Adam Chamberlain

Thank you, Bryan. Our team responded decisively this quarter to improve our operating excellence, and I'd like to focus today on three key areas: revenue and gross profit, SG&A execution, and inventory trends.
As Bryan mentioned, we achieved record total company revenue this quarter with positive contributions from new vehicles, after sales, and value auto, all supported by sustained new vehicle GPU strength. We are confident in our ability to continue delivering on our growth strategy in the months ahead.
Our focused approach to cost and inventory management has provided a strong foundation to address our opportunities, particularly in the area of vehicle sales. By staying agile and focused, we're positioning ourselves to ignite our potential in the months ahead.
Let's now turn to our same-store sales performance, where we saw a strong performance in new vehicles and value autos as year-over-year GPUs continue to return to historical levels.
Total revenues declined by 6% and gross profit declined 8%, which we mostly outrun through strong focus in cost reductions.
Total unit sales decreased 4% in the quarter, while total vehicle gross profit of $4,631 was consistent with the prior sequential quarter and was down $589 compared to the same period last year.
New vehicle units increased 2% year over year with particular strength in import manufacturers. Our front-end GPUs remain resilient at $3,188, decreasing sequentially from $3,378.
Used vehicle units were down 9.6% year over year. These declines are focused on certified units, which were down 16.4% and core units down 12.9%. While some of the decreases are due to a decrease in vehicle availability, we know there is a large opportunity in used vehicles, and this will be a primary focus in our months ahead. We are really encouraged by our performance in value autos, which were up 14% year over year.
Front-end GPUs for used vehicles were stable at $2,136, flat sequentially year over year and appear to have stabilized. Our aftersales performance was a key driver of growth this quarter, with after sales revenues up 5.1% compared to the prior year. We've seen solid momentum in customer pay and warranty work and delivered a 56% gross profit margin.
Our ability to manage technician head count and drive operational efficiencies has positioned us well to meet ongoing demand while also maintaining a strong focus on providing exceptional customer experiences in our aftersales departments.
As Bryan mentioned, the execution on our cost savings plan and everyday efficiency efforts were strong in quarter three. Our adjusted SG&A as a percentage of gross profit was 66% during the quarter and 64% on a same-store basis, a 240-basis point same-store decline from quarter two.
This quarter, we eclipsed our original target of $150 million annualized cost savings by reaching $200 million in North America. We see continued opportunity to improve our cost structure and potential to make an additional $100 million throughout 2025.
In our UK network, optimization continues, including streamlining operations and divesting, merging, or closing targeted stores. This quarter, we saw significant improvement in our new vehicle inventory, with DSO improving from 87 days at quarter two to 68 days for quarter three. Used inventory remained consistent at 68 days.
We are pleased with the reduction in new vehicle inventory compared to last quarter as we make progress on achieving flooring interest expense savings. We continue pursuing a target of reducing new vehicle inventory by an additional [$540 million] and see significant opportunity on the use side as well.
I'm really proud of our team's relentless focus on delivering exceptional customer experiences and executing efficiently across our business this quarter. I'm confident in our outlook for the remainder of 2024 and beyond.
I will now turn the call over to Tina to walk us through our key financial highlights.

