Yahoo Finance

Adam Chamberlain

Thank you, Bryan. In quarter four, our team demonstrated our ability to deliver exceptional customer experiences, focus on cost discipline and importantly, grow market share. Our focused approach of having the right leaders and the right products resulted in clear sequential improvement in sales trends, and we are confident in our ability to strengthen our opportunity areas, particularly used vehicle sales.
I proudly stand by our leaders as I set a new bar for the industry in the months ahead. I'd like to focus today on three opportunities to drive profitability. Revenue growth, inventory trends, and SG&A execution.
As Bryan mentioned, we delivered our first year-over-year growth in operating profit in nine quarters with positive contributions from new vehicles, aftersales, and value autos, all supported by continued strength in SG&A execution. We are confident in our ability to continue delivering on our growth strategy in 2025.
Let's now turn to our same-store sales performance, where we saw strong performance in new vehicles and value orders.
Total revenues increased by 3.1% and gross profits declined 3.7%, primarily due to the normalization of GPUs. Total unit sales increased 1.7% year over year, while total gross vehicle profit of [$4,535] was consistent with the prior sequential quarter and was down $444 compared to the same period last year.
New vehicle units increased 7.4% year over year, with particular strength in import manufacturers. Our front-end GPUs remain resilient at $30.82, decreasing sequentially from $31.88. Used vehicle units were down 4.3% year over year. We saw strong performance in value orders, which were up 24.6% year over year, and we saw improvement in certified and core unit trends.
Front-end GPUs for used vehicles are stable year over year at $19.59 and declined sequentially by $177. Used autos continue to be the focus of our operations. And whilst we're encouraged by our progress, we expect to see significant improvement in the quarters ahead.
An opportunity also remains for aftersales performance, and this will be a key driver of growth in 2025. In the quarter, aftersales revenues were up 3.4%, compared to the prior year, delivering a 55.8% gross profit margin.
Warranty work was core to this growth with a 19.9% increase in gross profit year over year. Our ability to manage technician head count and drive operational efficiencies has positioned us well to meet ongoing demand whilst also maintaining a strong focus on providing exceptional customer experiences in our aftersales departments.
Now turning to inventory, where we saw an overall decrease of approximately $200 million on our inventory balances from quarter three. We continue to see opportunities to [increase] our inventory balances and are targeting 50 DSO for new and 40 DSO for used inventory balances in the second quarter as we look to achieve further flooring interest savings.
The execution on our original cost saving plan of $200 million was fully realized in quarter four. Our adjusted SG&A as a percentage of gross profit was 66.3% during the quarter and 66.8% on a same-store basis despite the typically higher SG&A we experienced in quarter four due to seasonality.
Whilst we are pleased with two consecutive quarters of strong SG&A performance, we remain dedicated to achieve continued cost savings and maintain a focus on disciplined cost management as we move through 2025.
Opportunities to improve our cost structure remain with the potential to achieve SG&A of 65.5% to 67.5% on a same-store basis in 2025 through continued efforts in North America and our UK network where optimization remains.
Our team's relentless focus on delivering exceptional customer experiences and achieving performance through people this quarter is impressive. I'm proud of the team's progress in 2024 and confident in our outlook for 2025 and look forward to inspiring customer loyalty, achieving the potential of our stores and igniting growth across our ecosystem.
I will now turn the call over to Tina to walk us through our key financial highlights.

