AutoCanada Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 8 speakers on the call.

Operator

Good morning. My name is Colin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the AutoCanada Second Quarter 2023 Earnings Call. The 2023 second quarter results were released this morning before markets opened and you can access the news release as well as the complete financial statements and management discussion and analysis on the website at autocanada.com. The news release, financial statements, MD and A have been also filed on SEDAR.

Operator

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Are answers that may be given to questions asked and could constitute forward looking statements, which are subject to risks and uncertainties related to AutoCanada's future financial or business performance. Actual results could differ materially from those anticipated of these forward looking statements. The risk factors that may affect results are detailed in AutoCanada's annual information form and other periodic filings and registration statements and you can access these documents at the SEDAR's database found at sedarplus.

Operator

Ca. I'd like to remind everyone that this call is being recorded today, Thursday, August 10, 2023. I would now like to turn the conference over to Mr. Paul Antony, Executive Chairman of AutoCanada Inc. Please go ahead, Mr.

Operator

Anthony.

Speaker 1

Thanks a lot and good morning everyone and thank you for joining us on today's call. We appreciate everybody for joining today and for the opportunity to update you on our business strategy, growth and progress. In Q2, AutoCanada's revenue grew 4.2 percent to $1,800,000,000 resulting in $94,100,000 EBITDA and that's up 24% year over year and $1.75 in earnings per share, up 32% year over year. These strong second quarter results were driven by the team's focus on operational initiatives, including selling more cars with less inventory, supported by robust market conditions. These factors allowed us to outperform despite a 49% increase in finance costs, including a $9,600,000 increase in flooring costs over 2022.

Speaker 1

New light vehicle inventories have begun to replenish and this coupled with pent up demand following the pandemic supply constraints has resulted in higher vehicle prices and strong GPUs in both new and used light vehicles. Our Canadian new GPU increased by $89 to $5,636 per unit and our used vehicle GPU grew $601 to $2,320 per unit because of market conditions and our focus on sales, discipline and inventory management. Parts, service and collision repair also had robust performance as did our same store F and I business, which posted its 19th consecutive quarter of growth in gross profit per unit. We remain focused on growth and profitability, and we look to gain further efficiencies across our entire business. Our model is dynamic and diversified, allowing our operations to adjust to changing market conditions and to serve expenses before depreciation as a percent of gross profit was 66.8% and that's a considerable improvement over 70.7% in the same period last year.

Speaker 1

This is the 2nd lowest operating expense ratio this company has ever achieved in any quarter and that demonstrates the effectiveness of the operational efficiencies and initiatives underway that have allowed us to do more with our investment in inventory, technology, facilities and people while still executing our overall growth strategy. Our Q2 2023 results were accompanied by a significant achievement and that's the release of AutoCanada's inaugural ESG report. This comprehensive report reflects our dedication to responsible practices and showcases our commitment to transparency and sustainable value creation for our stakeholders and the communities that we serve. We invite all and every interested party to explore AutoCanada's inaugural SG report on our website. I do want to take a moment to thank all of our OEM partners and our entire team for their dedication and hard work, which allowed us to achieve a multitude of company records during the quarter, including a new vehicle volume sold, used vehicle volume sold and a number of repair orders completed, and that's just to name a few.

Speaker 1

With that, I'm going to turn it over to Azim to discuss our financial results in more detail. Helene?

Speaker 2

Thank you, Paul. Good morning, everyone. During the Q2, we recorded sales of $1,800,000,000 adjusted EBITDA of $94,100,000 and diluted earnings per share of 1.75 sales increased by 4.2% when compared to the same period of 2022, including the contribution from 28 acquisitions completed over the past 2 years. Our same store revenues, which does not include acquired revenue, decreased by 1.8% in the 2nd quarter. Notably, Canadian same store new retail vehicle unit sales growth was 4.2% during the quarter, marking the 2nd sequential quarter of good growth as new light vehicle supplies continue to normalize.

Speaker 2

Our Canadian same store used retail vehicle units sold decreased by 4.3% in the quarter with the ratio of Canadian used to new retail units sold decreasing to 1.56 from 1.70 last year. During the last 12 months, AutoCanada sold 32,505 new retail vehicles and 54,479 used retail vehicles in Canada, a ratio of 1.68:one. As you'll recall, when this management team came on board in 2018, this metric was 0.62:one 0.62:one on an annual basis in Canada. As new light vehicle supply replenishes, we expect our used to new ratio to stabilize. We remain focused on growing our used vehicle market share given the appealing, unconstrained nature of the used vehicle market.

