John Babcock

John Babcock asked for a breakdown of factors impacting Europe's business in Q4 versus Q3, distinguishing between market-related and company-specific influences. He also inquired about the drivers for Europe's expected return to double-digit EBITDA in 2026 and the outlook for North America's repairable claims.

Answer

President and CEO Justin Jude explained that Europe faced continued market deterioration, consumer uncertainty, and competitive pressure. He noted some Q4 headwinds were intentional, such as aggressive pricing for private label adoption and clearing delisted products. For 2026, Jude stated that while pricing will contribute, the majority of Europe's EBITDA improvement will come from cost control, including an ERP migration in Q2 and productivity initiatives. Senior VP and CFO Rick Galloway added that North America's repairable claims guidance for 2026 is conservative, assuming Q4 2025 trends continue with slight improvement in the second half, without building in a significant market recovery.

John Babcock asked for a breakdown of factors impacting Europe's business in Q4 versus Q3, distinguishing between market-related and company-specific factors. He also inquired about the drivers for Europe to achieve double-digit EBITDA in 2026 and the outlook for North American repairable claims in 2026.

Answer

President and CEO Justin Jude attributed Europe's Q4 performance to continued market deterioration, reduced consumer spending, and competitive pressure, alongside intentional aggressive pricing on private label and delisted products to drive adoption and clear inventory. For 2026, Mr. Jude stated that while pricing will contribute, the majority of improvement will come from cost controls, including an ERP migration in Q2. Senior VP and CFO Rick Galloway indicated that the 2026 forecast for North American repairable claims assumes trends similar to Q4 2025, with slight improvement in the latter half of the year.

John Babcock asked about the implied Q1 2026 sequential growth guidance, which seemed below street expectations, and if Carvana is seeing any market caution. He also asked if expanding free at-home delivery and pickup would impact GPUs over time, given the recent impact of lower shipping costs.

Answer

CEO Ernie Garcia stated that Carvana is not seeing any market caution and will continue to run as fast as possible. Regarding free delivery/pickup, he explained that the ideal scenario is to make fundamental gains at the same or faster speed than they are passed back to customers, noting that growing inventory pools naturally lead to lower shipping costs, which are then passed on, and that gains elsewhere offset operational expenses.

John Babcock with Barclays asked about the timing and focus of EchoPark's planned advertising spend, including its regional targeting strategy. He also inquired about the expected cadence of Gross Profit Per Unit (GPU) in 2026 and whether OEMs are signaling intentions to pass on higher costs to consumers.

Answer

President Jeff Dyke stated that the $10-$20 million advertising spend is brand-focused, beginning in Q2 2026 with public launch in Q4, initially targeting existing markets before expanding. Chairman and CEO David Smith highlighted that established markets like Denver demonstrate the positive impact of brand awareness on market share and GPU. Regarding GPUs, Dyke provided a new car GPU guidance of $2,700-$3,000, expressing concern about potential 3-5% new car price increases from OEMs due to tariffs, which could impact affordability by summer 2026. He noted that OEMs are already lowering margins and rebates, indicating a shift of costs to consumers, which is expected to widen the new-used car price gap, benefiting EchoPark and the franchise used car business.

John Babcock asked about the timing and strategic focus (brand building vs. trade-ins, regional vs. nationwide) of EchoPark's planned advertising spend, and the anticipated cadence of Gross Profit Per Unit (GPU) in 2026, particularly concerning OEM cost pass-through.

Answer

President Jeff Dyke stated the $10-$20 million advertising spend is brand-based, starting in Q2 2026, with public launch in Q4 2026 alongside new store openings. Chairman and CEO David Smith noted that past experience in markets like Denver shows advertising works. Jeff Dyke projected new car GPU between $2,700-$3,000, expressing concern about OEM cost pass-through and its impact on new car affordability, which could benefit EchoPark and used car business.

John Babcock inquired about the acceleration of U.S. dealer-to-dealer growth in Q4 2025, seeking clarification on how the U.S. market performed earlier in 2025 and if the 20%+ growth range was consistent throughout the year. He also asked about the impact of bad weather in January on Q1 volumes and the company's strategy regarding AI as an enabler or disruptor.

