For joining us. Our next session is with BorgWarner. We're very happy to have Frédéric Lissalde, Chief Executive Officer; and Kevin Nowlan, Chief Financial Officer, with us. BorgWarner is a global powertrain technology leader. They're making the transition, we believe, faster than the industry is from ICE to EVs. They don't get a lot of credit for it in their stock. We think they should get a whole lot more over time. In 2021, they outlined their Charging Forward plan, which was a great plan, I think, to outline the strategy and are actually executing faster than expected on EV wins, and really making some great acquisitions. One part of it that's a little bit behind schedule, but is being solved later this year with a spin of some of the ICE assets were intended for sale, but the $3.3 billion in sales there are gonna be spun later this year. The pro forma company will be on track and probably even well ahead of track of the other two pillars of the plan. We're happy to have Fred and Kevin here to talk about all that. With that, I'm gonna turn it over to Fred for a few opening comments and go through a couple slides here. Thank you. Thank you, John, and good afternoon, everyone. John was alluding to Charging Forward. Back in March 2021, we announced $4.5 billion of pure BEV revenue in 2025. We track at $4.3 billion organically with the product portfolio that we had back in March 2021, and $1.3 billion linked to the acquisition made since then. $4.3 billion of pure BEV, if you take this revenue in 2025 and compute whatever CAGR you want to compute, having us grow at market from 2025 to 2030, you are going to get to a pretty big number. We also said we would dispose $3 billion-$4 billion of combustion assets. This is the spin-off that we announced back late last year that will be spun later this year, and the company is called PHINIA. I'm gonna talk about that a little later. These revenues do not take into account high voltage plug-in hybrids, and in 2025, we will make $1.3 billion of additional revenue on what I, what we call the E side of high voltage plug-in hybrid, meaning the inverters, the motors, and everything that is on the E side of hybrids. This is PHINIA. We've created two very strong and focused company, well-capitalized, able to execute their own strategies. PHINIA is going to be focusing on aftermarket, on commercial vehicle, on fuel injection, and on hydrogen, whilst BorgWarner is clearly going to focus on electrification. We believe that this separation will unlock shareholder value and have those two very strong, well-capitalized, generating good margin and free cash flow, able to execute on their own strategies going forward. This is the portfolio that we have created over the past years. You see that we have products pretty much wherever the electrons go from grid to wheel. I just wanna pick a few to give you the idea also of the scale that we've created. In 2025, if you look at the inverter, we're gonna be the number one in the world non-captive supplier with more than 3.1 million inverter produced in 2025, more than 2 million drive motors, more than $1 billion of battery pack revenue in 2025, and more than 4 million high voltage coolant heater also in 2025. Just wanted to give you also a snapshot of some recent awards. I'm not gonna go in detail, but you see the variety of the product portfolio. It's a nice mix of system with the integrated drive module on the bottom left, components, battery packs, thermal management systems, which is a good snapshot of the breadth and the width of our portfolio in BEV. That was just the opening remarks that I wanted to give you. Back to you. Great. Well, thanks so much for that. Maybe we could just start a little bit with some of the near-term more mundane stuff. I mean, obviously volume has not been really that great for the last couple of years, but schedules have been even more erratic, which has been even a bigger issue. Can you kind of give us sort of an update of maybe where things finished in 2022? No, we're not gonna talk specifically around 2023, but as you looked through, you know, 2023, are you seeing things get a little bit. Yeah Better as far as realization? It's still a little volatile, but less than before. A good example is our guide on the pure BEV revenue this year. We've announced $1.5 billion-$1.8 billion, which puts us well on track to the $4.3 billion or $4.5 billion in 2025. If it's not a demand band, it's a supply band. If we get enough of those chips, we'll be around $1.8 billion. If we don't, we'll be around $1.5 billion. We still see noise in the system as far as supply chain availability. It's getting, I mean, it's actually, we're getting to a point. It is getting better. Where it's getting significantly better. Okay. The other issue is the inflation, and costs around this volatility have been relatively high. You know, they may actually be getting better from a volatility perspective, and raws are coming down a little bit. As you look at sort of the relationship with the automakers, it seems like they've become a little bit more collaborative, during the course of the last two years, but particularly last year, as far as working with you and understanding cost models and where the pinch points are for you. Do you think this is something that is more structural, or is this something that is a result of sort of the stress in the system for the last couple years and their ability to create, you know, to pass through pricing to their consumers and actually make, you know, record margins? You've got some commodities that are going down, some are not going down. You've got labor going up, energy still at a high level. Our goal is to carry on, working on our productivity to overcome some of the headwinds that we have, but also passing those costs to our customers. Last year, we passed along about 80% to 85% of the headwind that we saw from an inflationary standpoint. Wherever the inflation goes, our goal is to pass on and negotiate with our customers for them to take their fair share. That, that's been more around raws or input costs outside of labor. Labor's becoming a bigger issue for the industry, and I think once again, the automakers are understanding this as well. Is that kind of pass-through starting to occur on labor costs as well? Is that something that you've had discussions with? We're starting. I I mean, the labor cost is coming from two areas, right? One is through our supply base, and two, through our own operations. We're doing everything we can to, you know, implement productivity action to overcome some of the inflation that we have in our four walls, but we can't eat it all. Like last year, customers are gonna come to the negotiation table. When you look at the cost that we incurred last year that we've talked about publicly, that. You mentioned raws. I mean, the underlying commodity costs weren't the biggest driver of the overall increase that we saw from a material cost perspective. They were a meaningful piece, but it was the other things underlying the supplier costs as well, other input costs that they had at labor, freight, logistics, energy. You know, lots of different things were contributing to that. We had a $674 million headwind last year. We disclosed that in our 10-K, and we recovered $585 of it. It wasn't just about raws, it was the overall cost in the material supply chain. I mean, there's a more collaborative discussion that seems like it's going on with your business partners than maybe in the past, or is it still brass tacks and tough? You seem to be smiling. We are in the auto space, it's always a little tough. Times are exceptional, and I'm actually pleased to see them realize that they can't just ignore those exceptional times. The numbers that Kevin just mentioned is, I think, a realization that they are realizing that, and we've done our job to take a fair share, but we can't eat it all, and we won't. Charging Forward as a 2025 is an important date to hit those three columns. Yes. Obviously, you know, you're well ahead of that, or it appears you're gonna be well ahead of that. That's my opinion. You don't necessarily need to bless that. You know, as we think about the penetration rate on EVs in 2025 and maybe in 2030, how do you think about that? I mean, I don't know if you have point estimates you wanna share. I know you've talked about it in the past. How relevant are they to how you run the business? Whether, you know, EVs, like in the, in the U.S. might be 15% or 30% by 20 and 2025. I mean, is your product portfolio set up to succeed in whichever direction that penetration ultimately goes? The answer is yes. We are not. With the numbers I showed you, those numbers are coming from actual contracts with customers, so they're not, they're not linked to market itself. They are, but indirectly. We. Back at the capital market day when we announced Charging Forward, our estimate was 30% of BEV in 2030. We were a little bullish back then. Now, we feel that it might be higher, and we're gonna give you more color in an investor day that we will do at the right time when we spin off PHINIA. What we said also is that the remaining 70% would be split pretty much evenly between combustion and hybrid powertrains. You know, hybrid powertrains are growing. For us, it is a very good market because on the E side of hybrid, we are also very relevant in terms of inverters, motors, and that gets us scale in those product lines. Those product lines are very similar, whether they are applied in high-voltage plug-in hybrids or a BEV. On the hybrid side, most of our combustion products are also in very high demand. Electrification overall accelerates our growth. Like, to give you a point of data, if you compute