Speaker 2

Increasing volumes retail gives us more high margin sales opportunities through leveraging our best in class F and I department as well as our parts and service footprint through vehicle reconditioning. The U. S. Division retailed 363 new units during the quarter. However, new gross margins decreased 43.5% versus the Q2 of 2022.

Speaker 2

Recall that last year the shortage of new vehicles resulted and U. S. Dealers selling new vehicles for prices above manufacturer suggested retail price, a practice that is not allowed in Canada and created outsized profitability in U. S. New vehicle sales across the industry.

Speaker 2

We expect year over year GPUs to normalize in our U. S. Division as the supply of new vehicles in the U. S. Is replenished.

Speaker 2

Consolidated parts, service and collision repair experienced strong demand with same store sales increasing by 17.8 percent. This translated into healthy profitability in this segment as customers have kept their vehicles longer, requiring more service needs and Increased Warranty Related Work. Parts, Service and Collision Repair gross profits increased by 13.8% and gross profit percentage decreased to 54.5%. Same store F and I revenue increased by 4.8%, gross profit increased by 3.8% and gross profit percentage decreased to 93.4%. These results reflected our selling more products per deal.

Speaker 2

Consolidated gross profit percentage was 18.1%, an increase from 16.6 percent in the Q2 of 2022. Normalized operating expenses before depreciation were $213,000,000 or 66.8 percent of gross profit compared to $198,000,000 or 70.7 percent of gross profit in Q2 2022. The decrease as a percentage of gross profit resulted from higher new and used GPUs, Growth in High Margin Parts, Service and Collision Repair Business, as well as a focus on operating initiatives related to cost control and productivity. Adjusted EBITDA was $94,100,000 an increase of 24% over the same period of 2022, while our adjusted EBITDA per diluted share increased by 43% to $3.88 from $2.71 As of June 30, 2023, we had $145,000,000 outstanding on our $375,000,000 revolving credit facility. Other debt also consisted of $350,000,000 in 5.75 percent 7 year senior notes $31,000,000 in non recourse mortgages on 3 dealership properties, as well as approximately $1,000,000,000 in floor plan, Excluding our floorplan facilities and our lease liabilities, our total net funded debt as of the end of Q2 was $460,000,000 compared to $465,000,000 in Q1 2023.

Speaker 2

Our total net funded debt to bank EBITDA covenant ratio of 2.08 is down from 2.25 from the last quarter and is well below our 4.0 maximum. We have access to approximately $299,000,000 of liquidity under our revolving facilities and cash on hand as of the end of June 30, 2023. As we move through the upcoming quarters and continue to allocate Capital. We expect the leverage ratio to remain consistent. Our effective fixed rate portion of total debt, including swaps, is approximately 41%.

Speaker 2

We will be focusing on opportunities to increase that portion from current levels over the coming quarters to add greater stability to the business given the current rate environment. Our basic weighted average number of shares outstanding was approximately 23,500,000 shares as of June 30, 2023, which is an 11.4% decrease compared to the approximately 26,600,000 shares as of the end of the Q2 last year. For the trailing 12 month period ended June 30, 2023, AutoCanada purchased and canceled approximately 3,000,000 shares for total cash consideration of $82,000,000 at an average price of $27.39 per share. We will continue to use share buybacks strategically when appropriate, while maintaining a solid balance sheet and prioritizing high value growth objectives. I will now turn the line back over to Paul to discuss the outlook.

Speaker 1

Thanks, Azim. The quarter's trend of continuous improvement led to record breaking performances in May June across various segments with momentum carrying into July. Our focus over the past 5 years has been to establish industry leading new used subprime F and I and Parts Service and Collision Repair Businesses, plus a significant real estate portfolio that supports our operations. And we now have multiple levers for growth built into our business model. Conservative balance sheet management, disciplined capital allocation decisions with a continued focus on best in class performance across all segments remain our priorities.