Answer

CEO Peter Kelly stated that the U.S. dealer-to-dealer growth rate accelerated throughout 2025, moving from approximately the total dealer growth rate in early 2025 to high teens in Q3 and over 20% in Q4. He acknowledged that January weather impacted volumes, particularly in one week, but expressed no long-term concern. Regarding AI, Peter Kelly views it as an enabler, integrated into engineering (design, code, test), customer-facing areas (inspection reports, pricing advisory, vehicle recommendations), and operations (title processing, customer calls) to drive efficiencies and accelerate time to market.

John Babcock from Barclays asked about the acceleration of OPENLANE's U.S. dealer growth in Q4 2025 compared to earlier in the year, the impact of severe January weather on Q1 volumes, and how OPENLANE views and prepares for AI's potential as an enabler or disruptor, detailing current AI applications.

Answer

Peter Kelly, CEO of OPENLANE, confirmed an acceleration in U.S. dealer-to-dealer growth throughout 2025, reaching over 20% in Q4, up from high teens in Q3. He acknowledged that January weather impacted volumes, making that week the weakest year-to-date, but expressed confidence in recovery. Regarding AI, he sees it as an enabler, not a disruptor, for OPENLANE's network effect business. He detailed AI's integration in engineering (design, code, test), customer-facing areas (inspection reports, pricing advisory, vehicle recommendations), and operations (title processing, customer calls, funds flow) to drive efficiencies and accelerate time to market.

John Babcock questioned what utilization rate would be necessary for Penske Transportation Solutions (PTS) earnings to show a meaningful inflection. He also asked about the current M&A market sentiment and Penske Automotive Group's M&A goals for 2026, including any specific geographies or brands targeted for expansion.

Answer

Roger Penske, Chair and CEO, clarified that while utilization is a factor, the primary impact on PTS was an $87 million loss on gain on sale due to defleeting in a soft market, alongside reduced rental revenue and mileage. He expects these factors to normalize, leading to an increase in overall business. Regarding M&A, Roger Penske stated that recent acquisitions fulfill the 5% growth target and the company will continue to seek strategic opportunities in existing markets with scale, while maintaining leverage well under 2.0.

John Babcock from Barclays inquired about the utilization rate required for Penske Transportation Solutions (PTS) earnings to significantly improve and asked about Penske Automotive Group's M&A market sentiment and strategic goals for 2026, including target geographies, brands, and leverage.

Answer

Roger S. Penske, Chair and CEO, explained that PTS earnings inflection would be driven by the normalization of gain on sale, reduced interest costs from fleet reductions, and increased rental revenue from existing lease customers, rather than just utilization. For M&A, he stated that recent acquisitions met the 5% growth target, and future efforts would focus on strategic areas with scale, maintaining leverage well under 2.0, balanced with share buybacks and CapEx.

John Babcock inquired about current used vehicle market trends, specifically if they mirror Q4, and the impact of positive indicators like rising pricing and strong wholesale. He also asked about Lithia & Driveway's interest in offering Chinese automotive brands in the U.S., considering their UK experience and NADA discussions.

Answer

Bryan DeBoer, President and CEO, confirmed that used vehicle market trends are similar to Q4, noting the typical seasonal strengthening. He emphasized Lithia's focus on inventory management, turn rates, and affordability across all vehicle ages rather than market-wide pricing. Regarding Chinese brands, DeBoer highlighted successful relationships with three Chinese manufacturers in the UK, where market share gains were driven by ICE vehicles and facilitated by "dueling of franchises" (co-locating brands with low capital expenditure). He expressed caution for North America due to the lack of an existing service and parts base for new brands, which is critical given that 50-60% of profits come from after-sales.

John Babcock asked if the similar demand trends observed in the last two months of Q4 continued into Q1 for the used vehicle market, and for an overall assessment of the used vehicle market's strength. He also inquired about Lithia's interest and experience with offering Chinese automotive brands in the U.S., given recent industry discussions.

Answer

Bryan DeBoer, President and CEO, confirmed that similar trends apply to used, new, and after-sales. He noted the typical seasonal strengthening of the used car market and Lithia's focus on inventory, turn rates, and affordability across all price points. Regarding Chinese brands, he mentioned growing relationships with three manufacturers in the UK, where dual franchising is common. However, he expressed less interest in early adoption in the US/Canada due to the lack of dual franchising and the absence of an existing service/parts base for new brands, which significantly impacts profitability.

