AutoNation Inc (NYSE: AN) Q4 2020 earnings call dated Feb. 16, 2021.
Corporate Participants:
Robert Quartaro — Vice President, Investor Relations
Mike Jackson — Chairman and Chief Executive Officer
Joe Lower — Executive Vice President and Chief Financial Officer
Analysts:
John Murphy — Bank of America Merrill Lynch — Analyst
Bret Jordan — Jefferies — Analyst
Rajat Gupta — JPMorgan — Analyst
Stephanie Benjamin — Truist Securities — Analyst
Rick Nelson — Stephens — Analyst
Adam Jonas — Morgan Stanley — Analyst
David Whiston — Morningstar — Analyst
Presentation:
Operator
Good morning, my name is Jacqueline and I will be your conference operator today. At this time, I would like to welcome everyone to the AutoNation Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions]
I would now like to turn the call over to Rob Quartaro, Vice President of Investor Relations. You may begin your conference.
Robert Quartaro — Vice President, Investor Relations
Thank you. Good morning and welcome to AutoNation’s fourth quarter and full year 2020 conference call and webcast. Leading our call today will be Mike Jackson, our Chief Executive Officer; and Joe Lower, our Chief Financial Officer. Following their remarks we will open up the call for questions. I will be available by phone following the call to address any additional questions that you may have.
Before we begin, let me read our brief statement regarding forward-looking comments. Certain statements and information on this call, including any statements regarding our anticipated financial results and objectives constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued earlier today and in our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K.
And now I’ll turn the call over to AutoNation’s Chief Executive Officer, Mike Jackson.
Mike Jackson — Chairman and Chief Executive Officer
Good morning and thank you for joining us. Today, we reported all-time record quarterly results with adjusted EPS from continuing operations of $2.43, an increase of 94% compared to last year. During the fourth quarter, same-store revenue increased $265 million or 5% compared to the prior year, a solid growth and new used and customer financial services revenue was partially offset by decline in customer care which has experienced a slower recovery correlated with lower miles driven. New vehicle inventory levels remain constrained and we expect demand to exceed supply for an extended period. Given these dynamics, we remain focused on optimizing our business in the current operating environment. We expect industry sales to approach $16 million in 2000 — 2021 with strong retail sales growth compared to last year. We’ve seen a solid growth in ’21 with January trends in line with our annual forecast.
For the quarter, same-store total variable gross profit per vehicle retailed increased $765 or 21% compared to the prior year. Same-store new vehicle gross profit per vehicle retailed increased $919 or 50% and same-store used vehicle gross profit per vehicle retail increased $127 or 9% compared to the prior year. We drove significant SG&A leverage in the quarter, adjusted SG&A as a percentage of gross profit was 63.8% for the quarter, representing an 820 basis point improvement compared to the fourth quarter of 2020. We remain committed to operating below 68% SG&A as a percent of gross profit on a long-term basis.
We continue — our continuing our opportunistic capital allocation strategy that balances investing in our business and returning capital to shareholders. We expect to allocate capital towards the AutoNation USA expansion share repurchase and franchise acquisitions.
Today, we announced our Board authorized an additional $1 billion of share repurchase from October 22 through February 12. We bought back 6 million shares or 7% of our outstanding shares. We remain on track to open five new AutoNation USA stores by the end of this year. The stores will be located in Austin, Phoenix and San Antonio and two stores in Denver. We are also entered the planning phase to open an additional 10 AutoNation USA stores in 2022. These stores will benefit from the AutoNation brand and its proven customer friendly processes. We have set the long-term goal of selling over 1 million combined new and used retail units per year.
We recently announced that we have enhanced AutoNation Express, our integrated retailing solution that provides customers with a seamless and intuitive omnichannel shopping and purchase experience. AutoNation Express is powered by real-time customer insights that provide a highly personalized mobile optimized step-by-step digital experience.
I’ll now turn the call over to Joe.
