Good morning. My name is Denise, and I will be your conference operator today. At this time, I'd like to welcome everyone to the AutoNation First Quarter twenty twenty one 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 session.
Thank you. I would now like to turn the call over to Rob Quatero, Vice President of Investor Relations. You may begin your conference.
Thank you. Good morning and welcome to AutoNation's first quarter twenty twenty one conference call and webcast. Please ensure that your lines are muted until the operator announces your turn to ask a question. Leading our call today will be Mike Jackson, our Chief Executive Officer and Joe Lauerke, 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 K and subsequent quarterly reports on Form 10 Q and current reports on Form eight K.
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 quarter results with adjusted EPS from continuing operations of $2.79 an increase of 207% compared to last year. These outstanding results were driven by strong performance in new, used and customer financial services and disciplined expense management. Demand continues to exceed supply for new vehicles and we expect this to continue through 2021 in part due to the production disruption.
More importantly, low interest rates and consumer preference for vehicle ownership versus ride sharing and public transportation are supporting demand. We expect our shipments from the manufacturers to double in the second quarter compared to the prior year. AutoNation same store new vehicle units were up 22% year over year and up 12% compared to 2019. We remain focused on our pre owned vehicle procurement strategy. Nearly 90% of our pre owned vehicles retailed in the first quarter were self sourced, meaning we acquired through trade ins, lease returns, will buy your car or service loaners and avoided auctions.
Acquiring vehicles at the right price, speed to the front line, a fair one price environment and leading digital capabilities are a winning formula for our customers, which shows in our results. AutoNation same store pre owned units were up 28% year over year and 20% compared to 2019. We continue to leverage our digital capability to drive cost reductions and increase efficiency. Tools like Customer three sixty, which has over 10,000,000 active customer records, enable us to provide a truly comprehensive and personal experience for our customers, which leads to higher close rates and increased vehicle sales. These efforts allowed us to deliver adjusted SG and A as a percent of gross profit of 62.7% in the first quarter of twenty twenty one, which represents a eleven twenty basis point improvement compared to the first quarter of twenty twenty.
Our target is to operate at or below 65% SG and A as a percent of gross profit for 2021. We are committed to our business growth strategy through investment in our existing franchise business, expansion of AutoNation USA and future acquisitions. We're on track to open five new AutoNation USA stores in 2021 and 12 additional new stores in 2022. Our target is to have over 130 AutoNation U. S.
Based stores in operation from coast to coast by the end of twenty twenty six. Today, we announced that we signed an agreement to acquire 11 stores and one collision center for Peacock Automotive Group in Hilton Head and Columbia, South Carolina and Savannah, Georgia, representing approximately $380,000,000 in annual revenue. The brands acquired are Porsche, Jag, Land Rover, Audi, Subaru, Chrysler Dodge, Jeep, Ram, Volkswagen and Hyundai. This acquisition will increase AutoNation's footprint from coast to coast to over three twenty five locations and is set to close in the summer. We have set the target to sell 1,000,000 combined new and pre owned vehicles annually.
AutoNation remains committed to delivering value to our shareholders, which includes opportunistic share repurchase. During the quarter, we bought back 3,800,000.0 shares or 5% of our shares outstanding. I will now turn the call over to Joe Bauer, our Chief Financial Officer. Thank you, Mike, and good morning, everyone. Today, we reported adjusted net income from continuing operations of $234,000,000 or $2.79 per share versus $82,000,000 or $0.91 per share during the first quarter of twenty twenty.
This represents an all time high quarterly EPS and a 207% increase year over year. During the quarter, we sold our remaining stake in Broom for a gain of approximately $6,000,000 after tax or $0.07 per share, which was excluded from our adjusted results. Turning to operations. Our first quarter same store revenue increased $1,300,000,000 or 27% compared to the prior year due to strong growth in new, used and customer financial services. While prior year comparisons are impacted by the onset of the COVID-nineteen pandemic, we continue to see strong consumer demand exceed supply for new vehicles.
Given this backdrop, we remain focused on optimizing our business in the current environment. For the quarter, same store total variable gross profit increased 52% year over year, driven by an increase in total combined units of 25% and an increase in total variable PVR of $767 or 21%. Our customer care business continues to gradually improve with same store customer care gross profit increasing 1% year over year. Taken together, our same store total gross profit increased 27% compared to the prior year. Moving to costs, first quarter SG and A as a percentage of gross profit was 62.7% as Mike stated a eleven twenty basis point improvement compared to the year ago period.