John Babcock inquired about the outlook for capital spending in 2026 compared to 2025, the current M&A market, and how AutoNation plans to balance M&A with share buybacks. He also asked about hybrid vehicle Gross Profit Per Unit (GPU) trends in Q4 2025 and expectations for when electric vehicle GPUs might normalize with internal combustion engine vehicles.

Answer

CFO Tom Szlosek stated that 2025 capital expenditure levels are a reasonable starting point for 2026, primarily covering maintenance and OEM requirements. Both Tom Szlosek and CEO Mike Manley described the M&A market as buoyant, with AutoNation being selective, focusing on high-quality brands in dense territories for operating synergies. Mike Manley emphasized using a per-shareholder hurdle rate for capital deployment. Regarding GPUs, Mike Manley noted a reduction in hybrid GPUs and largely flat BEV GPUs in Q4 2025, attributing it to a significant mix change. He anticipates BEV margins will take longer than 2026 to stabilize but expects improvement in hybrid margins throughout 2026.

John Babcock inquired about AutoNation's 2026 capital spending outlook compared to 2025, the current M&A market, and the balance between M&A and share buybacks. He also asked about hybrid Gross Profit Per Unit (GPU) trends and the timeline for EV GPU normalization.

Answer

CFO Thomas Szlosek indicated 2025 CapEx levels are a reasonable starting point for 2026, focused on maintenance and OEM requirements. He described a strong M&A market with selective opportunities for high-quality brands in dense territories, emphasizing operating synergies. CEO Michael Manley added that M&A decisions prioritize per-shareholder return. Manley noted reduced hybrid GPUs and flat BEV GPUs in Q4 due to OEM incentive pullbacks, expecting hybrid margins to improve in 2026 but EV margins to take longer to stabilize. Szlosek clarified stable hybrid electric mix but declining BEV sales.

John Babcock from Barclays inquired about the observed benefits from the initial Tekion rollout stores, asking if it was still too early to tell. He also asked for an overview of the current demand environment for both new and used vehicles, including any discrepancies, based on dealership feedback.

Answer

COO Dan Clara confirmed seeing benefits from the initial Tekion rollout in Atlanta stores, citing improved efficiency, productivity, and guest experience, along with enhanced flexibility due to its cloud-based nature. President and CEO David Hult added that while technicians initially resist change, early adopting stores are now highly efficient, with lower costs and increased productivity. Dan Clara described the January demand environment as good initially, but significantly impacted by severe weather across their store locations from Texas to the Northeast.

John Babcock from Barclays asked about the early benefits observed from the Tekion DMS rollout in the initial stores and sought an update on the current demand environment for both new and used vehicles, including any discrepancies and dealership feedback.

Answer

COO Dan Clara confirmed that the initial Tekion-implemented stores in Atlanta are already showing benefits in efficiency, productivity, and guest experience due to the cloud-based DMS's flexibility. President and CEO David Hult added that despite initial employee resistance, early adopters now highly value Tekion for its productivity gains and cost savings. Regarding demand, Dan Clara noted that January started strong but was significantly impacted by widespread severe weather across their operational footprint.

John Babcock asked about the current state of the U.S. used vehicle market, including observed volumes and expectations for the year, considering the impact of 2025 tariffs on demand cadence and sustainability. He then inquired about the decline in new car GPUs in Q4, seeking to understand contributing factors beyond luxury softness and increased competition, and what to expect for Q1 and broader 2026 new car GPUs.

Answer

Pete DeLongchamps, SVP of Manufacturer Relations and Financial Services, expressed bullishness on the U.S. used car market, expecting sustainable volumes and emphasizing disciplined acquisition strategies, including leveraging AI for auction buying. Daryl Kenningham, CEO, attributed the Q4 new car GPU softening primarily to the luxury segment, but anticipates moderation and firming as luxury inventory improves with new products from brands like Mercedes and BMW. He noted that mass market GPUs, particularly for Toyota, are holding up well.

