AutoNation (AN) 2026 年第三季法說會：售後服務與金融業務帶動每股盈餘成長

重點摘要

• 調整後每股盈餘 (EPS) 年增 2% 至 5.11 美元，創下 AutoNation 連續第七個季度實現調整後 EPS 年成長。
• 售後服務部門創造了創紀錄的 6.17 億美元毛利，年增 3%，貢獻了公司總毛利的大約一半。客戶自費與保固服務毛利各增長 5%。
• AutoNation Finance 的投資組合規模達到約 29 億美元。季度營業利潤從 200 萬美元增加至 1500 萬美元，股東權益報酬率 (ROE) 約為 24%。
• 今年以來調整後自由現金流為 7.39 億美元，相當於調整後淨利的 141% 轉換率。管理層預期全年調整後自由現金流將達到上一年度 9.65 億美元的水準（不含 2025 年的網路保險理賠金）。
• 截至 9 月，AutoNation 已投入 6.2 億美元進行庫藏股回購，流通股數較去年同期減少 12%。董事會額外授權 10 億美元，使可用授權額度達到約 14 億美元。
• 汽車銷量放緩使每股盈餘較去年同期減少 0.52 美元，但售後服務、AutoNation Finance 及庫藏股回購分別貢獻每股 0.38 美元、0.27 美元與 0.64 美元。

核心財務數據

業務與營運表現

售後服務仍為主要獲利基礎

售後服務部門已連續第九個季度創下毛利年增歷史新高。客戶自費營收增長 6%，批發零件營收則成長 16%。客戶自費與保固服務進廠客流量分別成長 5% 與 13%。

毛利率下滑至 47.8%，反映出毛利率較低的批發零件貢獻提高。管理層表示該業務仍具吸引力，因為它能利用現有的基礎設施，僅需有限的新增庫存或資本支出。

由於汽車銷量較低，內部整備業務表現較弱，碰撞維修業務亦有所下滑。管理層持續透過客戶留存、提高每筆維修單金額、提升生產力之技術應用以及擴展批發零件，致力於達成穩健的低至中單位數成長。

AutoNation Finance 擴大經常性收益規模

該季度 AutoNation 在 9.3 萬輛汽車中發起了約 39 億美元的客戶融資，融資滲透率約為 73%。其中約 5 億美元的新發融資由 AutoNation Finance 保留。

融資投資組合在第 3 季擴大約 2 億美元至約 29 億美元。無追索權債務資助了 91% 的投資組合，高於去年同期的 86%。管理層表示拖欠率保持溫和，貸款條件穩定，且 FICO 信用分數持續改善。

AutoNation Finance 今年以來創造了 9300 萬美元的營運現金流。過去 18 個月內，該公司已完成四筆總計 24 億美元的資產證券化 (ABS) 交易，並於 10 月達成一項新的聯貸預備 ABS 倉儲融資額度。

汽車銷售持續承壓

新車零售銷量下降 3% 至 63,929 輛。隨著美國電動車補助方案於 2025 年 9 月到期，純電動車銷量暴跌 60%。若不計純電動車，燃油車與油電混合車的合計銷量成長 2%。

每輛新車毛利從 2,281 美元降至 2,176 美元。管理層將美系本土品牌面臨的較大壓力部分歸因於庫存水準，而進口品牌與頂級奢華品牌的表現則較具韌性。

中古車零售銷量下滑 5% 至 65,410 輛，但每輛車毛利從 1,489 美元增加至 1,524 美元。售價超過 40,000 美元的車輛銷量成長 8%。批發獲利能力下降，主因 AutoNation 部分庫存持有時間過長且車輛組合不佳。

管理層正針對中古車導入更多集中化流程與更嚴格的營運指引。公司計劃將重心愈發放在庫存週轉率、資本報酬率與客戶終身價值上，而非固定的單車毛利目標。

資本配置持續偏好庫藏股回購

AutoNation 將今年以來調整後自由現金流的 84% 配置於庫藏股回購。管理層表示當前市場條件仍使回購成為新增資本的首選用途。

公司還在第 2 季完成了四家經銷門市收購——包含三家頂級奢華品牌門市與一家 Toyota 門市——每年新增約 6 億美元的營收。槓桿率維持在 AutoNation 目標的 2 至 3 倍 EBITDA 範圍內，管理層並重申維持投資級評等的承諾。

管理層營運展望

• 管理層預計 2026 全年資本支出約為 2.8 億至 2.9 億美元，低於原先 3.25 億美元的目標。
• AutoNation 正朝著與上一年度 9.65 億美元相當的調整後自由現金流水準邁進（不含 2025 年收到的 4000 萬美元網路保險理賠金）。
• AutoNation Finance 仍按進度預計在 2026 年產生約 1.2 億美元的現金流。管理層目前認為 2027 年有機會達到至少 1.5 億美元。
• 公司預期第 4 季將展現典型的季節性優勢，主要得益於頂級奢華品牌組合以及較低的中古車對新車銷售比例。
• 9 月啟動的成本與生產力舉措預期將支撐 2026 年剩餘期間的營運，並延續至 2027 年。

風險與關注焦點

• 消費者壓力正在導致延後保養維修需求增加，並減少每筆維修單的工時，不過管理層預估大部分項目只是延後執行而非永久流失。
• 管理層預期保養維修需求最高的那部分車齡族群將在 2027 年面臨最強烈的逆風，隨後開始復甦。
• 新車庫存高於管理層偏好的水準。AutoNation 計劃適度放緩製造商的出貨速度，儘管管理層預計無須進行過度的打折促銷。
• 汽車銷量下降降低了營運槓桿，同時中古車批發虧損，加上展車融資 (floorplan) 及一般利息費用增加，拖累了第 3 季盈餘。
• 較高的融資成本可能會影響 AutoNation Finance，但管理層表示目前的定價機制保持了健康的淨利息收益率。

分析師問答重點

• 售後服務定價：管理層表示，人工費率的競爭壓力有限。更大的問題在於消費者的負擔能力，這體現在延後維修數量增加以及每筆維修單工時減少上。
• 爭取服務市占率：AutoNation 計劃針對車齡 4 至 7 年的車主推出結合價格、保固、代步車提供與便利服務的套裝方案。預計將於 2027 年第 1 季展開更廣泛的宣傳。
• 中古車獲利能力：管理層表示，達到每輛中古車平均約 2,000 美元毛利是有可能的，但各門市之間維持一致的執行力仍是主要挑戰。優先事項包括初始定價、整備規範及加快庫存週轉。
• 技術策略：技術暨 AI 長 Ravi Simhambhatla 將領導相關工作，為 AutoNation 的實體經銷門市網路引進數位化架構，包括更透明的定價、舊車換購、融資與交車履約流程。
• 中古車競爭形勢：管理層表示，尚未發現來自 Carvana 的顯著影響。AutoNation 預期結合數位能力與密集的實體網路將帶動業務漸進式改善，部分效益預計於第 4 季顯現，並於 2027 年進行更廣泛的佈署。
• SG&A 槓桿：管理層繼續將近期成本控制列為優先事項，同時預期數位工具、流程標準化以及減少交易摩擦將隨著時間推進改善結構性成本結構。

法說會完整逐字稿

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管理層陳述

Operator

Hello, and welcome to AutoNation, Inc. Third Quarter 2026 Earnings Call. My name is Kenneth and I'll be your operator today. [Operator Instructions]

I will now hand the conference over to Derek Fiebig, VP of Investor Relations. Please go ahead.

