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Good morning. My name is Ellen, and I'll be your conference operator today. At this time, I would like to welcome everyone to the AutoNation Third Quarter 2023 Earnings Conference Call [Operator Instructions]. I would now like to turn the call over to Derek Fiebig, Vice President of Investor Relations. You may begin your conference.

Thank you, Ellen, and good morning, everyone. Welcome to AutoNation's third 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 will 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 in our SEC rules, will be discussed on this call. Reconciliations are provided in our materials and on our Web site located at investor.autonation.com. With that, I'll turn the call over to Mike.

Thanks, Derek, and good morning, everyone. Thank you for joining us today. I'm going to start on Slide 3, and I'm going to provide some opening remarks before Tom takes you through the third quarter results in great detail. So as we all know, there continues to be mixed economic signals in the economy. But despite concerns of affordability, consumer demand for vehicles remains relatively healthy. And during the quarter, partly because of improved new vehicle supply and stable used vehicle inventory, we saw double digit year-over-year growth in new vehicle sales and strong sequential growth in used vehicle volume. And frankly, this is the first time in eight consecutive quarters that we've seen growth in combined new and used vehicle volumes for automation. So I think that's very positive. We also continue to see significant benefits of our clear focus on after sales, which delivered a record quarter for revenue and margin, and as a result, AutoNation delivered a solid performance in this evolving operating environment. So I'm just going to quickly look at the performance by business, and I'll start with new vehicle sales, where volume was up 12% in total and 9.5% on a same store basis. And as forecasted, new vehicle margin was down sequentially in the quarter but remained above $4,000 a unit. Now during the quarter, we did see some mix impact on our margin and that was driven by significant year-over-year volume growth in our import franchises, which benefited from improved inventory flow, releasing some of the pent-up demand for those brands. And I'll touch on the inventory numbers in a minute. But basically, everything that we got, we sold. So we saw quite a large increase in our import dealership volumes in the quarter. But I would say our sales teams tend to look at every potential deal in a very balanced way. And you'll see our combined margin performance across new and used, which included CFS income held up very well. And in fact, it's relative to the industry in the quarter and remains well above pre-pandemic levels. I mentioned other inventory levels, so let me touch on that. Obviously, they've increased from a year ago, but they remain less than 35 days supply but we have a lot of variation, frankly, among branding categories. We have 51 days of domestic brands. So that probably answers one of the questions about what's happening in my previous time [indiscernible]. So we have 51 days domestic brands as we said, 33 days of luxury and 17 days of import brands. Now moving on to used vehicles. As you'll recall, at the beginning of the year, we spent some time talking about the fact that used vehicle inventory would be harder to source and obviously critical to success this year. So knowing that we've made continued investments to maintain and grow used vehicle inventory, I think the team in the quarter did a good job sourcing retail quality used vehicles and to facilitate this, we've increased our investment and we buy your car marketing and infrastructure, which you're obviously going to see in our SG&A. In addition, we have our teams looking at every potential sale in a much more holistic way considering not just the vehicle margin but also the income from CFS and additional consideration as the sale yield of retailable trade. Now as a result, used inventory has been stable, which has helped us post the sequential used vehicle sales increase of over 5%, which would not be possible without the daily