Tina Miller

Thank you, Adam. The clear momentum Adam outlined in our operations has enabled us to accelerate our focus on creating value through our financing operations segment, efficient capital allocation, and disciplined balance sheet management.
Starting with our financing operations segment, primarily driven by DFC, we continue to see solid progress with profitability of $9 million this quarter compared to a loss of $2 million in the same quarter last year. The benefits of our diversification strategy are apparent as our seasoned portfolio continues to grow, and our capital and securitization efficiency improves with the market building confidence in our operations.
2024 was the turning point with profitability of $15 million for the full year. We expect to continue to see this profitability trajectory in 2025 as we balance yields, growth, and risk with an emphasis on high-quality loans and disciplined underwriting.
The financing operations portfolio balance is now over $3.9 billion with DFC originating $501 million in loans during the quarter. Our portfolio quality continues to be strong with new origination FICO scores expected to average 730 in 2025 and sustained improvements in net interest margin, which increased 135 basis points year over year and 55 basis points sequentially.
Overall, our financing operations continues to deliver on our financial milestones ahead of schedule. The adjacency is a key element of our $2 EPS for every $1 billion of revenue targets as each loan originated by DFC contributes up to $1,500 more profitability than traditional indirect lending. We remain confident in this segment's long-term earnings growth and expect increasing profitability with a fully seasoned portfolio.
Now moving on to our cash flow performance and balance sheet. We reported adjusted EBITDA of $419 million in the fourth quarter, driven by relatively flat net income as higher unit sales offset continued GPU normalization and higher floor plan interest expense year over year.
During the quarter, we generated free cash flows of $180 million. Free cash flows were impacted by higher floor plan interest expense and an increase in capital expenditures compared to the prior year, mainly related to construction to meet manufacturer requirements at recently acquired locations.
Our capital deployment strategy focuses on the efficient allocation of our business's regenerative cash flows, preserving the quality of our balance sheet while supporting our growth initiatives and allowing us to respond opportunistically to a complex environment.
This quarter, we continued our focus on closely balancing acquisitions of shareholder return as we see elevated pricing on store acquisitions even as margins normalize compared to our shares current valuations. Prospectively, we look to allocate 30% to 40% of free cash flow to share repurchases. Our capital allocation strategy is guided by M&A transaction pricing. And as acquisition pricing normalizes, we will actively reassess.
Capital expenditures have trended down and are now primarily related to network optimization and OEM requirements. Under this rebalanced focus in the fourth quarter, we repurchased nearly 1% of our outstanding shares at a weighted average price of $377. $469 million remains available under our share repurchase authorization.
We ended the quarter with net leverage of 2.5 times, in line with our long-term target of 3 times and well below our bank covenant requirements of 5.75 times. While we opportunistically allocated capital during Q4, we maintain our long-term focused financial discipline to support our planned growth and target leverage below 3 times. These metrics adjust for the impact of floor plan debt, which is unique to our industry and related to the financing of vehicle inventory. This financing is integral to our operations and collateralized by our inventory.
The industry treats the associated interest as an operating expense and EBITDA and excludes this debt from balance sheet leverage calculations. Similarly, we have ABS warehouse lines and issuances to capitalize DFC, which are also excluded from our leverage calculations.
Our strategy is to achieve strong, consistent growth and best-in-class shareholder returns through our omnichannel platform. We have the right team, tools and financial foundation in place to drive scale and profitability in our core business and adjacencies. Our diverse and talented team is committed to delivering exceptional customer experiences to build loyalty and we have the foundation to ignite our potential as we grow in 2025 and beyond.
This concludes our prepared remarks. With that, I'll turn the call over to the operator for questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Ryan Sigdahl, Craig-Hallum.

Ryan Sigdahl

I want to start with what you're seeing in the current environment. So clearly, sentiment has improved. SAARs improved, kind of towards the tail end of Q4, seems like trends have continued in January despite some weather and various impacts. But curious what you guys are seeing from a trend standpoint, kind of how you view the new administration tariffs, if there's any impact in noise kind of recently, but just kind of a current market update would be great?

Bryan DeBoer

Thanks, Ryan. This is Bryan. I think we're pretty excited entering the year because we're finally seeing the tailwinds of volume coming back, whether those are driven by economic change or political changes. We definitely see a pathway by year-end, exiting the year at 17 million SAAR. And more likely that we believe that there could even be an 18 million year in the future, knowing that there's about 11 million to 12 million units that have been suppressed or not sold over the last five years that things look pretty good.
Now if we're looking at other macro issues, I think tariffs is probably one of the larger things. And I'd probably never thought I'd be sitting here saying I'm glad I have an extra 20 days of inventory over most of the industry. But we are sitting in a nice position with inventory if tariffs do end up coming in.
The tariffs for us, we have about 36% to 38% of our vehicles we estimate that could be impacted by tariffs and being that we've got a 50-plus days' supply, we should be sitting quite nicely to be able to work through any negotiations that are happening between the two countries or three countries or four countries or whatever it ends up being at.
So all in all, the market is there, okay? And I think in terms of our performance this quarter, I don't believe that we captured all of our opportunity, okay? We did a solid job in the new cars, okay? But that gives indication that there was a market there that we did not capture on used cars, okay? I believe that it's highly likely that we could see double-digit same-store sales growth on used cars in the coming years, okay, as well as possibly on new cars. And that's a good sign for the industry as well.
When it comes to aftersales, again, I think our warranty business filled our shop set up 20%, and our customer pays were sacrificed because of it up only 2%, okay? We've got to be able to walk and chew gum in our service departments. At the same time, meaning that when warranty goes up, we're still servicing our customer pay work.
So all in all, lots of opportunity for us, knowing that our ecosystem is fully built and grounded, we're 100% focused on capturing that opportunity.