Derek Fiebig

Thank you, Kenneth, and good morning, everyone. Welcome to AutoNation's Third Quarter 2026 Conference Call. Leading our call today will be Mike Manley, our Chief Executive Officer; and Tom Szlosek, our Chief Financial Officer. Following their remarks, we'll open up the call to questions.

Before beginning, I'd like to remind you that 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 today and in our filings with the SEC. Certain non-GAAP financial measures, as defined in our SEC rules will be discussed on this call. Reconciliations are provided in our materials and on our website at investor.autonation.com.

With that, I'll turn the call over to Mike.

Michael Manley

Yes. Thanks, Derek. Good morning, everybody, and thank you for joining us today. So as usual, we'll begin with an overview of the quarter followed by Tom's review of the financial and operating results, and then we will take your questions. So I'm going to begin on Slide 3.

The central message this quarter is straightforward, I think. It's the strength of our business model, which includes durable earnings streams and cash flows and disciplined capital allocation, enabled us to deliver our seventh consecutive quarter of year-over-year adjusted EPS growth. Now that result reflects our focus on our customers' mobility needs and the value creation drivers per share shown, which contributed strongly to the Q3 results. Specifically, After-Sales delivered another record quarter.

Customer Pay and warranty gross profit each increased 5% and, supported by higher traffic and After-Sales again, contributed half of our total company gross profit.

Second, our customer financial services platform gives us control over the placement of products and financial services. This enables us to direct the business to our own captive finance company or to one of our preferred partners. We will discuss the hub in a few minutes, but it gives us upfront income as well as long-term earnings stream. Under this model, AutoNation Finance continued to scale rapidly and profitably. The portfolio reached approximately $2.9 billion, quarterly profit increased to $15 million from $2 million a year ago and return on equity based on Q3 results is approximately 24%.

Now beyond the financial figures, the business is providing a meaningful platform to drive deeper and ongoing relationships with our customers.

Third, cash generation remained, I think, exceptional. Year-to-date adjusted free cash flow was $739 million, representing 141% conversion of adjusted net income.

And fourth, we continue to deploy capital with discipline. Through September, we invested in the business, completed attractive acquisitions and deployed $620 million to share repurchases, reducing our share count by approximately 12% year-over-year.

Now rest assured that we continually evaluate share repurchase and M&A opportunities through the lens of maximizing value per share. And since 2022, that has favored share repurchases. And over that time, we've allocated 88% of our adjusted free cash flow to repurchases, which includes 84% year-to-date. And in current market conditions, our share price is attractive. And given that our capital allocation model focuses on long-term earnings per share growth, we anticipate continuing with share repurchase as a preferred use of incremental capital.

Now moving to Slide 4, which provides a visual on EPS and free cash flow performance. Adjusted EPS was $5.11, up 2% from $5.01 a year ago, again, our seventh consecutive quarter of year-over-year adjusted EPS growth. After-Sales and Automation Finance were the principal operational drivers of EPS growth. We also realized a significant EPS benefit from our share repurchase activities.

Year-to-date adjusted free cash flow was $739 million, in line with 2025 and conversion improved from 141% -- to 141% from 128%. Now as I stated earlier, through the end of September, we have deployed 85% of our free cash flow to share repurchases. And Tom will talk more about capital allocation in a separate side. But our model, as always, will continue to focus on the best use of cash to drive EPS in the long term.

And with that, I'm going to hand over to Tom.

Thomas Szlosek

Thanks, Mike. I'm on Slide 5, which gives a little more detail on the EPS growth that Mike mentioned. If I start with Q3 2025, $5.01 and walk it to the $5.11 Q3 '26. First, you'll notice the effect from vehicle sales as anticipated. Vehicle volumes were lower year-over-year, primarily reflecting the comparison with demand ahead of the September 2025 EV incentive expiration and last year's tariff announcements. This is behind us as we move forward, but it did create a $0.52 per share unfavorable impact in the quarter.

On vehicle profitability, we were pleased that we're able to grow year-over-year in used unit profitability and keep new unit profitability normalization within a reasonable range compared to what we have been experiencing in 2024 and 2025. The net effects of these factors were $0.28 per share, unfavorable.

Moving on, the results benefited from the strength of the recurring earnings streams we've been discussing. After-Sales contributed $0.38 of earnings per share growth and AutoNation Finance contributed $0.27 of earnings per share growth. We have more details on each of those coming up.

Additionally, share repurchases contributed another $0.64 of earnings per share growth through the reduction in weighted average shares outstanding. All other items were a net unfavorable $0.39 per share, which includes the effects of less operating leverage for our SG&A resulting from lower vehicle sales. That was about $0.13, reductions in Wholesale vehicle profitability, which was about $0.14 and higher interest expense, which was about $0.08. We have clear actions underway in each of those 3 areas, for example, in SG&A, although we screen near the top of our peer group in terms of cost management proficiency, our cost performance in Q3, particularly in July and August, could have been better. We initiated several initiatives in September, which we are confident will deliver meaningful cost productivity for the rest of the year and into 2027.

Focus areas include field labor productivity, discretionary local spending for categories like marketing and IT, corporate advertising spending and corporate commercial sales.

Second example is on Wholesale vehicle profitability. We didn't have the right mix of used vehicles and held on to some stocks for too long and ended up incurring incremental Wholesale losses in the quarter. Used inventory turns over very quickly, which gives us the opportunity to self-correct rapidly. And we have, in fact, made inventory corrections as well as organizational changes in this used area.

We also had hired general purpose interest expense and floor plan interest expense relating to higher share repurchases and inventory levels. We are comfortable with our used inventory levels. We're a bit higher on new unit inventory levels, and we'll be moderating those over the course of the coming months. The result was adjusted EPS of $5.11, up 2% year-over-year.

Slide 6 highlights the earnings streams, which anchored our quarter. Starting with After-Sales gross profit reached a record $617 million. This marks the ninth consecutive quarter that we've achieved year-over-year record gross profit in After-sales. And After-Sales represents about half of the total company gross profit. Customer Pay and Warranty gross profit each increased 5%, supported by traffic growth of 5% in Customer Pay and 13% in Warranty.