the data that we've given you over the past few quarters, our average sale price for an inverter is about $750. The content opportunity in a combustion car, should we sell and could we sell all the combustion products that we have in the BorgWarner portfolio is about $930. That gives you an idea about the acceleration that we are seeing in our portfolio, acceleration of revenue that we're seeing thanks to our new portfolio. One of the challenges that the industry is going through is we're seeing new technology launch, particularly around the powertrain, is that it is new technology. And launches are always difficult no matter what, you know, what kind of product it is. And we've seen some cost overruns, and even sort of some incremental CapEx to step up to make sure that things are right from certain customers. As you're launching all of this new product on the EV side, what is your comfort level that you're not gonna have. They're gonna be able to execute, you know, very well, and you're not gonna have these kind of overruns? Is there something in the portfolio or things that are going on right now that kind of give you this knowledge base to kind of run through this, and not run into these hiccups? I would say, first of all, we use all the tools that we have at our disposal, being an auto supplier from a program management, advanced quality, launch reviews. We're actually leaning forward a lot from an R&D standpoint. We are increasing R&D year-over-year. At the same time, we're also being very frugal on where we still need to do application engineering on the combustion side. We feel pretty comfortable that when you combine the very strong growth of E and the associated R&D, combined with the lower R&D needed on the combustion side, we'll stay between 5% and 5.5% of R&D as a percentage of our sales. We're looking at those R&D expenses inching up to some degree. I would imagine a lot of that is advanced engineering or advanced engineers. Mm. Or engineers on that side. Mm. Are there other costs that are coming in? I mean, on the engineer side, you know, there's labor shortages everywhere, and particularly for skilled folks like engineers, you know, the market is incredibly tight. Are you having a hard time finding folks? Are you just having to pay up for them? I mean, it's an exciting time in the auto industry, I think the, you know, people are overstating the lack of interest in autos. It's actually, I think there is a lot more interest than people would think. I mean, as far as finding these engineers and sourcing human capital that you need to execute on this, I mean, how are you finding that? We're doing pretty good. I think the vision of clean energy efficient world, the story and the opportunity that we give to those engineers in transforming this business successfully is actually appealing to people. We're recruiting a lot of electronics and software engineers. We've also launched a program internally called Power to Evolve that takes engineers that are working in the combustion side, and through different modules and hands-on activities, we're training those people and evolving those people to become engineers in the world of BEV. That is working very well. That program is in a very, very high demand. I would say so far so good. We're also leveraging low-cost countries for software and electronic engineers. I would say so far so good. The only other thing I'd comment on. Oh, do you wanna finish? No, I just wanted to just make sure that the additional R&D year-over-year is essentially linked to application program that we've booked and program that we pursue with a very high percentage of booking. Those are not research and development as such. They're really applied engineering. Got it. That's what I was gonna. Okay. Got it. Okay. If you think about Charging Forward, the $3.3 billion net is gonna be spun later this year in PHINIA, which we'll get into in a few minutes, is good profitable business. Generates a fair amount of cash flow. You know, obviously there's a lot of folks that might not have appreciate, you know, what that value is, right? You're going through the spin process, which is fine. I mean, one of the things that we kind of look at in the industry is cost of capital has gone up, right? Rates have gone up. The equity capital markets are a little bit more constrained. There's a lot of concern in the world, so cost of capital has gone up. You know, that cash flow that you're spinning off could theoretically be used to help fund some of the R&D and sort of the development of your future products. You're kind of deeming that as not necessary. If we think about, you know, not selling those assets, you're not getting cash in the door, and then you're also spinning off that cash flow from those assets. It means that you have greater faith in sort of the core of what you're keeping and the cash flow that you're generating there to fund the future. I mean, you know, why would you spin that if the cash flow is so strong? It must mean that you have incredible faith in the core remaining company that it's gonna be self-funding. I mean, I don't know if you can. It's kind of a question, but kind of a statement. I mean, how do you think about that? Maybe I start. Okay. I think, you know, we're spinning off this business not related to cash generation or cash proceeds. We don't need those cash proceeds to execute Charging Forward. We're spinning off this business because we want to create two very strong companies able to execute on their own strategies. As you remember during my little remarks here at the beginning of the interview, those are different strategies, and we can't do it all. When those business leaders come to Kevin and I with an acquisition on hydrogen injection or an acquisition on aftermarket, this is not BorgWarner's strategy. We've done a great job over the past two, three years fixing those businesses. They are very profitable. They are generating a lot of cash. We believe strongly that we're gonna unlock shareholder value by having those two companies run their own business. Yeah. I'd say, you know, there will still be some level of proceeds that ultimately comes back to the parent, because when we put a moderate level of leverage on the company being spun, that means they're gonna be issuing debt and receiving cash for that, and some of that cash will come back to the parent company. As Fred said, this was never about generating proceeds. It's why we always talked about it as dispositions, not divestitures. Disposition is the act of separating the businesses because we thought they would end up heading in their own directions, which is where they're going right now. Got it. The businesses are positioned to be able to do that on their own. Got it. Doug, you had a question? Yeah, Kevin, I have a follow-up on that. I knew you were gonna ask about the balance sheet, Doug. I had to. I had to ask you, the new entity, have you thought about what the capital structure will look for that business and is there any way for us to scale what type of, you know, cash would come back to your remain co, so we can kind of think about what the balance sheet would look like post-spin? I mean, I'm not gonna give perfect clarity on it. We'll do that when we get closer to the spin date. Yeah And have investor days for both companies. What I will say is we expect to capitalize both businesses such that they're moderately leveraged. This isn't an opportunity to take one business and lever it up and dump a bunch of bad liabilities on it like we've seen in other deals. Okay, good. This is truly about spinning two companies capitalized to be able to execute on their own respective strategies. Keeping them healthy. Have you thought about if they'd be investment grade? Have you gotten that far? I wouldn't prejudge what a rating agency might do on this. Okay. Again, I think we're more focused on what level of leverage we think makes sense to support the business to be able to execute on its strategies, and I think you should expect they'll both be moderately leveraged. Moderately. Perfect. Thank you. That's great. We've got news on the IRA last week. You know, some clarity on some of the subsidies going to consumers. There's also, you know, other subsidies that in the background for production, particularly on the battery side. Maybe, you know, twofold, I mean, what do you think it, you know, it might mean for acceleration in EVs, you know, given what's going on in the consumer side and then on the production, and subsidies on the battery side? Maybe, I mean, not even just for, you know, what you're doing with stuff like AKASOL, but also for charging stations which are, you know, becoming part of the product portfolio over time. As it relates to the IRA, we do think we have the potential to capitalize on some of the benefits afforded to us related to battery module and pack production in the U.S., you know, where there are tax credits associated with the kilowatt hours that you produce in the U.S. What came out last week didn't really provide any updated guidance on that aspect of the legislation, there could be further clarification that comes as the year goes on. At the moment, we believe we qualify for those credits. On the charging station side, I guess taking a step back, when you look at the legislation, you have to keep in mind that a lot of the provisions, the way the IRA works is you tend to be able to take advantage of one and not necessarily multiple aspects of the legislation. You have to look at what the best fit is for where you have the opportunity to garner the most of from a tax benefit perspective. Okay. EV profitability, I know right now it's not quite at break even, but it sounds like late