Speaker 1

During the quarter, we acquired premium chef Cadillac GMC Buick, both the dealership and collision center in Windsor, which is a top performing Canadian Cadillac store. On May 1, we acquired London Auto Collision to give us more capacity in that market where our Burwell collision location is now operating at capacity. And on May 1, we opened RightRide Edmonton North. This brings our store count to 83 franchise dealerships, 1 used vehicle auction business supporting the used digital division, 12 RightRide locations, 3 used vehicle dealerships at 11 standalone collision centers within our group of 27 collision centers. Our M and A pipeline is healthy and the pace of inbound inquiries from potential sellers remain robust.

Speaker 1

We are beginning to see multiple compression in the private market and we intend to be very prudent in our capital allocation decisions going forward. At this time, that kind of concludes our prepared remarks. And I'd like to turn the call over to the operator for Q and A.

Operator

Thank you. Okay. And your first question comes from Michael Doumet from Scotiabank. Michael, please go ahead.

Speaker 3

Hey, good morning, guys.

Speaker 1

Hey, Michael.

Speaker 4

Hey. I'll start with the obvious.

Speaker 3

I mean, these are unbelievable numbers with several areas of upside that maybe I'd like to address here. So the first one, as it relates to parts service and collection gross profit, That was up 20% in the quarter, nearly up 15% organic, on top of what I thought was a tough comp. So can you walk us through what drove the growth? How much is price versus volume? Can you give us a sense maybe for how sustainable that growth is?

Speaker 1

So it's actually I'll maybe take a stab at this, but a lot of it was driven You'll notice that we sold a lot more used cars with a lot less used cars in inventory. And Michael, you and I have had this conversation before. You'll recall that our days to getting these cars to frontline ready was significantly behind where it needed to be and it still is, But we're getting better. And what we're doing is we're driving more through the shops and actually driving that performance. Those helped to elevate our numbers significantly and you put that alongside of more people on the roads with older cars.

Speaker 1

We're now seeing parts, service and collision just firing on all cylinders right now.

Speaker 3

Any sense Paul for the momentum in price and how much that's helping?

Speaker 1

Help me understand that. I'm not sure

Speaker 2

I understand the question.

Speaker 4

Sure. No problem. Just price increases versus volumes.

Speaker 1

I don't know that it's that much price increase. I think it's the volumes. We're really getting way more efficient. Like our dealers are Just putting a lot more throughput through the shop and we're seeing a lot of volume increases, just more people servicing and repairing their vehicles.

Speaker 3

Okay, awesome. Second question, and you touched on it a little bit here. Just on the used business, so used inventories have declined, days supplies are down to healthier amount. You also reversed the provision. So that to me signals that there's Quite a lot more confidence in the used business in this transformation.

Speaker 3

Just so how should we think about maybe some of the next steps Going forward, did you kind of take that business to where you want it to?

Speaker 1

So we're learning a lot. I mean, we were And part of our business plan that our team was going to become way more efficient at selling used vehicles and getting better at converting leads. And where before as I think we've talked about this over and over again with COVID, We were more order takers and now we have to get back into the business of selling vehicles. And Getting the experience from this management team and this leadership team where they have done this before and using their best practices to help evolve our already strong used vehicle business has basically poured rocket fuel on the way we think about used cars. And so I think for me the highlight is being able to sell more used cars with 4,000 less used cars in stock.

Speaker 1

That's going to be a pretty valuable asset to have that skill set and that muscle, while interest rates are rising. There are some other things that are incredibly impressive that I didn't really realize when we started going through the math. When we sell a used vehicle in 0 to 30 days, our GPU is roughly $2,300 a car. If you hold that car between 91 120 days, your GPU generally drops to around $4.37 per vehicle. And so you are essentially holding a melting ice cube.

Speaker 1

And so the better and more efficient that we get More vehicles faster and clearly we're paying less interest to actually hold the vehicles we need to sell. And so there's just so many things that happen as a result of the efficiencies that we're getting out and the learnings that we're getting out from people that have already done this before at a previous firm and actually just imparting how to do that here. It's transformational.

Speaker 3

That's terrific. Thanks, Paul.

Speaker 1

Thanks.

Operator

Your next question comes from David Ocampo from Cormark Securities. David, please go ahead.

Speaker 5

Thanks. Just wanted to build off Michael's comments there about areas of upside. I mean, if I drill into your Canadian operating expenses, you called out in your prepared remarks that didn't improve quite a bit and you're now running closer to U. S. Peers.

Speaker 5

Just curious if you can dive into what's driving that and if there's a little bit more low hanging fruit that you and Azim can chip away at.