AutoNation Finance also continue to scale. The portfolio increased to approximately $2.9 billion from $2 billion a year ago. And 91% of the portfolio was funded with nonrecourse debt. Year-to-date, profit increased to $36 million from $4 million in the prior year with a 24% return on equity. Customer Financial Services generated $349 million of gross profit and approximately $2,700 unit profitability. Total retail units declined 4% and the continued growth of AutoNation Finance shifted a portion of economics from upfront commissions towards recurring finance income. That shift is strategically important as it enables us to convert transaction-based earnings into a recurring earnings stream, while generating superior earnings and attractive returns on equity.

Turning to Slide 7. We've historically made and we'll continue to make capital allocation decisions based upon the relative contributions to earnings per share of every investment alternative over the long term. And as you can imagine, the current environment, that strongly favors share repurchases. Along those lines, you will see that this morning, we announced that our Board approved an additional $1 billion share repurchase authorization, bringing the total authorization available to approximately $1.4 billion. So far, in 2026, share repurchases represented our largest use of capital. We have deployed $620 million year-to-date and repurchased approximately 9% of the shares outstanding during 2026, thereby decreasing the year-over-year share count by 12%. We're on our way to exceeding the 2025 share repurchases total of $785 million.

Our acquisitions made during the second quarter added approximately $600 million in annual revenue and increased our scale and density in markets where we have a meaningful presence. These included 3 premium luxury stores and 1 Toyota store, all of which were modeled to generate greater value per share than the share repurchase alternative.

Leverage remained stable from the second quarter and within our targeted 2 to 3x EBITDA range. We're committed to maintaining our investment-grade rating, and we're well positioned with our latter debt profile and our covenant-light borrowing arrangements.

Moving to Slide 8. I want to add to the points that Mike made on After-Sales. After sales once again delivered record gross profit and remained our largest gross profit contributor. Revenue increased 5% to $1.29 billion from $1.23 billion a year ago. Growth was led by Customer Pay revenue, up 6% and Wholesale Parts revenue up 16%. Gross profit increased 3% to a record $617 million. Customer Pay and Warranty gross profit each increased 5%, supported by increased traffic. Sales and gross profit were lower for internal reconditioning, which was impacted by lower vehicle volumes and for collision.

Gross margin was 47.8% compared with 48.7% in the prior year quarter. The year-over-year change entirely reflected mix. And that is a mix of Wholesale Parts, which carries a lower margin rate than Customer Pay and Warranty, but is accretive to AutoNation ROI.

The key takeaway is that customer-facing demand remains healthy. We continue to focus on customer retention, repair order content and productivity enabled by technology to support durable mid-single-digit growth in this high-margin and recurring part of the business.

Slide 9. With the success of our financing platform, we wanted to provide an end-to-end view of our Customer Financial Services platform and how it's delivering meaningful profit in the current period and creating an earnings annuity that results in long-term value per share. Over the last few quarters, we've been rolling out an origination hub across the group that allows us to allocate contracts to product providers and financing providers, including our OEM financing partners, mostly for new vehicles, our non-OEM financing partners and AutoNation Finance based on customer needs, economics, risks and available capacity. During the quarter, AutoNation originated approximately $3.9 billion of customer financing across 93,000 units with finance penetration of approximately 73%.

Approximately $500 million of current period originations were retained by AutoNation Finance. And after amortization and liquidation, the finance portfolio expanded by approximately $200 million during the quarter and ended at approximately $2.9 billion. The platform generated $349 million of CFS gross profit and $15 million of AutoNation Finance operating profit during the quarter. The current CFS economics remain significant, while the loans originated by AutoNation Finance builds an earning annuity over the life of the portfolio. That combination of current value and future value is a strategic advantage of this platform.

Turning to Slide 10. AutoNation Finance itself delivered another record quarter. Operating profit increased to $15 million from $2 million a year ago. Year-to-date profit was $36 million compared with $4 million a year ago. Net interest margins remain healthy and they're aligned with our credit risk profile. Delinquencies continue to be modest. Origination terms have been consistent and expansions have been minimal. The team is also achieving attractive portfolio growth without having to inject much in terms of incremental SG&A spending.

The portfolio increased to approximately $2.9 billion from $2 billion a year ago and was 91% funded with nonrecourse debt compared with 86% a year ago. The cash generation from the portfolio is also becoming meaningful. AutoNation Finance generated approximately [indiscernible] operating cash flow in the third quarter and $93 million year-to-date. We remain on track for approximately $120 million for full year 2026 and currently see a path to at least $150 million of cash flow in 2027.

Funding execution also remains very strong for the portfolio. Market demand for AutoNation's ABS paper continues to be healthy. We've completed 4 ABS transactions in the last 18 months, totaling $2.4 billion and we'll be launching a new ABS transaction next week.

Additionally, in October, we closed on a new pre-ABS warehouse facility that provides additional capacity and flexibility. This single syndicated warehouse facility replaces our existing multiple bilateral warehouses funding lines, providing better funding rates and a more efficient administrative structure, and we appreciate the support of our lending partners in getting this completed.

The third quarter return on equity for the portfolio was approximately 24% as the portfolio of seasons and funding efficiency continues to improve. AutoNation Finance is scaling into a meaningful, high returns annuity while enhancing long-term customer relationships.

I'm on Slide 11, customer Financial Services. CFS gross profit was $349 million in the quarter compared with $375 million in the prior year, primarily reflecting lower retail unit volume. Gross profit for vehicle retail was $2,698 compared with $2,775 a year ago, a 2.7% reduction. And that included 3.6% for product terminations and 1% the effect of loan originations retained by AutoNation Finance. Offsetting these were incremental platform access fees and commissions earned during the quarter, the effect of which was a 1.8% increase in our CIS unit profitability.

As AutoNation Finance grows a portion of the economics moves from upfront CFS commissions towards an annuity of recurring finance income. While that shift modestly reduces current period CFS profitability, it does increase the lifetime economics of the customer relationship and supports long-term shareholder value. CFS product attachments remain robust, averaging 2.2 products on new sales -- our new vehicle sales and 1.6 products on used vehicles and pricing remained relatively stable. The CSS team continues to execute a value-driven, customer focused process and product penetration remains an important contributor to future After-Sales activity and customer retention.

Slide 12 covers new and used vehicle sales, the origination events of our business model. New and used constituted 11% and 9%, respectively, of our total gross profit in the quarter. New vehicle retail unit sales were $63,929, down 3% from 66,189 a year ago, reflecting a 60% decline in battery electric vehicle sales following the September 2025 expiration of the U.S. EV incentive program. Excluding battery electric vehicles combined internal combustion and hybrid unit sales increased 2%, by segment, new unit volumes increased for Import and Premium Luxury brands as we benefited from acquisitions, while Domestic units decreased.