This strong performance was driven by a combination of strict cost discipline, leverage of our digital capabilities and healthy vehicle margins. As measured against gross profit, overhead decreased five ninety basis points, compensation decreased three twenty basis points and advertising decreased two ten basis points. Based on current business conditions, we project SG and A as a percentage of gross profit to be at or below 65% for the full year 2021. Floor plan interest expense decreased to $9,000,000 in the first quarter of twenty twenty one due to lower interest rates and lower average floor plan balances. This combined with lower non vehicle interest expense, a lower effective tax rate and fewer shares outstanding generated record adjusted EPS.
Regarding our balance sheet and liquidity, we have ample capacity to continue investing in our business, including our AutoNation USA expansion, as well as opportunistic share repurchases and acquisitions. Our cash balance at quarter end was $350,000,000 which combined with our additional borrowing capacity resulted in total liquidity of approximately $2,100,000,000 Our covenant leverage ratio of debt to EBITDA declined to 1.3 times at the end of the first quarter, down from 1.8 times at the end of the fourth quarter. Including cash and used floor plan availability, our net leverage ratio was 1.1 times at the March. Our AutoNation USA expansion continues to provide a very attractive growth opportunity. During the first quarter, our five existing Automation U.
S. Stores generated over $3,000,000 in pre tax profit. As Mike referenced earlier, we plan to open five new stores by the end of this year and 12 new stores in 2022 and targeting over 130 total locations by the end of twenty twenty six. We're also excited to welcome Peacock Automotive Group to the Allo Nation family, and we will continue to look for attractive acquisitions that complement our portfolio and meet our return thresholds. During the first quarter, we purchased 3,800,000.0 shares of common stock for an aggregate price of $3.00 $6,000,000 We have approximately $892,000,000 of remaining board authorization for share repurchases and approximately 80,000,000 shares outstanding.
Looking ahead, we will continue our disciplined capital allocation strategy, utilizing our strong balance sheet, robust cash flow generation and ample liquidity to invest in our business and drive long term shareholder value. With that, I'll turn the call back over to Mike. Thank you, Joe. We had another impressive and record breaking quarter. We remain focused on delivering a peerless customer experience with industry leading digital capabilities and outstanding associate interactions.
Our commitment to the customer experience is why we're number one for the J. D. Power Dealer of Excellence recognition program for the third year in a row. Less than 2% of all U. S.
Franchise Dealers achieve this honor. 78 AutoNation stores representing over 20% of our dealerships were recognized. Our associates did not let the pandemic interfere with their ability to provide a great experience. They were in the stores and in the offices to meet the needs of our customers. I want to thank each of them who show up every day for our customers and each other.
With that, I'm delighted to take any questions.
Your first question comes from Rajat Gupta with JPMorgan. Your line is open.
Hi. Good morning. Thanks for taking my questions. And from that, on a really strong quarter. I just had a question on just the supply, the data supply.
It dropped pretty materially from the fourth quarter to fourth quarter. You're obviously sourcing a lot directly from consumers and outside the auction. Just curious as to how do you see that low base supply end of the quarter impacting your second quarter growth? Are you able to sustain the first quarter customer growth into April? Do you expect that to continue here in the second quarter based on how strong the demand is?
You're just curious as to how much of the constraint is the supply right now, but both are near end news? Thanks.
There's no question that there is more demand than supply. That is the headline. On the new vehicle side, day supply is tight, but shipments and production are disrupted with the chip crisis and will be for the rest of the year. But it's nothing like a year ago during the pandemic when we had the factory shutdowns. Our shipments this second quarter will be double what they were a year ago.
So it's on the margin as far as shipments, but the headline is more demand and supply. We've adjusted pricing to reflect that and you see the improvement in our front end growth. The demand for personal transportation is across the board from price point of $5,000 to $500,000 and we've aggressively moved to increase our availability on pre owned. Do you see that? And we have the capability to source 90% of what we retail ourselves and that's a core capability.
So the marketplace is good in our combination to perform within that of a brand, great experience, digital platform and operating execution, which includes how we acquire and speed the market and we can do it profitably is all to the benefit of AutoNation. We're in a very good position.
Got it. So it looks like the trends online just the same store comps here, are these comparing versus 2019 levels that's continued here into April? Or have you seen any slowdown here at all or is it still pretty solid?