Tina Miller

Thank you, Adam. The operating efficiencies Adam mentioned have been supported by continued momentum in financing operations and focused balance sheet and capital management, where we will turn to next.
Starting with our financing operations segment, primarily driven by DFC, we continue to see solid progress with profitability of $1 million this quarter compared to a loss of $4 million in the same quarter last year. As this element of our strategy matures, we clearly see the benefits of diversification with portfolio growth, seasoning beyond CECL reserve headwinds and improved efficiency in our securitizations.
2024 has been the turning point, with overall expected profitability for the full year and a continued growth trajectory in 2025. We operate to balance yields, growth, and risk with an emphasis on high-quality loans and disciplined underwriting.
The financing operations portfolio balance has now grown to over $3.8 billion, with DFC originating $518 million during the quarter. Originations were consistent this quarter in the prime credit quality band.
In October, we launched our ninth securitization pricing $615 million in collateralized debt at a weighted average interest rate of 4.76%, and over collateralization of 5.4%, demonstrating our track record as a programmatic issuer. This offering was significantly oversubscribed and we are pleased with the market's growing confidence in our performance and servicing operations.
Overall, our financing operations business continues to perform well and deliver on financial milestones ahead of schedule. This adjacency is a key element of our $2 of EPS for every $1 billion of revenue target as each loan originated by DFC contributes up to 3 times more profitability compared to traditional indirect lending. We remain confident in the financing operations long-term earnings growth with a fully scaled and seasoned portfolio.
Now moving on to our cash flow performance and balance sheet. We reported adjusted EBITDA of $421 million in the third quarter, driven by improved SG&A efficiencies offset by lower new vehicle GPUs as supply normalized and higher interest expense year over year.
During the quarter, we generated free cash flows of $273 million. Free cash flows were impacted by declining EBITDA due to decreasing margins and higher floor plan interest expense with increased capital expenditures compared to the prior year, mainly related to construction to meet manufacturer requirements at recently acquired locations.
Our capital allocation strategy focuses on the efficient allocation of our businesses' 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 with shareholder return as we see elevated pricing on store acquisitions as margins normalize compared to our share's current valuations.
Prospectively, we look to allocate 30% to 40% of free cash flow to share repurchases. As a result of the rebalanced focus in the third quarter, we repurchased 0.7% of our outstanding shares at a weighted average price of $274.
Capital allocation this quarter also included $250 million for our investment in Wheels and the purchase of the Duval stores, $561 million remains available under our share repurchase authorization.
We ended the quarter with net leverage of 2.7 times, in line with our long-term target of 3 times and well below our bank covenant requirement of 5.75 times. While we opportunistically allocated capital during Q3, 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 relate to the financing of vehicle inventory. This financing is integral to our operations and collateralized by these assets.
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 calculation.
Our strategy is to achieve strong growth and best-in-class shareholder returns, and we have the right team and tools in place to drive both revenues and margins in our core business and adjacencies.
Our diverse and talented team is committed to delivering exceptional customer experiences, and we have the foundation to ignite our potential for the rest of 2024 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 Capital Group.

Ryan Sigdahl

I want to start with used inventory. So better progress on the new side, bringing down inventory days supply. But curious, any further detail on the strategy and what you guys are working on, on the used side given days supply actually increased sequentially and given some underperformance versus the industry on the unit comp sales standpoint?
So I guess the question is, what are you guys working on? What didn't go right in the quarter? And where is that focus going forward to reduce and refresh that inventory

Adam Chamberlain

Hey, Ryan. It's Adam. Yes, I think first, I'll start the question by saying because we're a top of funnel retailer, we still derive about 54% of our inventory through trade-ins, right, which placed us in a relatively strong position.
Nonetheless, we weren't able to shift our used inventory down alongside in the same manner that we did with our new cars. Actually, on a unit basis, it's down about 3,000. It's actually the value that's up slightly. And I think the biggest challenge has been sourcing core models. The industry SAAR is probably missing about 10 million to 12 million cars. If you look back at a pre-COVID average about 17 million, we've been around about the 14s and now touching the 15s, right, for the last couple years. So we're missing those trading cars for sure.
What I would say to you is that value auto grew by 14.4% in the quarter and is now up to about 16% of our mix, where it was only 12% last year, of course holding our core dropped. So that's the real focus area, core drop from 68% to 64%. Certified remains flat around 20%.
So real focus with the team, looking at store by store, got our ops leadership really focused on performance opportunities moving to quarter four and quarter one.