Market share remained stable with the first half of the year. New vehicle gross profit per unit was $2,176 compared with $2,281 a year ago and continues to remain within the stable range we've seen over the past several quarters. Unit profitability increased slightly from last year for our Import brands, while Domestic and Premium Luxury decreased.

Used vehicle retail unit sales were 65,410, down 5% from 68,896 a year ago. Volume remained stronger in the higher-priced units. For example, sales of vehicles greater than the $40,000 price point, which is our highest profitability tier, increased 8% year-over-year. Lower price supply continue to be constrained, while off-lease supply is improving, which should create additional sourcing opportunities over time. Used gross profit per unit was $1,524 compared with $1,489 a year ago, demonstrating relative stability. And as we mentioned earlier, used wholesale gross profit was lower for the quarter, reflecting corrections to inventory aging and mix. With an improved inventory mix of properly priced reconditioned, located in merchandise used inventory, we're confident in restoring volume growth this business.

Across both new and used, we remain focused on balancing volume, profitability, inventory and the customer experience. We expect the typical fourth quarter seasonal benefit from our Premium Luxury mix and a lower used to new ratio.

Turning to Slide 13 on free cash flow. Year-to-date, adjusted free cash flow was $739 million, roughly flat with the prior year when you exclude the $40 million of cyber insurance proceeds we received in 2025. Adjusted free cash flow conversion improved 141% from 128%, continuing our history of converting more than 100% of adjusted net income to cash. This reflects continued focus on working capital, inventory, discipline and cycle times.

As I indicated earlier, AutoNation Finance is becoming a more meaningful part of our cash flow generation. So for the full year, we now expect approximately $280 million to $290 million in capital expenditures, roughly a $40 million reduction from our original target of $325 million as we sharpen the pencil on investment return requirements. For the full year 2026, we're on a path to meet the prior year level of $965 million in adjusted free cash flow, again, excluding the 2025 cyber insurance proceeds. Our consistent cash conversion provides the capacity to fund the business, support growth initiatives, maintain balance sheet strength and return capital to shareowners.

I'm going to now turn the call back to Mike.

Michael Manley

Yes. Thank you, Tom. Let me close by returning to the central message of the quarter. And that is that we continue to perform in a sluggish environment. Vehicle demand was softer but After-Sales, automation finance, cash generation and discipline in capital allocation enabled us to deliver our seventh consecutive quarter of year-over-year adjusted EPS growth. After-Sales, as we mentioned, contributes over half of our gross profit. Customer Pay and Warranty traffic remain healthy, and we continue to see a durable path of growth through customer retention, repair order, content, productivity-enabled technology and Wholesale Parts expansion.

Automation Finance is emerging as a meaningful earnings engine. The portfolio is approaching $3 billion. Profitability continues to scale and the business generated a 24% return on equity. Over time, Automation Finance converts transaction-based earnings into recurring income, while deepening our customer relationships.

Now in Customer Financial Services, our product attachment and pricing remained solid. The growth of Automation Finance is changing the timing and mixing of -- mix and earnings, but it is increasing the long-term value created from each finance transaction.

Cash generation continues to exceed earnings and our investment-grade balance sheet provides funding efficiency as well as strategic flexibility. Our capital allocation priorities remain clear, we will invest in the business where shareholder value can be meaningfully created. Now at this point, as I mentioned, share repurchases remain our preferred use of incremental capital.

Lastly, I wanted to acknowledge a clear opportunity that lies before us to make every customer experience simpler, more connected and more trusted while giving our associates better tools and support to do their best work. [indiscernible] will also lead to better standard adherence, less friction and leakage, lower costs and ultimately, more sales. Technology and AIR and will continue to play a key role in this transformation. And I'm excited to have Ravi Simhambhatla join us as Chief Technology and AI Officer. He started on October 1. Ravi is leading our technology and digital agenda, helping us modernize the capabilities that strengthen the customer experience, support our associates and accelerate our long-term growth. Ravi brings more than 30 years of experience spanning technology, digital transformation, product innovation, customer experience, obviously, cybersecurity, but also will significantly enhance our data, artificial intelligence and how we use technology and data together to drive our business forward. It's a critical leadership position in our transformation. So welcome, Ravi.

Just want to move on to Slide 14, and I'm going to return to the shareholder value slide because I want to look beyond the strong third quarter results and explain why AutoNation is a compelling investment. And I think the thesis is relatively simple. We view new and new sales as the origination event that creates long-lived relationships that drive strong annuity streams, captured by our customer financial service platforms and our After-Sales business. And we have a fantastic business that creates a lot of these origination events, 2 core capabilities then drive the earnings annuity and deepen our customer relationships.

The first is Customer Financial Services platform. Our origination hub coordinates financing across our product partners, financing partners and our captive finance business. It generates upfront access fees, product commissions along with long-term captive portfolio earnings. Our captive portfolio already delivers high returns on equity, but it also strengthens customer relationships, making them deeper, obviously, more personal and creates long expected reasons to stay connected. It also provides products and services that support and feed directly into our After-Sales business.

Now that's the second thing after sales. Not only is it durable consistent high-margin business, but that, again, also strengthens customer relationships and helps generate future new and used vehicle sales. You may see short-term consumer pressures that could delay or temporarily reduce miles driven. But ultimately, that profit opportunity is generally deferred, not lost. Our focus is to grow a large active customer base, increase lifetime value, retain customers longer and build family and household loyalty. And our unmatched physical footprint supports that effort, enhanced by technology, infrastructure and processes.

An efficient balance sheet and working capital structure, low capital expenditure and streamlined operations support this model. Together, they generate significant free cash flow. We invest that cash with a relentless focus on shareholder value and EPS growth, as we have discussed many times. That is what makes AutoNation a compelling investment opportunity in my view.

Now with that, Derek, I think we'll be happy to take questions from everybody on the call.

Derek Fiebig

Great. Thanks. Kenneth, if you could please remind people how to get in queue for the Q&A?

Operator

[Operator Instructions] Your first question comes from the line of Rajat Gupta with JPMorgan.

分析師問答

Rajat Gupta

Just wanted to start off with like a 2-part question on parts and service. Could you confirm or give us some color if you're seeing any sort of pricing pressure in that segment either on labor rates or parts or just like warranty rates? Just curious if you could give us the latest there. And then if I look at just the overall gross profit growth of 1%, I understand Customer Pay is tracking higher than that. But curious if you have any visibility on just the overall gross profit dollar growth reaccelerating in parts and services.

