Good morning. My name is Katie, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the AutoNation Third Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.
I'd now like to turn the call over to Rolf Katari, Vice President of Investor Relations, you may now begin your conference.
Leading our call today will be Mike Jackson, our Chief Executive Officer and Joe Lauer, our Chief Financial Officer. Following their remarks, we will open up the call for questions. I will be available by phone following the call to address any additional questions that you may have.
Before we begin, let me read
our brief statement regarding forward looking comments. 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 earlier today and in our SEC filings, including our most recent annual report on Form 10 ks and subsequent quarterly reports on Form 10 Q and current reports on Form 8 ks. And now, I'll turn the call over to AutoNation's Chief Executive Officer, Mike Jackson.
Good morning and thank you for joining us. Today, we reported all time record quarterly results with earnings per share of $5.12 an increase of 115% compared to adjusted EPS of $2.38 last year. This marks AutoNation's 6th consecutive all time record quarter, driven by strong performance across both variable and fixed operations. Our 3rd quarter same store revenue of $6,400,000,000 was up 18% compared to the prior year as well as the Q3 of 2019. Consumer demand continues to outpace supply, driven by consumer desire for personal transportation And ongoing manufacturer supply chain disruption.
We expect this to continue well into 2022. New vehicle sales are currently constrained by reduced production volume, low inventory levels, leading to even more pent up demand that should support sales for the foreseeable future. In our used vehicle business, our strong self Sourcing capabilities, digital tools and customer focused sales processes are a competitive advantage that have allowed us to outperform our peers And the broader used vehicle market. In the Q3, we self sourced 90% of our pre owned vehicle retail sales And our same store used vehicle revenue increased 53% year over year. We see additional opportunity to capture used vehicle market share through our AutoNation USA expansion.
This week, we opened our 8th AutoNation USA store and our 2nd store in the Denver market, and we expect to open 2 additional stores In Phoenix and Charlotte before year end. Our rollout schedule remains on track with 12 additional stores planned for 2022 And over 130 stores by the end of 2026. Today, we announced that we signed an agreement Acquire Priority 1 Automotive Group adding $420,000,000 in annual revenue. Together with our previously announced acquisition from The Peacock Automotive Group AutoNation has announced $800,000,000 in annual revenue from acquisitions this year. We also continued to buy back our shares during the Q3.
Over the last 12 months through the end of the Q3, we repurchased 27% of our shares outstanding from September 30 last year. Our strong execution in cash flows have positioned us Well to continue our disciplined opportunistic capital allocation strategy. I now turn the call over to Joe Hauer, our Chief Financial Officer.
Thank you, Mike, and good morning, everyone. I'm going to start the same place as Mike opened. Today, we reported net income of $362,000,000 or $5.12 per share versus adjusted net income of $212,000,000 or $2.38 per share during the Q3 of 2020. This represents our 6th consecutive all time high quarterly EPS and a 115% increase year over year. As Mike mentioned, consumer demand for personal transportation remains strong, while new vehicle inventory is at historically low levels.
In this environment, we continue to focus on optimizing new vehicle margins and procuring used vehicle inventory to support sales. We expect these trends with demand exceeding supply to continue well into 2022. For the quarter, same store variable gross profit increased 42% year over year, driven by an increase in total combined units of 4% And an increase in total variable PVR of $1709 or 39%. A decline in new units of 11% was more than offset by growth in used units of 20%. Our customer care business has recovered with same store customer care gross profit increasing 8% on a year over year basis and 6% compared to the Q3 of 2019.
Taken together, our same store total gross profit increased 29% compared to the prior year and 45% compared to the Q3 of 2019. We also continue to deliver significant SG and A leverage due to strong cost discipline and robust vehicle margins. 3rd quarter SG and A as a percentage of gross profit was 56.9%, a 7 50 basis point improvement As measured against gross profit on an adjusted basis, our metrics improved across all key categories With overhead decreasing 3.90 basis points, compensation decreasing 2.90 basis points and apple sizing decreasing 70 basis points, We expect SG and A as a percentage of gross profit to remain below 60% for the Q4 and the full year 2021. Floorplan interest expense decreased to $5,000,000 in the Q3 of 2021 due primarily to lower average floorplan balances. This combined with a lower effective tax rate and fewer shares outstanding generated a record EPS.