Bryan DeBoer

(multiple speakers) Just to add on there is we were up about 3% on total acquisitions from customers. We were at 72.2% of our vehicles that we sold came from customers. So 54% on trade-in and then an additional percentages on private party being a one-sided transaction as well as buying cars through Driveway and off-lease vehicles.

Ryan Sigdahl

Helpful. Switching over to DFC, good to see positive operating income for a second consecutive quarter there. Despite, I believe, a higher revision, well, dollar certainly, but as a percent of managed receivables, it seems like the assumptions maybe went a little higher there. But I guess, can you talk through what you're seeing from the provision and any vintages you're particularly concerned about there?

Chuck Lietz

Yeah. Hey, Ryan, this is Chuck. I think in general, the market has definitely seen some signs of stress, but it's primarily in the subprime segment with regards to delinquencies. And obviously, that's only 5% of approximately our portfolio because we really have taken advantage of being a true captive lender and really try to derisk our portfolio by moving up and staying consistent in the prime segment.
I think with regards to the provision expense, we are seeing some signs of increase in delinquency and stress in the prime portfolio. But for the most part, it's still seasonal and we see that, that hopefully should start to temper itself as we go forward in the remainder of the year. So we feel confident that the provision -- the portfolio is well provisioned and should not have an impact on profitability going forward.

Ryan Sigdahl

Thanks, Chuck. Nice job guys on the operational improvements. I'll pass it on to the others.

Operator

John Murphy, Bank of America.

John Murphy

Just a first question on the cost cutting and the fact that you're kind of exceeding your current targets, sort of run rating around $200 million versus the target of $150 million. Then Adam, you're sort of mentioning that you're going to do another $100 million next year.
I'm just curious why you've exceeded your targets so quickly? How comfortable are you with that $100 million next year? Maybe there could be more.
And then also maybe Tina, as we model this, I mean, there's a lot of puts and takes in SG&A to gross. But let's say we finished this year around 67.5% or mid 67s for the full year, would you sort of take that number and model that out next year and then take out the $100 million? Or would there be other puts and takes you think about?

Bryan DeBoer

John, this is Bryan. Thanks for the question and joining us today. What we found is that the organization responded quite quickly and well from operations all the way into the home office in terms of cost reduction. And I'd say today that it's almost infectious with the team that they're looking for more, okay?
And I think as Adam mentioned, we've done $200 million now. We originally set out to do $150 million on the minimum level with an upside of $250 million. We believe now it's in excess of $300 million, of which the remaining $100 million is some -- about a quarter of it is coming from further cost reductions that will impact SG&A, like productivity increases in personnel, like marketing, like vendor contracts, okay?
The remaining 75%, if you're modeling it, is interest costs on flooring, okay? We've still got a long ways to go. And as Ryan mentioned, those higher day supplies do impact our ability to bring money to the bottom line. That's something that we are getting more efficient at. We're using our AI and other technologies to help guide the stores and should be able to curb that.
But it's probably going to take us into late Q1 before we actually see most of the impact of that remaining approximately $75 million, primarily because you've still got seasonality coming, meaning Q4 and Q1 are typically a little softer quarters. We do still have a fair amount of snowbelt exposure, which creates a little bit more seasonality for us and what the sector does as a whole.

John Murphy

Okay. That's helpful. And just a second question -- Stellantis is out there with a lot of incentives and a lot of offers for the dealers and the consumers. It seems like the Ram brand, or the Ram pickups are responding fairly quickly, and there seems like almost a surge of demand there.
I'm just curious what you're seeing and your sort of Jeep, RAM, Chrysler stores? And then also, as you think about this, is there a broader impact on pricing in the industry? It doesn't seem like it's created a more promotional environment across the board, but just trying to understand how isolated this may be to Stellantis.