Ryan Sigdahl

That's great. My follow-up question, just looking at your 2025 new vehicle GPU outlook, it seems a little more pessimistic or maybe conservative, I guess, however you want to view that versus some of your peers that are seeing where closer to the bottom and new normal than we are kind of needing a lot more normalization to go.
I guess the question is, what are you seeing in terms of, is it industry dynamics? Is it conservatism? And then kind of secondly to that, is the $2,500 to $2,700 of new vehicle GPU, is that the target new normal, which I think you've said in the past? Or is that the average that you expect for the year from a kind of guidance standpoint?

Bryan DeBoer

Ryan, I think when we think about GPUs that I think, this has been the theme probably for the last four or five years that we're a little bit more conservative on GPUs. We think if we don't do that, then people get out of control on their cost structure. So with our rightsizing plans and our 60-day plans in place, it's imperative that we match GPUs with our cost structure. So we probably are a little more conservative because of that reason.
In terms of the $2,500 to $2,700, that is what we're looking at for the year. We believe that the normalized level is somewhere in the $2,300 to $2,500 level, okay, and add another $2,000 an F&I gets you to the $4,300 to $4,500, okay? So there is some that will come out.
But I really believe if demand is that where it's at today, and we're in the middle of winter, okay? I really believe that we've got a lot of upside when it comes to Q2, Q3 when seasonality for us really starts to take hold.

Ryan Sigdahl

Nice job guys. Good luck.

Operator

Bret Jordan, Jefferies.

Bret Jordan

I think you talked about significant improvement in used. And I guess sort of could you parse out what is volume versus GPU there, sort where you see us in the used profit cycle?

Adam Chamberlain

Yeah. I think we're obviously pleased with our value orders, as I said in prepared remarks, with solid growth both through the quarter and on a full-year basis at double digit as well. But overall, we have to be disappointed with the decline in performance overall. And we've got a significant focus on driving used in 2025, especially when we can share we're up on new cars, 55% of our used cars are sourced through trading. So there's no logic trail to say why we should be different on used, if that makes sense.
In terms of GPUs on used cars, we saw a lot of volatility in pricing in 2024. If we look at historical norms, we think there may still be a slight upside on used cars, but that remains to be seen as we kind of try and drive volume back as well. Does that make sense?

Bret Jordan

It does. Thank you. And I guess, you also mentioned in the prepared remarks improving UK efficiency and SG&A. Could you just give us an update where you are winning there?

Bryan DeBoer

Sure, Bret. This is Bryan again. We're actually quite pleased with what's occurring in the UK relative to market conditions, it's obviously a little softer market. You probably saw that from some of our peers as well. But we have improved our position when it comes to cost management.
I think we were around just over 80% SG&A as a percentage of gross, which is still far from the 75% that we're targeting, okay? But going through the winter months and knowing those gloomy days over the United Kingdom are there, we're pretty positive on where we're at. We've rightsized that part of the organization. So you'll start to see that come into same-store sales this quarter, okay? So you'll get to see some of those improvements.
But all in all, we're really pleased with the investment. We are getting our feet on the ground a little bit when it comes to reporting and it comes to that idea of performance through people and managing people. But you know what, we've got great leadership over there with Neil and his teams, and we're excited with what the future holds.
Lastly, we also have cleaned up the entire mess that I would say that we bought. If you recall, there was those 30 to 50 businesses that were too small to operate. All of those have been shuttered now or they've been sold. We've monetized on all of them, but two, and the remaining two will get monetized by the end of March, okay? So we're pretty pleased with where we sit on that.
In terms of the associated real estate, our leaders in the UK did a nice job. We're almost 100% gone on selling all those properties in terms of the leased properties. We've got worked through almost 70% of the equivalent pounds that those costs. So we're real pleased where we sit on that as well.

Operator

Rajat Gupta, JPMorgan.

Rajat Gupta

Just the first one on the SG&A curve. I think, Adam, you cited like there's more opportunities here. Could you elaborate what areas that might be? Is it more in the UK versus the US? Just curious if you could dive a little bit deeper there? And I have a quick follow-up.