focus on vehicle sourcing which, by the way, resulted in over 90% of our total used vehicles being self sourced in the quarter. Now as you know vehicle volume new and used is important for many reasons, but a key one for us is our industry leading performance and customer financial services, which again continued to deliver in the quarter. And then the team has done a great job to overcome a significantly higher interest rate environment and lower finance penetration by continuing to maintain and grow product sales per unit sold. Now moving on to after sales. Here, the business continues to be one of our brightest spots. Revenue was up 12% and our gross profit was up 14%. The greater complexity of vehicles is leading to higher values per repair order and we've also been keenly focused on growing our technician workforce, which is allowing us to serve more customers. I was also pleased with the operating cash generation in our business. It was another great quarter of cash conversion relative to net income, which Tom will no doubt talk more about later. But aside from the solid quarter from a financial perspective, there are a few other highlights I'd like to touch on before handing over. Our 11 million plus customers are our core focus and we're extending our product offerings and reach into more recurring revenue streams and we're adding new customers every day across all of our channels. And during the quarter, we increased the penetration of automation finance at our AN USA stores, where we are now financing roughly one in four AN USA vehicle sales and we have also expanded into our franchise stores. So AutoNation Finance continues to be integrated as a thoughtful and measured place and is, in fact, ahead of where we thought it would be, which is why we expanded it to our franchise businesses. We're also actively launching supplementary products and services to meet our customers' needs, which supports consumer vehicle usage and also attracts new customers to us. And we launched a micro lease business called AutoNation Mobility and an e-commerce parts and accessory platform called autonationparts.com. These businesses, along with AutoNation's recently acquired mobile repair service complements our traditional dealership model while expanding our reach into the transportation industry. We expanded our AutoNation USA footprint with our 17th store in Hilton Head Island, and this was the fourth opening of the year, and we expect four more openings in the fourth quarter, including our Fort Myers facility, which opened this week. Now as you can imagine, it's not an easy task to get these greenfield businesses open and up and running. And I'd like to congratulate and thank the teams that continue to work incredibly hard on this. I'm also pleased to say that so far these businesses are selling ahead of plan and are showing considerable growth year-over-year. And by the way, since with this project with AN USA has started they've now sold over 70,000 vehicles. So that's not out for organic growth, I think. So moving on. The exceptional service we provide to our customers did not go unnoticed as AutoNation was recognized as the top public franchise dealer group by reputation of 2023 automotive reputation report, and that's an honor that we have housed four out of the last five years. And of course, that is only possible because of the 24,000 dedicated AutoNation associates who work tirelessly in our business and whom I would like to thank. So thank you all for listening, and I thank you in person as I get out into the business model. And finally, we were named best companies to work for list by U.S. News and World. So you can see customers at the central what we do. We are focused on growth, outstanding customer service and operational excellence through our business. And we're also looking to the future how the industry will evolve and what the needs of our customers will be. There is clearly an opportunity for automation to capitalize on our strong brand and footprint to retain and reactivate customers and provide them with more value and garner a larger share of wallet over a longer period of time. And now Tom will take you through the financials in greater detail. Tom?