The demand is very strong. I've been saying it for over a year that there has been a pivot, a seismic shift. You picked the word, but the American spirit is that they want individual transportation, individual personal vehicle. They want to decide where they go when, who's with them, who's been in the vehicle before them, who's been in the vehicle after them. And I think this demand shift towards personal vehicle is very strong.
You also see it in the housing industry that people want a bigger, more comfortable home with more electronics in it, hence the competition for chips between the home industry and the automobile industry. And of course underpinning all this is very attractive interest rates for our customers, which so the demand we expect to last for the rest of the year. Interest rates will be low for the rest of the year. The chip result or disruption will be there for the rest of the year. So I think it continues.
Got it. Just a follow-up on capital allocation, pretty aggressive buybacks here in the last couple of quarters. You've also started to ramp up some M and A activity. Could you give us a sense of how we expect how we should expect the balance of capital allocation to be going forward? I mean, do we see a bigger pivot towards M and A?
And just on the M and A side, if you could comment on on what the pipeline is looking like, how the valuations are looking like, therefore assets would be helpful. That would be open mind. Thank you.
Joe, can you take that please? Sure. So to start out, extremely strong cash flows. For you to start that discussion. So $278,000,000 of free cash flow out of the quarter.
So we're generating extremely strong cash. Our first priority is always going to be reinvesting the business. Again, we've come out and communicated expectations on AutoNation USA in a general timetable and kind of giving you a sense on average about $10,000,000 a store. In addition, we are going to continue to be opportunistic in M and A. We do have a high threshold for both financial and I'll call it strategic cultural fit.
But we're very encouraged by what we're seeing in the marketplace, remain disciplined and still believe that our stock represents an attractive value. And given the strong free cash flow, extremely strong balance sheet, we continue expect to continue to have a very balanced deployment across all those categories. Obviously, the hardest predict is the M and A, but that is going to be opportunistic based on situation.
Got it. Got it. Okay. That's really helpful. Thanks again and good luck.
Thanks. Thank you.
Your next question comes from Brett Jordan with Jefferies. Your line is open.
Thinking about your used retail sourcing going forward, I think you mentioned that it was sourced in house. But given the current environment, should we expect to see a shift in how these used vehicles are sourced? And I guess said another way, there's a slowdown in trade ins from maybe a lack of new vehicle supply. Should we expect to see more sourcing from off lease and direct to customers? And is there ample opportunity in both those channels?
Yes. We intend to source everywhere aggressively and have the capability to do all of that and have to be prepared to deal with any developments in the marketplace that would be a challenge. We're very excited about our direct purchases from consumers, which are now running over 5,000 per month, and we expect to continue to grow that. So clearly, our ability to acquire pre owned is a core capability, acquire them at the right place. More importantly, we have a system and a process that we can recondition to a very high standard, both cost effectively and very quickly and have them front line ready and therefore run a very high term rate on our pre owned inventory.
So we're in a good place with the brand. All our pre owned is one price, which consumers love. We have a great digital platform where everything is listed. And we have a speed to market and a core ability to acquire pre owned. So we're very confident and optimistic about the future of our premium business.
Hence, the decision to lay out the additional years of our investment in The USA stores that will take us to 130 USA stores in operation by the end of twenty twenty six.
Okay, great. And thinking about SG and A to growth, Q1 was another really great quarter in that respect. And obviously a portion of that is due to the higher gross profit you're putting up. Up. But it looks like you updated expectations for the year to 65% from I think your prior target was below 68%.
And I'm just wondering what opportunities you're seeing there that contributes to that updated outlook?
Joe, could you please take that? Sure. So really seeing the deployment of our digital tools both in the stores and in the back office really helping, where we're seeing greater leverage both in overhead and compensation ad advertising. So as we kind of look across all three categories, we've seen significant improvement. And though the only kind of difference is very little comp, which actually increased, which is understandable given the strong growth.
But if you look at the underlying drivers, we've continued to see the benefits of strict discipline, fewer heads, lower spending on advertising, lower discretionary spend. When we now look out the rest of the year, we have a high degree of confidence that we can drive that into that 65% range and below. So it really is leveraging the tools that we put in place and it's maintaining the discipline on cost going forward.
Okay, great. Thank you very much for taking my questions.
Your next question comes from Stephanie Endymond with Turis. Your line is open. Hi, good morning.
Good morning. Good morning.