Joe Lower — Executive Vice President and Chief Financial Officer
Thank you, Mike, and good morning everyone. As Mike highlighted, today we reported adjusted net income from continuing operations of $213 million or $2.43 per share versus $113 million or $1.25 per share during the fourth quarter of 2019. This represents an all-time high quarterly EPS and a 94% increase year-over-year. The results were driven by solid growth in new used customer Financial Services profitability, partially offset by a decline in customer care. During the quarter, new vehicle demand continued to exceed supply while our We’ll Buy Your Car program supported our used vehicle inventories. Fourth quarter 2020 adjusted results exclude a non-cash accounting loss of $62 million after tax or $0.70 per share associated with our equity investment in Vroom.
Moving to the balance sheet and liquidity. Our cash balance at quarter end was $570 million which combined with our additional borrowing capacity resulted in total liquidity of approximately $2.3 billion at the end of December. Note, in January of this year, we paid the maturity of our $300 million, 3.35% senior notes from available cash on our balance sheet.
Our covenant leverage of debt-to-EBITDA declined to 1.8 times at the end of the fourth quarter, down from 2.0 times at the end of the third quarter, including cash and used floorplan availability, our net leverage ratio was 1.3 times at year-end.
During the fourth quarter, we sold 3.1 million shares of our equity investment in Vroom for proceeds of $105 million. Early in 2021, we sold the remaining shares of Vroom for proceeds of $109 million. So in total, we realized a cash gain of $165 million on our investment. AutoNation remains committing — committed to delivering shareholder value through capital allocation, which includes attractive organic growth opportunities, a disciplined acquisition strategy, an opportunistic share repurchase. Our AutoNation USA expansion provides an attractive growth opportunity and we remain on track to open five new AutoNation USA stores in 2021, an additional 10 in 2022 as Mike addressed earlier.
During the fourth quarter, we repurchased 4.7 million shares of common stock for an aggregate price of $302 million. Year-to-date in 2021 through February 12, we repurchased an additional 1.3 million shares for an aggregate purchase price of $95 million. Today, as Mike mentioned, we also announced that our Board has increased our share repurchase authorization by an additional $1 billion. With the increased authorization, the company has approximately $1.1 billion available for additional share repurchase. And as of February 12, there were approximately 82 million shares outstanding, excluding the dilutive impact of certain stock awards.
Looking ahead, we will continue to balance investing our — in our business with opportunistic share repurchase and acquisitions.
With that I will turn the call back over to Mike.
Mike Jackson — Chairman and Chief Executive Officer
Thank you, Joe. 2020 was an unimaginable year but our associates came together and delivered record results. We sold our 13 million vehicle in December, the only automotive retail in history to do so. We have raised over $25 million in the fight against cancer. We create the largest and most recognized automotive retail brand and we did it one sale, one service, one vehicle, at a time. The acknowledgment and brand awareness continue on AutoNation was recognized for the third year in a row. According to Reputation.com, and is having the number one reputation score for public auto retailers. In ’21 we are celebrating 25 years of leadership, innovation, excellence and recognition as the most admired — as one of the most admired companies in the world by Fortune Magazine. AutoNation was the highest-ranked automotive retailer on the list. Congratulations to all 21,000 AutoNation associates for achieving such tremendous success.
We’ll now take your questions.
Robert Quartaro — Vice President, Investor Relations
Operator?
Questions and Answers:
Operator
[Operator Instructions] Your first question for comes from John Murphy from Bank of America. Your line is open.
John Murphy — Bank of America Merrill Lynch — Analyst
Good morning guys and congrats on a great quarter and execution here. Mike isn’t the first question on the cap allocation, because it seems like you turned on the spigot again on share buybacks, which seems like it makes sense, so you guys have been good stewards of capital over time. But when you just hold that versus the opportunity on AutoNation Express and what you can do? If you think that Express is where it needs to be or a lot more capital needs to be put there to really ramp it up and advertise it to get some of the hotspots or contain, two other names to put it politely. I am just curious, what you think you need to do there. It’s a question of capital, advertising or emphasis and how do you judge to those acquisition — buyback and acquisitions?
Mike Jackson — Chairman and Chief Executive Officer
Excellent, excellent question. John I’ll go first and then I’ll turn it over to Joe. So look, the first priority on investment is the company and we’re making a significant — and have made a significant investment in digital that is remarkable, the capabilities we built a platform that has the capability to perform for the entire enterprise day-in, day-out and that surge investment period is thankfully behind us and we have the performance that we need than we want. We of course, will on a sustaining — sustainability basis continue to invest in digital, but the surge investment period is behind us. We’re continuing to invest in our USA stores. We’re very confident and optimistic about it. And here you’re absolutely right, John, we intend in ’22 with some of our 10 new stores to move into new markets where we are not today. And we have budgeted additional communication that as we don’t rely on markets where the AutoNation brand is strong and established that we will need incremental marketing dollars for that. But — and that’s meant in USA.