Yes. Thanks, Mike, and good morning, everybody. A more detailed outline of our Q3 highlights is on Slide 4 of the materials. New revenue vehicle was up 11% at $3.2 billion. Volumes in new vehicle were up 12% and including, as Mike mentioned, 25% on imports and 5% on domestic with luxury, roughly flat volume line. Same store volumes were up 9% and revenue per vehicle retail was stable. Used vehicle revenue declined 10% year-over-year with US sales down roughly 4% and revenue per vehicle retail down 6%. Importantly, as Mike mentioned, though, used vehicle sales improved unit wise by over 5% compared with the second quarter. So the efforts of our investments are starting to pay dividends. So Customer Financial Services revenue increased 2% to $370 million. This reflects the increase in total retail volume from 2022 and fairly stable CFS revenue PVRs. After sales was up 12% to $1.2 billion in revenue, the result of both higher value repair orders as well as improving volumes. After sales gross profit margins were up 14% in the business. Third quarter earnings per share were $5.54, down 8% while operating income was down 16% and interest expense up $44 million, our EPS was favorably impacted by a more than 20% decline in the share count, which obviously is a reflection of our ongoing share repurchase actions. Cash from operations, as Mike mentioned, was very strong through September. It's up -- we were at $763 million, which resulted in conversion on net income of more than 95%. So the company has really impressed me in my first few days -- first few months in terms of doing the right things to drive cash generation, including the management of work capital. Mike also mentioned the integration of AutoNation Finance. This is still a pretty small business for us with roughly a $400 million portfolio but we expect significant growth as we increase the penetration of financing in our stores. As part of these efforts, we've discontinued all third party originations and are now exclusively focused on the AutoNation business. In September, AN Finance represented roughly a quarter of the loan originations in AN USA stores, as Mike mentioned. We've also commenced lending in our franchise stores. And in for the third quarter, as planned, we sold most of our lower credit tier loans from the legacy CIG portfolio, which generated a pretax gain of $8 million. Turning to Slide 5 for some commentary on our third quarter P&L, on balance, the strength in new vehicle unit volumes and after sales and the stability in customer financial services more than offset the decline we experienced in new vehicle PVRs and used vehicle revenue. And in this environment, we're very pleased with the 3% growth in top line from 2022. Gross profit was slightly lower in nominal terms. All in, we were down roughly 90 basis points in gross profit margin to 19%, reflecting the moderation in new vehicle gross profit PVRs but that was largely offset by growth in the aftersales gross profit, as I mentioned. Adjusted SG&A increased 7% to $823 million with generally stable core spending and incremental costs to relate to our growth initiatives, and I'll touch on that a bit more later. Third quarter floor plan interest expense of $38 million was up from $11 million in the third quarter of 2022, that's a reflection of both higher rates and borrowings, higher borrowings and it's about half and half in terms of the impact. For non-vehicle debt, the interest expense was $49 million, which was up from $34 million a year ago. And again, both higher rates and increased borrowings impacted the interest and expenses as well. Our income tax rate was stable at 25%. So all in, this resulted in $244 million of net income compared to $336 million a year ago. And as I mentioned, our average shares outstanding of $44 million, we're more than 20% lower than a year ago. This meaningfully blunted the EPS effects of the net income decline as you can see. Starting on Slide 6, I'd like to build on the color Mike gave on the performance in our various revenue categories for the third quarter. As you said, new vehicle volumes were up 12% and this includes over 25% on imports. Revenue PVRs have remained stable for new vehicles. Gross PVRs continue to moderate, reflecting increased availability of new vehicles and importantly, as Mike mentioned, our intentionality in pursuing higher volumes to drive the other parts of the business. New vehicle inventory levels have increased more than 50% in both units and values from a year ago, and new units have grown from roughly 13,000 units to over 27,000 units. In used vehicles, on Slide 7, we had a modest volume decline of 4% from a year ago with the most pronounced declines from our domestic stores, which decreased 10%, important luxury stores had less pronounced volume decline. As Mike mentioned, we have seen some nice progress since the second quarter with used vehicle volumes up 5% sequentially. And this was more than twice the market's growth. There was good traction quarter-over-quarter in the $40,000 and below pricing tiers. Those tiers