Adam Chamberlain

Hey, Rajat. Thanks for the question. Yeah, I think if we look at -- if you remember, we had our [six balance] and I think we talked to you about it in the late summer last year. We kind of realized the measures identified in that and through the fourth quarter, we took out a further $200 million in inventory. So that was promising. I think we still believe there's another $50 million to $70 million in vehicle inventory to kind of clean up and manage through the quarter into quarter two.
And then I think we're in good shape. But of course, the underlying premises, we remain disciplined as we move forward through our store leaders or op leaders to make sure that we don't just jump back and add the cost in.
So I think we talk about SG&A, discipline is a kind of everyday buzzword now. But to be specific to your question, the new car inventories should decline by another 50% to 70%. I think Bryan probably is best positioned to comment on UK, Rajat.

Bryan DeBoer

You bet, in fact, let me just recap a little bit on the entire organization. If you remember, we've we finished $200 million in cost reduction. There's another $50 million to $70 million in interest cost savings coming from inventory. We also found another almost $50 million in personnel costs at the support functions, okay, as well as tech costs. Those will be realized in the first half of 2025 for an aggregated total of almost $320 million.
There's another $20 million to $30 million that's in the UK. But like I said, you'll see that in the same-store sales results this coming quarter. I think most importantly, when you think about driving down SG&A, we're talking about approximately 1.5% SG&A reductions over the coming five years, okay, to drop us into that mid-50% range, okay? That's going to come through growth of top line. So it's imperative that we're able to grow our same-store sales growth and then do it in a way that it's cost efficient.
We announced the release of the Driveway portal and those 250 functions that help our team members and associates do things easier and gain productivity. That's part of it, okay? If our customers can do their work and have transparent, simple, and empowered experiences within that portal, that released some of the pressure in the service departments and the sales department as well.
So it's a combination of those two elements, top line growth and disciplined reductions that are coming from the uniqueness of our ecosystem that we're going to be able to get to that mid-50% SG&A cost.
Thanks, Rajat.

Rajat Gupta

Just one follow-up. Thanks for all the colors. On parts and services, you had pretty good warranty growth as you talked about. I was still a little surprised to see just 3.5%, like revenue growth, 4.5% gross profit growth. I'm curious how do you accelerate that to the mid-single-digit guidance for the full year, we also have some easy compares from the CDK in 2Q, 3Q.
I would imagine could it be higher than the mid-single digits. But -- any more color you could give there on the initiatives in that business where you are, technician, ads, et cetera, that can give us some comfort in the acceleration?

Bryan DeBoer

Sure, Rajat. This is Bryan. I think after seeing our peers, we're not happy with 3.5%, okay, that didn't meet market, okay, which is important. The exciting thing is, I think Adam and I can bolster here and say, that we've got the challenge out there for our aftersales leaders to be able to reach higher, okay? It won't turn in months, it will turn in a few quarters.
But we've established multiple things of how we can actually grow warranty and grow CP. It's not a tech issue, okay? It's more of a mindset issue from the service advisers in the organization and management that they believe that there's only so many hours there and they can find the efficiency, okay?
We just announced the release of what we call our Lithia & Driveway Partners Group. That was at a store manager level only, okay? That's now getting rolled out to department level managers, and that's something that's going to grow the pride for performance within our stores. That -- and that should -- that's tied directly to departmental potential exercise, which is setting a higher bar that again is establishing that there's a market there, we need to capture it.
So I really look at it. We could be high single digits, low double digits, again like we were pre-COVID within the coming, I would say, three to four quarters. The marketplace is there and the optionality that we're providing through the portal or through in-home service functions should be able to take market share and grow that business.
We've outrun, I would say, the regional differences in population growth, okay? There isn't really big differences any longer. So there's not a good excuse for why we were at 3.4% and others, we're pushing high single digits.
So we'll get there, Rajat. Thanks for pointing that out.

Operator

Chris Bottiglieri, BNP Paribas.

Christopher Bottiglieri

I wanted to follow up on the first one on the guidance for '25 on the gross margin rate for service. It looks like you've been doing really good, like 56% grosses looks like you have that dropping for some reason next year to 52%, 55%. Is that just mix with customer pay? Or is that anything you're doing with wheels for next year? Just trying to understand why (multiple speakers)

Bryan DeBoer

Yeah, it's more of a mix between the labor part of the after sales and the inventory part. So service versus parts. We believe that as cars become more complex, and more rip and replace that there's a bigger parts content on cars than there is a labor content.
So you're going to generally see us lean towards margin reductions because of the bigger parts mix, okay? It's not that we got smaller business. It's purely just the mix of those. And it may end up happening slower than what we expect, but we do hedge that on the more conservative side because of the parts mix.

