Glenn Chin

Glenn Chin with Seaport Research Partners sought clarification on whether OEM "margin cuts" referred to dealer margins and if there were signs of decontenting or equipment removal from vehicles. He also asked about the drivers behind the projected 10% increase in floorplan interest expense for 2026 and confirmed if variable floorplan rates were factored into the outlook.

Answer

President Jeff Dyke clarified that OEM actions include both cutting dealer margins and increasing prices by 1-3%, alongside cutting non-essential programs to combat tariffs, as they cannot sustain 2025 losses. He confirmed that OEMs are indeed decontenting vehicles, citing examples like wheels and infotainment systems, to reduce prices. VP of Investor Relations Danny Wieland explained that the 10% increase in floorplan interest expense for 2026 is driven by higher store count, brand mix, inflationary vehicle costs (higher invoice prices), and potential reductions in floorplan offset benefits. Dyke confirmed that variable floorplan rates are accounted for in the company's outlook.

Glenn Chin revisited the pricing discussion, seeking clarification on whether OEMs are cutting dealer margins and if there are signs of decontenting vehicles. He also inquired about the factors contributing to the expected 10% increase in floorplan interest expense for 2026.

Answer

President Jeff Dyke confirmed that OEMs are cutting both dealer margins and increasing prices (1-3%), while also cutting non-essential programs to combat tariff impacts. He stated that decontenting, such as changes to wheels and infotainment systems, is actively being discussed and implemented across the board. VP of Investor Relations Danny Wieland attributed the 10% increase in floorplan interest expense to higher store count, brand mix, and the inflationary cost of vehicles, which impacts the dollar value of invoice costs. He confirmed that the outlook accounts for variable floorplan rates.

Glenn Chin from Seaport Research Partners asked for clarification on the Tekion rollout timeline, including the number of remaining stores to transition and the extent of duplicated expenses from running two DMSs simultaneously. He also inquired if these dual expenses were adjusted out in the current quarter's financials and if they would impact adjusted numbers in the first half of 2026, requesting quantification.

Answer

COO Dan Clara confirmed 125 more stores for Tekion rollout, expected to be completed by Q3 2026. SVP and CFO Michael Welch clarified that only implementation costs and heavy SOX control costs related to Tekion were adjusted out, not the duplicated software costs. He explained that duplicated costs would impact SG&A in the first half of 2026, with savings offsetting them in the second half, and efficiencies becoming apparent in 2027. Michael Welch committed to providing an impact quantification for Q1 2026. President and CEO David Hult confirmed he would be on the next earnings call.

Glenn Chin from Seaport Research Partners sought clarification on the Tekion DMS rollout schedule, including the number of remaining stores to transition and the expected timeline for completion. He also inquired about the financial impact of running two DMSs simultaneously, specifically whether these duplicated expenses are adjusted out of reported figures and if they could be quantified for the first half of 2026.

Answer

COO Dan Clara confirmed 125 more stores to transition, with the rollout expected to conclude by Q3 2026. SVP and CFO Michael Welch explained that duplicated software costs are incurred for a few months per store, leading to an SG&A impact in the first half of 2026, which will be offset by Tekion savings in the second half, with full efficiencies realized in 2027. He clarified that only implementation and SOX compliance costs are adjusted out, not the duplicated software expenses, and committed to providing quantification for Q1 2026. President and CEO David Hult also indicated his participation in only one more earnings call.

Glenn Chin requested an update on the Techyon rollout, including the number of stores converted, any surprises, the expected pace of future rollouts, and the prospects for cost savings and efficiency gains.

Answer

David Hult (President and CEO) reported that 23 stores are now on Techyon, with a full rollout anticipated by the end of next year. He noted that while new hires adapt quickly, long-term employees take about six to seven months to become fully efficient, longer than initially expected. He confirmed that SG&A savings from software costs are expected by Q4, with efficiency gains becoming fully realized by Q1 2027, varying by store.

Glenn Chin inquired about the Tekion rollout, including the number of stores converted, any unexpected surprises (favorable or unfavorable), the anticipated pace of future rollouts, and any changes to the prospects for SG&A savings.

Answer

David Hult, President and CEO, reported that 23 stores are now on Tekion, with the remaining stores expected to be converted by the end of next year. He noted that while new hires adapt quickly, long-term legacy DMS users take longer (6-7 months vs. 3 months expected) to become efficient. He confirmed that SG&A savings from software costs and third-party fees are expected, with efficiency gains fully realized by Q1 2027.

Glenn Chin from Seaport Research asked about the U.K. automotive market's macro outlook, specifically where the market (historically 2.5 million units) is expected to stabilize, and what factors (e.g., lower energy costs, government incentives) are needed for improvement. He also inquired about the extent of further portfolio rationalization needed in the U.K. following the $124 million impairment, and the key differences in the JLR franchise's performance and outlook between the U.K. and U.S. markets.