Turning to the balance sheet and liquidity. Our cash balance at quarter end was $72,000,000 which combined with our additional borrowing capacity resulted in total liquidity of approximately $1,800,000,000 We continue to leverage our strong balance sheet and robust cash flows to invest in our business. As Mike mentioned, this week we opened our 8th AutoNation USA store in Denver, Colorado. We remain on track to open 2 additional stores in the 4th quarter And 12 more in 2022. As again, Mike mentioned, longer term, we continue to target over 130 stores by the end of 2026.
In addition to organic growth initiatives, today we announced the acquisition of PriorityOne Automotive Group. We will continue to look for additional acquisitions that complement our portfolio and meet our return thresholds. We have also continued to repurchase our own shares. During the Q3, we purchased 7,900,000 shares for an aggregate purchase price of $879,000,000 This represents an 11% reduction in shares outstanding for the Q4 alone. Today, we announced that our Board has authorized an additional $1,000,000,000 per share repurchase.
With this increased authorization, the company has approximately $1,300,000,000 available for additional share repurchase. As of October 19, there were approximately 60,000,000 66,000,000 shares outstanding. Despite our significant capital deployment, we maintain ample capacity on our balance sheet. At the end of the third quarter, our covenant leverage ratio of debt to EBITDA was 1.4 times, up slightly from 1.2 at the end of the second quarter, but still well below our historical range of 2.0 to 3.0 debt to EBITDA. We continue to demonstrate strong operational execution and disciplined capital allocation.
Going forward, we will remain focused on leveraging our balance sheet and strong cash flows to drive long term shareholder value. With that, I will turn the call back over to Mike.
Thank you, Joe. It's been my honor to serve in a leadership position of AutoNation for the past 22 years. We've built an exceptional brand. We're America's most admired and respected automotive retailer. We provide a purest customer experience From coast to coast.
And we have made a difference in people's lives with dry pink and our efforts to beat cancer. I am forever grateful to all the associates of AutoNation for these achievements and thank them for all their efforts, especially through this And I'm thrilled to welcome Mike Manley as the next CEO of AutoNation. He is one of the world's most respected, admired automotive executives, and we are thrilled to have him as our new CEO.
Your first question comes from the line of John Murphy from Bank of America. John, please go ahead.
Good morning, guys. And Mike, congratulations again on a Fantastic long run. It's good to go out on top, although I think the top is going to keep going up. So I think your legacy will be well healed here and I'd say goodbye, but Yes, I'm sure we'll stay in touch and you never know when you're going to pop back up again, Mike. So thanks for everything.
First question here, You alluded to the supply demand balance lasting well into 2022. I mean, from what we're hearing and modeling, That's going to last at least through the first half of next year and probably well into the second half and maybe even 2023. So you're going to have this high class issue of high GPUs, presumably continued good performance here and you're going to generate a boatload of cash. Yes. How do you think about cap allocation?
I mean, you're turning the cap back on a little bit here more on acquisitions. You're buying back shares. You're opening AutoNation USA Stores. I mean, you're structurally growing the footprint of this company and it's still being underappreciated by the market. I mean, how do You'll think about this, I mean, and has anything changed and as we fast forward the clock, I mean, simple dumb guy stuff like, say, you bought back 11% of the shares and you acquired revenue of 4% of the company, so 15% Higher EPS go forward just on those cap allocation, very simple thought process there, but you're going to do a whole lot more of this at least over the So I mean is anything changing and how should we think about that capital being deployed, because it's pretty aggressive but not wild at the moment?