Christopher Bottiglieri

Got you. Okay. And then two, I just wanted to kind of get a sense for the GPU guide. If you look at the GPU guide on the used side, you did like 1,800 to 2,300 same-store guide. A pretty wide range, but you have a UK slipping into the comp base. You're exiting at 1,700 in Q4, 1,800 in Q3.
So a big -- at the midpoint, it's a pretty big snapback relative to '24. Just trying to get a sense, were there like underappreciated headwinds in '25 -- I mean, '24 are like inventory write-downs? Or anything that maybe you weren't calling out that kind of gives you visibility to the snapback in '25? Or in your view, what drives that recovery into used GPU? And then I guess similarly F&I seems to have a little bit a snapback in the '25 guide?

Bryan DeBoer

Chris, this is Bryan again. I think when it comes to the GPUs, the major factor is the UK, okay, because obviously, they're considerably lower. The other thing is in the UK F&I is much lower as well. So that has implications on that. I do believe that there's opportunity to grow our F&I and obviously, I mean we're targeting that $2,000 number.
But as ASPs get higher, the financing amounts get higher as well. And obviously, that drives F&I profitability. So I do believe that there's some nice upside that we could also realize. And again, we try to be realistic as we can with what we see in the current marketplace.

Operator

Jeff Lick, Stephens.

Jeffrey Lick

First question, your store count went from 467 to 459. There really wasn't any press release as kind of highlighting that. I don't recall you're talking about it. Could you elaborate on what drove -- what were those stores and why move backwards in that regard? And then also on the aftersales guidance, I was just curious, the 52%, 55%, what are the puts and takes like what would cause you to be closer to 52% versus closer to 55%?

Bryan DeBoer

Sure. So on store count, that is purely the divestiture and closures of stores in the UK that were disclosed a year ago, okay? So those got finalized, which is great to have that a lot cleaner. In terms of the 52% to 55%, the biggest variance is typically are what happens on recalls and how much of it's parts, okay.
So as I -- like I just went through a few minutes ago, that parts mix is why we give that range. I do believe that a 54% to 55% is probably appropriate for the near term. So you shouldn't see much -- you shouldn't see -- I wouldn't even call it margin degradation, I'd call it mix change, okay? Because remember, on parts, our profitability level is about 30%. And on labor sales in the service department, they're 65%, okay? So big difference is that purely -- that can move things pretty quickly if you have an RO that happens to be 60% parts versus 60% labor.

Jeffrey Lick

And then just a couple of quick follow-up clarifications for Adam. One was, Adam, you mentioned 55% of new -- that statistic you were referring to each 55% of the new deals come with the trade because I don't think that was -- you weren't implying to 55% of your used to source?

Adam Chamberlain

It's the source of -- yeah, it's a great question, Jeff. It's a -- it's the source of our used cars. So 55% are sourced from customer trade-ins. People have bought a new car trade and we try and sell.

Bryan DeBoer

Here's our breakdown 55% trade-in, 1% buying them off the service drive, 4% lease, 8% private party, and 2% through Driveway for a total of 70% that comes from the consumers, okay? The rest is service loaners, dealer -- from other dealers, wholesalers, rental companies, and auctions.

Jeffrey Lick

And then one last quick one. When you mentioned, Adam, that the SG&A benefits were fully realized. You were referring to just this quarter. You still have a couple more quarters to go where you're going to be running 50-plus group?

Adam Chamberlain

Yeah. Great question. I think Bryan talked about that. For the quarter, the realized, we still see opportunity in inventory floor plan as I talked about $50 million, $70 million. And then as we grow top-line revenue and growth, we see an opportunity, as Bryan said, to decrease sequentially across the coming years.

Jeffrey Lick

Awesome. Congrats on a great quarter and give my best to [Sim].

Operator

John Murphy, Bank of America.

John Murphy

Without the exact data in front of me, but I think it's fair to make a statement that you guys have been one of the -- or the biggest acquirer in the last few years, in the market. And the statement that you're making now that multiples are a little bit on the high side currently and that your stock is a little bit more attractive is a pretty big statement for the entire market.
So Bryan, I was just curious what too high means? I mean you mentioned 15% to 30% of sales or 3 to 6 times EBITDA. Do you think the market -- how rich do you think the market is right now? And how do you think it gets normalized, hopefully, over the coming quarters?