Answer

President and CEO Daryl Kenningham and CFO Daniel McHenry explained that U.K. market improvement requires increased throughput per rooftop, with OEMs actively rationalizing networks to align with a projected 2 million annual sales rate (SAR). Daniel McHenry noted the premium sector within this SAR is expected to remain constant and expressed confidence that the necessary impairments have been taken, with future disposals likely being smaller, underperforming stores with minimal goodwill. Kenningham clarified that the decision to exit JLR in the U.K. was driven by specific regional challenges, such as high theft rates near London impacting insurability and order banks, which significantly hindered shareholder returns compared to other brands, a situation not mirrored in their U.S. JLR operations.

Glenn Chin from Seaport Research asked about the U.K. automotive market's macro outlook, specifically where the market (historically 2.5 million units) is expected to stabilize, and what factors (e.g., lower energy costs, government incentives) are needed for improvement. He also inquired about the extent of further portfolio rationalization needed in the U.K. following the $124 million impairment, and the key differences in the JLR franchise's performance and outlook between the U.K. and U.S. markets.

Answer

President and CEO Daryl Kenningham and CFO Daniel McHenry explained that U.K. market improvement requires increased throughput per rooftop, with OEMs actively rationalizing networks to align with a projected 2 million annual sales rate (SAR). Daniel McHenry noted the premium sector within this SAR is expected to remain constant and expressed confidence that the necessary impairments have been taken, with future disposals likely being smaller, underperforming stores with minimal goodwill. Kenningham clarified that the decision to exit JLR in the U.K. was driven by specific regional challenges, such as high theft rates near London impacting insurability and order banks, which significantly hindered shareholder returns compared to other brands, a situation not mirrored in their U.S. JLR operations.

Glenn Chin asked for clarification on the after-sales technician hiring targets for 2025. He also questioned if the 67-day supply of used inventory in the U.K. was a concern that needed to be reduced.

Answer

CEO Daryl Kenningham clarified that the company's expectation is to continue hiring technicians at the same rate as 2024, where they added about 300 in the U.S. CFO Daniel McHenry explained that the 67-day U.K. used inventory figure is artificially high due to seasonally weak December sales and is not a concern heading into the stronger January sales month.

Glenn Chin asked about operational differences at the acquired Inchcape stores, specifically regarding aftersales revenue, F&I, and floorplan expense, and whether any inherent barriers exist to aligning them with Group 1's model.

Answer

CEO Daryl Kenningham stated there are no structural barriers to alignment and sees significant opportunity, particularly in aftersales, where Group 1's philosophy differs from Inchcape's. CFO Daniel McHenry added that they will realign Inchcape's floorplan management to match Group 1's approach and are already negotiating a new, more favorable floorplan credit line.

Glenn Chin asked for more details on the drivers behind the 6.3% same-store used unit growth, which was the best in almost four years, and whether this indicates an inflection point for sustained positive comps.

Answer

Bryan DeBoer, President and CEO, attributed the strong used car performance to a renewed focus on keeping every car and leveraging the ecosystem to bring customers in through affordability. He noted that digital channels like Driveway and GreenCars are increasing visibility for these vehicles, particularly value autos which yield a 16% profit margin. DeBoer stated that October's used unit sales are trending up 10% and affirmed that the company expects continued positive comps, recalling pre-COVID trends of high single-digit to low double-digit used car increases.

Glenn Chin drilled down into Lithia's used vehicle performance, noting the promising 6.3% same-store unit growth as the best in almost four years. He asked what drove this improvement—whether it was a change in focus or process, rather than market conditions—and if this indicates an inflection point for sustained positive comps.

Answer

Bryan DeBoer, President and CEO, attributed the used car growth to a renewed focus and clear messaging across the organization to keep every car and bring customers into Lithia's ecosystem through affordability. He highlighted that 75% of cars are sourced directly from consumers, providing a USD 1,000 advantage over used car retailers. DeBoer confirmed that positive comps are expected going forward, noting that pre-COVID, the company consistently saw high single-digit to low double-digit increases in used cars. He also mentioned that October is trending up 10% in unit sales, indicating continued momentum.

Glenn Chin sought details on the General Motors ComfortScale award, including trim levels and penetration rates, its launch timing, the launch schedule for new Chinese OEM awards, and a clarification on guidance figures.

Answer

Phillip Eyler, President and CEO, declined to provide specific trim or take-rate details for the GM award, but explained that ComfortScale integrates components for different trim levels into single, modular units, which could encourage higher penetration. He stated the GM program launches in calendar year 2026 and that at least one of the new Chinese OEM awards would likely launch in 2025. He also restated the updated guidance of $1.45B-$1.47B in revenue and an adjusted EBITDA margin near the midpoint of 12.5%-13.5%.