We will also do, I expect some acquisitions in new vehicle franchises that fit our strategy and our footprint and we expect that to happen. And now, I’ll turn it over to Joe, because we are in the position that we can do with all, with very low leverage on the company. And Joe, why don’t you take it from here?
Joe Lower — Executive Vice President and Chief Financial Officer
Thanks, Mike. To reinforce, you take the extremely strong cash flow and an under leveraged balance sheet, we really do have the wherewithal and frankly there are very attractive opportunities in front of us. As Mike said, the first priority is always going to be to reinvest in the business, which we have been doing and we’ll continue to do. As Mike said, the significant investment in digital is behind us and in front of us is the opportunity on AutoNation USA, which we see very attractive returns. As Mike said we are going to continue to be opportunistic in M&A. We do have a pipeline. But we’ll maintain disciplined and then continue to believe there is tremendous value in our stock. We have obviously been active in that, historically including recently and we’ll continue to do that going forward.
John Murphy — Bank of America Merrill Lynch — Analyst
And just a follow up to that. It seems like the attitude of the automakers towards yourselves and the larger groups as far as approvals on franchise acquisitions. It seems to be either loosening up or moving more towards collaboration if you will. Are you seeing that and could we see AutoNation, as you said, utilize your under levered balance sheet to make bigger and maybe more robust as opposed to one day, two day acquisitions?
Mike Jackson — Chairman and Chief Executive Officer
Joe could you take that please?
Joe Lower — Executive Vice President and Chief Financial Officer
Sure. So I think it’s hard to say across the entire spectrum how the OEMs are feeling. I can tell you as we’ve looked at opportunities we’re very mindful of location, relationship and we do believe there are very viable opportunities for us to acquire within the constraints that are often imposed. So we don’t see that as an inhibitor to our strategy. Albeit one that’s very focused and disciplined.
John Murphy — Bank of America Merrill Lynch — Analyst
Okay, that’s helpful. And then just lastly, Mike, I think some of us, maybe a lot of us would love you to stick around forever, but there is the search going on. I’m just curious if you can give us an update on how that’s progressing, timing, how we should think about that stuff and…
Mike Jackson — Chairman and Chief Executive Officer
Absolutely John.
John Murphy — Bank of America Merrill Lynch — Analyst
If you could address the Chairman, would you — are you going to remain on the Board?
Mike Jackson — Chairman and Chief Executive Officer
So we’re actually taking a step today, because two things, as I look at succession, as we previously announced in 2019, we will split the role of Chairman and CEO with my departure and we’ve taken the step of going ahead and doing that, because we have a long-serving Director, Rick Burdick, who’s 30 years plus with the company, two years as Lead Director, very successful. So the Board met yesterday and selected and elected Rick Burdick as the Chairman of the company. So this gives a lot, should give everyone a lot of confidence and trust that we have the right way forward, we have someone from within the company assuming this responsibility. Rick will also lead to search for the new CEO, which will kick-off in the spring and — but half the equation is already answered with Rick becoming Chairman.
John Murphy — Bank of America Merrill Lynch — Analyst
Got it. Okay. Thank you very much guys.
Operator
Your next question comes from Bret Jordan from Jefferies. Your line is open.
Bret Jordan — Jefferies — Analyst
Hey, good morning guys.
Mike Jackson — Chairman and Chief Executive Officer
Good morning.
Bret Jordan — Jefferies — Analyst
When you’re sourcing used inventory, I mean obviously, you’re talking about We’ll Buy Your Car. Are you seeing any recent changes in the competitive landscape, obviously others trying to execute that strategy or possibly some of the competitors being more aggressive with maybe negative equity financing to attract trades away from you? Just sort of landscape on used inventory.
