it primarily about hiring more technicians, enhancing connectivity, or engaging in the second and third turns of used vehicles? What are the main strategies and opportunities to expedite this growth?

It's likely a mix of several factors. Looking at our franchise business, we have about 50% penetration in the vehicle parks we manage. We've observed that customers often seek other service options once their vehicles reach seven years of age or go beyond a 25-mile radius. This indicates significant opportunities within our territories. We're also providing new channels, like our mobile service, to retain customers who might otherwise shift to other service providers. Regarding our installed assets, we have enough bay capacity. During this period, we increased our number of technicians by approximately 5% to 6%. We see room for further growth here by adding services, and we'll also implement mobile services for customers who have left the franchise system for any reason. This will be a major focus for us this year, as there are many opportunities to explore. However, it’s challenging to win back customers who have formed relationships elsewhere. Our brand is strong; it was recently noted as the most recognized automotive brand in the United States. We have room to enhance our communication about the range of products and services we offer, helping customers understand that we can meet a wider array of their needs, not only for themselves but also for their families.

Okay. That's helpful. And then just a second question on the used-car business, obviously, GPUs are down. It sounds like there is a little bit of mix going on, also sort of a little bit of inventory management. Is this the kind of thing that you think is really a function of the next couple of quarters and then you get back to normal GPUs? Or is there something happening here sort of cyclically or on a secular basis that keeps these numbers low?

No, absolutely. As Tom mentioned, one of the things that as we came into 2023, our inventory levels were very low, and we felt that we missed out on some of the marketplace. We put in place a number of initiatives from the middle of last year through the end of last year to enable us to source the vehicles that we need and we did that very, very effectively. At the same time, I think some of the market dynamics were changing. One of the things that had increased dramatically during the COVID period was the percentage mix of vehicles above say, $35,000, and Tom gave you the mix. We're seeing those customers who maybe entered the high end of the used car market because they couldn't get new, now returning back to the new car market with lower transaction prices and more incentives from manufacturers. What we need to be is very, very agile to ensure that as the market changes, and I think it will continue to change, that we are ahead of those mix changes. We have some work to do. We started that work before the end of last year and continued through January. I think that work will be largely completed by the end of Q1, very early Q2. In my mind, it's transitory. The good news is that each one of those unit sales comes with exceptional CFS performance and obviously goes directly into our after-sales database for us to look after them. Every customer comes from our perspective with a great opportunity not just with a sale.

So, Mike, when you get the turn and earn back being efficient, would it be fair to say that the $1,800 range on PVR is something that we should think about sort of mid-to-long term as we get through the course of this year and beyond?

Yes, I think that's a very achievable number for sure, yes.

Great. All right. Thank you very much.

Thanks, John.

Yes, hey, good morning, everybody. Thanks for taking my questions. Mike, I wanted to start maybe on the new GPU side. Obviously, a little bit lighter moderation, your commentary suggested that's going to continue in 2024. Curiously, if you can say about how the OEM conversations are going? Are you seeing any change in tone, especially at some of the brands where inventory maybe has built? And then I'm curious, given your experience on the OEM side, what levers do you think they’ll pull? Do you see them cut MSRP? Kind of how do you think they navigate through some of the heavier inventory situations out there?

Yes, thank you, Daniel. As I mentioned earlier, until we start seeing increases in retail incentive rates and leasing return to 23%, we are not yet at the previous levels. I believe that as inventory continues to build, we will see more actions from the OEMs. In my opinion, leasing should return to pre-pandemic levels by the end of this year or early next year. We have noticed a rise in subsidized financing, especially given the current interest rates, and this trend is likely to persist into 2024. Overall, the days of supply vary significantly depending on the manufacturers and brand partners, but they remain considerably lower than what we experienced before. As the industry evolves this year, we will gain insights into how manufacturers view the balance of their inventory and the prevailing market conditions, a topic we discussed a lot during the height of the pandemic. This year, it will be interesting to see how each OEM responds, with some likely being more disciplined than others.

Got it. That's helpful and then maybe Tom on the finance side, I think Mike and you both mentioned, you've rolled out AutoNation Finance into all the franchise stores. Curious if you could maybe provide some stats around the loan growth in the quarter, maybe Q4 reserves, you're taking your provision for losses. How those loans are performing as we think about the changing consumer credit backdrop today?