Speaker 1

So what I'll say to you is this, We're not ready to launch this yet to the markets, but we're internally launching our We will deliver this to you folks probably over the course of the next 2 to 3 months. But We're actually quite excited about it. We're quite excited about the efficiencies that can come out of the business that we Once we start getting valued where we think we should be, we think that we'll have a competitive advantage to actually go out and acquire other stores in the future. And so frankly, I know what you're looking for, David, and you're looking for specifics around the efficiencies that we're going to pull out of the business. But let us deliver that to our team first and then we're happy to deliver it to you.

Speaker 1

I will kind of share one thing, it's called Project Elevate. And I'm really proud of how this came together with the team.

Speaker 5

It does sound like there's some exciting times ahead of us. I guess my next set of questions or questions are on how you guys are potentially positioning your inventory levels ahead of a potential auto worker strike that can come as early as September. Just curious if you guys can quickly adapt and change how you're sourcing inventory of vehicles.

Speaker 1

If you're talking about sourcing used vehicles?

Speaker 5

Used to offset any potential slowdown in new car deliveries.

Speaker 1

Right. So along with that Kijiji contract that we've talked about before. We've been developing muscle within our dealerships and at head office to really strengthen and bolster the way we actually acquire vehicles. And I think again that gives us It's part of our project, I'll just say as well, but it gives us a competitive advantage, and we're able to monitor in real time given the depth and breadth of our data. So we really know what vehicles have the highest desirability and what markets and what we need to shop for and we can predict also as best we can how we can look around corners and see what the next hot vehicle and what market will be.

Speaker 5

Got it. And then maybe a final one for you, Paul. You talked about compression in the private space. How are you guys balancing that between buying AutoCanada's shares at a valuation that's probably still turn or a few turns below private comps.

Speaker 1

Yes, we don't think that we think that AutoCanada It's definitely cheap relative to the market and we think that The market has a way to go. I think that what we'll see, if I'm predicting the future given interest rates today, It just gets that much harder for dealers to buy or buyers to buy dealerships at yesterday's prices. You have two things. You have interest rates that have gone up and you have earnings which have kind of come down. And so for now we've decided to kind of sit on our hands instead of buying stores and get efficiencies out of our business.

Speaker 1

And we think that if we do that, that eventually we should get valued where we ought to be valued.

Speaker 5

Okay. That's it for me. Thanks a lot, Paul.

Speaker 1

Thanks.

Operator

Your next question comes from Chris Murray from ATB Capital Markets. Chris, please go ahead.

Speaker 4

Yes, thanks folks. Maybe thinking about new vehicle inventory a little bit here. So So a couple of questions. Are you certainly with the when we saw the numbers coming up

Speaker 1

in terms of volumes, How

Speaker 4

are you feeling about new vehicle inventory right now at this point? And a couple of additional questions if you want to touch on that. I think last quarter you talked about There were some issues around mix, especially around the cost and maybe having not the right mix, too much luxury, not enough kind of lower end pricing. But then the other question I have on this is there's been some at least in the U. S.

Speaker 4

For some of the brands that have more inventory out there that we're starting to see return on incentives. So any color around Where you are in inventory incentives and mix would be great.

Speaker 1

So we haven't seen so hi there. And we haven't seen a ton of incentives coming back on at this point in time. The inventory has not come to Canada the way it has in the U. S. As far as mix goes, I think it's starting to normalize now.

Speaker 1

There are some brands that are not coming back online as quickly as we'd like to see. But I think the benefit for everybody is to provide more vehicles, so to reduce the pipeline that we were selling into. And so we're not there yet. I think it definitely improved quarter over quarter. And there's some brands that are actually we're sitting with more days supply than we would have expected at this time.

Speaker 1

But Generally, things are starting to come back online. It's not fully there and I think that there's still a significant amount of pent up demand that we need to still meet.

Speaker 6

Okay. That's helpful.

Speaker 4

And then on the inventory, and I'm not sure Who wants to take this one on mute? So you brought inventory on use down substantially, but it doesn't seem to impact sales. I think you talked a little bit about you were able to use the parts and service and collision repair business to help maybe accelerate what needs to move through the system. But I guess the $7,000,000 inventory change or gain, Is that kind of one time? Basically, if you flush that inventory, you were able to price it better than you thought it was going to be.

Speaker 4

And so your net So any color around how that all played out? And should we be expecting Any further write ups of inventory that you've got on the books at this point?