Mike Jackson — Chairman and Chief Executive Officer
Yes, we’ve been very successful in our pre-owned business. As you see we’ve outperformed the marketplace in the fourth quarter with an increase in revenue in the fourth quarter of 12% which is quite impressive. And of those vehicles we retailed fully, 85% came from internal efforts of AutoNation. We either took them as in-trade or We’ll Buy Your Car. We took them in from off lease. So the machine that we’ve created is quite impressive. And I view it as an arbitrage business that our ability to acquire inventory at the right price and pay a fair price to our customers and then recondition it at speed and get it on the frontline and present it in a 1PRICE environment to our customer. Its obviously a winning formula of this combination of brand customer experience and digital capability. We think it’s sustainable. It’s one of the reasons we’re investing in USA. So five more stores this year, 10 more stores next year.
Bret Jordan — Jefferies — Analyst
Okay, great. And then a follow up on Customer Care, you sort of called out and obviously vehicles miles traveled being down is impacting service demand. But have you seen any cadency of improvement as VMT has come back, and I guess, in that theory, we should be lapping the last, negative comp should be run about now. We start going against the real declines in VMT in March and April of last year. Is that a fair way to think about it?
Mike Jackson — Chairman and Chief Executive Officer
It is, we obviously from the dramatic lows, we are past that. We estimate at the moment that miles driven are down about 10%. Our actual customer care business in the fourth quarter is down 4%, 5% something like that. And so we view it as a gradual recovery and obviously we have opportunity against the extreme situation that existed when the first pandemic broke out and shutdown and shelter-in-place. Joe, why don’t you talk about how you think customer care will unfold this year?
Joe Lower — Executive Vice President and Chief Financial Officer
Thanks, Mike. Yes, that’s to reiterate again, if you look at kind of a business recovering, if you think about the bracket customer pay, warranty have all recovered. Internal, obviously with the volume of business we’re doing is actually recovered quite nicely. And collision that has a lag as Mike indicated really driven by the miles. As you look out through the year and you’re correct, it’s really going to be starting in April that we saw the significant decline associated with COVID, April-May in particular being two months that were dramatically impacted as you recall us talking about last year. But really I think you’re going to see throughout Q2, Q3 and even in the Q4 favorable comp year-over-year in the customer care business in particular as collision I think will recover as miles driven recover through the course of the year with the benefit of the vaccine and if you will the continued reopening of the country.
Bret Jordan — Jefferies — Analyst
Great, thank you.
Joe Lower — Executive Vice President and Chief Financial Officer
Sure.
Operator
Your next question comes from Rajat Gupta from JPMorgan. Your line is open.
Rajat Gupta — JPMorgan — Analyst
Hi, good morning. Thanks for taking my question. You provided some color on the new vehicle business in January, tracking in line with the forecast. Any color on how like the used vehicle business is performing. You talked about the inventory levels and the sourcing, but any color on how the unit comps have been tracking so far year-to-date, January or early part of February here? And you talked about the Parts & Services business also more on the miles driven side and the customer pay and warranty work started to come back pretty quickly. I’m assuming there is some pent-up demand there that continue to flow through. So just curious to have your thoughts there. And I have a follow-up. Thanks.
Mike Jackson — Chairman and Chief Executive Officer
So our view is that the new vehicle business will improve by about 7% this year approaching 16 million units. There is demand for higher volume than that, but I don’t see a path on the production side through them, but it’s a very opaque uncertain disrupted situation on the production side, or you now have this combination impact the pandemic with the shortages of the chips to produce vehicles. One of the things we went through when production was resumed after the shutdown, was manufacturers made vehicles without even having all the parts and then parked them to — for completion that turned out to be a fiasco and we literally had vehicles that we were told were ours and we’re on the way that didn’t show up for six. seven, eight months. And so the manufacturers has stopped that practice and really don’t produce unless they have a site line to all the parts. And when this combination of the pandemic and the chip shortage is going to clear, I don’t think anyone really knows. So I think the demand is there. Clearly, I think if you look at the extremes of last year and you sort of smooth that out, I think it’s fairly safe statement to say that new volume will be up 7% this year. The demand is there and January tracked along that line.
