Autonation, Inc. Q3 FY2025 Earnings Call

Hello, and welcome to the AutoNation, Inc. Q3 Earnings Call. My name is Harry, and I'll be your operator today. I will now hand the conference over to Derek Fiebig, VP of Investor Relations. Please go ahead.

Thanks, Harry, and good morning, everyone. Welcome to AutoNation's Third Quarter 2025 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 will open up the call to questions. Before beginning, 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. Thank you, Derek. Good morning, everybody. Thank you for joining us today. As usual, I'm going to start on the third slide. Firstly, we were very pleased to report our strong third quarter. We delivered 25% adjusted EPS growth, generated strong cash flow and deployed significant capital for share repurchases and acquisitions while maintaining our leverage at the lower half of our targeted range. Overall market conditions for New and Used Vehicles, we think are reasonable and holding up well. Industry inventory of about 2.6 million units remains well below the 4 million units which was the norm ahead of the pandemic, and units are down about 6% year-to-date. I think OEMs have been adding some production, but overall, inventory levels are in good shape. New vehicle sales remained below historical standards, with the year-to-date light vehicle sales averaging 16.3 million units, and the retails are averaging around 13.6. Our industry sales are up 5% year-to-date, with about half of that increase attributable to a strong performance in March and April. But we think comparisons will probably get tougher in the fourth quarter as we approach sales figures of $16.7 million and $13.9 million, respectively. The tariff story continues to evolve. Most of the negotiations with major trade partners are nearing completion, and the effects on the auto industry are becoming clearer. The impact on OEM profitability is significant and well chronicled, but they are clearly not standing still. There will be manufacturing relocations and other actions to drive a more efficient tariff supply chain, and the knock-on impacts on dealers and consumers are beginning to play out as well. We expect decontenting, reductions in trim levels, additional fees, and moderation in incentives and marketing spend. Now in the third quarter, we've already started to experience a reduction in certain types of incentive spending, which I will discuss a little bit more shortly. Our same-store sales of New Vehicles increased 4.5%, largely in line with the overall industry, and unit growth was led by our domestic segment, which increased 11% from a year ago on a same-store basis. Import brand also increased, and Premium Luxury was slightly down. With the expiration of government incentives for EVs on September 30, there was a significant increase in sales of Hybrid Vehicles, which were up 25% from a year ago, and Used Vehicles, which increased 40%. With the incentive expiration in mind, we reduced our BEV inventory by approximately 55% from year-end to around 1,550 units or less than 20 days of supply at quarter end. New Vehicle profitability moderated in the quarter, as one might have expected, with the mix of sales being more heavily weighted to bad and domestic vehicles. And as I mentioned, our reduction in incentive spending played a part in here as well. It is worth noting over the course of the quarter, we did see an improvement in unit profitability with September closing out more strongly than the average. Used Vehicle gross profit increased 3%, which was 2% on a same-store basis year-over-year, as we benefited from stronger unit sales and improved performance in wholesale. Our unit sales increased 4% overall and more than 2% on a same-store basis, outpacing the industry. We had strong performances for the over $40,000 price point. In terms of acquisition, the team did a nice job acquiring vehicles through trade-ins and directly from consumers to our We'll Buy Your Car effort, and these channels accounted for around 90% of the vehicles acquired in the quarter. We ended September with over 27,000 Used Vehicles in inventory, which has positioned us well for the fourth quarter of this year. Customer Financial Services gross profit was the highest we had ever reported in a quarter, increasing 12% from a year ago. We continue to attach more than 2 products per vehicle, with extended service contracts continuing to be the top offering, which is, of course, fantastic for our future After-Sales revenue and customer retention. Our finance penetration was higher from a year ago, with around 3/4 of units financed, and we benefited from improved margins on vehicle service contracts. The momentum in After-Sales continued. We delivered record After-Sales revenue and gross profit. Total gross profit increased by 7%. The total gross profit margins expanded by 100 basis points from a year ago. Our growth was led by customer pay, which reflects our ongoing customer retention efforts. We continue to focus on our technician workforce by recruiting, retaining, and developing our technicians. And I think we're continuing to see positive signs here. Turnover has decreased, and franchise technician headcount increased 4% from a year ago on a same-store basis. Now the strong momentum at AN Finance continued; originations have nearly doubled from the year prior, and we continue to scale the business with the portfolio now exceeding more than $2 billion. The portfolio and balance continue to perform in line with our expectations from a delinquency and loss perspective, and the business's base cost remains reasonably stable, enabling good profit scaling as the portfolio grows. Our Q3 performance, combined with our share repurchases, helped us to grow our adjusted EPS by 25% from a year ago. This was the third consecutive year-over-year increase in adjusted EPS. Cash flow for the quarter and year-to-date was also strong. On a year-to-date basis, our adjusted free cash flow is 1.7 times that for 2024, and Tom will talk a little bit more about that after me. Our investment-grade credit rating and balance sheet, as you know, is really anchored around a low net capital, high free cash flow model, which enabled us to once again deploy significant capital in the quarter for both share repurchases and acquisitions to improve our franchise density and portfolio in existing markets. We've expanded our presence in 2 key markets, including the acquisition of a Ford and an Audi in Denver, as well as a Mercedes store in Chicago. All in all, I think, really good results and good progress from the AutoNation team. And as usual, it is their results that have delivered this. So thank you all, many of you listening. At this time, I'm going to hand it over to Tom to take everyone through the results in more detail.