Michael Manley

Rajat, it's Mike. I'll start, and Tom, you can comment. I think pricing pressure manifests itself in different ways, doesn't it. What I would tell you is that the traffic in terms of repair orders to our businesses from Customer Play are up. And that, frankly, was the engine of the overall growth that we posted. And I was very, very pleased to see that. But where you do see pricing pressure, I think, in the marketplace is the level of deferred work and the actual hours per RO, which is a direct reflection quite often of the upsell potential that you have on cars in your workshop. And we are seeing higher levels of deferred work, and we are seeing less total hours per RO, which I think is where you may be seeing price pressure in the marketplace.

It isn't necessarily competitive price pressure on our labor rates. I think that we are positioned fairly and well in that area. I think it is just general economic pressure on the consumers. And I think that we will continue to price in line with our markets that we operate in. But also, I think that will reflect inflation as we go forward.

Our deferred work is not lost work. Most of it reaches a critical point, and then I would expect the majority of it to come back into our service departments because, obviously, we are tracking that deferred workers staying very closely in touch with our customers because some of these issues may well be safety issues as well. So I think the story we have is that the content per RO was down, both on, obviously, hours per RO. There was some very slight pressure on retail pricing, but it was very minor in the context, but that was compensated for by increased traffic through the workshops.

In terms of the outlook, I think we can continue to grow. And frankly, I think in the current environment, I think our service and parts teams did a good job. I think growing our Customer Pay business in that environment with the pressures that are clearly out there really reflected their focus on customer. Where we didn't see growth then really, I think if you look at the total number was on our internal pay, that frankly just reflects our performance on new and used vehicle sales. And I expect, particularly around use for that to improve as we get into Q4. So hopefully, that will be back. But my outlook is and something you and I have discussed, and I think it's very well known is that the vehicle part, particularly the part that yields the most labor and parts content for us, is suffering some headwind because of COVID. Now the peak of that is in 2027 and then it starts to recover from there.

So we've obviously got a series of initiatives that have recognized that's coming towards us and are in play at the moment that we think can actually provide us some clear offsets to that headwind. And it is a headwind because the park, as you know, materially shrinks. And as I said, 2027 is the low point. And I think in those offsets, some of it really is around the fact that we still penetrate the vehicle market somewhere in the area of 40% to 50% in those areas. And we can put together packages that we can provide as franchise dealerships that offer our customers that may be effected to a different service provider or doing the maintenance themselves, some compelling reasons to come back into our workshops. And I think we've got a great program that will progressively get rolled out in the coming months in 2027 as a direct reflection of our understanding of that offset that will stay in place for when we see the park begin to recover. So I think it will continue to be under pressure, but I think we can continue to grow.

Rajat Gupta

That's very helpful detail or you have another question. Yes. Just a quick follow-up. I think just a quick follow-up, just on the new vehicle side. I think you mentioned like maybe inventory levels were a little higher than you would like and you're working on moderating that. Would that mean you see some continued pressure here on the front-end gross before it normalizes? Just curious to get a thought when we get to a more normalized new front-end level.

Michael Manley

I think Tom talked about his view in terms of margin. And I -- my perspective on this is that our inventory levels have grown. We -- I have a strong view of where we should kind of end the year in terms of our inventory levels. And we know that because of the mix of our brands, we're going into a period of time when looking at our absolute days supply right now is probably not the best metric. And when we reflect back on Q4 with the seasonal high that we expect to see in December, I think you'll see our actual days supply will be normalized, but some of that will need and will require us just to moderate the amount of production that we take from our manufacturers. I think that is something that is manageable within normal course. And I don't think that it will require excessive discounting to move volume.

But I will return to something what I said before, and that is we view new and used vehicle sales largely as the initiation event for us that will create another customer and an ongoing stream of profit through the lifetime of that relationship. So we want to be competitive in the marketplace. And the marketplace itself, we know will probably continue to be very competitive in Q4. And I think some of the things we're seeing around agentic search will keep that pressure on there. But from an inventory point of view, that won't be a reason, I think, for us to have to discount.

Operator

Your next question comes from the line of Joseph Spak with UBS.

Robert Saltzman

This is Rob Saltzman on for Joe today. Just a follow-up on parts and service side. How do you think you can work to take share from independents and bring some of these customers back to the dealership for service? You mentioned working on some new products, but is it primarily pricing more competitively? And if so, how do you think about balancing volume versus margins within parts and service?

Michael Manley

You're absolutely right. None of this business is going to be easy to get, and it's all largely going to be Conquest business. And the way [indiscernible] business is on the value that we provide and the value, of course, a big element of its price, but it is it's also the warranties that we give. It is also the convenience that we can offer because of the large amount of loaner fleet that we have. And remember that we can also now increasingly provide other solutions for where they want their vehicle service.

So the packages that we are looking at do include some price elements. We're balancing that because we understand, I think, with a large -- we understand enough about the value per repair order of aging vehicles to make sure that whatever we put in place, that it still has a very, very significant return for us. We also clearly want to make sure that we manage it as a reflection of the age of the vehicle so that it is really targeted and contained in increasing the relationship time with customers, so we don't see them using other services as they drop off in the cars reach between 4 and 7 years old as well as attract new vehicles to us. But it will be a package. There will be some price elements in there, but there will certainly be some convenience and warranty to add value to those customers. And we've started on that work. It will accelerate as we close the year out. But I think most of it will be well communicated as we get into Q1 next year.

Robert Saltzman

And just one follow-up for me, just on the AutoNation Finance side. So with rates moving higher and funding costs for AutoNation Finance, likely moving higher with it, how do you think about balancing pushing some of these higher funding costs through to customers and perhaps going to be eating some more of those higher costs to help the affordability side of the equation and maybe drive volumes?

Thomas Szlosek

Good question, Rob. When you look at the AutoNation results, net interest margin has been pretty strong when you consider both the funding costs as well as the borrowing rates. We're pretty careful in monitoring that. Yes, there were occasional exceptions. But I think, generally speaking, the team has a really good process for pricing that gives consideration to the changes in the funding costs. I think we've kept up with that pretty well.

Could that change? Perhaps. But I think overall, consumer has been very strong in that business. I mean our delinquencies are very low, lower than what we had modeled when we first purchased the company. the average tenor on loans originated is very stable. We're seeing very little in terms of incremental extensions and the FICO scores continue to improve. So I'd say overall, despite the external noise, the portfolio is being well managed and it's showing up in the results, $15 million of income in the quarter, and we're really encouraged about the trajectory of the business. So I think that can be managed.