comprise more than 80% of our unit sales. And even on the higher priced tiers greater than 40,000, which has better profitability, the growth was also respectable at roughly 2%. The demand is clearly there and we're continuing our initiatives to pursue more supply. Revenue and gross profit [TBRs] and used vehicles were both down year-over-year, mostly reflecting the volume decline and the mix of sales by pricing tier. Used vehicle inventory levels were overall stable at 33 days with growth in lower priced tiers very strong, offset by declines in higher priced tiers. We continue to emphasize health sourcing including trade-ins, lease expiries as well as our [iBuyer] car initiative for the quarter, our self-sourcing represented 96% of used vehicles acquired. Now moving on to Slide 8. In Customer Financial Services, we delivered 2% revenue increase, roughly in line with vehicle sales unit growth for the quarter. For new vehicles, higher unit volumes and stronger penetration of both finance and nonfinance products are driving stronger CFF. On the used side, a portion of our sales with finance products declined modestly year-over-year given the interest rate environment, but still remains very high at close to 70% penetration. On nonfinancial products, we also had a similar modest decline but still very respectable penetration. On Slide 9, after sales, as I mentioned, up 12% in revenue at $1.2 billion. Customer pay, warranty, internal and collision all experienced double digit growth year-over-year. So it was very broad across the entire portfolio. The value per order is improving, and the number of repair orders had also increased. And we're starting to see the benefit from the investment in additional technicians. I think we've made over the course of the last few months. Our gross profit grew 14% year-over-year and our gross profit margins were up more than 80 basis points to 47%. And again, this is a reflection of those higher value repair orders as well as the scale benefits we're starting to benefit from in terms of the increase in the number of orders. A quick comment on the UAW strike. We obviously hope this is resolved in mutually agreeable manner. We've been preemptively building inventory where we can and after sales with the support of OEMs. In the third quarter, there was not much of a financial impact apart from the slight inventory build. We obviously are monitoring the situation closely. Slide 10, Operating income was 6% for the quarter, down from last year, but still much higher than like 200 basis points higher from pre-pandemic levels. The decrease from ‘22 reflects the moderation in new vehicle gross profit per vehicle as well as higher SG&A. And the growth in SG&A reflects investments for growth, including the supporting infrastructure for our AutoNation USA stores as well as for our aftermarket business. We've also had some increased advertising spend related to acquisition of vehicles via [Valayar] car initiative. There's been some inflation and some self-insurance costs for weather related losses. Overall, normalized SG&A as a percent of gross profit, we do expect to remain lower than pre-pandemic levels. Slide 11. Our operating cash flow generation remains very robust. We were at 105% conversion of net income for the quarter. Our cash flow from operations was $256 million in the third quarter and we increased our non-trade floor plan by $89 million and our CapEx was $87 million. So together, these have resulted in free cash flow of $258 million for the third quarter. CapEx for the quarter was up around 10%, reflecting a steadily increasing reinvestment ratio, where we're now at roughly 1.6 times depreciation. And the principal year-over-year increase in CapEx that drove that 10% has mostly been for growth, including the AN USA expansion, some facility spending for electric vehicles and some IT related projects. Slide 12 shows our capital allocation for the first nine months of 2022 and 2023. Last year, our capital allocation focus was on reinvesting in the business and share repurchases. Since the beginning of 2022, in fact, we've repurchased roughly 21 million shares, which is more than third of our outstanding share count. It was a low interest rate environment. We are enjoying recovery driven cash flows. The M&A landscape wasn't presenting deals we viewed as attractive and we had a dislocation in our share price. And while we still believe in the longer term value that would be great in our share price, over the course of '23 as interest rates have increased and our cash flows have normalized, we've moderated the level of share repurchase activity still. When you look at it as a percentage of free cash flow, the share repurchases are relatively stable, close to 100% of free cash flow. At quarter end, our leverage was 2 times EBITDA. This is at the low end of our 2 to 3 times target. Michael and I very comfortable with where we sit there. And moving forward, we'll continue to allocate capital to maximize shareholder value. So with that, I'm going to turn it over to Mike to wrap things up.