I think the pre-owned business for the industry is probably relatively stable, but I think we will outperform as we did in the fourth quarter. That’s our goal. Availability, as I said, we look to generate as much on our own means in terms as we can, we’ve been very successful with that. We will continue working at that. And customer care, again it’s a situation of miles driven and when do people fully resume the behavior that existed pre-pandemic and that could take a while. I don’t know exactly. Joe, what would you like to add to that.
Joe Lower — Executive Vice President and Chief Financial Officer
Let me touch a couple of things. One, going to the used as Mike indicated, I think one of the benefits we really do have is the sourcing. So used is a lot about having the inventory, with 85% of our inventory being sourced directly from customers versus many of the peers are 50% or less. I think that clearly does serve us well and positions us well for 2021. On the — I’m going to dissect a little bit customer care, I think you asked specifically about customer pay and warranty. So if you look at the fourth quarter of the entire customer care business was down about 3%. Customer pay in that same general directions down a little bit more, but not much. Warranty similar, kind of in the same zip code if you will. Internal again being the area that actually saw a positive built again associated with the volumes of units. And as indicated collision really is the area that has a drag, if you will, the slowest to recover with miles down 10%. Collision got a little bit better than that. Again I think as the miles recover, we’ll see that portion of the business in particular improve and are very optimistic about customer care as we go through 2021.
Rajat Gupta — JPMorgan — Analyst
Got it. That’s helpful. And the customer pay and warranty, is it down slightly in the fourth quarter? Did it exit at positive rate in December or into January here or is that still comping down from a year-over-year perspective here recently.
Joe Lower — Executive Vice President and Chief Financial Officer
It’s still slightly comping down, but the trend continues to be a positive one.
Rajat Gupta — JPMorgan — Analyst
Got it. That’s super helpful. Thanks for the color. And then just in AutoNation USA, any metrics you can share so far for the five stores, what the profitability was in the quarter. Like what the units are looking like there today. And just the economics of those as you know they continue to mature over the last couple of years?
Mike Jackson — Chairman and Chief Executive Officer
Joe you take that please.
Joe Lower — Executive Vice President and Chief Financial Officer
Sure. So the five existing stores continue to operate successfully. And as you know, those were kind of a five sample stores if you will. We indicated, the pre-tax slightly below $2 million kind of run rate. Again, it continues to be very positive. We’re seeing and as we roll out the five new locations set to open this year, increasingly optimistic the forecast that we provided previously about units about the monthly pre-tax, we feel very good about. And so continue to believe that the monthly pre-tax when it gets to a full run rate is in the $200,000 a month area and very positive about the economics and very encouraged by — from a real estate and build standpoint the progress we’re making.
Rajat Gupta — JPMorgan — Analyst
Got it. Great, that’s super helpful. Thanks for all the color. I’ll get back in queue.
Joe Lower — Executive Vice President and Chief Financial Officer
Thank you.
Operator
Your next question comes from Stephanie Benjamin from Truist. Your line is open.
Stephanie Benjamin — Truist Securities — Analyst
Hi, good morning.
Joe Lower — Executive Vice President and Chief Financial Officer
Good morning.
Mike Jackson — Chairman and Chief Executive Officer
Good morning.
Stephanie Benjamin — Truist Securities — Analyst
I wanted to touch a little bit on your decision to act that you’re Vroom investment. Just curious, the timing of that, or if that played out based on your expectations and how we should think about what this means for our future investments going forward?
Mike Jackson — Chairman and Chief Executive Officer
Excellent question. Glad you asked. So look, we are not an investment enterprise, when we made the partnership with Vroom, it was with the hope that we would find synergy and a common grounds to work together, whether that was in our expertise reconditioning digital whatever, we just thought there could be some mutual benefit for the two companies and that we could do something together. Well, none of that worked out, and so then it became purely an investment, which is really not what we intended and once it was clear this was just an investment that the companies would not be doing business together, we decided to declare victory and move on. And I think we originally invested 15 — $50 million and finished receiving, Joe was it $215 million we got back, something like that.
Joe Lower — Executive Vice President and Chief Financial Officer
Yes. $215 million in total.
Mike Jackson — Chairman and Chief Executive Officer
$215 million in total. So an excellent investment but with the two companies on an operating basis, we’re doing nothing together, nothing. So, the correct decision was to actually to position. Now the other investment we have is Waymo, and I can tell you on an operating basis, we are doing things together. That is interesting and can lead to something. So we stay on that journey and we’re optimistic and hopeful that all that worked out, but I want to be clear, we only took these two steps because we thought the companies could do business together that was win-win from both companies. When it was clear with Vroom that was not the case, we exited the position.