Michael Manley

And I also think you have to be realistic about the level of subsidy a retail group can provide. There are certain things that we can add value and make sure that our customers are getting competitive finance rate. But when you think about a 60-month term or a longer term, the amount of subsidy we can provide over that period is important, but maybe not materially enough to move the needle. OEMs are the only people that can really subsidize that on a long-term basis to that extent. But I think the question of affordability is something that we get tracked. We track through our contact conversion rates. And we look very, very closely at a number of things that are very, very important to us, not just the finance penetration that we have. But obviously, the underlying curve that we think someone will return into equity and the additional products and services that we sell.

What we want to is to start that relationship with the customer so that we can as I said, maximize that over their lifetime. And if that means that we have to use price very flexibly on the front end to do that, we will do that because we know that the lifetime value will significantly exceed maybe an incremental subsidy to get that transaction done. But we want to do it in a way that really is around the value proposition for our customers. So that's kind of how I would also answer that question.

Operator

Your next question comes from the line of John Babcock with Barclays.

John Babcock

Just on new GPUs. Earlier -- I guess in the last couple of quarters, you've talked about seeing stability there. In this quarter, there was a bit of a drop off. I just want to get your latest view on that. I mean do you still expect new vehicle GPUs to be relatively stable? Or is there something that's changed? And if so, what has changed?

Michael Manley

Yes. I think we -- great question, John. When we look at the performance in Q3, certainly, you go back 2 years, 2024, 2025, we're seeing measurable, meaningful declines across all of the segments. And I think for the last year or so, that has narrowed down. Maybe picked up a little bit in Q3 for Domestic brands. I think that has all to do with inventory levels. And I think we have some opportunity there. I think we're pleased with how Import and Premium Luxury came out. And I do expect us to get a reasonable uplift in the fourth quarter from that -- from Premium Luxury.

John Babcock

And then you did briefly talk about Ravi's role as the Chief Technology Officer. I was wondering if you could just talk a bit more about what he's going to be doing on, whether the focus is going to be on internal efforts, customer-facing efforts? Or if there's anything else you can share in terms of what the goal is there?

Michael Manley

Yes. I mean -- so firstly, obviously, you hear a huge amount about productivity driven through technology, particularly around AI. And like everybody else, and the technology team prior to Ravi joining, I think we've made some really good progress in that area, reducing a number of costs on a per sale basis. But the way that I think about the work that we've been doing, it started before Ravi was with us, but will accelerate now that he's here is really around how you combine a fantastic dense physical infrastructure that has all of the things you need to develop a lifetime service relationship with your customers. That is incredibly difficult for anybody to replicate today and would take decades today. How do you make sure that you put a digital layer on top of that? That really does present a very transparent firm price, trade, finance and also can make sure that the fulfillment of that is done seamlessly, is the massive opportunity for our organization. And we've done a lot of work in that area to really combine those huge often overlooked.

Benefits of the network that AutoNation has been able to build. Now using technology, which, of course, has significantly compressed the development time on that digital layer that can sit on top of it. And I think you'll see a lot of work in the coming months from him and his team in that area. And that will be supported by a number of things we're doing on that physical interface as well. That will also enable us to really lean into some of the changes that we see will advantage us and what we have to offer to customers going forward. But a combination of, I think, a much, much more the future equipped, if you like, digital infrastructure allied to that physical network that I talked about. So short answer to your question.

Operator

Your next question comes from the line of Alex Perry with Bank of America.

Unknown Analyst

This is Jack Joyce on for Alex. Perry. First one, how has the recent FTC enforcement impacted your business for that appears to be pretty high dock fee state, which you have some decent exposure to. Has that enforcement had any impact on new GPUs?

Michael Manley

Well, firstly, I think the guidance on the FTC actually has just formalized a shift that was inevitable anyway and was well underway before the guidance. Technology has already made real price, the only price. And we've been very, very aware of that in the marketplace. So whether you're in a state where dock fees are prevalent or you're in a state where Dove's not prevalent I think we've always tried to make sure that our all-in pricing has been transparent and has been competitive in the marketplace. So I don't see any impact on our business from the FTC's guidance at all. In fact, as I said, I just think it was a formalization of a shift that was well underway, driven by technology. I view it being beneficial to us because it means that from a consumer perspective, those that are not using agentic tools to search don't need them anymore because it's now very, very apparent on third-party sites. I like that because we're incredibly competitive and we offer a lot more value than some of our competitors in the used vehicle field.

And it also enables us, of course, to make sure that we can constantly use that information to provide the best value to our customers.

Unknown Analyst

That is super helpful. And as a quick follow-up, used GPUs held up well and were up sequentially in 3Q, even with same-store units down. How are you balancing volume versus GPUs from here, especially with off-lease supply improving and higher new vehicle prices potentially pushing more buyers into use?

Michael Manley

Yes, Joe, that's a great question because I've said in the past, we're going to get to $2,000 a unit. And I can tell you something that when you look at the brake -- when you break down the drivers of used vehicle margin, whether it's acquisition cost reconditioning, how long you add in inventory, your pricing, there is an absolute clear path to around $2,000 per unit in today's market. The challenge in used vehicle margin is definitely not the math. It's executing consistently across a large dispersed network of stores like we have.

So what we're doing at the moment is really -- we've looked at this for some time, by the way. And now you'll find that we are doing more centralization and putting tighter guidelines into the field. We need to do that for a couple of reasons, frankly. Firstly, we want to do that because we think we can grow our volume. And secondly, by doing that, we can absolutely make the experience that the customer has from a pricing perspective and other things that we're working on much, much more consistent. So we're working on that instead. But I would tell you that my view on this really is more a dynamic return on capital model that, frankly, with the tools that are available and the things that we're developing is going to enable us to balance a number of things to get the best result based on the capital we've invested in that used car inventory.

And I don't think that I'm going to be that -- I don't want to be constrained by a fixed used car margin because I think that, frankly, is that lived in the past and should live in the past. What I really want us to do and we're moving very rapidly to it is to move much more towards a return on capital model, which has to take into account not just the marketplace and how we're selling vehicles, but it has to take the velocity of supplier vehicles as well, which for me really completes the circle and something that we're now able to do by using technology and some of the other things that we have done in our processes.

So you'll probably hear me talk less about GPU. Obviously, I'll respond to the questions about GPU. I know it's important, and we'll talk more about how we're turning our inventory, how we're thinking about that from a return on investment, velocity of money perspective, but increasingly more about customer lifetime value going forward and the fact that it's a great initiation event to generate long-term service loyalty and hopefully, a repeat customer.

Operator

Your next question comes from the line of Jeff Lick with Stephens.

Jeffrey Lick

Mike, your interest of the last question about no real reason economically why used margins can't get to $2,000 and that it's process-driven or execution driven. Just curious the lower-performing stores, what is it that they aren't doing with the higher-performing stores you're doing? And then just to build on that, also curious, you guys are very focused on units in operation and the lifetime value. Could you give us a little bit of just relative to new how you guys think about a used unit? And do you see -- does that influence your decision in terms of GPU because you're going to get some used customers back into the service lines?