All right. Great. Thanks, Mike. I'm turning to Slide 4 to discuss our third quarter P&L. Our total revenue for the quarter was $7 billion, an increase of 7% from a year ago, on both total store and same-store basis. We achieved attractive same-store growth across the entire business, including double-digit growth in Customer Financial Services, a 7% increase in same-store new vehicle revenue, which reflects new unit volumes across all 3 segments, and After-Sales growth of 6%. Gross profit of $1.2 billion increased by 5% from a year ago, reflecting same-store CFS growth of 11%, After-Sales growth of 7%, and Used Vehicle growth of 2%. The growth was offset in part by a decline in New Vehicle gross profit. Adjusted SG&A of 67.4% of gross profit for the quarter was in line with a year ago. For the year-to-date, we are at 67% within our targeted 66% to 67% range. Adjusted operating income increased by 9%, and margin of 4.9% increased modestly from a year ago, reflecting excellent growth and performance in CFS and After-Sales, offset by moderation in new vehicle gross profit. As a reminder, CFS and After-Sales comprise close to 80% of our gross profit together, comprising a gross margin rate of more than 60% of revenue. Below the operating line, floor plan expense decreased by $13 million from a year ago, as average rates were down approximately 100 basis points, combined with lower average outstanding borrowings. Non-vehicle interest expense was approximately flat from a year ago. As a reminder, we reflect floor plan assistance received from OEMs in gross margin. This assistance totaled $34 million compared with $38 million a year ago. Net of these, OEMs' net new vehicle floor plan expense totaled $12 million, down from $20 million a year ago. In all, this resulted in an adjusted net income of $191 million compared to $162 million a year ago, an increase of 18%. Total shares repurchased over the 12 months decreased our average shares outstanding year-over-year by 5% to 38.1 million shares, benefiting our adjusted EPS, of course, which was $5.01 for the quarter, an increase of nearly $1 or 25% from a year ago. Adjusted EPS for the quarter excludes the $40 million in business interruption insurance recoveries related to last year's CDK business incident. Also, the year-over-year comparison of adjusted EPS benefited from the non-recurrence of the residual effects of the CDK business incident that adversely impacted the third quarter last year by approximately $0.21. Slide 5 provides some more color on New Vehicle. New Vehicle unit volumes increased 5% from a year ago on a total store basis and 4% on a same-store basis. Total store unit sales were led by domestic vehicles, which grew approximately 12% in the quarter, followed by import growth at 4%. Premium Luxury was relatively flat year-over-year. By powertrain, Hybrid New Vehicle unit sales, representing 20% of our volume, were up nearly 25% from the third quarter of a year ago. BEV New Vehicle sales, representing nearly 10% of our volume, were also up more than 40% year-over-year and on a sequential basis. Our New Vehicle unit profitability averaged approximately $2,300 for the quarter, down approximately $500 from a year ago for the reasons Mike mentioned. New Vehicle inventory amounted to 47 days of supply, down 5 days from the third quarter of last year and down from 2 days at the end of June. The strong BEV sales during the quarter reduced battery electric inventory close to 70% from a year ago to less than 1 month of supply. For the fourth quarter, we expect the mix of new unit sales to improve, including less Battery Electric Vehicles and a higher percentage of Premium Luxury, reflecting seasonal strength during the holiday season. Turning to Slide 6. Used Vehicle retail sales improved on a total store basis by 4%. Average retail prices were up about 4%. Used Vehicle retail unit profitability was lower than a year ago, reflecting higher acquisition costs, but remains in line with historical levels. Total used gross profit increased 3% from a year ago, reflecting increased units and stronger wholesale performance. We remain focused on optimizing vehicle acquisition, reconditioning, inventory velocity, and pricing. Overall, industry supply of Used Vehicles remains tight. We continue to be competitive in securing our vehicle supply from our retail operations, including trade-ins, We'll Buy Your Car, service loaner conversions, and lease returns. We source more than 90% of our vehicles from these channels and are encouraged by the level and quality of our Used Vehicle inventories heading into the fourth quarter of the year. Turning to Slide 7. Customer Financial Services. Momentum continues to be strong for CFS. Gross profit increased 12% on a total store basis. Approximately 2/3 of the increase was from higher unit profitability. The rest was volume related. The results reflect improved margins on vehicle service contracts, consistent product attachment, and higher penetration of finance products. The continued unit profitability performance in CFS is even more impressive considering the growth of AN Finance, which, while superior long-term profitability, dilutes our CFS PVR unit profitability. In