Speaker 1

Yes. I would just say, look, we are It's not a one time thing. This is something that is sustainable. We are learning to sell cars faster. We are learning to get cars from purchase to frontline available for sale.

Speaker 1

Our goal is to do it kind of the way our peers do like in the 9, 10 day range. And I think we talked was it last quarter or the quarter before we were like 40 something days And that's a problem. I think as you'll recall when I just went through That piece 0 to 30 days is $2,289 for GPU, $31 to 60 days goes to $2,291 61 to 90 days is $13.39 91 to 120 days is $4.37 in GPU. So the faster that we can sell that car, The more money can be made on it and what Jeff and all of our platform VPs and Brian have been doing Since they've been here, it's teaching our dealers how to sell cars quicker and how to get them to the front line quicker. And I'm confident that that is sustainable.

Speaker 1

In fact, I think that we ought to see that get better quarter after quarter. And I'm actually Very bullish on it.

Speaker 4

Okay. And then Azim, I don't know if you want to touch on the $7,000,000 Is that just sort of like 1 and done? Or is there

Speaker 2

I guess my comment would be that we've taken a better opportunity to buy better cars. And last year, if you recall, interest rates were half of what they are today. And we bought cars that were more expensive. And Jeff and his team and our U. S.

Speaker 2

Guys have done a great job of making that shift to better priced cars that are better suited for consumer preferences. And so Buying better has allowed us to not have to book these large provisions. And So that $7,000,000 is really a one time that was there last year, but shouldn't be there going forward.

Speaker 4

All right. So just to be clear, there isn't like a $7,000,000 decrease in gross profit this quarter though, just

Speaker 2

No. No.

Speaker 3

Okay. All right.

Speaker 4

I just want to make sure. Thanks very much.

Speaker 1

Thanks.

Operator

Your next question comes from Luke Hannon from Canaccord Genuity. Luke, please go ahead.

Speaker 3

Thanks. Good morning, everyone. Paul, maybe a quick one for you. I don't know if you're able to share this. I think you shared the exact number last quarter, but that we'll call it the days to recondition metric.

Speaker 3

I think it was somewhere in the high 20s last quarter. Can you give us an idea of where it is now?

Speaker 1

I've got so many numbers in my brain. I can't it's better. I guess I would say that. It's better than it was and we're moving towards single digits, but it's still currently in the 20s. I don't know I just don't know exactly what and I don't want to mislead you.

Speaker 1

I am excited though that we I mean, listen, it's a bull's eye for us to go after and You can see that the knock on effects that it has as we kind of drive towards that number.

Speaker 3

Got it. And then my second question here was on Alberta. If I look at the rest of your Canadian portfolio, I'm just looking at same store gross profit growth. It looks like it was by far and away the biggest out performer relative to the other provinces I'm just curious to know if you can call out anything specific that's driving that outperformance.

Speaker 1

Yes, I think obviously you're aware we have tons of Stellantis stores in Alberta and they've just been performing really well. And I think it was last quarter we were sitting with way too much inventory. And so there was a concerted effort that Jeff and the entire team kind of came around the strategy to really move product and they've just been delivering. Like I said, I'm very Impressed and excited with this team. And our dealers are the ones that are while Jeff and the team here are creating the plays at head office, It's the dealers that are executing and it's amazing to watch what they can do when everybody is in sync.

Speaker 3

Okay. Last one for me and then I'll pass the line. I'm just curious to know how it is exactly you're thinking about the wholesale Because that's another area of the business which has been considerably stronger year over year. But Paul, I think I remember you saying in the past that your preference for yourself and your dealers would be to have those used vehicles make their way into the hands of consumers other than other dealers down the road because The lifetime value to you would be much greater through that channel and through the wholesale channel. Is that still fair?

Speaker 3

Is that Are you looking at it? And if so, what are the vehicles that are making their way into the wholesale channel right now?

Speaker 1

So, the way we're thinking about it And that is still the way we're thinking about it. And the less vehicles we wholesale means the more vehicles we're retailing. And our goal is to try and wholesale nothing eventually. But again, being pragmatic about it, I think you'd see Again, I'll turn back to the longer we keep a vehicle, the less likely it is that that vehicle is profitable with us. And if we're not selling a vehicle within 120 days, it's because the vehicle is priced wrong or at the wrong location.