this year heading into early 2024, you'll get to better than break or get to break even and presumably be breaking through break even and making money. Where do you think you'll get to really significant profitability in the EV business? Is that a question of time? Is that a question of revenue? What really kind of defines that? When do you think it gets to corporate average, when, roughly. I know you guys haven't said that yet. Is there the potential maybe in the long run for the margins to be higher on the EV business than they were on the, on the ICE business traditionally? Yeah, I mean, it, if you look at where we're jumping off today, the EV portfolio loses money. Why is that? It's because we're investing a lot of R&D dollars today related to the bookings that we're booking that are launching in three, four, five years from now. Take a look at last year's P&L. $420 million of e-products related R&D, only $870 million of battery electric vehicle revenue. Okay, well, that math just doesn't make sense. That's again, because the R&D, $420 million, isn't linked to that year's revenue, it's linked to the revenue four, five years from now. What's happening as we move forward, you look at this year's guide, our e-products related R&D is going up $60 million-$70 million. The pace of that growth is slowing versus what it was growing at last year. The revenue is growing much quicker. I mean, battery electric vehicle revenue is going from $870 million to $1.5 billion to $1.8 billion. I mean, it's almost doubling at the midpoint of our guide. The pace at which that volume is growing, the revenue, and the contribution margin on that revenue is growing faster than the pace at which R&D is growing, which is why the margin is getting to that inflection point and hitting break even as we exit the year. That's the math of it. Where does it go from there? Well, as long as the revenue keeps growing, that's the key, which is marching toward the $4.3 billion-$4.5 billion in 2025 and beyond. That pace of growth is continuing to outpace e-products R&D growth, that margin profile is going to continue to get better and better. When do you get to that steady state? It takes a long time because as long as we're growing, that R&D is always going to be a little bit oversized relative to the in-year revenue that you have. You never quite hit steady state until you get to a much more leveled out growth trajectory. Okay. We feel good about the overall profitability of the business. We price it the same way we price our combustion-based business. We look for a 15% after-tax ROIC on any program that comes to Fred and me, and that's the way we quote our business and book it. A big chunk of the portfolio is still gonna be ICE, post-spin later this year. Can you remind us what products you're keeping in there? You know, is there profit? Is there potential for those profits as maybe R&D fades away in some of those products to potentially even improve over time? I'm sure we're volumes that are still not subscale, but, you know, we're at trough level volumes. I'd imagine that, you know, there should be some cyclical benefits over time as volumes recover, but potentially even sort of secular as you might need to invest less in those ICE products that could help generate even more cash than people are expecting. The ICE products that are kept with Remanco are, number one or number two in the world in everything we do. We keep them for three reasons, three essential reasons. The first one is stay connected with all customers around the world with who we do business, and help them also transition from C to H&E. Second reason is that you have a lot of foundational know-how from a product and process standpoint in the ICE business that we retain that are enablers of our BEV growth. I give a few examples. Low voltage electronics to high voltage electronics, those are key enablers. In a inverter, you've got a computer, same technology that you're using for engine control units or transmission control units. Four-wheel drive systems, couplings, vehicle stability devices are also very important in the world of BEV, in the world of BEV system supply that we do with our IDMs. Thermal management. Thermal management in the world of BEV is essential, and we announced last quarter's call a win with a German customer on a battery cooling plate. This is a very, very interesting example where we leverage the product foundational know-how and the process of brazing know-how in the world of BEV. Third, last but not least, those product portfolio are gonna generate the cash that we will need to carry on the evolution of the company towards Charging Forward and towards post- Charging Forward. If we think about the integrated drive modules that you guys are supplying to the market, I think you have one contract with an automaker, with Korea, I mean, with Hyundai. Yes. Is that correct? We have several contracts, but we have disclosed that one in particular. Okay. You know, there within that system, I would imagine there's a decent software component as far as the integration. Mm-hmm. As you think about, you know, software as part of the product portfolio over time, you know, I mean, everything in the e-powertrain is gonna be controlled, and it is to some degree on the ICE side at this point by software. Mm-hmm. Mm-hmm. How big a component can that become of sales over time? How much of an opportunity is to price that maybe separately from the IDM and sort of the, you know, the management of torque and, or sort of generation of torque and, you know, torque management over time? Could that be the kind of thing where there's the potential over time, 'cause we're hearing from automakers and other folks that, you know, updating, you know, software can make the product that much better and over time you can get efficiencies, whether it be range or torque, you know, as that software is developed or other things are changing in the vehicle that you might provide. Mm-hmm Post-sale, value that you could be realized, Mm-hmm That you could realize. There is a lot of software in all the products that I showed you on the page. There is a tendency to centralize softwares through domain controllers or zonal controllers. The powertrain controller or the inverter is some kind of a domain controller. What you need to remember with an inverter is that we're not moving data. It's the nervous system that moves the muscle of the motor. It is specific to powertrain. Can we do more on software? Yes, not only from a driveline perspective, but also from a battery pack perspective, where we think we can create value. I'm not on purpose going into more detail, but we think we can monetize some of the smart software ideas that we have in the field of charging and batteries. Okay. I mean, but, I mean, as far as a standalone product, it's not something that you're going after, but it could, but as a, as part of your existing product port- or your forward product portfolio, it's going to be a major component. We see software as an hardware enabler. Got it. I've got a few more questions, but if we could open up for questions in the audience, if we've got any out there. We've got one in the way in the back. Thanks for taking the time. Just wanted to follow up on the differential between the component price and the component volume. For example, for the inverters, to your point, you're at a $1,600 CPV. That's definitely above the combustion engine portfolio at $940. You're contracted to sell 3 million+ inverters by 2025. I'm curious if you could talk about what that looks like for the ICE products. You know, what are the really high volume ICE products? Are they on, you know, eight million vehicles? How does the evolution of product penetration on those ICE CPV components, even though they're lower price, how that volume evolves over time? Thank you. We see growth for our ICE product across the portfolio for a few reasons. One. The equipment rate or the take rate in some continents are much lower than others. Take turbo as a proxy. Here in this country, about 35% of the ICE engines have a turbo versus on average 85% or higher in other parts of the world. Turbo makes the engine smaller and leaner. We're gaining market share in some of our products. GDI is a great example. BorgWarner is a late entrant in GDI. There is a low level of intensity, competitive intensity in this field. We're gaining share. Gain share, more take rate, and also, remember that those combustion products, turbos, GDA, EGR, VCTs, are key elements of hybrid powertrain architectures. Those would be the three elements that I would share with you that still drives our ICE business, above market. If you see the outgrowth that we guided for this year, you can compute the fact that ICE is still contributing to the outgrowth of BorgWarner. That's helpful. Got a question over here. Thanks for taking the question. I think the other day, I think it was Mike from IHS, you know, described the plug-in hybrid. You know, everybody expected this was gonna be the bridge, particularly in Europe. But, you know, the. I think he described it as, like, nagging share now. You know, his expectations as we see, you know, the penetration of BEV go up and up and up. I guess what's your, you know, view on that penetration, and how are you guys set up if, you know, he's right and, you know, it only remains a small share of that bridge? What do you mean by nagging? I don't understand that word. Meaning like they never, like it never becomes more- Ah. More than a few percent. Our view is that hybrids are gonna be relevant, and I was giving you some numbers, right? In 2030, 70% of non-BEV and about half of it on hybrid. Mild hybrid doesn't get the customers to being close to meeting regulatory pressure. Plug-in hybrid, especially high voltage plug-in hybrid, makes a difference. I don't want to read in a crystal ball, but there is a lot. We're totally committed on BEV. We would not do what we do if we would not. There is a lot of PR on BEV, but I can tell you there is still a lot of POs on hybrids and especially high voltage plug-in hybrids because it makes a difference and it advances our customers to their meeting the regulatory pressures or regulatory environment. You can see that even in the market data. I mean, look at last year, 10% of the global market's battery electric vehicle production, right? 