Bryan DeBoer

Great question, John. I think you probably heard some confidence in my voice 90 days ago on the call that we thought things were softening a little bit in pricing. And I guess I'm sitting here with a little bit different perspective that there's been some pretty high prices paid for transactions.
And we're -- the difficulty of what we're seeing, John, is that when you're talking about us buying at a 3x to 6x normalized earnings multiple, you've got two factors happening, though there's high multiples of 6 to 10x in many places in the country still because there is still a lot of cash out there.
And then you add another 50, depending on manufacturers, I should say, another [15] to double the earnings levels on a three-year look back you start to get into multiples and returns that are low to mid-single digits that it just doesn't make sense for us.
And when we sit and trade at a forward-looking multiple of somewhere around high single digits, low double digits, it just doesn't make any sense for us to do that when we know that our ecosystem is built. We know that the $15 million that we made in DFC is going to be $50 million to $60 million this year, and we know that long term, it's $500 million at a 20% penetration rate. So these are things that we're not even realizing in our own earnings potential. So why would we just not buy our shares back. And that's where we are actually in a nice position that we're generating lots of capital that when the market turns acquisition wise, then we can turn our attentions back to that.
I do believe it's probably still a few quarters away. I think we can probably hit $2 billion in total revenue for the year, okay? But -- and again, that's going to be in the United States, 90% of it. okay? But we have to pick and choose those opportunities of stores that really haven't realized the profit potential that we're able to find for that 3 to 6x normalized earnings, which is where we're really going to be sitting.
So, it may take another few years for it truly to normalize because people have made a lot more money than what they typically had. And that's something that we try to tell them. You already got that money we're not going to pay twice for something when your earnings are normalized. So we typically do ask for financial statements for the last few months and then try to look at the trajectory and explain that to them and hold their hands through it so they can still monetize.
The important thing to remember that is Lithia, we have done about half of the transactions over the last 1.5 decades that have been done by public companies, okay? And we are sitting there as a buyer that has closed every single one of those transactions other than 2, okay? So over our 3 decades of purchasing, we've only had 2 transactions out of almost 600 transactions, that fell apart, okay? That's not typical in the industry. Typically, about 4 out of 10 transactions get completed even once they are contractually committed, meaning that fall out of 10.

John Murphy

That's helpful. And just one follow-up on one of the other comments you made. You said 95% success rate, which indicates 5% don't work out as well as expected. Does that mean that those stores eventually falling into divestiture? Or are the stores that get closed or fixed?

Bryan DeBoer

You nailed it. In the U.S., we haven't really had to close stores and in the U.K., we did because they were just so microscopic in size. But in that 95%, what makes up to 5%. Typically, what makes up the 5% is us not missing a target on an acquisition. It's us buying a group that may have had 1 or 2 underperforming stores in it.
And then it's just a matter of trying it for 6 to 9 months. And if it doesn't meet our thresholds, then we typically divest it.

John Murphy

Got it. And then just one last quick question on the outlook. When you're talking about the front-end growth of (inaudible) you kind of mentioned there might be some downside in a new GPU. But it sounds like the -- you're pretty comfortable with the other 2 components there being used in F&I. As we think about that front-end gross going forward, which is the most important number out of those 4 there because you're working a deal.
Do you think that's going to settle in closer to [4,000] plus or minus? I mean we -- I mean, because that's really the number you run the business on. So what's the upside downside on that in the range you think is normal?

Bryan DeBoer

Yes. John, that's a great question. And I think I'm going to answer this from a Lithia and Driveway standpoint, not from an industry standpoint because it's imperative to remember that Lithia pre-COVID had a lot of its business in the Western states and a lot of small stores that didn't generate GPU, okay? So we not only purchased a lot of luxury stores and doubled our mix percentage of luxury, we also purchased stores in the Southeast and South Central that have about $1,000 higher GPUs than the rest of the country. So our lift in GPUs is different than what the industry's lift is.
So we're not looking at what the industry is doing. We're looking at what we're doing when we say $4,200 to $4,500, okay?
Now where does the variation come from. We believe that we've already troughed on used, and there's a lot of upside on used vehicle GPU that should come back over time, okay? So in our modeling, we're assuming that there's $200 to $400 of improvement in front-end gross profit on used vehicles that will offset some of the reductions in new vehicles because we are still sitting at about $1,000 higher as an industry. We think because of our mix, we're only sitting about $500 to $600 higher, okay? And then, obviously, add back in the F&I lift of another couple of hundred dollars and you get to the $4200 to $4500.

John Murphy

And that you think the "normalized range" for you probably over time? We'll see how the market -- that's the target (inaudible)?