Yes. Thanks, Tom. I'm just going to, again, before we go to the Q&A session, thank all of our associates in the business. And as I said, I think that there's been a lot of progress in terms of putting infrastructure in place, building new offerings, products and services for our customers as well, and that will take tremendous effort. So thank you all. And with that, let's start the Q&A.

Ellen, if you could please prompt the audience how to get in the queue.

[Operator Instructions] We’ll take our first question today from John Murphy from Bank of America.

Maybe we have to come back to John.

Okay. Let's move on to Rajat Gupta from JPMorgan.

Just had a question first on parts and services. Clearly, very strong trends there. I think it was the best result amongst your peer growth. Would you be able to give us any more color there in terms of any differences you saw across the regions that might have led to the growth, as well as if you could quantify how much of it might have been driven by either the traffic or pricing or mix, any way to size that growth and expectations going forward as well? And I have one quick follow-up.

The growth came from both an increase in volume. We saw as we progressed through the quarter, volume increasing as a result of the increase we had in terms of productive technicians. So a combination of that and reaching out into the vehicle park grew [RR] account. But then we saw value growth really across our customer pay, our internal work as well with the growth that we saw in new vehicles and the sequential growth of used and then warranty was up as well. So it's a combination of both of those things. I have not seen a big difference in terms of the geographical distribution of that growth. If I look broadly across the market, it's roughly in line. So I don't think that there's necessarily anything from a geography perspective that's influenced it. So in summary, just a combination of increased volume but increased value per [RR] as well.

And then just on new cars, helpful color on the slides on how you're strategizing the overall profitability there. You mentioned in your prepared remarks that you were selling like all of inventory that was coming in. But the slide deck -- but you also suggested that you were trying to push volume in order to monetize CFS and [parking] services. I just wanted to make sure I'm understanding both those comments correctly. Did you have to stimulate volumes with some GPU reductions in order to make sure you still get the F&I or CFS income, or if you could just clarify that a bit would be helpful?

No problem. And by the way, if -- I will try and clarify but feel free to dive in and redirect. What we ask the teams to do, we've obviously invested a lot. We recognized -- so let me just step back. As I mentioned in my opening comments, we recognized that how we manage our used vehicle inventory as we go through this year and get into next year is going to be critical for us to be able to continue to progress not just in terms of used vehicle sales for our franchise businesses, but also be able to stock up all of the incremental AN USA stores that we're opening. And we recognize -- we're investing a lot of money in that, whether it's incremental marketing or incremental infrastructure to support how we buy your car. And what we ask our teams to do is to take a very holistic view in terms of volume in the marketplace, not to distress sell anything at all but just to recognize that we have a very good record in terms of CFS performance, we have a very good record in terms of sales sourcing. And as you're looking at opportunities in the marketplace, just make sure you're taking all of those into account, because one of the most profitable sources for used vehicles, as you know, is actually the traders that come on a new or used car sale. So it was really a reflection of us making sure that people are recognizing that there are multiple different sources of profit in an individual sales deal and just make sure you're reflecting that as general managers, as general sales managers, in the dealerships when you're building a month. So it really was, I think, just a logical description of something that we would want them to do and take a balanced approach to business is multifaceted.

Maybe like just to finish up on the new GPUs. Were you able to, like do you see any benefit of the strike in the third, and do you expect any benefit from a slower inventory build in the fourth quarter to the GPUs? Or would you think like the strategy around like CFS and driving volume growth [indiscernible] continue to decline in those GPUs here in the fourth quarter?

No, there will be no benefit, and I'll put some color to that. When we saw GPUs rise across the industry, we saw them rise because all of the competitive cross-shop models were in short supply. So you have a situation where every brand was in short supply, and therefore, prices drove up. If we just have individual domestics in short supply but the cross shop brands consumers are looking at in addition to domestics or not, there'd be no reason -- there's no potential for those domestics in my view to get pricing as a result of the fact that they may have a few days less supply than the others, and that's just in general. The pandemic was, as we've said, it was a one term reset to the entry and secondly, we said it was 65 day supply in domestics, and that's nowhere near the fleet that we had before the pandemic but it's certainly enough to take us through for the next few months. Obviously, what we're looking for as Tom mentioned in his speech is a mutual end of the strike as soon as possible. But as we said today, we've got 55 days, I think we'll be okay.

Our next question today comes from Daniel Imbro from Stephens.

Mike, maybe I'll follow up sort of the new unit. I think you caught out strength in Port brands even as production increased. Can you talk about what you think is driving that, is it more affordable product, just a strong lineup, trying to understand why some of the brands are outperforming so well?

So without diving into all of the inventory numbers, if I just think about the last few years, what we saw initially is we came into the pandemic with those import brands were holding up in terms of their inventory. And we saw a kind of delayed effect as their inventory levels got really low, and we were talking about three, four, five days of supply. So a lot of those customers for those branches just couldn't find the [Technical Difficulty]. And as we've been able to see flow increase and improve, I think genuinely think it is just some pent-up demand that is being able to get unlocked as a result of that, we saw those brands rebound and rebound strongly. And I'm convinced that, that is what it was in those brands. And our turn rates are just phenomenal, as you can see, we're still very low day supply but produced great volume in the quarter, I think.