fact, without the AN Finance dilution, our CFS per unit profitability would increase by an additional $30 from a year ago. Slide 8 provides an update on AN Finance, which is our captive finance company. As expected, the profitability of this portfolio is gaining meaningful traction as the portfolio matures and we get leverage on the fixed cost structure from the outstanding portfolio growth. Year-to-date, you can see that we improved from a $10 million operating loss in 2024 to a $4 million operating profit in 2025. During the third quarter, we again originated more than $400 million in loans, bringing the year-to-date originations to more than $1.3 billion, nearly double our originations from last year. We had approximately $160 million in customer repayments in the quarter. The portfolio has more than doubled since last year and is now greater than $2 billion. The quality of the portfolio continues to be good, and performance metrics are improving, with average FICO scores increasing year-to-date from 6.97 compared to 6.74 a year ago. Delinquency rates at quarter end of 2.4% are solid, and losses are stable as a percentage of the portfolio. We do expect delinquency rates to continue to normalize as the portfolio continues toward full maturity, with delinquency rates migrating to the 3% range. Our loss reserving methodology incorporates this expectation. The non-recourse debt funded status of the portfolio also continued to improve, as we have improved advance rates for our warehouse facilities and are benefiting from higher non-recourse debt funding levels from our ABS issuance in the second quarter. Our debt tonnage status was at 86%, which allowed us to release over $100 million of equity funding back to AutoNation. As we become a more regular ABS security this year, we expect to further increase the non-recourse debt funding proportion of the portfolio, and we expect to carry out a second ABS transaction before the end of the first quarter 2026. Closing off AN Finance, the business's attractive offerings are driving strong customer take-up, and we continue to expect attractive ROEs in the business driven by profitability growth and shrinking equity. Moving to Slide 9, After-Sales, representing nearly half of our gross profit, continued its revenue and margin momentum, and gross profit posted a third-quarter record for AutoNation. Same-store revenue increased 6% and gross profit was up 7%, led by customer pay, which increased 10%. Internal and warranty service were also higher than the prior year, reflecting higher-value repair orders along with higher overall repair orders. Our total store gross margin increased 100 basis points to 48.7% of revenue. We remain focused on hiring, developing, and retaining our technicians. And as Mike mentioned, these efforts helped us to increase our franchise technician headcount by 4% from a year ago on a same-store basis. The increased technician workforce is key to consistently driving that mid-single-digit growth in after-sales gross profit. On Slide 10, adjusted cash flow for the 9 months of the year totaled $786 million, which is about 134% of adjusted net income, and compares to $467 million or 91% a year ago. The big increase reflects stronger operational performance, including our continued focus on working capital and cycle times, as well as CapEx management and prioritization, which resulted in a $40 million lower spend on CapEx in 2025 versus 2024, as well as the recovery from the CDK outage, including the $40 million in business interruption insurance receipts in the quarter. Our CapEx to depreciation ratio was at 1.2x compared to 1.5x a year ago. We continue to expect healthy free cash flow conversion for the full year. Slide 11, capital allocation. As we've discussed in the past, we consider capital allocation as an opportunity to either reinvest in the business in the form of CapEx or M&A, or to return capital to shareholders via share repurchase. Year-to-date, we've deployed over $1 billion in capital. We remain prudent in CapEx, which is mostly maintenance-related compulsory spending and totaled $223 million for the first 9 months of 2025, which is 15% lower than 2024, as I previously mentioned. We continue to actively explore M&A opportunities to add scale and density to our existing markets. So far this year, we spent approximately $350 million closing on transactions in Denver and Chicago, which Mike discussed. Share repurchases have been and will continue to be an important part of our playbook; year-to-date, we've repurchased $435 million worth or 6% of the shares that were outstanding at the end of 2024 at an average price of $183 per share. In the 9 months ending September 30, 2024, we repurchased $356 million at an average purchase price of $159 per share. In our capital allocation decision-making, of course, we consider our investment-grade balance sheet and the associated leverage levels. At quarter end, our leverage was 2.35x EBITDA, down from 2.45x EBITDA at the end of last year and well within our 2 to 3x long-term target, which gives us additional dry powder for capital allocation going forward. Now let me turn the call back to Mike before we go to questions and answers.