Stephanie Benjamin — Truist Securities — Analyst
Got it. No, that’s very helpful and then just my second question, on your SG&A performance. On adjusted level another record quarter and certainly well below your target or kind of that sub 68%. Is there any desire to now lower your long-term target just given your performance last two quarters, or how would you kind of chalk up your outlook going forward just given the performance you’ve seen in the last two quarters? Thank you.
Mike Jackson — Chairman and Chief Executive Officer
The performance is outstanding. But that doesn’t mean, today we’re going to lower the target from 68%. We will be at 68% or below. That’s our commitment and so far we’re doing pretty good on our commitment. I can tell you that we feel the steps we’ve taken over the last two years have dramatically improved the cost efficiency and effectiveness AutoNation on a sustainable basis. And we’ll see how the actual numbers come in, but we really like our position. But as far as moving the goalpost today on the 68%, we’re not doing that. Joe, what would you like to add?
Joe Lower — Executive Vice President and Chief Financial Officer
Yes. Thanks, Mike. So Mike is absolutely correct. We have clearly realized the benefits of prior investments and I think a better discipline and run the business. So as you look at SG&A, I mean growth was up $88 million and SG&A was down $17 million. That’s remarkable leverage obviously. But it comes across really all three categories of SG&A, compensation again made some difficult decisions through the pandemic operating with fewer people. I think learning how to do that very effectively leveraging technology, both in the store and in the back office. So we had compensation despite, obviously a significant portion of the compensation being variable down 380 basis points year-over-year. Clearly an area we’re seeing benefit in digital is in advertising, but that’s down 80 basis points year-over-year. And while we still advertise, I think to a greater degree than many of our peers I think the results and the success in the business is reflective of that. So I think we’ve been very prudent in finding the right level, albeit a reduced level in leveraging our capabilities. And then finally overhead again difficult decisions in people and then a discipline and within the overhead driving that down 350 basis points. So from my perspective, driving it down over 800 basis points really across all three categories is a commitment we’ve made and through a change in operating and as Mike said, we are committed to continue to operate at or below 68%.
Stephanie Benjamin — Truist Securities — Analyst
Great, thank you guys so much.
Mike Jackson — Chairman and Chief Executive Officer
You bet.
Operator
Your next question comes from Rick Nelson from Stephens. Your line is open.
Rick Nelson — Stephens — Analyst
Thanks a lot. Good morning, guys. I would like to ask you about the acquisition environment, what you are seeing there in terms of opportunities? What kind of brands, geographies you are looking at and multiples that you are seeing?
Mike Jackson — Chairman and Chief Executive Officer
Yes, we definitely have a lot of conversations going on, a lot of negotiations and I fully expect we’ll have some new vehicle franchise acquisitions this year. But I’m not going to put a specific number on it. We’re very happy with the footprint we have in new vehicles and we spend a lot of time Rick as you know, optimizing that. And one of the reasons for our success today is that we really took the time to go through every store we had and decide if they fit or not. I would say the number one issue, when we look at an acquisition is, whether it will be a cultural fit with AutoNation or is it a complete reinvention of the dealership in order to meet our operating standards and how we do business. I would say that’s most important. And then of course, we’re very comfortable adding within our existing infrastructure with new vehicle franchises. I don’t expect much help side that, but we’d be open to doing it. And of course, we’re very disciplined on the cost side. And you have to be careful around multiples because 2020 is a very odd year to base anything off of. We sort of have to go back and look at ’18 and ’19 in what the world was like. So that’s our approach. And so I think we can do all of the above. There will be USA stores, invest in our digital capabilities, keep all our existing stores fresh, do some new vehicle acquisitions and repurchase our stock, which we think is very attractive.
Rick Nelson — Stephens — Analyst
Thanks for that color. Someone here one of your peers talked about the potential for public company consolidation. I’d look to get your view on that and whether you think the OEMs would be supportive of something like that?