John, a few things. So look, I expect more demand than supply well into next year. And as you said, maybe into 2023, but why talk about that today? And we have a tremendous percentage of income pipeline Pre sold. And I expect as the production distortions The disruption settled down, they will come in and go out.
They're not going to go to inventory. So it's a long Journey to more inventory, but I'm in your camp, John. So what, as long as they're coming in and going out. And our strategy of growing revenue by giving customers a choice with pre owned and obviously been very successful, very compelling, Same time, we've been disciplined on the cost side. And yes, we view since we're bullish about AutoNation And the outlook, we viewed share repurchase as an opportunity, which We have seen and if I go back over the past 12 months, it's 27% of the shares outstanding Have been repurchased and while we announced $1,000,000,000 of forward authorization A share repurchase, of course, that's a step by step opportunistic decision.
And on that forward issue And what it means, what we've done in the past, what it means, Joe, just as a mathematical calculation and How do you
think about capital going forward? Thanks, Mike, and thanks, John. John, to your point, it starts with actually having capital and we have Plenty, both from a robust cash flow and a strong balance sheet. As you know, we've demonstrated that through the pandemic and prior. And we are the only standalone auto retailer with investment grade ratings.
So starting there, it comes into an investment prioritization And we're looking at after tax returns. As we've indicated before, for us, the highest return has been organic investments into AN USA. We've laid out a plan. I think we've also been pretty candid in saying so far. We've actually exceeded our own plans and very pleased with that progress.
We'll continue to deploy capital along those lines. We've said throughout that where there are attractive opportunities for M and A, we will pursue them. Year to date, we've announced 2 acquisitions of size, dollars 800,000,000 of revenue acquired and we'll continue to Search and assess and try to identify those that both fit a strategic and financial returns and then their share repurchase. And particularly with our outlook combined with relatively attractive valuation given any Historical perspective on multiples, we've been extremely opportunistic. And as we've done all that and look forward, we realized we have significant capital deployed And we'll use the same discipline in a balanced approach going forward.
Okay. Just a quick follow-up on that.
I mean, I think it's pretty easy to understand buybacks immediate return, acquisitions relatively quick return. When we think about the AutoNation USA store investment, how fast do you think that Return on investment turns positive, meaning how fast are these stores now that you're kind of running, not hot yet, but running more normally on store openings, How fast do they become profitable and accretive to the equation? Because I think that's the only part of the equation where there's a lag time On the return of this capital, it's mass capital you're generating and redeploying coming in sort of at a later date. I mean, how fast is that return?
Yes. What we want to do is grow the business with the highest return And being in control of our own destiny, so in many ways, the hard part is done. We've built the brand. We have the digital platform. We have the stores, how they operate as delivery centers, Speed to market reconditioning centers, acquisition centers, those are the 3 principal activities that take place within a USA store.
We've defined the footprint that it's highly efficient and effective, exactly what it needs to be. And our Speed to profitability has been even better than our plan. And really the critical path It's how quickly we can develop the right sites and build the stores. So Every year we expect that to be more than the number that we can build, it'd be more than a year before. And as of today, we're declaring 12 for next year.
But, Gerald, why don't you tell us something about the returns?
Yes. So, you recall when we rolled out the expansion of NUC, we gave a sample model. At that time, we thought Breakeven would occur within the 1st 12 months. We're actually realizing that in the first, if not second month. So the success of the model has proven to be Very robust.
We mentioned that the monthly pre tax on a full run rate would be up to $200,000 a store per month. Well, we're seeing that being realized much more quickly than originally anticipated. And the investments that we articulated originally in the $10,000,000 to $11,000,000 range even in this environment we're able to achieve that. So we remain very optimistic. The AN USA stores in total Contributed almost $5,000,000 in pre tax in the quarter.
So again, as Mike mentioned, we're very pleased with the progress. We're exceeding our own plans and we'll continue to evaluate how to appropriately accelerate that going forward.