So I think we just go straight into Q&A.

Yes, of course, no problem at all. And our first question will be from the line of Michael Ward with Citi Research.

Thank you very much. Good morning, everyone. Can you quantify the decline in variable gross per unit from Q2 to Q3? It appears to have decreased by about $250. Is this decrease primarily due to the unfavorable seasonal mix with Luxury and the BEV sell-up? How does this change, or does it fully recover in Q4?

Sure. Mike, I'll go first, and then Tom can add if he wants. You likely noticed two main factors affecting our growth. There's a significant rise in the BEV mix that everyone is discussing, and while it's true that margins have been quite poor for a while, we'll share our thoughts on how that trend may change moving forward. Even with the increase, BEVs accounted for only 10% of our total mix, which impacted our margins. The primary concern, however, stemmed from our domestic combustion sales, which faced considerable compression, especially in the middle of the quarter. We managed to improve that somewhat as we exited the quarter, and I was satisfied with our exit trajectory. But there was too much pressure on our domestic mix during the middle of the quarter, leading to the largest decrease both sequentially and year-over-year. I believe we are in a better position heading into Q4 in this regard. I expect a much more favorable balance between supply and demand for BEVs in Q4. We could have a detailed discussion about the impact of losing the $7,500 tax credit and its outlook, but I am optimistic that the supply will better match demand now, which could ease margin pressure. That was a lengthy answer to your question, but the greatest impact came from our domestic sales, which Tom noted were up 11% this quarter. While BEVs had some effect, keep in mind they made up only 10% of our total mix. Some of these factors will be alleviated as we move into Q4, particularly if we see a typical pattern of improved luxury premium sales in December. Tom, would you like to add anything?

No, I think you hit them all, Mike.

And the flip side of that is you have this record level of finance and insurance per unit. Any reason that won't continue?