Michael Manley

Right. So remember, the $2,000 is an average. So there's always been dealers that we have in our group that perform above that and there's always been dealers that perform below that. But typically, what you see is, once we remove the mix element because, for example, our Domestic stores will have a very different mix to our Premium Luxury stores. and mix does have an impact, even though quite often not as much as people think. But once you remove the mix element, there are a couple of things that, for me, we now know with certainty that we're working on very hard. If we know that stores that price the vehicle right the first time and are very, very focused on doing the right level of reconditioning and they do at that pace in a very disciplined manner on a factory-like basis, yield a higher margin, higher stock turn. And you're quite right, what the math to get you to do 1,000 really just works on those other elements that will get you to that position.

Frankly, it's not always about discipline. It's not always about sloppy execution because most of these vehicles are processed within a workshop that is also looking for Customer Pay and to expand its work there. So what we're now doing is much more dynamically thinking about where we can process these vehicles to remove some of the processing times that the blockage. We're making sure that our certification process and quality of reconditioning is very, very well-known, documented and very clear, not just to the people doing the work, which obviously is vital, but it also enables us to be incredibly transparent with our customers and that becomes increasingly important going forward because that is what customers want to know, particularly in the world of agentic search that we're going into.

So there's a number of elements, and it's never always the same thing, dealership to dealership, but we can and are now doing some things that will improve some of that consistency. But I would tell you, as I said before, it isn't -- I'm not that focused on GPU -- important, yes, I would never say that it's not important, but it is an initiation event for me to get a customer into our workshops. And there is a difference between the lifetime value of a used car buyer and a new car buyer. Some of that is driven by the age of the vehicle. And what is the normal migration time of that service work out of our workshops. So we want to address that, which was part of the earlier answer I gave to a question about how do you penetrate the park.

And secondly, a new car sale yielded a different ratio of a used car to retail than a used car sales. So when you take all of those things into account, new cars typically have a longer activation period, a higher lifetime value than used cars. But that doesn't mean to say that's always the case. It is just the average answer to your question. Every customer is different, and every customer is the relationship that we want. And now with technology, we're moving much, much more closely to be able to make that relationship super personal to them. And that will, I think, extend their relationship with us, and we'll change those dynamics.

So even though I'm talking about average, we actually work on a customer-by-customer basis.

Jeffrey Lick

And just a real quick follow-up. On Slide 12, you have a bullet that says gross per unit up sequentially in both August and September. Does that imply that the 8.6% sequential gross degradation in Q3 was all observed in July and it was up in August and September? Or am I misreading that?

Thomas Szlosek

No, we just said. We had declines from June to July and then you had sequential improvement from July to August and August to September.

Operator

Your next question comes from John Saager with Evercore ISI.

John Saager

I wanted to ask a little bit more about the used market. We've seen pretty significant share gains from Carvana over the last year. And I wanted to get your feelings on that. Obviously, you're both still a very small fraction of the overall market, but it's clear they are taking like fairly significant share. Just published more than 200,000 units this last quarter. So are you seeing any impact from them head to head? And are you concerned going forward that they're going to sort of continue to grow and that may impact your ability to bring those customers into that flywheel, which does drive all of the profit from the parts and service or AN Finance? So could you talk a little bit about their impact? And then maybe any of the initiatives that you have in place to try to drive same-store outperformance going forward and kind of when you might see that start to happen?

Michael Manley

Yes. I think the answer to your question is no determinable impact on us and part of that is because tiny market shares, right, and still remain tiny market shares. And the opportunity to grow is also our opportunity as well as it is their opportunity, and congrats to them the growth that they have posted.

I think for us, we have a very clear path in terms of how we think we can grow our business. And it is that unique and beautiful combination of both the digital infrastructure we can put in place. That will provide to our customers a much, much improved, lower friction interface with us, but can actually combine it with a dense physical network that provides a lot of the service that customers still want -- still value still appreciate. That will also ultimately maintain our ability to keep loyalty and grow loyalty with those customers.

Going forward, and I think it is the combination of those things that will progressively unlock volume for us. And we see used car growth as being a big driver of our performance going forward. And as I said, we've got initiatives in place to do that.

John Saager

I appreciate the answer. When do you think we might start to see that outperformance? Is that -- is this like -- are these initiatives 2-quarter thing, 3-quarter thing? Or could it be more media than that?

Michael Manley

Well, the good news, I don't think it is a switch. And the things we are doing will progressively improve our performance, and I think you're going to see some of that in Q4. But for sure, as we begin to get into Q7 and we get into some traction, and we begin to roll out some of the other things that we are working on. As I said, I alluded to, for example, on used vehicles that the model that we have built that will be progressively deployed in '27.

We'll really dynamically look at used vehicle velocity and return on capital in a very, very different way because for the first time, it will take another element that are vital such as your supply chain and how you're able to replenish inventory as well as lifetime value of the customer. And what that will do is help us determine how hard we should push. So it won't be just a maniacal chase for volume, but it will, I think, balance all of the different elements that hopefully will focus on how effectively and efficiently we are using capital across the entire life time we have that customer relationship with us. And that's progressively going to get rolled out in '27, but I don't think you'll see a switch or a step change.

What I anticipate is that you will see progressive improvements in terms of the things that we are deploying. Some of the things will work well and some of the things will not work as well as we want. Some of those things will require some culture change, and therefore, they may be bumpy at the beginning. I'm sure no one will understand that. It's never managed culture change in a business, but those people who have will recognize that sometimes it will be really good news and sometimes, we will be learning. But I think that all of these things ultimately are going to create a really powerful balance between that physical dense network that we have as well as the ability to have a very powerful digital environment for our customers, whether they want to shop digitally or physically in our businesses.

John Saager

Appreciate that. I do look forward to learning more about how you look at the customer holistically going forward.

Operator

Your next question comes from the line of Daniela Haigian with Morgan Stanley.

Daniela Haigian

I wanted to double-click on the theme of the paradigm shift into lifetime value rather than optimizing for a vehicle GPU as it relates to SG&A. As you know, SG&A as a percentage of gross profit is a key metric that investors do track. And as AutoNation Finance continues to scale and more of those economics shift from upfront CFS gross profit into this recurring finance income, is that metric just less representative of underlying operating leverage? And how should investors start to think about the kind of holistic profitability of the business?

Thomas Szlosek

Yes. Thanks, Daniela. I would say that our thinking on SG&A hasn't really changed. I think we're -- when you look at operating margin performance, which does reflect AutoNation Finance. You do see that we are at or near the top of the peer group. So you can pick a part where SG&A is and isn't. In fact, our SG&A numbers do not include AutoNation Finance [indiscernible] I did, you would have a more favorable number. So with that said, we'll continue both short term and long term on managing our costs.