And what's important within that, John, We're now opening USA stores in outside the traditional footprint of AutoNation And that is going extremely well, launching the brand in new markets. So we're very optimistic and Confident about the future of AutoNation USA and the returns it will produce and the fact that we can grow this company in effect Organically with a brand without paying goodwill and we control the pace of the growth.
Yes, it's very exciting. Last question for me on customer care. Momentum seems to be building. Obviously, because of the shortage of inventory, people are holding on to their cars longer, and driving more. So I mean, I think there's been an expectation that as the economy reopens, people drive more, You'll get a bump, but there hasn't been sort of that second thought process of people are holding their cars longer, so they're willing to do more Maintenance or need to do more maintenance, not even willing, but need to do more maintenance.
How do we think about those two factors benefiting Same store sales on customer care and are we still at the early edge of the reacceleration there?
Well, we certainly have seen reacceleration with us now, right, exceeding 2019. The strong areas, obviously being areas of customer pay have continued to perform well versus both 2020 And 2019, the one area that continues to be just a little bit of a lag or just collision. We do The beta's miles continue to improve that that will fully recover. But overall, we're very pleased with the progress we're seeing in the business. And despite concerns about part shortages continuing to demonstrate growth over both 2019 2020.
So We're cautiously optimistic that we'll continue to see those trends improve, as we kind of proceed through this year and continue to kind of see people increasingly return to the roads.
Great. Thank you very much guys. Appreciate it.
Great. Thank you.
Your next question comes from Rajat Gupta from JPMorgan. Please go ahead.
Great. Thanks for taking the questions. And Mike, I just wanted to echo John's comments as well. Congrats on a great quarter and best of luck going forward.
Yes, just had a couple
of questions. Starting with F and I, really strong numbers here in the 3rd quarter Despite the lower mix of new vehicles versus used, I'm sure ASPs had a benefit there. But Just curious, is there anything else that's going on there, maybe penetration for some new products that's driving that number? And just curious as How we should think about the sustainability of that? And I just have one follow-up on SG and A here.
Hey, Rajat. I'll answer that. So first of all, your assumptions and observations are correct as far as the relative F and I or CSS as we call it between new and used, but the real driver for us has been increased penetration. And as we continue to see That improved, it obviously impacts whether it's new or used, which has resulted again in very favorable trends pretty consistently over the last several quarters. And our expectation is that we'll continue.
The pace of improvement, we'll obviously watch closely, but we don't see any Significant threats to what we're doing in that part of the marketplace just given the fact that it really is driven by penetration rather than other factors.
Got it. And the penetration, is that across both finance and service contracts? Is one versus the other Driving that, just trying to think like which part of that might be more longer term. Finance maybe is benefiting from like just the higher ASPs and lower rates, I guess, Because the monthly payments are optimized, but I'm just curious if the service contract Yes.
It's more product Or if you want to call it service, it's really more driven by that. As I think you know about 2 thirds of F and I for us is comes out of product versus financing. And we continue to see that area grow in the number of products and the number of customers that we're penetrating. And so it's much more of that than it is a
Financing rates issue. Got it. Got it. And just on SG and A, you've given some good color to us The pass around like the sensitivity there and what your medium term targets are. But how should we think about Given like productivity continues to get better every quarter, is there any change to how you're thinking about that ratio Longer term or maybe like just making changes in your incentive model within the store that could also lead to a more structural change to that number.
F and I is looking much higher than before. I think that has more leverage. So just curious, any of the other thoughts there? And If we can get any updated sensitivities around edge chain, it occurs versus just GPUs once you're back to more normal Supply demand environment. Thanks.
Sure. The way I think about it, we always talk about the 3 buckets. We talked about compensation, we talked about advertising, we talked about store and corporate overhead. I mean as I look at those items, let's start with store and corporate overhead. From a dollar standpoint, flat year over year.
So obviously, maintaining that discipline through the Increased activity of the business is very important. I anticipate that we'll continue to maintain that strong discipline within the store and corporate overhead line. Advertising, modest increase in total dollars year over year, in part driven by rates. But again, very modest. We'll continue to watch that closely.