Well, I have expectations that the team has continued to grow their contribution to our company throughout my 4 years now with AutoNation. And they are led by a great group of people in the dealerships, by the way, in our markets and here. So our expectation is that their performance will continue. And I think the thing that Tom and I are delighted about is that it's really in value-added products. We mentioned the attachment rate, for example, of service contracts. And it is clear that that really for us is good for the future in terms of loyalty and in terms of our After-Sales business. So there's no reason why we would expect that to change. It is and will continue to be mitigated by increased penetration of AN Finance in terms of the periodic reporting of that. But over the long term, the contract turn; we're better off with the overall returns AN Finance delivers rather than the one-off contracts we sell on behalf of others.

The next question today will be from the line of Rajat Gupta with JPMorgan.

I just wanted to ask a little bit of a high-level question on just the auto credit trends. You noted that delinquencies were flat quarter-on-quarter; it looks like your average FICO mix is a little similar to some of your public peers out there, you know, CarMax and others. I'm curious, is there anything in the data that you see or the performance that you see in your loan book that concerns you with regard to the health of consumers? Are losses or delinquencies performing within the quarter, maybe in certain cohorts of the consumer? Any more color you can share there would be helpful. And I have a follow-up on the Used Car business.

Yes. Thanks, Rajat. This is Tom. Good question. And obviously, there are a few headlines with some of the well-chronicled issues that came through in a couple of the larger portfolios this quarter. Obviously, that makes us double down and look at everything that we're doing, and we're very, very confident in the portfolio. I mean the growth has been outstanding, the financing levels continue to grow, minimizing our equity. But importantly, the portfolio itself is something that we look at very closely. Mike looks at it every week. We look at not just the delinquencies, but loss rates and write-offs, high vintage going all the way back to the start of when we did this business. The trends are all in line with what we expected. Our reserving has reflected those expectations, and we're not seeing anything by way of acceleration in anything like repossessions or first payment skips or anything like that, that is not already reflected in how we manage the book. So I'm pretty happy, knock on wood, with how that's been going.

Understood. That's helpful color. Just following up on the Used Car business, you had a pretty strong same-store growth number last quarter. Looks like it slowed down a bit. I'm sure like there's been some effect of the prebuy that happened last quarter that's causing the deceleration. But curious if we can get an update on some of the initiatives you talked about last time on improving the business there, both growth and profitability, and where you are in the timeline of that progress? Should we start to see further acceleration in that growth here over the next few quarters?

Yes. I'll give you an answer to that question. I would tell you that one of the things that we talked about was that we believe that we could grow our Used Car business, and we are growing our Used Car business above the industry. All those things are continuing to happen, and our margin is relatively stable, albeit there's some downward pressure on it. So I think if you look objectively at our performance, you will say, yes, in the market, that's a good performance, or some people would. I would tell you that the team and I are really, really focused on what the other possibility is here. We are maintaining higher stock levels for sale than we would normally have. Historically, I'd like to make sure that we have an inventory turn rate that balances the depreciation that we're now back into a normal cycle with how long we're keeping those vehicles in our inventory. We're not at that turn rate with the level of inventory that we're carrying today. Typically, the team would balance back down to just above their run rate to give them room to grow. We're not going to do that this time. We're going to hold the line with higher inventory on Used for a period while we continue to work on the other levers to get our run rate back to the turn levels that we would expect. The consequence of that, of course, is the depreciation effect on our margin will be there for a period and will continue, frankly, in Q4. And as you know, when you think about the depreciation impact, and as it is completely time-based, that puts some downward pressure on our overall result. So I would say we've made progress above the industry in Q3. Our expectations are higher. We are doing numerous things to get there. They haven't all worked in the quarter, albeit the result was good. We're going to hold higher inventory levels than we normally would to ensure that we have the supply that is there while we work through those other things. The consequence of that is elevated depreciation, which is accounting for about 0.2% of our margin at this moment and we will stay there in Q4 to enable the organization to grow, and we will see what happens with the overall marketplace. That doesn't mean to say that at some point in the quarter we will balance our inventory down if we see that the market is not giving us the results that we need. That's what our job is to do. But at the moment, we're holding the line with our inventory, which is why you see our inventory levels where they are on Used. So hopefully, that's enough color for you.

The next question will be from the line of Jeff Lick, Stephens Inc.