17% is hybrid, and the bulk of that isn't mild hybrid. If you look, it's growing this year. I mean, look at Europe. Europe, hybrids are 3 x what the battery electric vehicle mix is in the market. Look at China. China's more BEV than hybrid, Hybrid's growing faster right now. You know, we'll see how it plays out. We're positioned to capitalize wherever it goes. I mean, you're making that call based on what you're seeing from your customers and what they're putting out for quote, right? I mean, you're. Mm-hmm. I mean, there's part of this you're using IHS, there's part of it a little speculation, but then there's part of it what you're actually seeing. No. Out in the market. Absolutely. We have all the accounts. There is no customers that we don't supply around the world. We know their roadmap, we know what they want to do, and we are at a level of intimacy with those customers being able to supply combustion, mild hybrid, high voltage plug-in, BEV in many different products that they come to BorgWarner to discuss their roadmap and how what we see, what they see, and being early in those discussions also positions us for success. We are in a position where we don't have to sell this and push the customer to buy that because we have nothing else. Wherever they wanna go, they can go with us. Once they've decided where to go, they can go with us in the system or as a component supplier. All that is all good for us. I'm going to sneak in one last one before we wrap up here. You know, there's a lot of folks that purport to be getting into or chasing the electric powertrain, power electronics, inverters, and electric motors, right? There's a lot of folks talking about it. Could you give us sort of your lay of the land on the competitive environments? You know, are some of these folks really just chasing this and never going to really break through? Is there going to be a lot of competition and it's not going to be a market that you can dominate or maybe control like you did with? Not control, but you had, you know, one big partner or competitor on turbos. Is this the kind of thing where we're gonna see 24, you know, competitors, or is it the kind of market that ultimately winnows down to, you know, three to five real competitors over time? You know, just, there's just a lot of folks chasing it right now, but clearly you have a good lead. On the inverters, we see the competitive environment pretty much identical to most of the combustion products that we do. If you would have asked me the question four years ago, I would have paused and hesitated a little bit. When we lose business, we're not losing business to a new entrant. There is literally a portfolio of players that are the high volume electronics usual suspects that you all know in the auto space. Motors, it's more fragmented. There are motors and motors, though, right? We're talking about electric drive motors, 800 V, that are driving the wheel that are not commodity products. The power density is very, very high. The management of thermal expansion, the management of the efficiency, the management of the combination of the motor and the inverter is very, very important. Even if the market is more fragmented, I would like you to understand that those products are pretty technologically advanced. I mean, two examples to answer your questions. Yeah. That's incredibly helpful. With that, we're counting down on time, so we'd really like to thank you guys for joining us today. We really appreciate it and appreciate you doing all the meetings today. We look forward to catching up to you guys soon off stage. Thank you very much. Thank you. Yeah. Thank you so much. Thank you. Largest auto dealer in the U.S. as of last year. A lot of that has to do with organic growth. A lot of that has to do with acquisition growth. We're very happy to have Tina Miller, our Chief Financial Officer. I think as you guys listen to Tina, she is a very balanced force at Lithia. Not too bullish, not too bearish, right down the middle. We always appreciate talking to Tina, and I think we've had a couple meetings in the past few months with Tina, and I think she's got a real voice of reason and rationale, as I mentioned. Maybe to kick off, and get into a Lithia-specific event, you guys just made an acquisition in the U.K. Yep. It's your first outside the United States. Always was. Well, actually, I'm sorry. I was thinking Canada. Yep, Canada. I'm sorry, Canada. I mean, first in Europe. First outside North America, Jardine Motors. You know, as we think about that, I mean, an optimist would be, "Hey, like, this is a whole new platform for growth." A pessimist may say, "Hey, you know, Tina, you just ran out of room for growth here in the US, you know, you're going overseas because you can't find anything great here in the US, and now you're the largest here. You need to go someplace else." You know, which end is it? You know, how are you thinking about Jardine? Am I pronouncing that correctly? Yep. I think Jardine. Yep, Jardine. You know, does this mean there is a whole new platform of growth in the U.K., and we'll start seeing more and more acquisitions over there? Yeah. Maybe I'll start with sort of, you know, backing everyone up. As you think about acquisitions in the dealership space, when you think about especially group acquisitions, they don't come up on a regular cadence, and so a lot of it is being opportunistic and being available, you know, sort of analyzing those opportunities. As you've heard us over the years, we've always talked about expanding initially into other English-speaking countries, right? I'll steal this phrase from a coworker of mine. Chuck likes to use this, and he says, "Crawl, walk, run." As you think about sort of your initial crawl outside of the United States, which is where we've been, we've always looked at mainly English-speaking countries as sort of the next step of growth. I think, you know, that is, you know, where we've, you know, historically kind of mentioned and looked at, and I think we've been pretty open about, you know, being interested in those. I think dealership groups, especially platform groups like Jardine, they only come up, you know, infrequently. If you think about regular turnover of acquisitions, probably about every 30 years or so. You do kinda have to be opportunistic, thinking about, you know, what it is. I think the other thing, especially as we look at going into other geographies, and we do this both in the United States as well as entering into other countries, it is really about finding a leadership team and a group of people that is a good cultural fit for the company. Because when you move into another country, there are new rules, there are new regulations. It is an expansion. What we really found with the Jardine Motors Group is that they had a wonderful group of leaders and employees with a lot of cultural alignment between how they operated and how we operated over here. Their parent holding company was not interested in growing in the U.K. Part of the reason that they were divesting was that they knew this leadership team, especially Neil Williamson, the CEO, he wanted to grow. He saw an opportunity for consolidation, for the growth of the model. They had a great team operating there. As we started to do the diligence, met the team, you know, we saw all of that align really well. You know, I think, too, the people who say, "Well, this must mean that you don't have any opportunity in the U.S., and so you're deploying capital over there," I would disagree. You know, if you look at our history, and I'll point to history first, right? We have been a consistent acquirer here in the United States. Obviously we did the small expansion into Canada as well. You know, we are very active in the acquisition space. I think we see acquisitions as part of our culture and something that. You know, it's just embedded in what we do, and that growth on a consistent basis in our investor deck, I think it's slide 11. You know, we sort of paint that picture of being one of the most consistent public acquirers out there. We have the OEM relationships, right, that are really important as an acquirer to really be respectful of and honor so that you can really have that growth opportunity, 'cause it's not always just about price in our space. I think those are all elements that we thought about. I think the other thing for, you know, the way I thought about it as a finance person, you know, the question really is, "Well, why now?" Like, why go into the U.K. now? I think that's a lot of, you know, people sort of, you know, thoughts around it. What I would say is, one, these don't happen very often. You do have to be opportunistic. Two, we were going to eventually at some point anyways. When you think about how much capital, you know, and free cash flow the business generates. You know, at some point we're, you know, obviously large. There's still room to grow in the U.S., but at some point you would start to sort of hit that max that you could hit in the United States when you think about framework agreements, sort