John Babcock asked about current trends and expectations for the U.S. used vehicle market in 2026, including demand sustainability and cadence, and inquired about factors influencing new car GPUs in Q4 2025 and the outlook for Q1 and 2026.

Answer

Pete DeLongchamps, SVP, expressed bullishness on the U.S. used car market for 2026, noting strong January performance and anticipation for the spring selling season, emphasizing sustainable volumes through disciplined, AI-assisted acquisition. Daryl Kenningham, CEO, addressed new car GPUs, attributing Q4 2025 softening to the luxury segment but expecting moderation and firming in 2026 as luxury inventories improve and new products launch. Mass market GPUs, such as Toyota, are holding up well.

John Babcock asked about the board's criteria for the next CEO and the expected timing of an announcement. He also inquired about CarMax's long-term vision for its omnichannel business, specifically whether it aims to maintain the current setup, shift more towards digital, or emphasize brick-and-mortar.

Answer

Tom Folliard, Interim Executive Chair of the Board, stated the board is seeking a leader with experience in complex businesses and digital transformation, who understands CarMax's culture, and is moving as quickly as possible without a specific timeline. He emphasized an "all of the above" strategy for omnichannel, leveraging national physical footprint and improving the digital experience, which David McCreight, Interim President and CEO, added needs streamlining and optimization.

John Babcock asked about the board's criteria for the next CEO and the potential timing of an announcement. He also inquired about CarMax's long-term omnichannel business strategy, specifically if there's a shift towards digital or a continued focus on brick-and-mortar.

Answer

Tom Folliard (Interim Executive Chair) stated the board is seeking a leader with experience in complex businesses and digital transformation, who understands CarMax's culture, but provided no specific timing. He and David McCreight (Interim President and CEO) emphasized an 'all of the above' omnichannel strategy, leveraging the national physical footprint and improving digital presentation by streamlining complexities and prioritizing customer insights.

John Babcock inquired about the operational requirements for maintaining high vehicle utilization rates and the potential impact of automotive tariffs on the company's model year 2026 fleet acquisition strategy.

Answer

CEO Joseph Ferraro explained that the company's strategic fleet rotation and new digital tools for fleet management are key to sustaining high utilization. He noted that the accelerated fleet refresh provides flexibility and optionality for the 2026 model year buy, allowing them to navigate potential price changes from tariffs by leveraging intensive modeling and their position as a volume buyer.

John Babcock from Bank of America inquired about the expected quarterly cash flow cadence for 2025 and asked if the accelerated fleet rotation involved a change in vehicle mix that could affect revenue per day (RPD) or earnings.

Answer

Chief Financial Officer Izilda Martins stated that with at least $1 billion in adjusted EBITDA and positive working capital, 2025 free cash flow is expected to be 'really, really solid.' Chief Executive Officer Joseph Ferraro clarified that the fleet mix is not changing; the strategy is focused on aggressively replacing higher-cost model year '23 and '24 vehicles, not shifting to smaller cars, as fleet composition is driven by customer demand.

John Babcock asked about the net financial impact of the recent hurricanes on Q4 results and the company's ability to maintain pricing discipline as fleet costs normalize.

Answer

CEO Joseph Ferraro explained that while hurricanes initially disrupt business via airport closures, they ultimately drive demand from relief efforts and replacement rentals, which tightens fleet supply. He expressed confidence in sustaining pricing power through a strict focus on margins and various cost-saving initiatives, including productivity systems and connected car technology, noting that overall industry pricing has shown stability.

John Babcock of Bank of America inquired about any new customer developments, the expected completion timeline for 'Halo' product investment, and the key drivers behind the improved operating expense guidance.

Answer

CFO Tom Fennimore described the Halo investment as being in the 'middle innings' with a launch timeline still targeted for late 2026 or early 2027. He attributed the improved OpEx guidance to the full realization of cost-saving actions announced in the previous year and confirmed they are making good progress with customers on Halo development.

John Babcock sought clarification on the new Advanced Development Contract, asking if it was with an existing partner. He also asked about the launch timeline for the new Volvo model featuring Luminar and whether it would use Iris or Halo technology, and requested an early outlook for 2025 volumes.

