Loan Loss Provisions
Q: Why did you increase loan loss provisions this quarter?
A: The $52 million adjustment to our loan loss provisions this quarter was due to observed performance in our portfolio, particularly higher delinquencies converting into write-offs. " " " This adjustment was outsized compared to previous quarters (typically $10–$30 million) but we believe it captures where losses are headed. " " We feel good about our tightened underwriting and hope these measures will minimize future adjustments. " " "

Credit Tightening and Full Spectrum Lending
Q: Are you tightening underwriting standards further amid credit headwinds?
A: We have tightened our underwriting standards in April '23 and April '24 but have not made significant changes this quarter. " " " We feel good about where we are and the profitable loans we're originating. " " " We're excited to expand into Tier 2 lending, deployed in the latter part of Q2, and plan to enter Tier 3 in Q3, proceeding prudently. "

CAF Profitability
Q: How is CAF profitability impacted by higher losses and changing funding costs?
A: Despite higher losses, we've maintained our net interest margin around 6%, even amid tightening. " As rates trend down, there's opportunity to capture more margin. " The $52 million provision adjustment affected profitability this quarter, but we consider it outsized and not indicative of future quarters. " "

Used Car Sales Comps Improvement
Q: What underpinned the improvement in used car sales comps?
A: The strengthening comps were driven by internal execution and some macro benefits. " Internally, we improved efficiencies, better conversion in our customer experience centers and stores, and enhanced the customer experience with our new order processing system now rolled out everywhere. " " Macro factors included declining vehicle prices for seven consecutive quarters, improved sourcing of cars under $25,000, and a more stable pricing environment. "

Vehicle Sourcing and Inventory
Q: How did you effectively source vehicles despite industry shortages?
A: Our diversified buying channels, including increased instant appraisal offers and the Max Offer program, have enabled us to maintain supply. " The Edmunds team has done a great job, with 50% more dealers active year-over-year. " We have better access to off-lease vehicles through our offerings, and overall, supply hasn't been an issue for us. " "

Digital Initiatives
Q: What progress have you made with digital sales and tools?
A: We've rolled out our new order processing system across all stores, making the experience seamless whether customers start in-store or online. " " This integration improves transparency and assists both customers and associates. " While online sales increased to 15%, we're more excited about the 2-point increase in omni-channel sales, as most customers engage with both online and in-store channels. "

Operating Efficiencies
Q: Are you seeing benefits from cost efficiencies in SG&A and reconditioning?
A: Yes, we've made progress in improving efficiencies, becoming more efficient on key metrics on a per-unit basis compared to pre-omni times. " In reconditioning, we're finding efficiencies through better part utilization, bringing more work in-house, and improving capacity utilization. " We're targeting a couple of hundred dollars in savings between reconditioning and logistics. "

Advertising Spend
Q: Why did advertising expenses decrease this quarter?
A: The decrease was due to timing variations within the quarter. " " For the first half of the year, our advertising spend is in line with our targets, and we expect similar levels in the back half. " "

Other Gross Margins
Q: What drove improvements in other gross margins?
A: Other gross margin rose by $36 million, a 33% year-over-year increase, driven by improvements in service and Extended Protection Plan (EPP) performance. " We expect continued year-over-year improvements in service margins and EPP in the coming quarters. "

Credit Penetration
Q: Can you increase credit penetration further?
A: We're committed to providing credit offers across the full spectrum to all customers. " While we have an opportunity to increase penetration, we aim to do so thoughtfully, ensuring we offer competitive credit options without restricting partners or limiting customer choices. "