Tom, I was wondering if you could give a little more detail on the impressive 100 basis points of gross margin expansion in service and parts, just kind of what's driving that and how sustainable that will be going forward?

I mean when you look at the performance in the quarter, I would say that the total growth was roughly 7%. And I'd say it's equally balanced between volume and price. With volume, I'm talking about both parts, number of repair orders and labor hours per repair order. Those were all up and tracking nicely. Also, from a price perspective, there's inflation in the market, and we definitely do our part to offset that on a regular basis. And then we probably got a little bit more mix favorability as well. But the initiatives that Christian and the team are driving around technicians and the hiring and training of technicians, as well as having appropriate capacity from a service day perspective are working out well for us, and we're able to leverage the investments that we've made. So I'd say those are the big drivers.

And just a quick follow-up on SG&A, 67.4% as a ratio of gross profit and flat last year, which given your peers' reports that you're the leader in the club. Outlook's pretty impressive. I know you're kind of taking a bit of an outsider's point of view given your previous professional experience. Just curious where you see that going and what highlights you'd give as to what's going to lead that?

Mike has his expectations. We discussed a range of 66% to 67%, and we are striving for even more aggressive performance. Another key point is that there is inconsistency among the group regarding how service loaners are reported. We account for the entire expense of service loaners in our SG&A rate, which makes our figures appear somewhat less favorable compared to others in the group. Overall, I believe our performance is strong from an external perspective. However, we have several initiatives aimed at boosting productivity on both the sales and service fronts, which are essential for driving outcomes, including unit results, and being very careful about the returns we are seeing on advertising investments. Additionally, we manage a range of other SG&A costs daily. We have various initiatives, which I have mentioned previously, that are prioritized and reviewed monthly by our leadership team, allowing us to make adjustments when necessary. I believe this area is receiving adequate attention within the company, and I expect us to manage it closely. We also make investments that can vary and may increase at times, but these are all intended to promote further growth. This is how I view the situation, and I consider it a significant area of focus.

Our next question today will be from the line of Daniela Haigian with Morgan Stanley.

One question on forward demand. As we've kind of passed through the peak tariff fears as you spoke to, Mike, we're now seeing OEMs revise up guidance. It kind of clears the bar on an improved outlook here. You spoke to decontenting, but how are you seeing pricing on new model vehicles? Is that relatively unchanged? How are you thinking about 2026? Anything you can share there would be helpful.

I agree with your perspective. The OEMs have had sufficient time to evaluate their product plans and supply chains. The two main influences, tariffs and powertrain considerations, have led to significant changes in how OEMs view their product lineups and powertrains. They appear to have a clearer understanding of their strategies, which is resulting in a more optimistic outlook. While some of these changes have started to manifest in the market, others are still developing. Looking at the pricing trends observed so far, they align with what is typically expected during the model year changeover. However, it’s important to note that there has been some option decontenting, meaning features that used to be standard are now optional. Value engineering continues across all OEMs. Assessing the true customer value per dollar is still uncertain. The adjustments happening are primarily on the supplier side, affecting vehicle costs and materials, as well as some dealer incentives, which indirectly influence market prices while impacting dealer margins. We noticed some of these effects this quarter, which I mentioned in my comments about incentives. I believe this trend will persist as we enter Q4 and transition from the previous model year. Overall, I am optimistic about the industry's direction. At the start of the year, we anticipated a 5% year-over-year growth, although we encountered unexpected challenges throughout the year. The OEMs have generally managed these challenges well, though performance has varied. We hope that Q4 continues this trend, but we recognize that year-over-year comparisons will be more demanding. This is meant to provide you insight into our expectations from October through December. Looking ahead to next year, as we see rapid supply chain changes from OEMs, they will likely aim to sustain the progress achieved this year. It’s too early for me to predict the total inventory for 2026, but I sense greater clarity from the OEMs and expect them to address potential impacts through their and their dealers' actions in Q4.