Answer

CFO Tom Fennimore confirmed the development contract represents the next phase with an existing partner, moving them closer to series production. CEO Austin Russell stated the new Volvo model will use the Iris family of LiDAR, with more details expected in H1 2025, and reiterated the Halo launch is planned for 2026. Tom Fennimore deferred providing a 2025 outlook until the year-end call.

John Babcock inquired about fleeting activity in April and May, the portion of the U.S. fleet subject to tariffs, and whether aggressive cost-cutting, evidenced by long counter lines, could be negatively impacting revenue.

Answer

CEO Gil West and CFO Scott Haralson confirmed vehicle deliveries are ongoing, with Q2 fleet size expected to be up mid-to-high single digits versus Q1. West asserted that model year 2025 vehicles are not subject to tariffs due to pre-negotiated pricing. Regarding service, West and CCO Sandeep Dube highlighted their focus on customer experience, citing an 11-point year-over-year NPS improvement and the use of technology to manage costs without sacrificing service quality.

John Babcock inquired about the key operational metrics to track Hertz's progress, the expected trajectory of net depreciation per unit (DPU) throughout 2025, and the outlook for fleet size.

Answer

CEO Wayne West highlighted the sub-$300 net DPU as a 'North Star' metric, driven by the fleet rotation. CFO Scott Haralson added that utilization and Net Promoter Score (NPS) are also critical, confirming the sub-$300 DPU target is a net figure for year-end 2025. CCO Sandeep Dube explained the strategy is to operate a smaller, more productive fleet to maximize revenue per unit (RPU) by focusing on durable demand.

John Babcock sought to understand if the new sub-$300 DPU target is driven by temporary OEM incentives or sustainable market normalization and asked for an update on the fleet refresh progress and desired liquidity cushion.

Answer

CEO Wayne West attributed the DPU target to both normalized market conditions and fundamental changes in their fleet strategy, including mix optimization and shorter hold periods. West confirmed the fleet refresh is over 40% complete. CFO Scott Haralson stated that while liquidity is sufficient, he prudently aims to be active in the capital markets for an additional cushion, likely through debt.

John Babcock inquired about the potential impact of U.S. tariffs on demand, whether Polestar would adjust its supplier base or shift its sales focus geographically, the progress of its transition to a dealer-based commercial strategy, and for specific examples of business efficiency improvements.

Answer

CEO Michael Lohscheller explained that while the U.S. is a growth market with localized production, the primary focus remains on Europe, which constitutes 75% of volume. He noted the dealer transition is progressing well and is a key factor in Q1's success. CFO Jean-François Mady added that efficiency gains are being realized through headcount reductions and improved working capital management, particularly by reducing vehicle inventory.

John Babcock of Bank of America questioned the growth plans for Polestar's retail footprint, sought further details on the upcoming Polestar 7, and asked about the key levers for achieving positive adjusted EBITDA in 2025.

Answer

CEO Michael Lohscheller detailed plans to expand the retail network from approximately 140 locations to around 300. He confirmed the Polestar 7 will be a compact SUV for a large global segment but deferred on specifics. Lohscheller and CFO Jean-Francois Mady identified the main drivers for 2025 positive adjusted EBITDA as volume growth, a richer product mix toward Polestar 3 and 4, and significant cost reductions across product, R&D, and SG&A, noting a 25% headcount reduction has already occurred.

John Babcock, on for John Murphy, sought clarification on the 50 basis point margin risk from U.S. tariffs and asked about the consumer reception and geographic demand for the new Dodici Cilindri.

Answer

CFO Antonio Picca Piccon described the 50 bps as a potential risk that depends on several moving parts, with opportunities for offsets. CEO Benedetto Vigna reported that the Dodici Cilindri has seen a very good reception across all geographies, though its appeal is naturally lower in high-tax regions like China.

John Babcock asked if the competitive environment becomes less intense as the level of autonomy increases from L2 to L4/L5. He also requested the SuperVision volume number for the third quarter.

Answer

CEO Amnon Shashua agreed that competition should decrease at higher levels of autonomy because achieving the required safety and precision at a consumer-level cost is hugely challenging. He cited recent low safety ratings for a competitor's entry-level system as evidence of this complexity. Executive Daniel Galves confirmed that Q3 SuperVision volumes were approximately 30,000 units.