That also improved though as a percentage of gross. And then you get the comp And compensation increased about $83,000,000 $81,000,000 of that was variable comp in the stores, which candidly is the model you want, which is obviously record gross profit that's being generated in the stores That's going to translate into the compensation and obviously that will vary as does profitability. So I feel like we are maintaining the discipline we need despite always looking for ways to continue to drive our cost And acknowledge that variable comp will fluctuate as it should with a model that really is predicated upon Production. And so that's kind of why I think about the model and why I feel pretty good about where we are and why I feel confident As I look out the next couple of quarters, seeing the success we're having in maintaining the discipline on controllable cost And recognizing the only real fluctuations are variable associated with compensation in the stores.
Got it. Got it. But there's no change to like this long term EAS change at the gross level. And you indicated like 65%, 66%. So just That's still on pretty much on track, right, for a normalized number?
Yes. It's going to be a long term thing, but I clearly think we've demonstrated that we can operate the Business at a lower relative cost than was done historically in large part by the deployment of digital tools that are making our sales And service associates are more effective and that's translating into the fact that we've been able to continue to operate with You have 3,000 plus fewer heads within the store environment on a same store basis year over year.
Understood. Great. Thanks for all the color and I'll get back in queue.
Thank you. Thank you.
We take our next question from Rick Nelson from Stephens. Please go ahead.
Thanks. Good morning. Mike, congrats on a great career. It's been a pleasure to follow. I remember early days at AutoNation, I think you had 400,000,000 shares outstanding, Pretty incredible.
So I guess to start, if you could I'll provide some color around the environment there. You announced a new deal today, Priority 1. Curious about that acquisition. If you could comment on the multiples that you're seeing out there, that would be helpful.
So we obviously are thrilled with the M and A we did this year. And we have a broad view of the opportunity on capital and We look at the returns across all capital opportunities. And as you know, we do share repurchase as An opportunity to buy AutoNation ourselves, but there certainly are acquisitions that we're just thrilled to have. And on the new vehicle franchise, absolutely fit into our footprint and our operating structure, and we're delighted with what we've done. But at the same time, we intend to grow with AutoNation USA and we intend to invest in our existing stores.
We intend to invest In our digital capabilities, that was sort of a we're in a position of doing all of the above. So when we see an acquisition that The returns look very good to us. And from a culture and operating point of view, it fits with us. We will not hesitate to make the acquisition.
Thanks for that. Also, curious on The inventory, you're sitting with 10 days of supply here at the end of the quarter on the new car side. Okay. Curious where you think we go from here. Do things get tighter over the near term or are things starting To get better from a production standpoint and which of the OEMs do you think are Starting to ramp production and which ones are coming slower?
So on the production side, it's been a unpredictable With almost every forecast or information we've given from manufacturers, There's been surprises and twists and turns. And here we are in the Q4 of 2021 And chip shortage and component shortages remain a serious disruption to the production of new vehicles. My feeling is that if you look at the history, I have actually always been reticent to Say what I think is going to happen because of that unpredictability. My sense is that sometime in the first half of Next year production will begin to return to a trend line that is more recognizable. Well, I don't think that will show up in inventory.
So then theoretically and there can be distortions when the numbers get these The day supply number could move, but we don't really focus on it at that point. So our inventory is maybe about as low as we can take it considering the friction of Cars actually arriving, being prepared and going out the door. We're down 5,000, 6,000 units. So But that's we've demonstrated ability to manage this situation very well. We saw the opportunity with Pre owned nearly new and have aggressively been out there purchasing them and have been able to sell them and just look at The phenomenal growth in our pre owned business with a revenue improvement of 50 some percent.