I think following up on the question that was just asked, I wanted to hear a little bit more about the updated USA store investment. I believe expanded not only the store count, but it sounds like accelerated the timeline as well. So I would love to hear what happened really in the last couple of months that gave you the confidence that to accelerate the plans with the performance of your existing stores, the overall market. Would love to get more color on what was behind this decision. Thanks.
So the performance of the existing stores is outstanding and continues to develop really well. Joe, I think the operating profit of the existing stores was $3,000,000 for the quarter. Is that correct? Correct. Exceeded $3,000,000 Exceeded $3,000,000 in the quarter.
Now as far as what we just announced, we really had already announced '21 and '22. And I think there's only a slight difference in the store count in those two years. And what we really announced today was what we're building from 2023 through the end of twenty twenty six. And it's that's just an expression of our confidence that we really have this combination figured out. And not to be repetitive, but it's important the brand, one price, digital platform, operating skills, speed to market.
USA stores are really a reconditioning center that we can when we acquire vehicles, it's an acquisition point for the reconditioning center for pre owned and for speed to market and it's a delivery center. And we're able to build those very cost effectively and with a very reasonable ramp to profitability. Joe, what would you like to add to that on The USA source? I think the only thing I would add Mike is just underlying that is the success we've had in procuring vehicles, which is where it all starts. If you go back just a year, eighty percent of our procurement was self sourced.
And as you cited earlier in Q1, we're up to 90%. And I think the skills we've learned in procuring vehicles directly from customers really is a differentiator in the marketplace and something we think we can leverage going forward.
Great. That's really helpful. And then mostly just a follow-up question. I don't believe you called out that any kind of impact this quarter from the weather events in Texas, if you could kind of quantify that in any way or anything that you saw or do you feel like most of that most of that was recovered at least at some point later on and call it March or so?
Yes. I think I said at the time that it was a huge challenge for Texas, but it's one of the most resilient fight back states in the country. And they really got the state of Texas moving quickly. And I think whatever disruption we had, we were able to recover. Joe, you would know the actual numbers, but I'd like to It's like you the material impact one way or the other?
No, there really wasn't. And if anything, we did better than the market in Texas, I think as we kind of demonstrated our ability to navigate that.
Great. Well, thank you so much. Your next question comes from the line of Rick Nelson with Stephens. Your line is open.
Thanks. Good morning. And Mike, congrats on a great quarter. Thank you. Just curious, the new car side, same store units up 22%, up 12% compared to 2019.
Are you in fact out outpacing the industry? What do you think retail SAR did in the first quarter? I think we are at or close to retail SAR for new vehicles in the quarter. I think we've clearly outperformed on pre owned. So there it is.
We clearly with limited supply are have made the decision on new to hold margin. There's no reason to rush things out the door. You can't easily replace it. We've increased front end gross margins on new considerably. But on pre owned, while front end margins are excellent, we clearly have gone for volume and feel the demand is there.
And are those customers who are looking for a different price point are not open to paying what's being asked for new vehicles and we shift them to a pre owned, which we have and we can and do replace. So that's how we're moving through this situation. But the headline is the significant demand, significant sustainable demand. And we are moving with market, I would say, on volume, but doing an excellent job on front end gross margin on new and are going for volume entry, hence plus 28%. And the SG and A target 65% or below, I'm curious what that assumes in terms of GPU.
Do you think you're going to be able to hang on to these outsized GPUs as we move through the year? Yes. So again, our front end growth on new moved from 4% to 6%. Is that correct, Joe? We've been at 6% before in the past.
It's not like we're at some unprecedented level or some unreasonable level. So and there's a very active discussion by the manufacturers about having some discipline. And maybe as I've been advocating for fifteen years running a different balance between demand and supply would be intelligent. So we'll see. But the question won't be answered until 2022.
I mean, there is going to be more demand than supply for the balance of this year. The supply challenge, Mike, do you think the worst is behind us or does it become more problematic as the year unfolds? So look, from my perspective and my world, the worst was the factory shutdowns literally a year ago for six, eight, ten weeks depending on the manufacturer and then a very, very gradual resumption. What we face with the chip is absolutely nothing like that. What is very interesting at the moment is how much of our incoming shipments are presold.
So shipments are somewhat disrupted and they can't run everything at 100%, but it's twice as good as it was a year ago. But I sort of think the way it is now is the way it's going to be the rest of the year from everything I hear from the manufacturers. They really do not have a clear sight line to higher levels of production. So we probably are running the plan that we have right now, which is get good front end grosses on new and go for the volume in pre owned and that seems to be a very winning equation in this environment. That makes sense.