For Q3, the total dollars were essentially flat when you exclude the impact of M&A. We have some categories short term that we're working on. I mentioned several of them in the prepared remarks. So we're focused on delivering good short-term outcomes when it comes to our cost structure. So I think Mike was commenting on the areas where Ravi will have -- and his team will have an impact.

I mean as we change the way we're transacting with customers and improve the digital experience and remove friction and tighten up processes, you will see a residual effect will be a better structural SG&A outcome. So we look forward to that. So it's on our screen, both short term and long term, and we'll continue to manage that. But I think when you look at the operating income, holistically, you can appreciate the focus that we have on it.

Michael Manley

Yes. I also want to comment as well because this is an -- the framing of the question suggests that you have an SG&A model that's going to suffer because what's going to happen is your margins are going to compressed. That may not happen at all. Our margins may not compress our margins may actually expand because there are a number of dynamics that will be put -- really into focus that for us are going to determine how we want to be priced in the marketplace and the velocity of sales that we want to make. So it doesn't necessarily result in and, frankly, I don't expect it to result in a collapse in margin at all.

You have to remember that for the first time, we will be able to predict much more accurately our ability to replenish inventory. That in and of itself is a constraint because replenishing used car inventory is a difficult thing to do. We are fortunate that we have a massive new car machine that absolutely helps with replenishment of inventory. But you have to have that inventory to sell it. And you will find that our balance will be a highly predictive inventory replenishment cycle, enabling us to truly understand what is the dynamic of the sale period, the cycle and the margin so that we're trying to balance both the upstream and downstream supply chain because that, I think, is the important thing to note. It isn't just get a customer into our relationship with an AutoNation to any cost at all. That's far from what I'm talking about. But I'm talking about may well expand margins in some periods, it may well compress them.

It may well be reflective of what the competition is definitely reflective of what the competition is doing. And we add a lot of value beyond price, and we will be making sure that, that is part of the customer consideration going forward. So you shouldn't interpret it as a used car margins are going to be under massive pressure. That would be the wrong interpretation. I think you should take a much more balanced view of what I'm saying.

Daniela Haigian

Thanks, Mike. No, I don't want that question to be misconstrued. I more so meant. The SG&A leverage might not be the -- shouldn't necessarily be that myopic focus from The Street. But anyway, I'll leave it there.

Michael Manley

Yes. But I'm going to come back on 1 thing because I do think that's a really important question on SG&A leverage. I mean we're seeing the benefit of that [indiscernible] that's going to continue, and that's a big driver of profitability. It's already at 24% ROE. But what I would tell you is one of the things that we have got and Christian and his team are phenomenally focused on this, is if you think about the costs in a dealership, given the powerhouse of After-Sales, we always measure After-Sales absorption of fixed cost because everybody looks at the installed base that we've had or has historically looked at the installed base that we've had and say, "Hey, this is a big anchor around their neck. Look at all that capital that they've got invested there." We can remove all of this capital and hey, everything is going to be rosy.

The reality is the back-end engine of what we operate and dealers operate actually absorbs the vast majority, if not all of that cost. And that enables you to think more different -- enables you to have more options than people who don't understand the power of the After-Sales dynamic on the business in terms of how you can price, how you can be competitive. Our installed base with the brands that we have and the density we have in the marketplace are a key strength of us and that's not easily recoated.

Operator

Our final question comes from Bret Jordan with Jefferies.

Bret Jordan

Could you talk about what you're seeing in the wholesale parts business, obviously, plus 16% is much larger than the total demand for auto parts in the aftermarket. And I guess sort of what's the margin profile of that business?

Thomas Szlosek

Yes. Happy to all, Jeff. And it's been a great business for us. With very minimal incremental investment inventory or CapEx, we've been able to drive consistent double-digit growth. And it's really capitalizing on the presence that we have already in our dealerships. It has been double-digit growth last several quarters. And I would say that the margins themselves as a -- if you look at a distribution business or not, obviously, don't have labor. We don't have parts margins like we do on the franchise side, but it is levering existing investment without any incremental. And the returns on it are very attractive for us. So we'll continue to do that. Gives us incremental profitability on existing base. And I think the prospects continue to be good for us.

Michael Manley

Yes. I was just going to add in there. The margins are nowhere near the margins you get in your service shops, obviously, the margins are more under pressure now because obviously, we're picking up significant fuel costs. and we're going to bear those in the short term to make sure that we protect our customer base. But what actually helps to drive this really is the group approach, the density approach that we've been talking about. In markets where we have a substantial presence with multiple brands. We're now able to set up a multi-brand wholesale approach to that market where we can not only increase the frequency of servicing of our customers. We can offer the complete portfolio of very, very large number of brands. And what that gives us is a powerhouse in terms of our ability to service customers as a one-stop shop.

It enables us to put in common milk runs, the typical name, as you know, for past deliveries. They really leverage the cost of those milk brands, that means we can increase the frequency for the same cost prior to it. We can coordinate now much more effectively across all of our dealerships in a given market. And we put one central point of contact for all of those Wholesale customers. So they're not talking to 5 different dealerships, as they're buying forward parts, GM parts, [indiscernible], these parts. And that's been a good body of work that has been done by Jan Luke and his team in our business that is beginning to bear fruit for us. And it is low margin, but we see that other benefits, as Tom suggested, because what it also helps for us to do is to make sure that we can be incredible partners for our OEMs because they're benefiting from it, and we're often displacing nonfranchise parts with those people we're selling parts to because of the convenience. So low margin, it's good growth. We're still working on various elements, but it's facilitated by the way we thought about density in markets.

Bret Jordan

Okay. Great. And then a question on new units domestics. I guess, GM on a percentage basis was down the most in volume. But is it still fair to think that Belantis is where the bigger GPU problem is? Or is it someplace else in the Q3?

Thomas Szlosek

I think we've seen pressure across the segment. I wouldn't see allow any individual brand. And I think it's for the factors that Mike and I have talked about.

Operator

There are no further questions at this time. I will now turn the call back to Mike Manley for closing remarks.

Michael Manley

Okay. Again, thank you, everyone, for joining us, and thank you for your questions. I think Tom and I enjoy the discussions with you. And we actually learn a lot because your questions are invariably thoughtful and make us really think through some of the things that we're working on. And as always, some of the things we've talked about today will work well and some of the things will need to constantly be worked on so that they impact the market. But I'm super excited about the coming years for the industry and how technology will really reshape that for us. And I think automation is really well positioned, as I mentioned, with regard to a great investment. So thank you for your time. I know there are lots of things that are also reporting today, but I'm glad you are with us for the call. Thanks.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.