So and we've adjusted pricing To reflect the supply and demand situation that occurs in the marketplace. And we have consumers that are basically choosing To do one of 3 things. So they say, yes, that vehicle is close enough to what I want and I understand the pricing situation and they purchase the vehicle Where they buy something nearly new or they pick something that's in the pipeline or they tell us they're going to see us next year and in that last category, We count that as pent up demand because the new vehicle business is running below any sort of trend that you could think of. So hopefully this is the bottom of where production is And as we see gradual improvement, inventories are about as low in my opinion as we can physically take them. But of course, our operations are looking at every vehicle to see out if we can take it lower, but it can't be meaningful if we're down to 5,000, 6,000 new vehicles in stock.
Great, great color. Thanks a lot. Good luck and look forward to staying in touch. Thanks.
We take our next question from Bret Jordan from Jefferies. Bret, please go ahead.
Hey, good morning guys.
Good morning. Good morning.
On the Automation USA side of the business as you've got a few more units out. Are you seeing attachment with customer pay service? Is that a model that's going to build out as these people bring their cars back Post purchase?
We don't really think so. That was one of our learnings The prototypes that we launched earlier and we modified the layout of this facility and took cost out Because we didn't see that as an opportunity. So now we have the cost of the store down to $10,000,000 $11,000,000 And the purpose of the facility is a delivery center and typical delivery to At the delivery center remains where 95% of the customers want to be, absolutely. Reconditioning to a high standard that it can be done cost effectively and quickly. I can't emphasize That's enough.
And an acquisition set where customers and consumers can bring a vehicle and get a check For their vehicles. That's the role of the AutoNation USA store. And we have modified the level of investment For the fact that we don't see a big customer service component within that facility.
Okay, great. And then I guess on the collision side, you're Putting 17 of your stores to Caliber, is that something that you sort of see strategically you're reducing collision exposure? I mean, you sort of talk about How you see that segment going forward?
Yes. That was a result Of a strategic review of the business and looking at where we were generating the highest profitability, we are clearly not exiting the business, But saw it as an opportunity where we could improve the returns on those facilities through a partnership. As you saw in the recent acquisitions, we've actually through the 2 recent acquisitions, Through the 2 recent acquisitions added 4 additional collision centers. So we do see collision as a very complementary business, But where it is not really complementary to our business, the relationship we established with Caliber really is A higher return for us and that was the rationale behind the decision.
Okay, great. Thank you.
We take our next question from Stephanie Moore from Truist. Please go ahead.
Hi, good morning and congrats on a great quarter.
Thank
I think we talked a lot about more of the supply side of the equation this morning. I'd love to get your thoughts Sorry, Adam. Just the overall strength of the consumer, how much the consumer is willing to pay down, down payments, anything there. And It's interesting just given where we are with such high used vehicle pricing, is the fear eventually of a negative equity coming through in the years ahead is kind of on your radar. Just love to get your thoughts on, again, just the strength of the consumer and how we should think in the next coming years.
Excellent question. And the other side of the coin on these pre owned values that It's not fully understood. It's that this is a huge win for consumers. Consumers are very happy that the value of the 275,000,000 vehicles on the roads of America that they own have appreciated in value, and this is very meaningful to them. And it's one of the underpinnings of why business remains so good.
Customers Just are thrilled that what they thought is worth so much some years ago, and it gives them confidence in the And most of them are looking at trade in value, therefore, the difference between what their vehicles were and what they're buying as the key component. So when it comes to the auto wheel, The American consumer is looking at it as well. Hey, this is my freedom. This is my independence. This is a horrible COVID area.
I can go where I want. Care who's in the vehicle with me and by the way, I'm looking pretty smart because my vehicle is worth more than what I thought it was going to be at this point And maybe I could trade it for a reasonable difference on something that is a bit newer with fewer mileage or it's completely new. So once you see that in the behavior of the consumers, in the attitude of the consumers, it's a positive for the business In total.
Got it. Understood. Well, thank you so much.
Absolutely.
We take our next question from David Whiston from Morningstar. Please go ahead. David? David, if you're ready.
Sorry, guys. Can you hear me now?
We can.