Bryan DeBoer

Based on our new footprint and growing footprint, okay? So the mix and the footprint are the main reasons why we move from $3,700, which was our pre-COVID level to almost $500 to $800 higher, okay? Remember, in F&I too, we typically had grown F&I about $60 to $70. It's been 5 years, that's $300, okay, that you can apply to it. So there's not a big lift here.
It's truly -- we are at the point that our goal as leaders is to be able to change the mindset of our department and our store leaders, okay? And I think this idea of performance through people we've got to help paint a picture for our store leaders, how do they find their next gear because I think we're all in this red that believes that the market still may be a little soft, we know it's not okay, that SAAR is going to return and GPUs are still quite strong, especially with upside in the used vehicle area. And obviously, F&I is always there to be commanded and to be captured through better people and better performance.

John Murphy

That's great. And thanks for saying 18 million units in the next couple of years because that's what our forecast is and are things we're were way too high. But I'm certainly at the same mindset. I think we're going to get there in '27, '28...

Bryan DeBoer

All right. We have to hit when that happens, okay. Hopefully, it's within the next 4 or 5 quarters.

John Murphy

We'll (inaudible).

Bryan DeBoer

All right, John. Take it easy.

Operator

Colin Langan, Wells Fargo.

Colin Langan

Just wanted -- I'm not sure if I missed this in your commentary, new GPUs were down sequentially. Others that have reported have been flat to up. Any explanation of sort of the relative performance being different? Is that just a U.K. factor driving some of that?
Or why not seeing that seasonal help that others have seen?

Bryan DeBoer

It could be a little bit of GPU, Colin, but I think it might be mix differences of manufacturers. But you know what, I'll own it, Adam will own it. It's us, okay? There's opportunities, and we've got to get out of our mind that somehow the market is soft when the market is quite robust, okay? So that's just something that I think after reflecting on the peers, it gives us upside as the largest retailer in the world that you know what, if we can figure that out and we can change the mindset of our people and inspire them to find the next year and we're going to be able to exceed.
So I don't want to really assign a reason, but I would say that, that's -- it's probably more us than anything else, and let's own that and move forward and capture that.

Colin Langan

Okay. Right. And then I just wanted to follow up on a prior question. I think it was asked about the 2025 outlook on used in F&I. And I mean if I look at consolidated, which is going to be the same-store base, you're at like [1,700] unused in Q4 and the guide is [$18 million to $21 million], prior answer sounded to sort of explain why it would be down, but the guidance would imply that improves.
So just trying to make sure I understand what is driving used in F&I because even at the midpoint on F&I would be better. What is driving it better, is that at least the Q4 rate that we're looking at currently?

Bryan DeBoer

So really quickly on F&I, it's truly people performance, okay? It's managing the performance of the people. When it comes to the used car market, Colin, we do have seasonality in used vehicles on GPUs. And as we all know, it's been quite volatile over the last few years that have been driven off of the inventory demand or lack of demand on supply of new vehicles. So I really believe that, that's going to normalize.
We've got Q2, Q3 coming, which usually means strengthening of used cars. And I believe that we've got a lot of opportunity internally to be able to improve and find scarce vehicles and effectively use our AI and our reporting tools to look at price to market and cost to market to be able to grow our performance. And that's really where our opportunities lie. And why we believe [1,700] isn't an appropriate level on a normalized basis. I think that's a depressed level still that's troughed out now for almost, what, 6, 8 quarters.
okay? And it's time to capture the opportunity that's there and respect that we've got the scarcest cars in the country, and they should command more money and let the world see those through Driveway and GreenCars. And find those 50x more customers to help drive price to market up. .

Operator

Ron Josey, Citi.

Ronald Josey

Bryan, I wanted to ask just a little bit more about the online approach that you all have. I know we pulled back some in '24. So any insights on the vision here would be helpful in terms of how you're thinking online can grow, particularly from a used perspective, just given the importance of used with trade with profitability after service. And then do you think we'll get to online growing as a channel here in '25? Or is that more of a '26 and beyond?