Great. That's very helpful. And back to Used Cars, you spoke to sourcing challenges. Availability should improve at the margin over the next year. How do you expect the strategy around older Used Cars to shift over time? It's clearly a very fragmented Used Car market. How are you viewing competition from the likes of online pure play retailers? And is there a greater opportunity to grow and consolidate there?

Yes, I believe there are opportunities to consolidate, particularly due to the fragmentation in the market. Even the largest players only represent a small portion of it, so there's always potential for consolidation. To address your question, we have observed ongoing competition for retail-grade used inventory, which has led to some upward pressure on wholesale prices. We and other major retailers have an advantage with an additional channel, which is our trading, although this channel is not completely shielded from competition because of the marketplace’s pricing transparency, which is expected to increase. Nonetheless, we have a strong sourcing strategy that allows us to maintain the desired level of inventory, even at a higher cost. Our growth has primarily come from higher-priced vehicles, while others may be focusing on lower-priced options. As we explore the possibilities for vehicles priced at $20,000 and above, we aim to continue growing and can shift more towards lower-priced vehicles, knowing that this requires investment to make them road-ready. We're planning to hold slightly elevated used inventory this quarter to see what our sales and marketing teams can achieve in restoring our turn rates to normal levels. We recognize the implications of this approach, which may include downward pressure from aging inventory and slightly higher wholesale prices. We may need to adjust things as the quarter wraps up. Ultimately, we have a clear vision of what we can achieve through our established relationships and the confidence in the brands we represent, supported by multiple sourcing channels. I remain optimistic about used car volumes, understanding that it won’t happen overnight and that it involves all channels. Most people tend to purchase used cars from dealers within 50 miles of the dealership.

The final question in the queue today will be from the line of Bret Jordan with Jefferies.

One of your peers yesterday was noting that the consumer sentiment around the luxury space was feeling a little softer. Are you seeing any changes sort of at the underlying demand level at the higher price points?

Yes, I think that's a good question because really when we closed out the quarter and we saw the level of activity around hybrid, and a lot of that, obviously, for us is in the luxury space, we come into what is a bit of a quiet period for luxury. I would tell you that I think it is more muted than last year, but I still have expectations we will see a seasonal uptick in December. However, I do think it is more muted, particularly the way I see October developing. So that's the best color I can give you at the moment.

Okay. And then within the domestic internal combustion GPUs, was it brand specific? Or was there sort of a one-off event in there that is to be corrected? Or are we thinking that domestic ICE GPUs are just under some sustained pressure?

Well, I think some of it was self-inflicted, frankly. That's one of the conversations we have internally. We've set strong expectations in terms of how we want to perform in line with the marketplace. It is always a 3-way balance between what share we are able to achieve with the brands that we've got, at what margin level, and what marketing expense. I think we had some self-inflicted downward pressure in the middle of the quarter that was corrected in September, and I expect that to continue to be corrected. You have seen all of the domestic players, all of the domestic players chasing volume; domestic players tend to chase volume, and they do it in conjunction with their dealers. They have programs and schemes and relationships with their dealers when they're chasing volume. Everybody participates in driving a very competitive net transaction price, and we maintain a strong partnership with all 3 of the domestics and support them as much as we can. That had general downward pressure across the piece. It is true that some domestics had higher downward pressure than others, but that's the nature of the game and the cycles that they're in. As I said, some of our performance was a bit self-inflicted, which was corrected as we came out of the quarter. We just want to make sure that we are growing because I think there's an opportunity for us to grow, but we do that in an appropriately balanced fashion, knowing that for every new car that we sell, we get a customer who has a very high loyalty to us for 7 years if they keep the vehicle. A large percentage is also a great opportunity for used car sales because of the value we offer for their trades as well. So it isn't just one element; we try to think about the best balance we can achieve in the business. Sometimes we get it right; sometimes we push a little too hard. That's why we look at it every day.

With no further questions on the line at this time, I will now hand the call back to Mike Manley for any closing comments.

Yes. Thank you, Harry. Thank you all for being on the call. As always, we appreciate your questions, and we wish you well. Thank you.

This will conclude the AutoNation, Inc. Q3 Earnings Call. Thank you to everyone who was able to join us today. You may now disconnect your lines.