Thanks for the question, Daniel. As everybody knows, we bought AutoNation Finance in October 2022. We started out entirely as a third-party lender, mostly to subprime. We've over the course of the last year completely converted that to now supporting AutoNation exclusively, both our AN USA stores as well as the franchise stores. Very little in terms of subprime. It’s really gone through a nice transition, we love the platform, we love the team. The trends have been very, very strong. We've got as I said improvement in the origin mix with all AutoNation customers, FICO scores have improved between 50 and 100 basis points in terms of what we're originating. On the credit quality trends, 30-day delinquencies have been really strong. I mean in the third quarter, we were probably 7.5% delinquent. That's improved by about 200 basis points through the end of January. So the team is doing a nice job in what is not an easy environment for consumer credit. We're happy with that. The penetration rates among our stores where we're present has been strong. It's about a $450 million portfolio, and that is after a sale of a chunk of the business in the third quarter, which was about $80 million. We're excited about 2024. We think the originations could double, and we just couldn't be more pleased with how the business has developed over time.

I appreciate that. I have a quick question regarding accounting. How do the CECL reserves relate to the loan balance you mentioned, considering that loan growth is expected to double? Additionally, how does this impact the income statement when we model the growth in the finance business?

It's all in that one line other income and expense on P&L. While growing, like I said, it's probably not material enough for us to break that out. I think at some point we'll address that depending on how the growth is, but it's all basically collapsed in that one line.

Great, thanks for taking the question. Thanks for all the color on 2024 expectations around the new business, the used as well. But curious, is there a range you're targeting for SG&A to gross for the year in context of the study, new GPA decline, some of the pressures in the U.S. business, how should we think about SG&A to gross for 2024? I have a quick follow-up. Thanks.

Yes, Rajat. The way that we're thinking about this is, obviously in what I would call our core businesses. The things that we've put in place over the last few years continues to have I think clear benefits. Our SG&A also includes some of the investments that we've been making progressively in the last two years. The percentage that we see doesn't represent the core businesses in sales. But I think the range that we sit in now is the range that we're going to continue to target going forward. It will fluctuate, as I said, based upon the additional investments we are making, for example, in mobile services and in our parts commerce business as we grow those businesses. So that's kind of my view on SG&A at this time.

Yes. The thing I would add to that is, as Mike mentioned, we do have some investments in AN USA as those stores rollout. You don't get to a full run-rate of profitability for about a year, so that can dampen the SG&A rate and also the investments that Mike has mentioned, strategic investments. We’ve also seen some inflation there. I would say we probably would be in long-term basis, mid 60s kind of level relative to gross profit. We are paying close attention. As we mentioned, we've taken some modest actions in the fourth quarter to address and take advantage of some delayering opportunities in the regions, as well as to economize some of those support functions. It’s a pretty important area for us; we continue to drive productivity where we can.

Got it, got it, that's helpful color. And just on capital allocation. Obviously, we've seen looks like a very steady and like pretty elevated look buybacks over the last few years. Curious like how that toggle between M&A and buyback looks today based on what you're seeing in the pipeline for deals and related multiples. Curious if we should expect any shift in strategy there, maybe more get toward M&A versus historically buyback. Thanks.

Yes, it's a great question. Thank you. The greatest job is that we generate a lot of cash. So it gives us optionality. You're probably very familiar with how we've allocated capital over the last two or three years. I don't think there is any material change in how we're looking at it. The focus is on maximizing shareholder return. When we do see allocation opportunities, whether it's internally the CapEx or to M&A opportunities, we think we're pretty disciplined in terms of our analytical evaluation and our cooperation of synergies. Where the deals look like it would be accretive and meet our hurdle rates, we’ll go after them aggressively. We also have had great success with share repurchases and feel that that's going to continue to be an important part of our capital allocation playbook.

Are you seeing any changes in our existing multiples. Any change in turn or any increasing propensity like for sellers to offload? Curious if you think in the market you've seen that shift on the M&A side.

Can you clarify? You're muffled a little bit in your question; I'm sorry.

Yes, I just wanted to ask like, have you seen any changes in the multiples or devaluation of some of the assets that are out there in the market from an M&A perspective. Over the last few months.

Yes, as you can imagine, sellers tend to have amnesia when it comes to where the prices used to be before all these run-ups in the last few years. I don't think there's been any market change in valuations, maybe here and there, but we're not seeing anybody walk away from last year's prices per se or anything like that.

No, but it's also true to say that our conversations around the basis for people's valuations are heavily pointed in the last 12 months and trading conditions in our view moving forward. As we talked a lot about this when we were deep in the pandemic. I think this year we're going to see how each OEM is going to address that. Some will be more disciplined, some will be less.