Bryan DeBoer

Great, John. Maybe I answer this Stellantis question, I'll let Adam provide you some insights on the general new car environment and what's happening with incentives.
For us, Stellantis has been one of the more difficult manufacturers that in terms of year-over-year sales. For the quarter, we were basically where we were for the first nine months of the year. So it's very similar at a pretty good decline relative to the other two domestics that were actually up, we were actually down. The good news is, in September, we did see half of that decline curved, okay? So that's a good sign that we're only down mid-single digits with Stellantis. So a little bit better.
We think that the demand for the products is good with Stellantis. We think that they're building the right sustainability vehicles. So we think it's truly just that pricing is -- did outpace what the affordability of their products could command, and they've got to adjust that to be able to make a difference in their market share.
Adam, do you want to add a little bit about the General market?

Adam Chamberlain

Yeah. Hey, John, just a little bit more color. I think the other challenge we have at Stellantis is that the incentives have been incredibly short term. So we've seen some strong coupons to get vehicles wholesale and then into the retail environment. So that's been mixed depending on your appetite to wholesale for more cars, if that makes sense to you.
Overall, John, I'd say to you that if you remember, pre-COVID, the industry was running about 10%, 10.5% of MSRP in the context of incentives. That dropped down to about 1.5% through COVID. The latest information that I have is it ticked up about one whole percentage point in quarter three to about 7.3% of MSRP at the end of quarter three. It was running at 6.4% at the end of quarter two.
So we are seeing incentives return. I think it's kind of a pretty broad spectrum and a lot of them are incredibly short-term tactical just to move cars. So you're seeing on the BEVs, for example, some incredible offers on the -- particularly the import BEVs. So I think that we are moving back to a more incentivized environment for sure. Does that answer your question?

John Murphy

Absolutely. But it seems like ASPs are holding up reasonable sort of on a net basis in light of that, right? So it's kind of a balancing of MSRP or -- and those incentives. Is that a fair statement? I mean, it seems like --?

Bryan DeBoer

That's a fair statement, John. I think ASPs sequentially, quarter-over-quarter were down $700, $800 on new, which all in all is still up a fair amount on average selling price.

Operator

Rajat Gupta, JPMorgan.

Rajat Gupta

Great. Thanks for taking the question. Just first one on SG&A. Hey, Bryan and Adam. Just first one on SG&A., you obviously saw some meaningful improvements from 2Q to 3Q, total dollars down sequentially. Given you've just recently finished the $200 million of implementation, is there another step down expected here in the fourth quarter outside of what you would see from a normal seasonality perspective?
And then the remaining $25 million that you talked about, would we see more of that in the first quarter next year? I'm just trying to understand the cadence here. Any kind of framework around SG&A growth as well for the fourth quarter or 2025 at this point?

Bryan DeBoer

Sure, Rajat. This is Bryan. I think I made the comment about that we do have some snow belt exposure. So I think the 200-basis point basic drop, you should still apply that, assuming some seasonality occurs in Q4 and Q1.
We ended the quarter at what, 66% on a total company basis and 64% on a same-store basis. I would say that most of the $200 million initial was realized in Q3, okay? So you're seeing the benefits of that at the 200-basis point sequential drop that I mentioned in the call and Adam mentioned in the call.
Whether we can get more or not, that's still to be determined. So on an SG&A basis, you're talking about $25 million. That's a small portion of, I would say, about 50 basis points in SG&A as a percentage of growth. And I think that seasonality drops because of a lower selling volume in the Snow Belt states will probably increase our SG&A slightly. Okay. Meaning that if it's 66% today, it's probably 66.5% to 67.5% is probably the right number for Q4, Q1.

Rajat Gupta

Understood. Understood. That's helpful. And that's clear. And just a follow-up on the buyback, a pretty, pretty explicit comment around the 30% to 40% in the near term. Is there like still a lot in the pipeline from an M&A perspective that gives you confidence around the $3 billion to $4 billion. I'm just curious, how flexible is that 30% to 40%? Could it go higher? If you didn't find the right deal, anything you can elaborate on that would be helpful.