Mike Jackson — Chairman and Chief Executive Officer
So I’ll give you my view. What I’ve experienced is that when you become as large as we are and you make an acquisition, say brand Z and you already own 25 brands in these stores and you want to buy number 26 and 27, in the negotiation with the manufacturer, they will ask, okay, we will improve number 26 to number 27, but let me tell you what you have to do from store one through 25 in order to get approval for the next increment, and if you really add that in hand onto what you’re requiring, it really changes the return on investment and so the higher you climb the mountain the more difficult it becomes to keep climbing. Now we are the only one over $20 billion revenue, so I’m talking from a point of view that no one else has experienced yet, that’s our experience.
It’s one of the reasons for us having — going to the AutoNation USA stores is because now we are in charge of our own destiny. We’re able to build these stores for $9 million, $10 million each. We do not need manufacturer approval. All we need is a brand, a great customer experience and a digital ability to penetrate the market and the size of the market is much larger. So I am in charge with my own fate, my own destiny. I don’t need manufacturer approval that goes all the way back to the beginning of time. And all I need is the capability to execute. And we’ve gone through the most difficult period which is building the brand, protecting the customer experience, having a digital capability. So that on a invested capital return, return on invested capital is a very winning equation. And one of the reasons for it is, spot on Rick what you just called out. Our experience is when you get over $20 billion and a number of store you have, you can’t get manufacturer approval, but you can, but it’s quite a negotiation.
Rick Nelson — Stephens — Analyst
That kind of makes a lot of sense. Thanks and good luck.
Mike Jackson — Chairman and Chief Executive Officer
Thank you.
Operator
Your next question comes from Adam Jonas from Morgan Stanley. Your line is open.
Adam Jonas — Morgan Stanley — Analyst
Hey Mike. First best of luck.
Mike Jackson — Chairman and Chief Executive Officer
Hey Adam, good morning.
Adam Jonas — Morgan Stanley — Analyst
Hey, good morning. Best of luck with a new chapter. I’m sure we’re not going to see the last deal. So…
Mike Jackson — Chairman and Chief Executive Officer
Thank you.
Adam Jonas — Morgan Stanley — Analyst
Best of luck. Yes.
Mike Jackson — Chairman and Chief Executive Officer
Thank you. Thank you. Thank you.
Adam Jonas — Morgan Stanley — Analyst
You, got a lot more to share. Mike. I’m curious why are so many startup EV OEMs going — either going direct to consumer or planning to go direct to consumer, and when we put them on the spot at least saying, hey, why don’t you use an AutoNation or the best of breed existing franchises to really get the leverage and time to market and stuff, why you going B2C by yourself. Why do you think that is? Are they foolish?
Mike Jackson — Chairman and Chief Executive Officer
Yes. So I think they’re making a mistake and I think the verdict is close to coming in, Adam quite frankly. So what you avoid by going the route we are going is the massive cost of investing in a customer care infrastructure for a very sophisticated technically complex product. And by the way this thought that electric vehicles will not need care is also folly. As a matter of fact, they are more complex than any kind of combustion vehicle I’ve seen as far as the expertise and the equipment you need, because we’re investing heavily with all the manufacturers to be able to care for electric vehicles. So if you want to skip that whole infrastructure footprint to care for your customers, you can do that by the route that Tesla has gone and some others have gone. But basically listen, we’re taking Tesla in trade all the time and one of the number one issues we hear when they traded in is they are just frustrated at the lack of a enjoyable customer care experience for when something does go wrong. And so I think that’s what they’re trying to bypass, but I think it’s a mistake and I think it will be proven wrong. And I think the strength of the win-win win equation of the new vehicle franchise, a win for consumers, a win for the manufacturers and it can be a good investment for dealers and probably traded investment group has been proven. As far as our sustainability, viability and value in the marketplace. So you can go to our website today autonation.com, you will see a huge flag for electrification all the vehicles we offer from all the various manufacturers. We’re in the game and I think this model will — is viable, will win and others will ultimately have to deal with this issue of how are they going to care for their customers.
Adam Jonas — Morgan Stanley — Analyst
Got it. Mike. Thanks. Thanks for your thoughts.
Mike Jackson — Chairman and Chief Executive Officer
Right.
Operator
Your next question comes from David Whiston from Morningstar. Your line is open.