Speaker 1

And so it's our job to figure out what location that vehicle needs to go to and put it at the right price. And if we do not have the outlet to Sell that vehicle, it needs to go wholesale. The good news is that as our dealers are getting better at selling vehicles and converting more leads. We see that number going down.

Speaker 3

Okay. Sorry, one other quick one before I pass the line. Azim, maybe one for you. Last quarter, we had asked about maybe

Speaker 1

It's really tough right now with electrification going on. It's really tough to put a pin in how much money needs to be spent. We just We have one building that we're doing a redesign on. By the time we had our architects design what needed to happen, there was another image change. And so it's so difficult to predict exactly how much money needs to be spent on CapEx because things are very fluid.

Speaker 1

I think, I don't know if you saw this, EVs Are not selling anywhere near as well as the government would like us to sell them. And so We just need to be very, very mindful of how we're spending our money In facilities, making sure that we have everything up to standards, but also Having high confidence that this is that a remodel that needs to be done will last the term that it's expected. And so I don't think that we want to necessarily put out more than that at this point.

Speaker 2

Okay. Thank you.

Speaker 1

Thanks.

Operator

Your next question comes from Tamy Chen from BMO Capital Markets. Tamy, please go ahead.

Speaker 7

Thanks for the question. I just want to talk about, firstly, the overall results. If I look back and think for a couple of quarters, I think there's been some volatility like I think Q4 and Q1, you had some challenges. I recall on the Q1 call, Paul, you were talking about how the ongoing efforts, for example, to continue improving reconditioning time and also OpEx efficiency was going to take a bit of time, but Q2 numbers are very strong and surprising, I guess, how So can you talk a little bit more about that? Is this truly all coming from just much faster than you had expected efficiency gains from the team or would you say in Q2 a lot of it was helped by what's going on in market conditions?

Speaker 1

It's a great question. I would say, if I remember what I said and I hope I'm requoting myself. I think I said that there is still a lot of fruit out there. It's just not low hanging. And So I would say that there's a significant portion of it that the market has helped us outperform.

Speaker 1

And you just can't As great as I think we are and I think we are great, the market has certainly helped us. But there has been margin improvements because This is the beginning of the next chapter's journey for AutoCanada. And there were a lot of things that weren't in place, just disciplines and processes That we didn't know and that were hard to put in place over the immediate term, but once in place, You start seeing results immediately. And so I'll give you a great example. When we got into the used car business 5 years ago.

Speaker 1

The previous team did a great job. They had dealers stocks in proper amount of inventory in their loss. We taught them how to sell used cars. We did practice seminars with trainers and so on and so forth. They did a wonderful job selling used cars.

Speaker 1

Interest rates were low, So it wasn't that important to turn vehicles as fast because the cost of money was so much cheaper. And so In order to sell more cars, we would buy more leads. And buying leads got to be kind of a bit of an addiction. And frankly, it was just a means to an end. And so when this management team got here and realized how many leads we're actually using to go and sell the volume of cars we were selling, the efficiencies just were not there.

Speaker 1

And so actually teaching our dealers and learning from our best in class dealers how they sold more cars with less leads was just as an example, a great learning for the rest of the organization and something that could be utilized by the rest of the company where The lower performers were able to kind of rise to the occasion. And so there's again, just a bunch of these efficiencies combined with market conditions that have allowed us to outperform. There's still a lot more to be had. It's a great point out as rough as it was last quarter and the quarter before that, The call out that our OpEx was so high. I'm really proud of Jeff and the team here.

Speaker 1

They brought this OpEx down to the 2nd lowest level it's ever been in the history of this entire company. And they did it in pretty short order.

Speaker 7

And so was the strength in the used vehicle GPU, was that all due to the fact that You're improving the reconditioning time because if I look at some of the industry data, I don't really see that used vehicle pricing has increased during this period. At best, it's kind of stayed flat, but you had a very strong GPU.

Speaker 1

Well, I think if you recall what I've said now a couple of times on this call, the faster you turn the car, the higher the gross, The more you the longer you hold the car, you're basically holding a melting ice cube. And so our goal is to sell that car as quickly as possible to maintain growth. And the way we do that is by reconditioning the car faster. The faster we recondition the car, the faster we have the car in the front line, The better our people are at selling them, the more that we keep on having the flywheel go around.

