John Babcock

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 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 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 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 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 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 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.