David Whiston — Morningstar — Analyst
Thanks. Good morning. I guess, I wanted to go back to the earlier comments on consolidation and just another thing I have been hearing some chatter about, would be — if there were consolidations amongst the public that those larger players could effectively block out the digital startups on used vehicle methodically some late model use? I am just curious do you agree or disagree with that?
Mike Jackson — Chairman and Chief Executive Officer
So the whole issue of consolidation and whether two smaller public traded companies could come together, I can’t say, because I don’t have one of the smaller ones. But I can tell you as far as us acquiring one, I don’t see that it’s going to happen, because you immediately run into a problem of too much density in a given market that you’re going to have to divest a significant part of what you just bought, at least that would be for us. So overlap too much density in a given market is a real genuine issue for us and so we will not be acquiring another public traded company. I don’t see a path to the finish line.
And your other point was what? Question?
David Whiston — Morningstar — Analyst
That was basically, I was thought, sorry, [Technical Issues] they see even customer going on late model used inventory and block out the current owners and other digital search in getting vehicle inventory.
Mike Jackson — Chairman and Chief Executive Officer
The phone broke up so I didn’t really hit the — hear the answer, but I can tell you who do I think wins in this huge pre-owned marketplace. I think companies that have a brand with a great customer experience in digital capability will take share in this huge pre-owned marketplace from everyone else. I think that’s what’s happening. And then you have to say well does my model make money or not. So we’ve already proven our model makes money, CarMax’s model makes money. So, but I think, brand great experience and digital capabilities is a winning combination in the pre-owned marketplace.
David Whiston — Morningstar — Analyst
Thanks. That’s helpful and then on electric vehicles, can you just talk a little bit about, it’s actually given your in places like Texas and Florida. In addition, California market outside of the Tesla demand how much demand is there for EV? Is it really ramping up than you’ve seen in the past year or two whether it’s still really trailing Tesla?
Mike Jackson — Chairman and Chief Executive Officer
Now we’ve definitely passed an inflection point on the journey to electrification. And there is no turning back. But it is gradual if you want some numbers from me, I think if you go to 2030. 20% of all new vehicle sold will be fully electric. However this is not like going from the flip phone to the smartphone where you throw away all the flip phone. I think and 6% of the units in operation on the roads of America are all electric by 2030, internal combustion engine is going to have a life span of 20 years, 25 years is not obsolete from one day to the next. There is a huge segment of consumers that the affordable transportation that will come with existing internal combustion engines will go on for years and years and years. So the transition for units and operations is a decade-long process.
The other insight I can give you as far as our customers who are buying the electric vehicles, what they like about it as long as well as all the obvious things, they are like not found in the gas station anymore and as long as you have a range of 250 miles plus, what they — how they use the vehicle is they use it for daily use and when they get home, at the end of the day they plug it in, either in their garage or the parking area in the condo and every morning they come out and they got a fully charged vehicle, and they never go to gas stations. They are just delighted and all our customers who do buy electric and use it that way have another vehicle, have a suburban or some other vehicle with internal combustion engine and use that for long trips in going around. So I think the journey to electrification is here, we embrace it, we’re going to be part of it, we’re excited with what the manufacturers have in the pipeline, everything from the Hummer to the Mustang Mach and Volkswagen Taigun, list goes on and on. It’s very exciting business to be in.
David Whiston — Morningstar — Analyst
Yes, I agree there’s a lot of change coming and I’m hearing great things about some of these ones you just mentioned. Staying on in our opinion changed the demand that we think we have some in negative way because there is more residual value risk for the captive finance arm and they do want to pull back on these things?
Mike Jackson — Chairman and Chief Executive Officer
We haven’t seen that yet. So far the residual values on electric vehicles are fine. I see no yellow flags or red flags.
David Whiston — Morningstar — Analyst
Okay. Well, thanks for the color. Appreciate it.
Mike Jackson — Chairman and Chief Executive Officer
Absolutely.
Operator
There are no further questions at this time, I would like to turn the call over to management for closing remarks.
Mike Jackson — Chairman and Chief Executive Officer
Well we have no closing remarks, other than we’re delighted you’ve joined us today. Thank you very much for your questions. All the best. Thank you.
Operator
[Operator Closing Remarks]