And then, Tom, maybe a strategy one for you. You guys, I think, put in a bid on a UK asset during the quarter, would have been a big international deal. Maybe you can discuss where dealership M&A fits. You obviously saw the buyback this quarter. But where a dealership M&A fits in your focus? And maybe is international becoming more of a focus for you guys as you think about the next lot of growth for AutoNation?

I mean, when you -- I'll let Mike answer the specifics on Pendragon. But when it comes to that capital allocation in general, the first thing I look at when I look at AutoNation is we have a lot of cash, they're capital to allocate. In other words, the cash generation is very strong. So we've got a lot of optionality, which I really like in, which is what attracted me to join company in the first place. And we can either reinvest in the business through CapEx and M&A and even delevering. And to the extent we think we need to, as I said, we're comfortable with where we are at debt levels right now. And we also can return cash to our shareholders through dividends, which we don't have and share buybacks, which, as I said, has been one of our primary emphasis in the last couple of years given the low interest rate environment. Things moderate over time. And we have to be mindful that our number one objective is just maximizing shareholder value, and we'll do that thoughtfully. Obviously, we'll continue to reinvest in the business and where we think there's opportunity also be thoughtful about returning to shareholders through share repurchase. And on the M&A front, I do think that opportunities are abundant. The trick is finding the ones that we think are good for our shareholders and where we can run them profitably and add value to the business. And we're very active in looking at all sorts of different opportunities. So I'll let Mike comment on the Pendragon one in particular.

Well, by the way, I think that was a great answer question, I also there's much more to add on Pendragon. I mean when we made up memory offer on that. obviously, compared to the offers that were out there at a time that we thought it was an appropriate thing, and we think they were good assets and we did our delivering and decided to not formalize an offer at that point, I think there’s nothing much the same yet to close, but bet's continue to do exactly as you described them.

And I guess squeeze in one more quick model clarifier. Tom, I think in your prepared remarks, you mentioned that the sale of CIG loans this quarter was an $8 million pretax gain. And if so, where was that in the P&L, is it an SG&A offset or is it getting reported below the line? Just where is that $8 million gain?

I think it's embedded in the -- yes, can see this in other. It's footnoted within in the financial statements, you'll see it there. Look at the financial statement footnote one, Daniel. And you'll see it there in the press release. It's included in there, it's net of other things going on.

But the number was $8 million. Was that right, Tom?

Correct, that's correct, pretax gain $8 million.

Our next question comes from Bret Jordan from Jefferies.

This is Patrick Buckley on for Bret. Could you talk a bit more on the used sourcing environment during the quarter. It sounds like you guys successfully increased spend there. Do you see further room to grow through additional dollar spend or is that pretty close to the optimal run rate?

It's a great question. I think the balance that we struck in the quarter is probably optimal going forward. The only additional thing that we have to factor in, which may not see a lot in the scheme of things is the four new openings of AN USA, just to make sure that we have incremental inventory to those. But I think we've got a good balance now in terms of we buy your car, what's coming in, in trade. And as I said, we're looking at each deal and giving credit if there's a really good trade there to make sure that we can get not just the sale of whatever we're selling, but also get a second sale out of the trade. So I would say optimal balance at this moment in time. And if we're able to continue to get sequential growth, we'll obviously need to get more inventory, but I'd say balance right now is the best answer I can give you.

And then switching to the new side of things. Are you guys seeing any mismatch between higher content units in your inventory versus demand for a more affordable lower term units?