Can you hear me
now? Okay. Sorry about that. As you were talking a few minutes ago about how consumers are Basically in several buckets in terms of some will buy clothes to what they want, some will just use, some will just say next year. But Compared to a few months ago, are we seeing more people more willing to buy not quite what they want or more people
It's really one of those all of the above. So you have consumers to say that's close enough and I understand the pricing in this environment and I want to move ahead With the purchase and obviously the fact that we're down to 5,000 vehicles in stock or 6,000 vehicles in stock means there's significant demand there. But we have far more demand than we have shipments coming through us or inventory. And so a significant number, we give them a choice around the nearly new pre jump. That's quite very well.
But I have to tell you, The pent up demand is building and all that is awaiting into 2022 and 2023. So there is a bad wave of pent up demand that is building. And even though we are growing our business and had an 18% increase in revenue, it's Not like we're exhausting demand out there at all. So I'm very pleased on the pre owned side for AutoNation. We're Clearly taking market share with our brand and our breadth of acquisition strategy, we're selling everything we can On the new side, we're selling deep into the pipeline.
Consumers have shown They expect waiting 30 to 60 days. Now they're not switching necessarily to build the order, but they're definitely behind The pipeline, we're giving them visibility into what's coming and they make a free selection and are comfortable waiting. Well, at the end of the day, the demand is building, not declining.
Okay. And do you believe GM and Ford will follow through after
the chip shortage been run
at low inventory levels than pre pandemic?
I couldn't hear the question.
Can you repeat that please, David? Was it GM and did you say GM and Ford?
Yes. I was saying, do you believe that they will follow through after the ship shortage and run at lower inventory levels than before the pandemic like they're saying they will?
So listen, I think this god awful, unbelievable pandemic No one in the history of Mincom would ever wish for. There are learnings For the industry that has been taken to heart. I really believe that the Production, push, liquidation, instant gratification, business model That has been corrosive for the auto industry is in the dustbin of history. And not that I believe the situation as we have it now where they can't even produce at, Let's say trend to supply both the fleet business and the retail business at a reasonable run rate. No, I'm not saying we're going to run here at this where we are today, but I think going back to the days of production push And liquidation and all the destructive behavior that comes with that, including damage to the consumer In the value of their automobile and value in the portfolio of the manufacturers in their finance company, I think there's an epiphany like why would we ever want to go back to that.
We have an historic opportunity To take deeply learned lessons here and find a new way forward. That's what's in discussion with every manufacturer. And I think that paints a brighter future for our industry at every level, manufacturer, Liar, retailer and here's what everybody misses. It's better for the consumer. You're protecting what they invested And are behaving in a much more rational way.
And I think that's the future of the oil industry. So Out of every horrific thing you go through, there should be indelible lessons that you don't forget. And I think that's where The auto industry has concluded.
Yes, I agree with you. And last question, are you worried About inflation next year impacting consumers' ability to buy a vehicle.
David, what was the word you used? I'm worried about
inflection? Inflation.
Inflation, I'm sorry.
So this is a very good question. Thank you for asking it. So of course, We're watching inflation in the CPI and you see the big component that pre owned is in that. And everybody Going, oh my God, the sky is falling, inflation, inflation, inflation. What they've missed is the consumers very happy With that pre owned valuation that they own, that the 275,000,000 vehicles on the Road of America are worth more, that has made the consumer Happy, not unhappy.
They own those vehicles. So once you see the other side of the coin there, The consumers are not unhappy about this. They don't consider it inflation. They say, oh, I've made a pretty good investment here in this vehicle. It's worth more.
And if I want to sell it, I can get a nice check. And if I want to trade it, I have a reasonable difference. As soon as you realize That the consumer doesn't view that as inflation, but as a win for them, then you understand our optimism and our Confidence about the future as well.
Okay, great. That's helpful. Mike, congratulations. Thank you.
Thank you. All right, excellent. I think we've answered every question today. Thank you for all your questions. I'm not going to say over the years, listen to this, I'm going to say over