of being good partners with the OEMs, kind of thinking about what that looks like someday. Not any day soon, but someday we knew that. Why not have sort of the right sort of foothold and right team to partner with that really increases your opportunity for additional growth, right, outside of the United States. I don't think it limits what we're doing here. We obviously continue to focus on, you know, growth opportunities here in the United States, increasing that density of footprint. At the same time, this was a great platform, great brands, great team, we're very excited to have them joining us and, you know, see additional opportunity in the U.S. I think the other thing, to be fair, is it deepens your relationship with the OEM, they do have a different business model. You know, as some of you may know, Mercedes is on that agency model there, so, you know, that does give us sort of experience and insights into what potentially could happen, you know, or how that relationship is evolving and how that the OEMs are thinking about that going forward. Just a one quick follow-up, or maybe two. You know, as you mentioned sort of this relationship with the automaker, particularly Mercedes or Daimler. Is this something that is becoming more global and a little bit more ubiquitous, you know, across markets? I mean, 'cause that would kind of also give us an indication of how the relationship is developing here, you know, in the U.S. and even in Canada. Yes. I think there are different models in the U.S., in Canada, and in the U.K., right? There are different rules. I think the way we really think about OEMs is truly as a form of partnership, right? We know the dependency or sort of the relationship, right, the synergistic relationship we have with the OEMs. We see it as an open dialogue, right? We are, as dealers, the ones who interface with the consumer, have that experience, that relationship. I think we also understand that we are dependent on the OEMs, and we really treat it as a holistic relationship, right? When you think about running a business, they're global businesses. They're managing, you know, in these different areas, and they're strategically thinking about their business holistically. I think it does give us insights, you know, in markets and in countries where they can make changes. You know, they're obviously moving in that direction, and being, I think, part of that and sort of deepening your partnerships with them, I think at least provides you insight and gives you a seat sort of to have those conversations and be part of that dialogue. You're the third public group that's over in the U.K. now. You know, I'm sure you've had a lay of the land there, and we probably should know this a whole lot better, but now you brought Jardine. How consolidated is the U.K. market with the three of you? I'm not sure you have an exact answer on that or maybe you do. And how much room is there for you to, you know, make acquisitions over there? Is there a lot of room or are you now all of a sudden you've got three big players and it's gonna start getting a little crowded? I don't know the exact numbers. Yeah. I do think there is room to grow. I know talking with the leadership team over there, they do see the opportunity and sort of brand by brand as they kind of see, you know, what works best and what they're interested in. Jardine is very much known for that premium luxury brand, so I think it, you know, from their perspective needs to fit what they're looking at. There's obviously opportunity. And the U.K. is a different country, different preferences as well versus the U.S. Those are things that, you know, we really rely on that leadership team and why that cultural fit is so important to us because they know that market better. I do think there's opportunity to grow. I know the leadership team there in general is very excited about having a partner that is interested in the business, part of the business, and, you know, has a history of growing. I think that's part of the reason that we thought this was such a good partnership to embark on. Sure. Maybe getting back to a little bit more on the here and now. You know, there's a lot of concern, not necessarily criticism, concern that, you know, Lithia and the dealers in general have been over-earning for the last couple of years. You know, that's, you know, maybe most obvious in new GPUs. We all kind of, you know, get that, but there's other offsets of used, potentially coming back. Actually, volume on the new coming back, parts and service recovering from, sort of, you know, beaten up levels. I mean, you know, how do. What's your kind of retort to that, on a vehicle basis, on a dealership basis, and then also on sort of a Lithia holistic basis, on that potential for over-earning or not? Sure. I think the realist in me and sort of Lithia in general, we sort of are the voice that always kind of says we believe that GPUs will sort of return to historical levels. You know, I've never been one to sort of tell you that we will stay at these elevated levels forever. From our perspective, as we sort of saw the supply and demand imbalance, it was really driven by that imbalance as we saw the margins expand. We've always been sort of the maybe bearish or conservative, whatever you wanna call us, you know, voice of. I think you've used Eeyore as your term, but yes. Maybe for me. Don't pin that on Brian or Chris. Okay. Me as the Chief Financial Officer definitely is a bit more of the Eeyore voice that says like, "Hey, I don't see a shift in the business model that tells me we're really gonna retain these earnings." As we think about our 2025 plan, as we think about the longer term vision and profitability of the business, we have always modeled it off of, you know, these earnings being at more historical levels or that typical $2,100, $2,200 per unit, both new and used vehicles. As we look at the business today, used vehicles in our view is at that level. New vehicles, and I've been wrong about GPUs for years now, so I will maintain that. I do think at some point we're seeing the decline in those GPUs, and that will continue at some cadence. We sort of throw our hat out there in terms of, you know, slowly getting there, you know, in a sort of orderly way by the end of the year, happening. Where are you seeing them right now? They have declined. If you look at sort of Q3 to Q4. Yeah You know, it declined, I wanna say, like. One $500 per unit on the new vehicle side for us. You know, I think you're starting to see that, and that's sort of natural. As supply comes back, this is just the orderly, you know, sort of return, I think, to the more normal structure, you know, in that. You know, I think the way we look at it is there's a couple things. We have benefited from, you know, the additional profits, the additional free cash flows. What we really looked to do during this time was deploy that capital in a way that really grew the business. If you think about, you know, where Lithia was in 2019, you know, before we launched the plan to where we are today, we've moved from about $12.7 billion in revenue to over $28 billion in revenue in about three years. We really took that capital, additionally, the other capital that we raised, and doubled the size of the business. You know, I think size and scale from our perspective as you think about our strategies with Driveway, if you think about DFC as an adjacency, right? Size and scale is very synergistic with what it was, and it was always embedded within our 2025 plan. You know, I think when we see size and scale, and this we highlight on slide nine of our investor deck, the bigger the stores, the more efficient the cost structure. What we show on that slide is our top, you know, largest 100 stores, our middle 100 and our bottom 100, what does their cost structure look like? What you see is that the bigger stores are more efficient. When you look at Lithia's profile, in 2019, our average rooftop size was $70 million. In 2022, the average rooftop size was $100 million. ASPs went up, you can talk about all of that, but inherently, that growth, more of that is we have bigger stores as we've sort of doubled the size of the company. So when I think about profitability or profitability going forward, you know, we've really started to change the look of the business as we get these bigger stores and we have a broader sort of footprint, both in North America, expanding into other countries. Then we've also, you know, built DFC, which is our auto loan business that sat at about $2.1 billion in loans and growing. We have the e-commerce strategy Driveway sort of overlaid on top of that. Really have invested in, you know, positioning our business to expand the margin with our auto loan business as well as continue to be responsive to consumer, you know, sort of preference and e-commerce, you know, items out there with Driveway. When you're talking about inventory returning to normal, you know, we're still a far way off. I think we finished last month about 1.8 million units. We're mid-30, you know, day supply, maybe a little bit higher than that on, you know, for the industry at large. You know, way off the lows, but still far, you know, I mean, half of what was normal prior to COVID. You know, where do you think those are gonna go? Do we need to get back to three million units and 65- day supply for the grosses to get back to that level? Do you think there is some level of in discipline in the industry that'll keep it from getting quite that high again? For that reason, there might be a little bit of hope that grosses could be a little bit higher than they were before. I would like to think that maybe it will be more disciplined around, you