Thanks and good luck. Thank you.
Your next question comes from John Murphy with Bank of America. Your line is open.
Hey, Mike. Good morning. Good morning. Good morning. Good morning.
Just wanted to follow-up real quickly on that comment that you made about the automakers. I mean, with the dealer body, including automation, is doing is miraculous, right, with the level of inventories being so low. I mean, selling 16.7% in the first quarter in the industry at large, mostly retail, not a lot of fleet. So just curious, do you really think that they I mean, is there a discussion that you're having and that they're having to finally understand this balance because they're making a whole lot more money too, right? It's not just you, they are too.
I mean, are there rumblings of that or is it just still TV? No,
no. I've been having this conversation for thirty plus years from my days of running Mercedes to my days here at AutoNation. And I think for the first time ever, I can see a lively constructive conversation about this issue. I mean, in the past, it was always theoretical. And I would never wish for this pandemic.
It's a horrific horrible thing that we're going through. But if you ever wanted a case study of what the world looks like if you did it different this past year and this moment and all of this year will be it. And the list of benefits both at the manufacturer supplier and retail level with a little adjustment here and there is considerable and it's long. So resale and on top of that, a big part of that is trade in values for consumers is excellent. That's one of the way this situation is working for everyone from the consumer through the manufacturer.
So look it's force majeure at the moment because the chips simply aren't there and they're not going to be there in any meaningful way for some time compared to demand. But I think John at the end of the day, there could be a new way forward.
Yes. It's very encouraging. Second quick question on acquisitions. It seems like pricing is going up dramatically. This is very blunt way that we model stuff of 15% to 30% of price to sales just in our cash flow statements and our models.
Joe, how should we think about that roughly? Is that range about right these days? It looks some of these numbers seem like they're a bit higher than that on price to sales. How should we think about that in modeling? It's costing for us to do because not a lot of information is closed, but just how should we think about it?
I'd say we generally think more about it as a multiple of EBITDA than revenue. And it's kind of in that high single digit range and returns are mid teens.
Got it. Okay. That's very helpful. And then just on the Automation USA expansion, it seems like you'll be at 22 stores I think by the end of twenty twenty two, if my count is correct. So it'll be 27 per year for the next four years after that.
That's a heavy pace. I mean, I'm sure on the capital front, on the inventory front, I'm confident you guys could pull it off. But human capital is always a question, right? So I mean, how do you ramp up those GMs of those stores and staffs of those stores? That's a lot of hiring with people that are tasked with a lot of expensive inventory.
Now you're spot on. This was there's two critical paths as far as sustaining that level of growth. And it's both management and the ability to build the stores on the right side for right locations. And we've been hard at work at that for the past two years. And it's the reason why we waited to say something publicly until we were absolutely convinced that we could do it.
So on the human capital side, we have AutoNation General Manager University, which is an internal development capability that general management within the company is trained and developed. High potential future general managers are identified years ahead of time and go into development programs. And the development programs as a big component around pre owned cars. And running and leading a USA store is something now that's aspired to within the company. Everybody sees the success that they are.
We have a development pipeline of talent that we will promote from within to lead these stores.
Okay. And then just lastly, parking services still not getting a lot of airtime or heat. Historically that's been the key driver of the business. You get UIOs in, you run the parts and service business off them. When do you think we see an inflection point there?
And is there a lot of deferred maintenance that second half this year, early next year, it really pops back up? Because I mean, if what's going on right now continues and then you get that kicker of parts and service, I mean, it just seems like nuclear fuel to earnings and cash flow. I'm just when do you think that kicks in?
So first in principle, John, you're exactly right. Although in the past year, the number of miles driven was reduced depending on the period of time you pick and as such the pent up need for maintenance was reduced proportionally to that. But there is a point coming and Joe you've done the calculations backwards and forwards several times.
Yes.
Can you describe where we are for the first quarter and where do you think it goes from here? Yes. As we said, it continues to recover. First quarter customer care growth was positive percent, which is a continuation of the progress extremely month by month. The areas that are recovering the fastest not surprisingly are customer pay.
It's the internal work as far as prepping cars. Warranty and collision has trailed as we've mentioned and it really is tied to that miles driven, but we continue to see sequential monthly improvement. But that's been the laggard. We do expect that, that will continue to improve over the course of this year, which will help all of our customer care business. So March was our best month we've seen in a while.