I don't think I'm seeing any mismatch. Obviously, we look as everyone does at our turn rates across different models. I think one of the things that's happening in new that we saw in the quarter, at least I mentioned in my opening comments that I thought the team did well even though finance penetration levels were down. The reality is on the new total finance penetration on new for us remains stable, but it moved from what I would call just straight paper into leasing. And as it does that, that can help quite a lot with higher contented vehicles, obviously. So I think that was beneficial for us on the new side. And as I said, on new side, that's where we saw penetration rates drop. So nothing that stands out to me. When I look at inventory, the only differences I see in terms of turn rates at the moment are electric vehicles versus other powertrains where we are seeing improvements in turn on electric vehicles, but they are still roughly take twice -- other powertrains turn twice as fast at the moment.

Our next question comes from John Murphy from Bank of America.

First question, Mike, you mentioned something when you're talking about the used car business about how you might be willing to accept lower grosses, because there's -- you can make it up on the CFS side and there might be a retailable vehicle that comes in trade. It sounds like that's kind of also alluding to that you might go a little bit deeper into the -- maybe the third turn of the vehicle as opposed to just the second turn. Can you kind of maybe comment on what you were getting at there and how institutionalized that process is and maybe accepting lower grosses and trying to make it up or growing the business, if you will, on the CFS and on that third turn?

John, I don't -- what I don't want to do is create any confusion. So what we ask our sales teams to do is to obviously look at the overall growth that they generate. We want them to continue to hold or grow market share for the brands that they represent, but also grow new-to-use ratios within their business. So I think sometimes, particularly when you've got a high interest rate environment, as you're constructing a deal in the showroom, there's multiple different ways that a sales executive or a sales manager can construct that deal in an appropriate fashion for the customers. So that means that as you're looking at that, you take a lot of things into account, does it represent CFS income and also does it represent an opportunity to get a trade. But one of the big dynamics that we have seen is, and Tom alluded to this, is a shift in terms of average mix of used vehicle sales. So it's also the fact that we were up sequentially, that was all really driven by vehicles under $20,000. So if I think about used vehicles, $20,000, 20 to $40,000 and $40,000 above. Under $20,000 still a huge amount of interest, a lot of growth if you've got the inventory there, broadly flat to down 20 to 40 and then 40 plus down. So as we're thinking about trade, what we're doing is we are, I think, investing more in trades to be able to keep our inventory at that sub-$20,000 level as well. So all of that we take into consideration because, as you know, sourcing a vehicle and we buy your car comes with a heap of cost, right, not just your advertising costs, not just your commission cost, your sales executive but the other costs associated with that channel. So as we think about the business in a balanced way, let's just make sure we're maximizing all the channels available to us, whilst you are making an acceptable total gross profit per unit sold. So I think we're very clear with our teams that profit per unit is very, very important but we also recognize that it’s balanced.

And then just a second question on after sales and you may have gone into this, but the increased technician headcount. I was wondering if you can quantify that and how are you finding these techs? I mean it seems like everybody is finding, I mean hard time sourcing them. And is there more opportunity with whatever you're doing there to increase the headcount or the tech count even more?

I can't give you -- I would give you, if I could remember the exact increase, but it's fairly significant in terms of the headcount. So let me, while I try and drag that number out of my memory, let me just tell you how is in it and what we're doing. And the first thing is that as we go basically dealership by dealership to understand what the opportunity is, whether that is increased penetration in their vehicle park or whether it's to improve customer service by reducing customer wait times. And I think once you've done that, you understand exactly what you’re looking for in terms of productive technicians. And then we have pulled together a group of our more senior service directors with our HR teams to put together what I think is a great campaign for attracting and recruiting technicians. But you're quite right, we have to be -- in this area, we have to constantly make sure that our pay packages, our benefits are fully aligned, if not better than marketplace because you're right, it's an in-demand profession. And it's not just about trying to hire more. It's also about, as you know, keeping the ones that you've got. I'm going to say and Derek, you may have to circle back in [Technical Difficulty] from memory, I think we've added over.

14% same store.

14%, thank you for [Multiple Speakers]…

Okay. On that, I mean those stalls exist to put those people into. You're not paying $150, $200,000 of CapEx. I mean, there's room to -- there's capacity to put them in. So cap goes up. Is that a fair statement?