Bryan DeBoer

Thanks, Ron, and it's a big part of our ecosystem of how we thought about the design and that idea that you have the potential of 50x more customers. I think what we've done is we've relaxed the pushing of our physical network to actively involved. If they don't get it, they're going to fall behind because our internal and our external approaches to our online business are growing, okay? We're quite excited to see what's happening in GreenCars and Driveway. It is an integrated model that is integrated now fully into the stores.
We developed some new reporting on what we call ecosystem effectiveness. It includes some loyalty metrics in sales and service. It includes some online functionality. It includes now the MyDriveway portal, okay, and this idea that customers are going to be able to now easily access our online services.
And we didn't talk a lot about the MyDriveway portal, but we're going to be dumping almost 70,000 customers into that portal come March, which are all of our DSC customer base. So they're going to be making all payments through there. They're going to be doing all payoffs through there. They can get their valuations through there. Customers can already book service appointments, they can attach themselves to any store through there.
They can have different cars attached to different stores. It's quite functional, and it's really empowering. So we really believe that the snowball effect that will occur from the MyDriveway portal will help integrate everything together to make those customers experiences more seamless.
We are targeting some pretty good lift in Driveway and GreenCars this year to the tune of about 50% lift, okay? And we're starting to see that in the early part of the year through just figuring out efficiencies and again, managing performance through people to be able to really improve.
We've also changed compensation plans within our e-commerce businesses to help motivate people to do more with less, okay? We're also looking at how do we align our stores compensation plans with the ideas of loyalty, potential and growth, okay? And those are things that over the next coming years, we'll be working on with new departmental leaders and new store leaders as they come into the organization to align that top line growth as well and make sure that it follows through with SG&A cost improvements.
So hopefully, that gives you a little bit of color, Ron, on where we sit on the online approach, but we're pretty excited of reaching this point where the ecosystem is built. Now it's a matter of leveraging it.

Operator

David Whiston, Morningstar.

David Whiston

Bryan, you've talked a couple of times about a mindset change being needed such as warranty crowding out customer pay and having customer pay underperform, like -- can you be a little more specific as to what you mean by that? Like what actual action items do you want to see happen to have this change take place?

Bryan DeBoer

I think it starts with believing in your North Star, which is potential, okay? We went through a potential exercise in November and December. And there's a lot of low bars being established when there's units and operations in those stores. So that's -- when I talk about mindset change, it's our RVPs, our group leaders and our regional presidents sitting down with general managers and departmental managers and diagnosing where the opportunities lie and building plans fundamentally how to take the actions to capture that market share. It's as smaller things as in after sales what is my percentage of vehicles that are Driveway repair, meaning I'm repairing a car in someone's driveway.
Or it's Driveway pickup, meaning, I'm picking up the car from someone's driveway, and I'm taking it back to the store in fixing it. If they're not involved with those things, they're not involved with automotive service retail today because there's not an optionality.
And David, there's probably 30 things in each of the key departments that need to be done, but it starts with that ability to engage leaders to see things that they're not seeing today, okay? We have something that we call store visits. You obviously know about our store performance scorecards that lays out the foundation to what is high performance look like. Underpinning all of that, our second-tier reports that get into the details of these in-store visits that are pointing those leaders towards that. The mindset that we need to change above the store is if there's not movement within 60 to 90 days of doing that sit down, then that person that's in that departmental role or that store role, they don't believe, which means we need to be looking for a way to change their mind again or exit them from that leadership position.
That may mean that they can find another position in the company, but there's been way too soft of management when -- and (inaudible) service coming from the stores, if the performance isn't getting changed quickly, it's never going to get changed. 60 to 90 days is our new mantra, okay? It was that way 5 to 7 years ago. It's that way again. And I know Adam and the RPs and RVPs believe in that strategy, they've just got to go execute on it again, okay?
And our store leaders need to understand that change management is a mindset. It's about helping people see things that they can't see on their own. It's about shifting them into the next gear and helping them find that gear and then looking towards that next gear on top of that to be able to continuously improve in our organization. Hopefully, that gives you some insights, David. If you want to take it offline, we can sure talk to you about it at a departmental level and what the key drivers are that we'll be working on.

David Whiston

I really appreciate you fleshing it out. That's helpful. Just to be clear then, you're not really short tax and short service base?

Bryan DeBoer

No. I mean that's more of a symptom in some locations, but it is not the effect, okay? It's -- we don't have the ability to have tech shortages because we grow tech internally. Yes, and maybe (inaudible), there are some soft spots still. But outside that, that's not the reason.
It is truly a mindset of the people in the stores that believe that they can't do more with less, and they can, okay? They can do more with less. We've just got to help them see it.

Operator

Mr. DeBoer, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.

Bryan DeBoer

Well, thanks, Christine. Thank you, everyone, for joining us today. We look forward to seeing you on the Lithia Driveway first quarter call in April -- in April. All the best. Thanks, everyone, for joining us.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.