We continue to see a positive trend.
So it would be fair to say we're just the precipice of a positive inflection point, but how positive it is, is still TBD. Is that the way you characterize it? Is that fair?
I think that's fair.
Okay. All right. Thank you very much, guys.
Your next question comes from Adam Jonas with Morgan Stanley. Your line is open.
Thanks, everybody. Hey, Mike, I'd like to ask you long term questions because you just got such an unbelievable experience and we all value your views. So Volvo is trying to go direct to consumer with their EVs, right, Mike? I'm sure you've been following that. Why in your opinion would they want to do that?
Can you see the motivation from their perspective? And
you think they
could be successful? Or should they just are they nuts? That's my first question.
Yes, to be polite. Yes, they're nuts. Thank you, Adam, for allowing me to say that. And I think at the end of the day, they're going to have kick the beehive and end up not that different from where they are today for very rational appropriate reasons. And others who talk about this selling direct and we've experienced with other manufacturers, specify in detail your vehicle with the manufacturer and it gets turned over to the dealer and the retailer to take over, but they sort of established a reservation.
Reservation is the best word to describe what some of these selling direct things are. Now of course, you have the Tesla model, which is absolutely a sell direct model and you have other electric vehicle startups that are talking about it. I think the Achilles heel in that model is that you do not put in a service infrastructure. So the franchise system in order to get a franchise you have to invest in the facilities that you are going to care for the units that are operation in the marketplace. So if you're a startup, you don't need that on day one, but ultimately you need it.
And I think it's an Achilles heel and very expensive and difficult to build subsequently. But if you're a startup, it's your decision to go to market however you wish. But I think the franchise model is the best for the manufacturer, for the consumer And as a retailer, if you're good at the business, it can be very rewarding return. So I think it's viable, sustainable. And I mean, my and I was once one once a manufacturer on the manufacturing side.
I mean you sit in these meeting rooms and you dream all this stuff up. You throw it against the wall and see what sticks. I don't think this is going to stick. I'm not overly concerned about it. I will say though unequivocally that retailers who have a proprietary digital capability, unique tools that are very effective have a significant competitive advantage.
I think that's really the headline in all this. And for us, it's Global three sixty and equity mining, some other fabulous tools that are just unlocking business for us every day. If you're competing against us and you're buying off the shelf manufacturer cookie cutter tools to compete in retail, you are really in a unsustainable position because you don't have the scale to go out and build your own tools. I mean, it's you know what we you know, Adam, what we went through in 2014, '20 '15, '20 '16 to build these things. I'm glad we did it, especially with the inflection point that came.
So I think that's driving I think that's the headline for auto retail. And I think that's going to I think you're going to see more buy sells and consolidation into bigger entities and the ultimate winners are those who have scale, a big brand, great experience, digital platform, oh, and the ability to do all that profitably?
Mike, it's Kyle Paul, but I love you. And I just the only thing is I just wish you'd really tell me what you really think sometimes. I'm just going to really don't mince your words.
Adam, like you hold back, right?
All right. I want to put at the risk of putting some napalm on the hornet's nest, here I go. Here we go, baby. So these dealers these state dealer franchise laws, I mean, don't you think they're past their sell by date in some areas? Like what if just for the sake of discussion, if you're wrong and these startups aren't all going down some path where they say, just kidding, we need help, we're not going to go direct to consumer anymore, that was a bad idea.
And but let's say they actually do and they start building their parts and collision stuff the way Tesla is doing and going service centers and they'll have hiccups and stuff. Do we run the risk of having two classes of auto distribution? One where you got the new guys that actually had the option and they might screw it up, but some loan of going direct and then the others that are legally kind of can't do it and there may be things to do, but they just kind of locked into the one. And I wonder if this reaches like FCC or sorry, FTC or Supreme Court. Like you really think that it's those sixty year old laws are just absolutely they don't need any tweaking?
They're just right for this moment in tech?
Well, Adam, you've never seen AutoNation object. Yes, I know. Many of these startups, it is really their decision how they want to go to market. And it's their decision, their responsibility, it's their capital and you've never seen AutoNation protest that in any state or get involved in it. Yes.