Hi team. Thanks for having me on. Congrats on the quarter. Two quick questions from me. Just first on the new vehicle PVR point and the normalization that we continue to see, is it fair to think that there may actually be a higher trough cycle over cycle, maybe remaining at about a 20% to 30% premium over 2019 levels? I'm just curious if perhaps you are beginning to see some structural reasons that a decrease to pre-COVID levels may not be the reality, given the rate of change on profit per unit has begun to slow like Tom mentioned as the fourth quarter was actually the best sequential in three quarters.

Yes, Doug, welcome. There are many factors to consider in that question. This year, we need to closely monitor developments in battery-electric vehicles and hybrids. Currently, all original equipment manufacturers are working towards varying greenhouse gas targets depending on the state, which may change later this year as we progress. The growing share of battery-electric vehicles has significantly impacted margins, with their share more than doubling from the end of 2022 to 2023. This has naturally affected combustion vehicles. In response to your question, I anticipate a return to margins similar to those of 2019, which will take into account the effects of battery-electric and hybrid vehicles. The realization of this will largely depend on how OEMs manage the mix of electric, hybrid, and combustion engine vehicles for the rest of the year and how they plan to meet their targets. This is a complex question, so that's my best insight. In our business, we are concentrating on areas where we have greater control and opportunity, such as customer financing solutions, used vehicles, and after-sales services. We aim to enhance the products and services for the customers we've retained over the years. We want to ensure our new vehicles do not become outliers in terms of margins or market share. We manage our costs carefully because, while we are significant in this industry, we remain a small player in the overall new vehicle market. Therefore, we need to be realistic about what we can achieve.

Okay, that's helpful color. I appreciate you giving the detail there. Just to be crystal clear here, a slightly lower growth from EVs as a lot of us now expect for at least 2024 through maybe 2025, 2026 would actually be a positive, that's the correct way to think about that?

Yes, based on the margins we saw developed last year. That's exactly how I would think about it.

Thank you for answering my questions. You mentioned that CFS is expected to be strong. How should we interpret that? I believe there is more leasing, which might exert some pressure. With the potential normalization of vehicles, particularly in the mass market, could that affect growth? Will it still be up year-over-year, or should we anticipate some moderation as we approach next year?

Yes. Thanks for the question, Colin. Yes, in my commentary, I was referencing a little bit higher lease penetration in the CFS comments. I think on balance, leases are accretive to what we're trying to accomplish, yes. Maybe you sell a little bit fewer products on a CFS perspective, but it's not massive. It is outweighed by the fact that we have a shot at getting the used car once it comes off lease. It helps with vehicle affordability. We have typically third party finances taking a residual risk. So it's a net-net win-win for us on leasing. I would think of it that way; we've managed through with CFS over the years with higher leasing volume.

Got it. And then just going back to your comments to the last question on expecting profitability to sort of normalize to pre-COVID 2019 levels. Is that already pretty much there on the domestics? If I look at the Q4 margins, the percent margin looks pretty similar to pre-COVID. So is that kind of driving some of those thoughts that those companies that have already kind of restocked a lot of the inventory are already kind of back to normal levels?

Yes, the answer to your question is that it's pretty much there for some of our OEMs.

We currently have no further questions. So I would like to hand the call back over to the management team for closing remarks. Over to you.

Firstly, thanks. Thanks for your questions. I'm just going to touch on the margin question that I've received earlier. One of the things that I think is relevant and important as you think about our performance going forward. AN USA is a valuable addition to our Company, our organization, particularly where we have areas of significant density. Where used vehicle margin does not perform in the same way for obvious reasons as our franchise businesses. So when you think about the $1,800 that we discussed, don't think about that in the context of AN USA. The way that they source their vehicles is very different. The way that they can attach manufacturer and OEM programs is significantly different. Their whole business model, including the capital invested is very, very different. As you think about my comments on $1,800 margin, make sure you factor in the impact of AN USA on our average margins going forward, because they will not and have not been at that level. I don't anticipate that any time going forward. With that said, when I think about 2024 just but it's clearly going to have its normal mix of headwinds and tailwinds. But for me, after a very significant year in 2023 and a planned leadership transition, I'm feeling positive about our development as we enter this year. We have Jeff Parent joined our Group, as you know, as Chief Operating Officer. Tom came in last year. CMO joined us, Rich Lennox, who joined earlier in 2023. From my point of view, our leadership team, that year of transition, which was planned is now complete. I think all of the members we've added bring vast experience to AutoNation. These team members, along with their colleagues who sit on our executive leadership team, will help us build on our success and position our Company well for the future. This enables us to really look at how the investments we've made in various parts of our businesses are performing and understand how we can get to a period of growth in some of those and in others, how we can make sure that we're driving up our margins. With that, thank you for joining the call. We'll see how the year goes, and I look forward to talking to many of you between now and most of you next quarter.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.