know, the inventory levels. I think that actually benefits everyone when you think about where interest rates. Sure does, yeah. Are at and floor plan expense, like for the dealer side, right? Being disciplined, you know, I think would be helpful. You know, I think it'll be interesting to see. I mean, the other side of it, right, is also consumer demand, consumer affordability, as we think about what's happening in the economy, rising interest rates, you know, that balance out. Hopefully, right, as we sort of navigate the supply coming back, sort of the environment that we're in, that it stays in a relatively disciplined manner. You know, it'll be interesting to kind of see. You know, I think it's in everyone's benefit if inventory levels can be managed better, but at the same time, you are seeing inventory and DSOs come back in an uneven manner, sort of depending on OEM. You know, I don't know if that bodes well for discipline in general. Got it. You just mentioned the health of the consumer and affordability. You know, what are you seeing on ops or folks coming into your dealership and are they being satiated with a new vehicle or some of them being turned away because they can't get financing, and they don't qualify, and you have to work them into a used? Has anything really changed in the past few weeks? Has credit gotten tighter to make this worse? You know what I mean? Just, you know, to follow up on that, the affordability issue is when you're making record profits, vehicles aren't that affordable. Do you really care if they're not that affordable? Right? I mean, really, we just keep coming back to this, and it's kind of a funny question, but like, it's, you know, if the industry, you know, if for some reason this affordability challenge does not create problems in the future, then, you know, and that's really where, you know, you'd see them. You know, if everybody's putting up record profits right now, who cares if vehicles aren't that affordable? I think, you know, I think the affordability to me is a reflection, sort of a consumer demand, right? That's how I think about it. When you think about credit and sort of where the consumer is at, I mean, the interesting thing is when you do the math of what a $500 monthly payment can buy you today as a consumer at an 8.5% interest rate, and this is, you know, a decent prime consumer, you know, versus what it could buy you a year, a year and a half ago. It's a lot less car, right? A $500 monthly payment equates to about a $25,000 or $30,000 car, which is very different than what it was, you know. Mm-hmm A year, a year and a half ago. Those are meaningful amounts, you know, when you think about, you know, consumers. I think consumer credit is there. Like, the way we think about it, we have over 170 lenders that our stores utilize, right? Having that diversity of lenders allows you to be able to have at least options to match customers, you know, because every bank sort of has their profile of what they like in terms of auto loan and credit look for that customer. You know, to be fair, auto loans are probably the stickiest of the loans, right? Credit card debt will go bad first, then mortgages, and then auto loans at the end. You know, I think the health of the consumer is sort of credit availability. I think it's still there, right? I think we see it out there. You know, if you see sort of banks and tighten, you know this better than I do, you work at a bank. Right, if credit is tightening up for banks and they have to be more judicious about it, then that's gonna slow down sort of availability for people, or it's gonna push pricing higher, right? They're gonna charge more to have that net margin, to kinda cover, you know, their cost of capital. You know, I think the credit's available out there. I think, you know, we talk about it from the health of the consumer because at some point it's gonna get too expensive for the customer, right? If you think about savings balances, those are starting to run down, return to more normal levels. Like, we don't have stimulus money, we don't have used vehicles at higher prices and negative equity at lows that we hadn't seen before, right? The customer profile, as we think about what it'll be in 2023 and sort of, you know, proceeding throughout the year, savings balances are lower. Negative equity is gonna go up, right? You know, monthly payments have gone up 'cause interest rates have gone up. Something at some point has to give. I mean, pre-COVID, when you think about a customer that had big negative equity, what we really saw is that customer would be put in a new vehicle. In the new vehicle, you would have incentives or rebates that would help that customer affordability puzzle kinda get solved because they wouldn't have to do the down payment. They would have the rebate, you know, to sort of offset some of that. You know, I think those are some of the things we sort of think about because I think what will happen is that's on the demand side, right? We haven't had to deal with that over the last couple years. It's always been a supply issue in 2021 and 2022. You had a question. Customer financing is so key to any retail business. Have you thought of any unique ways to maybe self-fund some of that financing? Do you still wanna go third party? I mean, as you get to a $50 billion revenue, you become such a big player that. I think, you know, obviously we have DFC, which is our auto loan portfolio. You know, we target getting to about 15%-20% penetration rate on DFC of our retail sales. You know, today we sit. You know, last year it was a little over 10% was our penetration rate in 2022. Q4 penetration rate was about 13% or so. You know, I think, you know, we've seen an opportunity. Good growth then. Yeah. It's very good growth. It's a capital-intensive business, as you know, right? You know, we really focused on DFC as it sort of got to its more mature state to have a self-funding capital structure, right? To have the discipline to really protect that net margin, to really be thoughtful about that cost of capital you needed to get to that structure. We have $1.5 billion available on our ABS warehouse lines, right, to fund the growth of DFC. You know, really are working toward being a programmatic ABS issuer. We picked up Moody's as a credit rating agency in our most recent ABS issuance. We target probably doing about three of those this year. Yeah When we think about funding for DFC from our mind, right, one, we have sort of a targeted penetration rate that we wanna get to. We have a credit risk profile that we really want, which is sort of that prime customer. You know, we average about 730 FICO score, you know, on that customer, and really have reached the point where we can fund. You know, as we look at 2023, we'll be able to fund that structure. It's a high quality program. Yeah. It's a good, it's a good customer. You know, it gives us... The way we see DFC is it's really an expansion of the customer wallet share, right? We're able to participate in that and sort of meaningfully change our profit structure. Now, obviously, our OEMs have captives. Our big banking partners have, you know, auto loaning, auto lending as wel l. We are conscious of that, which is why our penetration rate is only targeted at 15%. You know, as we've sort of talked with captives, talked with banks about it's obviously noticeable that DFC's in that market. At the same time, you know, we're growing through acquisitions. Loan books all around for everybody continue to get bigger. It's really just a balance between both of those. That's helpful. Thank you. You guys have been stellar at used cars for a long time. I think selling two to one for a while, right? One. Yeah. We've been at one to one, a little over. Yeah. 1.2 to one. I thought you had some. Well, you have some group. We have some stores- Some of your best performing, I guess, as Brian Sykes said. Yes T hat are selling two to one you've been better than most out there at selling, you know, selling more used than new. What has kind of been the sort of the secret sauce there in being able to do that? Can that go up significantly over time? Are you seeing used vehicle demand being generated because people can't get new vehicles? Or is that sort of a fallacy that people are kind of falling out of the new vehicle market into the used vehicle market, and they're just waiting and remaining in their current vehicle? Yeah. I think maybe I'll start with just strategically sort of Lithia's position around used vehicles. You know, when we look at used vehicles, one, we really work on selling deep into the used vehicle spectrum. We sell up to 20-year-old cars. It's a differentiator from our perspective is to just sell older cars. You know, I think we also don't have standalone used. We really do it in all of our new vehicle franchises. That is a cultural shift for the operations within a dealership, because you have to have technicians who can recondition those vehicles, right? You have to have sales forces that know how to sell to all of these different, you know, sort of spectrum of consumers when you think about, you know, selling an older car as well. It is an errant opportunity we commonly see with acquisitions. When we acquire a private dealer, typically, their focus is on certified cars, it is an organic growth opportunity in these stores that we see. We've had this positioning for a long time. We've always talked about the fact that we sell, you know, certified core vehicles, which is three to seven years old, and value auto cars, which are eight-plus years old, and that value auto is an opportunity. I think part of the reason strategically we see that value is when you look at the trade-in