Now where state franchise laws have a certain relevance and merit is when a manufacturer comes to us and says, okay, here's the deal, build this exclusive facility. Here's the key word, exclusive facility for us in this given market and we're giving you a given territory in return for that exclusive investment. Well, I'm going to eject if you make that deal with me and you put another one down the road for me a week later. Now if you're not asking me to be exclusive, if you let me do what I want as a retailer, which is I'm going to build one great big mega facility delivery center and put everything in it under one roof, then I don't think franchise will also to deal with that issue. But as long as you're asking for exclusivity, there has to be some protection on this exclusive investment that's been made.
And there franchise will also have relevance. But this whole campaign to block startup manufacturers from going direct, we are not involved in. And it's really their choice what they want to do.
Thanks, Mike.
All right, Adam. Good to talk to you.
Your next question comes from David Whiston with Morgan Stanley.
Thanks. Good morning. I guess, I know it's too early to talk about a SAR expectation for next year, but similar to what I think John was asking about on service, I mean, given the supply shocks we've had on new vehicles for a couple of years now, tough low interest rates plus actually healthy demand, Do you see a scenario for next year where sales could just new vehicle sales could just explode up? So again, the headline is there's far more demand than there is supply. So it's really difficult to judge where the level of demand is out there.
I think the pandemic was a scarring event for America. I think shelter in place was a scarring event for America. And people have changed the way they live and they changed the the way they work because of this pandemic. And I can remember as a kid meeting my grandparents which were unbelievably frugal and I say, why don't you loosen up and spend a little money and they would say, listen, you don't understand. You haven't been through the Great Depression.
So I think this has been a scarring event on the psyche of America and they think differently about their home. There's concern about density. They want more space in their home. They want their home to be able to do more for them. And when they do leave their home, they want to control the vehicle that they're in to the greatest extent possible and who's been in it before them.
So I don't really know where demand has
gone
because this is the supply is restricted. But we should be careful here. I've never seen so much pre selling of shipments. These vehicles are coming in and going out, if you want an indication of the level of demand. So people are buying up the pipeline before they even get to the dealership.
And we've gone on our digital platform, AutoNation, where we show now and market everything we have incoming. And we're selling incoming vehicles that have been produced. Now the predictability of arrival is not exact with disruptions in production, but it's amazing how many people are now have changed the way they buy a vehicle in that sense. And again, that's all possible to do where our incoming pipeline is visible on a national basis. So it would be it's hard to predict on and it's premature to predict on 'twenty two.
But I think I have a pretty good sight line for the rest of the year that the headline is demand is high. They want personal vehicle. They're willing to buy an incoming vehicle. They're willing to switch to a late model pre owned and the demand is across the board. And if you manage the business correctly, you can do very well in this environment.
Thanks. And somewhat related to that question then is, as you know, there's a balance between the amount of inventory you have and then your pricing power. And you talked about right now, you're sticking to getting the high front end growth, which I agree with. But just crudely speaking, do you want slightly more inventory than you have now, a lot more? Yes.
It's careful what you wish for. And as I walk the stores, I hear that all the time. They say, Oh, Mike, if you could if we can only get some more cars, we would sell so many. It's just unbelievable. And I always say, Well, be careful what you wish for.
So look, I have a very good sideline on the rest of 2021. I think the rest of the 2021 is about as I described outstanding demand, very attractive interest rates and customer flexibility that they're willing to purchase incoming shipments in advance and they're willing to switch over to pre owned to get their personal vehicle. Okay. And just last question on the balance sheet. Some big bond maturities in both '24 and '25, they're only at 3.52.5%.
The rates are quite low right now. Do you have any interest in perhaps buying either of those this year to send the timeline out beyond a '24 or '25? Joe, that's junior wheelhouse. Yes. Not at this time.
We continue to evaluate, but not a priority in this current environment. Okay. Thank you. Appreciate it.
There are no further questions at this time. Mr. Jackson, I'll turn the call back over to you.
Well, I want to thank you for joining us today and thank you for all your questions. And I also want to thank all our associates who put on a mask every day and come to work. And imagine just imagine, there was entire pandemic on any given day ninety five percent of our associates were physically at work to take care of our customers. And for that, I'm very grateful and this outstanding performance and four record quarters in a row would not be possible without ninety five percent of our associates putting on that mask and coming to work. So we have fifty percent of them are vaccinated at this point.
We're working hard that everyone who wants a vaccination can get it and we look forward to the day that we don't have to wear masks. It's not here yet, but we look forward to that day. Thank you everyone for joining us. Appreciate your worship.
This concludes today's conference call. You may now disconnect.