Speaker 7

Right. Okay. Yes, I just wanted to confirm that that was the key driver here. Okay. And was this is this a bit of a change in your outlook, whether near term or medium term on used volumes.

Speaker 7

I think, Azim, you mentioned you expect the used to new ratio to stabilized as new supply comes back. I think that's what I heard. And I believe last quarter, the expectation was that the ratio We're going to continue to be strong even though new supply will gradually come back.

Speaker 1

So two things, when the denominator goes up, right, it makes it that much tougher to keep that same ratio. And so As you're correctly pointing out, the more new cars we have, the more used cars we're going to need to sell to keep that ratio going. With that said, the benefits that we have opening up Wright Ride locations and having that help. Alongside of what we're doing, we're actually excited of the potential for selling more used car. But we did see compression on that ratio because of the increased number of new cars we're pushing into the system.

Speaker 1

But we still see the opportunity there.

Speaker 7

Got it. Okay. And sorry, just squeeze one last question in here. How can your new vehicle same store volume increase as well as your GPU? For example, like you were saying, 1st of all, that they kind of go in inverse, the U.

Speaker 7

S. Dealer certainly reported that this quarter, but for you, this quarter, both of them were up.

Speaker 1

Yes, I think that in the U. S, they're selling above MSRP because it was a shortage of vehicles. We don't have that luxury Or that curse depending on the time of when we're looking at us. We're not able to sell above MSRP here in Canada. So we actually We just sell at a pretty consistent level.

Speaker 1

We're selling and there's still a shortage of cars and We can keep pretty tight to MSRP here.

Speaker 7

Okay. That's it for me. Thank you.

Speaker 1

Thanks a lot.

Operator

Your next question comes from Christa Friesen from CIBC Capital Markets. Christa, please go ahead.

Speaker 6

Hi, thanks for taking my question and congrats on the quarter. I was wondering if you could just maybe speak to EVs a little bit more high level. It doesn't sound like they're selling quite as fast as maybe the OEMs had thought they were going to sell. Just wondering what you're seeing in terms of sales and also what you're hearing from the OEMs In terms of investments they're wanting their dealers to make.

Speaker 1

I think I might just Hold tight on that. I don't know that it's as fast as the OEMs would like to see. Like if you look at today's headline on automotive news in the U. S, It says EV stockpile is evidence of growing pain, not demand dip, experts say. And so We're not sitting with a ton of EVs thankfully in our inventory.

Speaker 1

I think that And I said this over and over again, this is my opinion. I think that EVs are a solution. I don't know that they are a V solution. And as technology is increasing, like I see Cadillac had just come out with the new Cadillac Escalade IQ and it looks lovely and it's a 4 50 mile range, which is roughly 7 50 kilometers. The ranges on these things are increasing and Technologies is advancing at a pretty rapid pace.

Speaker 1

I think at some point that this will take hold and You will see adoption at a much higher level, but Canada has got a long way to go. We don't have the infrastructure currently to support it. And so I guess I'm just not As bullish on EVs at this point in time, just given Resources. And I think it's just there's too much to be determined. And so When we talk about putting in charging stations at our dealerships and some of the dealerships, You need to have the power coming from the grid.

Speaker 1

And in order for Duke to do that, you have to have the power companies to be able to supply the power to the dealership, But they'll tell you there's not enough power into the grid. You might have to wait 2 to 3 years. I just think that we're not ready. Like I don't think that all markets are ready for this. And so I think it's a very case by case situation when we talk about our stores.

Speaker 1

Does that make sense?

Speaker 6

Yes, absolutely. I appreciate the color and I'll jump back in the queue. Thank you.

Speaker 1

Great.

Speaker 3

There are

Operator

no further questions at this time. I'll turn it back to Paul for closing remarks.

Speaker 1

Listen, it's always wonderful to have a wonderful quarter. But that wonderful quarter took a lot of wrangling by this team and changing the way we look at the business here in Canada. And I just Again, I want to thank our entire team across North America for delivering these results. I'm so proud of everybody and we look forward to making a bunch of announcements here over the course of the next several months, including giving you more visibility into Project Elevate, which includes all parts of our business from the used digital to our new car sales, used car sales, parts and service, business intelligence. I'm really excited.

Speaker 1

And so we look forward to talking to everybody in the next quarter.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your

Remove Ads
Powered by Quartr
Earnings Conference Call
AutoCanada Q2 2023
00:00 / 00:00
Remove Ads