channel, which is the, you know, best procurement channel that you have, and especially as a new vehicle dealer being top of funnel. It's very efficient. Used vehicles is all a procurement game. I think if you kind of look at what you've seen play out with maybe CarMax and Carvana that are used only versus new vehicle franchise dealers, there's a definite benefit to being top of funnel on used vehicles, and we've had more stability in that performance. Selling deep into the used vehicle spectrum, from our perspective, gives us a lot more available market and customers that we can reach. When you look at sort of the used vehicles that change hands, about 50% of them are 10 years or older cars. Just playing in that space opens up, you know, the volume of cars that you could participate in. I think, you know, what we really show our stores, and when you think about a more normal SAR environment, it's about a 40 million used SAR and a 17 million new. It's about a two and a half to one ratio just nationally. That's sort of the metric we tell stores. As you've mentioned, you know, we have stores, especially in the Northwest, where we're smaller markets and not as high volume, so you really had to push used cars to get to profitability. You know, some of our best stores out there can do three to one, 'cause they see used vehicles as that profitability sort of profile, right, in, you know, that sort of additional profit that comes in incremental for the business. You know, I think for used and the way we see it, and you kinda hear it in a lot of what I've talked about, it's diversification of offering. You just don't wanna lose the opportunity to get the customer in a car. I would rather the stores, you know, have the option and sort of that spectrum of cars, than you have a customer come in, and you don't have anything that fits their profile, and you can't even try to switch them, right? you know, I think those are things, especially as we think about rising interest rates, as we think about monthly payments that customers are dealing with. Most U.S. customers are monthly payment shoppers. Once you kind of know their monthly payment amount, you can guide them to the right type of car that will fit, you know, their affordability profile. I think from our perspective, it's all about having that optionality on the lot so that you can, you know, close on that customer as best as possible versus not having it, right, and then you lose the customer if they can't. When you sell a new car, you usually get a car around four years, ±, traded in. Yep. That car is kind of the theoretically easiest for you to retail. When you sell that car, you usually would get a trade-in of an eight to 10-year-old vehicle. Which is our core, yep. That vehicle, by most dealers, is usually just wholesaled out via whatever channel. That's where you're sourcing Yeah T hose vehicles. You're not necessarily going to auction to source those older vehicles. Yeah. This is a retail-first strategy. Yeah On those vehicles that get traded in. That trade, that's likely to have a trade of an even older vehicle, which is where you're getting, you're sourcing all these vehicles. Multiple trades. They're trade So. Yeah I t's these trades and taking this lifetime spectrum that everybody else just throws out. Correct. Yeah. Okay. If you look at sort of our, you know, where we source our vehicles, 70%-75% of our cars come directly from customers. Most of which is trade-in. There's some off-lease, obviously, that's turned in and we outright purchase. It's a very efficient procurement channel. Okay. Yeah. To your point, every car that we sell gives us another trade-in when you sell deep into the used, and you have the capabilities in your shop to be able to recondition those cars. It's very efficient, right? You're not going through a third party and paying incremental fees, right, at the auction or whatnot. We'll still source from auctions, right? If we need the extra volume. Don't get me wrong. They make up the other, you know, 25%-30%, as well as buying from other dealers and whatnot, and service loaners. I think that is how we kind of see it, is that it's a very synergistic business model. The way we do it is really teach each of our new vehicle dealerships to do that. It's not adding any incremental sort of, you know, footprint to do that. It's really, you know, maximizing the new vehicle footprint that we have. Got it. Let's rip through F&I really quick. Obviously, you know, record year, I think last year for you guys. Started to, I think, fade for some groups a little bit. I mean, as we think about rising rates, high ATPs, there's a lot of concern that F&I is going to collapse. You know, can you give us, you know, your general view on it, not on a quarterly basis, right? I don't wanna put you on the hook for anything in a quarter. I mean, if we think about this, I mean, it's about 1/3 origination, about 2/3 product, give or take. I don't know if you can comment. Maybe you agree or not disagree with that, or disagree with that. You know, what do you, what do you think the opportunity is over sort of the mid to long term? 'Cause it keeps. I mean, you know, I've. You used to think that $1,000 was a sound barrier. We blew through that, you know, and now we're kind of approaching $2,000, depending on which group you are. Some of them are above that. You guys are a little just below that. You know, is there an opportunity to continue to grow this over time? Are we looking at something that will. Is it risk of collapsing, or is this just a new world where there's a lot, a lot better product? I think we don't really disclose sort of mix within F&I. We did years ago, so anyone who's interested, if you dig around in our Qs and Ks, I think in like 2013, 2014, we might have. When we talk about sort of 2023 and sort of outlook on F&I, you know, what we kind of talked about was it going backwards to about $1,850 this year. Most of that sort of, you know, regression in F&I is tied to finance reserves. As we thought about the fact that, you know, rates are high, you know, ASPs are high, and those may come down, and, you know, you can't push more rate to the consumer. When you think about finance reserves, that's really profit sharing and whatever the incremental is that you can push to the customer, you know, when we put them in the, in the loan structure. You profit share in that, you know, incremental stream that you do. When you think about, you know, ASPs are high, and they're gonna come down, well, then that reduces how much future profit that is 'cause your loan balance is lower, and then if you can't push rate, right, you can't get that. Most of the decline in F&I, we really see is sort of driven by, you know, the finance reserve side. I think there's an interesting debate around the additional product, right? It's like, well, if you think about loan to values, what people can finance, can they really buy the, you know, extended service contracts on some of these other products? I think there's that side of it. The other side of it, too, is when customers make the investments in these cars, and they know they're gonna hold them longer, they'll buy the protection products because they wanna protect the asset they're buying. Those kind of counter each other is how we kind of think about it. We see F&I going backwards somewhat, you know, mainly related to finance reserves. But, you know, meaningfully, we have seen penetration rates go up on service contracts on some of the other products that we offer, tire and wheel, you know, protectants, all of that. You know, I think there's a more diverse offering within F&I, you know, that's evolved over time as you think about this business. Which to your point, you know, used to be, I remember when $1,100 was, like, a big deal for us. Sure. Now we're over $2,000. Yeah. Yeah, I do think mix of product plays into that too. Can you just talk about lifetime oil? I mean, I think you guys were one of the early folks. Mm-hmm. I mean, it's not necessarily that that matters, it's what that matters in the relationship with the consumer. Can you just talk about lifetime oil? Yeah. We are one of the few dealers that offer a lifetime oil change product. What that means is that customer can buy up front, you know, for their full ownership of that car, any oil changes that they have, and this is obviously on ICE vehicles. You know, that product we self-insure, so it doesn't impact our F&I number. We really recognize that as the oil changes occur within service body and parts. The real reason for that tool, as well as other F&I products, is really to build retention of that customer into the service drive. You know, when we think about this business, it's really about the full ownership life cycle with that customer, and the F&I product is what's used to build retention and to have them come back. Y ou know, the lifetime oil change contract, and if you look at sort of the claims history that you have, I mean, literally some of these claims are cars that we sold 20 years ago. I'm dead serious. They're still coming back. People will drive these trucks forever, then they maximize this contract. Yes, it's amazing. You know what that is it is a good upsell opportunity when they come back, whether they need tires or, you know, a detail, or they need warranty work or whatnot. What we really see is it helps drive that frequency back into the service drive, an opportunity for us to interact with the customer as well as upsell the customer, you know, on that service perspective. That is really, you know, what those F&I products, as much as there's a commission you earn up front, which is important, it's really about building that relationship with