Absolutely fair. By utilization it’s about 55% at the moment. So we -- AutoNation has built some beautiful, beautiful dealerships. And apart of building dealerships is they put plenty of capacity in there, we are not sure capacity even in terms of value.

Our last question today comes from David Whiston from Morningstar.

You mentioned in the slide deck that you increased your tech headcount. I was just curious if you had to do any aggressive spending on compensation or advertising to make that happen?

No, and as I mentioned before, we obviously check very regularly market-by-market pay and benefit packages to make sure that we are competitive with market. Like everybody else, like everybody else, we offer signing bonuses in the marketplace. And we also do a lot of work and there's more we can do in this area, frankly, but we do a lot of work in terms of recognition, seniority, tenure and those things. But it's something that we recognize it. As I said, it's a very high demand, in-demand protection and we just work very hard as do others.

And I believe last quarter, you were talking about wanting to get more recurring business from your customers. Service would be a big part of that, of course, especially on the customer pay side. I'm just curious, how do you convince consumers who normally haven't been considering using the dealer or service any more than they have to, to start doing so?

So let me just -- I'm going to give you an answer to the question in a slightly different way, and will help build out some of the things I'm trying to communicate, obviously poorly, but -- so let's start with the premise, Dave, you've got a car, at some point, you're going to need it serviced, right? And so what we are trying to do is build out service channels for you that suit the needs for you as an individual. You may want to do that work yourself, which is why we've now got anparts.com, we'll provide you the parts. You may not want to use a franchise environment. You may want to use a nonfranchise environment or you may live 30 miles away from the closest franchise. That's why we have AutoNation Mobility services, the reason we bought repair [indiscernible]. And if you do want to use a franchise environment, that's why we have a franchise environment. So I kind of look at it that says customers have different ways of getting that service work done and it's about us giving and providing them channels that are appropriate for them at the right convenience and the right cost. So you're right, there is what -- if you talk to Christian, our Head of After-Sales, there is this, what I call, a fuzzy line where customers are making the decision to stay in the franchise channel or do I not stay in the franchise channel. And we obviously target those people very aggressively to say, hey, it remains a fantastic channel for you. But if you want something else then we introduce you to repair with AutoNation mobile services.

And just one last thing on M&A. You mentioned it's becoming more attractive. Are sellers just becoming more reasonable or are there other variables at play here that change?

You broke up, could you just repeat again?

I think in the slide deck, you mentioned M&A is becoming more attractive. And is that just solely because sellers are becoming more reasonable in their asking prices, or are there other variables causing that change?

I mean I'm relatively new to the environment. And obviously -- and as we work with our corporate development team on pursuing lots of different opportunities, whether it's stores, franchises or some of the other things that Mike has mentioned, I would say that seller expectations have probably not moderated in any meaningful way as you might expect, as a seller. And particularly with their P&Ls for the last couple of years being able to sell off of pandemic level P&L, I mean the expectation is pretty high. The trick for us is in evaluating the opportunities is figuring out what the moderation is going to be, normalization impacts are going to be. And I think that's the point I was trying to make is that those expectations have to start moderating as we cycle out of what was a pretty frantic period of time here for the whole US and globe, not just in the retail auto but in many other industries. So that's kind of the point I was trying, hopefully, that's clear for you, David.

Okay, thanks a lot.

Yes. Go ahead, Mike.

No, no, I was -- I don't think there was anything I was going to add in now. Did that answer the question, David? So I think that was the last question. Yes. Let me -- by the way, Derek, I'll be doing the mental math on technicians and I think your number was wrong. So we probably have to circle [Multiple Speakers] because my recollection is it's something in the order of between 400 to 500 [takes] that we've put on over a period of time. So just circle back to make sure we've covered that off. So with that, I'd like to bring the call to a close. Thanks, everybody, for being on the call, and we look forward to seeing you in the next quarter. And as I said, thanks to all of our team. Thank you, everyone. Bye-bye.