the customer and really having that retention of that customer beyond just the warranty work that you may have with a new vehicle. It allows us to have that stickiness both with new and used, you know, beyond the warranty period. You might have to start hedging that if people come back for 20 years on lifetime oil. Oil prices could be. That's not the average. Most of the time No, I know. No, No, I know. Thank goodness. On parts and service, I mean, we're hearing consistently from a lot of dealers that, you know, the governing and limiting factor really is technician availability. There's a lot of pent-up demand and, you know, same store sales could be, you know, much higher if you only had more technicians. I mean, where do you guys stand on parts and service and the ability to grow it? Yeah, I mean, I think we've talked about parts and service being one of those consistent, you know, growth areas that we see sort of mid to upper single digit growth, you know, in 2023 in that business. It's been sort of the bright spot throughout everything and consistent spot. We don't talk about it enough. I feel like we talk about GPUs all the time instead and sort of volatility of volumes on the retail side. You know, service, I think, has been a very consistent business. It is our highest margin business. You know, I think we've been able to post, you know, solid, you know, high single digit same store sales in service and parts. Also, you know, gross margin has meaningfully moved in that business as well over the last couple years. I think some of it we've pushed labor rates up. For the warranty rates that we claim, we've also sort of, you know, negotiated to get some of those higher as well. We're seeing sort of the, you know, rate per hour also is a little bit higher, which is driving some of that sales growth. When you think about those labor rates real quick, I mean, I don't know if you can disclose exactly what they are, but, I mean, if you can, that would be great. I mean, how much have those gone up? Those are being passed through on the customer pay side, I would imagine pretty directly. Mm-hmm. You know, how much are those being passed through on the, on the warranty side to the automakers? We, I don't have the exact numbers of increases, but I know we've done it both, on both sides, both customer pay and warranty. It's largely one for one. If you're paying the tech a $1 more, it gets pushed through to the customer pay and the warranty. I don't know. L argely one to one or? Yeah, I don't actually know the correlation in the, from the cost perspective to the, to the rate side. Yeah. Given the margins, it seems like it's gotta be pretty... Yeah I t's gotta be almost directly. Yeah. Yeah. It's been meaningful. Got it. maybe just Oh, we got a question in the line. I got one more, but here, far away. No, far away. I was curious on the used side, is there an opportunity cost when the deeper you go, both so on, you know, upfront, let's say margin per spot on the lot, and then also on the lifetime value? You know, you're gonna be lower parts and services, lower F&I attached. Just curious how you guys think about that and balance it. There's a couple things I would say. The value autos, and I think we disclosed this in sort of the appendix part, if you look at that used vehicle slide that we have, we think about it as a return on the, on the different types of used vehicles. When you look at the value autos, they're actually scarcer cars. You know, and the dollars per unit that you earn on value autos is similar to what you earn in sort of, you know, certified aside and sort of the supply-demand imbalance aside. The dollars per unit you earn on every unit is similar, but the ASPs are significantly lower, and the turn rate is faster on the older cars. The number of days that it's sitting on your lot is actually much shorter than what you see on the core and the certified. You know, when you factor all of that in, the return is actually highest on value auto because, you know, when you think about those 10+-year-old cars, there's not as many of them out there, and so... They go fast. They go fast, and actually, they're stronger customers, right? It's a little bit counterintuitive, but if you have a credit-challenged customer, they're more likely to go to a new car than a value auto car. Value auto cars, you'll see more cash buyers of those. You know, they'll be parents buying cars for their kids or whatnot, right, you know, when you think about those types of units. That's one metric that we kind of think about and we use with our dealers to help them understand the benefit of selling deep into the used vehicle cycle is it's a faster turn. You know, if you can get them and you can get the volume, you know, it's a good return on that side. I mean, to your point, and maybe it has a little bit less on the service side, but you can still sell F&I product, you know, on those cars and get customers sort of stickiness through those. Got one over there, Teresa. Hi. On the financing side, do you have a higher penetration rate with the older vehicles versus the newer vehicles? I will say, I think on the older vehicles, as I mentioned, there are more cash buyers. I forget the exact mix when we sort of look at what it is, right? It is a lower ASP point. You know, the loan to value is just sort of the calculation of it, right? It's a little bit different on those value auto cars. You know, I think financing is more common on the more expensive cars. John, just so we don't run out of time, I have one capital markets question I wanna sneak in. Fire, fire away real quick. The hope was that you get an investment grade rating. We understand the growth has been amazing, and maybe agencies looked at that. The growth was maybe a little faster than they're comfortable with or what have you. Bond spreads didn't react. People still really like the credit, they like the story. Can just give us a little flavor of. I mean, you can grow into investment grade rating most likely if you get to $50 billion in revenue, but what are your thoughts about the rating? Yeah, I mean, I think, you know, we try to be pretty transparent and upfront about, you know, our commitment to our 2025 plan, the growth that we have. You know, I think we've shown this in our history, we are very disciplined around our balance sheet, our leverage, and what we're doing. You know, I think today in this economic environment, there are declining GPUs, obviously declining EBITDA. You know, that all plays into the credit rating agencies as they look at stuff. You know, it's a capital intensive business as we go to, you know, acquire dealerships. I mean, the other side is, right, DFC, and depending on how you think about it, that's a debt load that you're taking on. I think that business when you kind of, you know, scope it in itself, you know, we have a reasonable path, and we actually have a very disciplined path in terms of funding and growing that we're monitoring. You know, and so I think it's really just we're at that growth phase and I describe it at times as that awkward teenager phase, right? You know, you know kind of where you're headed. You have a good idea of who you are. You know, you're still kinda growing into everything and, you know, we are committed to, you know, continued growth through acquisition. You know, our balance sheet obviously is in a very healthy place. We see a significant amount of free cash flow. You know, investment grade does require you to really commit to those different metrics. You know, I think that's a tough thing because if there is a good deal out there, like, we wanna be in the market to do that. I think as we get to size and scale and as you can already see from where we are today versus where we are in 2019, you know, we can fund a lot of this growth through free cash flows, through, you know, space and availability in our credit. When you get to the target, then, you know, maybe the upgrade. Yeah. I think that starts to shift. We've done a lot of things to be fair, right? The numbers, and I think in our 10-K with the segment disclosures that we adjusted to, we tried to give more visibility to it. You know, it's been a messy couple of years when you look at sort of the ABS warehouse debt, the ABS term issuances, the growth in the financing receivables. Our cash flow statement is not the easiest to un-understand and I understand that. You know, I think having some of that clarity, which is what we tried to bring with the segment disclosures, I think being upfront about our commitment to grow these things, knowing that DFC, you know, is a young-ish portfolio from a loan perspective, but about to sort of pass that, you know, size and scale. You know, I think we maintain the financial discipline of the balance sheet. I think that's sort of reflected to your point in sort of how the bonds are trading. We see this as a very stable business. I think it's a great business to be in with, you know, good positive cash flows. I think we'll get there eventually. You know, hey, it's a, it's a tough economic time for, you know, that type of upgrade, and I understand all of that from a credit rating agency perspective. You know, we do good outreach with them. We talk with them regularly. Just like everyone else, we try to be transparent and upfront about, you know, what our growth plans are and what we're thinking about as a business, but also try and make sure our historical results, you know, stand on their own as well. Thank you. Very helpful. With that, we're out of time. Tina, thank you so much. Okay For joining us today and taking a long trip to see us here in Nevada. To Nevada. We really appreciate it. Thank you very much, Tina. Thanks, you guys.