Bryan DeBoer

Sure. Rajat, I think it's important to level set here that we basically brought our leverage up to be able to buy the [Florida] transactions, Pendragon and Wheels, okay? So we started at kind of a mid-upper range of what our leverage was and now are rebuilding capital. That's why we only purchased a little over $50 million last quarter when we purchased $200 million in the quarter before.
But now every dollar of cash flow that comes out, we think it should be in the 30% to 40% of total cash flow. We produced somewhere around $90 million to $100 million a month, okay, which is a pretty good number to be able to be constructive.
Now how do we balance that with M&A? The M&A market today, we believe, is starting to loosen up. But what we're also seeing is that it may take a few more quarters, okay? A lot of things sold for exorbitant pricings. Now Lithia & Driveway didn't pay exorbitant pricings on anything that it purchased.
But there are still buyers in the marketplace over the last quarter or two that now are starting to soften their approach on buying, where you're starting to look at normalized earnings rather than the last three years of earnings, and hopefully, the messaging is you already realized as a seller, the three years of inflated earnings, which is equivalent to a couple of turns of earnings, why are you now asking for it if you want to sell, you're going to need to ask a multiple, a true multiple off of your actual earnings of what they will be normalized.
We think it's still a few quarters away, which gives us some time to be able to buy shares back. So we believe that so long as share price remains hyper depressed like it's been, okay, then we'll prefer to buy shares back. And I would say there's a greater likelihood in the short term to be able to buy a greater portion of shares back in the 30% to 40%. And then in the longer term when pricing of acquisitions also likely goes down.
And I would think that at some point, the world figures out that Lithia & Driveway has designed what we believe could be a sector killer, that our ability to buy acquisitions in this space and consolidate the most unconsolidated retail space and the largest in the world can be done by having a more efficient mousetrap, which if you look on page 14, and I mentioned this in my prepared comments, page 14 is the map that basically allows us to produce 30% to 50% more profitability than what our average competitor can do, okay?
Meaning, in theory that we can achieve the same ROIs on acquisitions. But we, in theory, could pay 30% to 50% more for those acquisitions, making us continue to be the preferred provider in the space and the aggregator in the space.

Operator

Chris Bottiglieri, BNP.

Christopher Bottiglieri

Hey, thanks for taking the question. Just wanted to ask about wholesale. I know it could be volatile, but it looks like the revenue really jumped this quarter. The losses were only up slightly, but is that CDK fallout? Or is it just like kind of, as you try and clean up the inventories, is that just a reflection of that? What can you tell us about wholesale?

Bryan DeBoer

Hi, Chris. Thanks for the question, buddy. I think it's normal seasonality. It's not -- I don't believe it's something to do with CDK. Did you see anything there, Adam?

Adam Chamberlain

No.

Bryan DeBoer

Okay.

Christopher Bottiglieri

All right. And then just longer-term picture question on the used GPU. Like some of your independent used only peers and seeing GPUs have gone up a lot over the last year or two and certainly relative to pre-COVID, yours was still sitting about $300 a unit below pre-COVID. Just kind of want to hear about like where do you think this goes in the next one to two years? What do you think you need -- what needs to happen in the industry or for Lithia specifically for you to get there?

Bryan DeBoer

Yeah. I think it's important to message, Chris, that everyone's accounting is different, okay? Most importantly, some GPUs are including income from finance, okay, and a finance company. So ours is just purely driven off of the vehicle, okay? We are still about $300 below.
The good news is that it's stabilized at that level. I believe that when supply begins to return over the next couple of years and as that, what, 11 million to 12 million units that are now not in the used car inventory environment starts to push into the core product, then what we should see is a return to normalized GPUs.
We believe that Lithia & Driveway's normalized GPU on used is a couple of hundred dollars higher than it is normally. Again, coming from the strength and the change of our mix from the West Coast stores and Snow Belt stores into the Southeast and South Central that produces higher vehicle grosses and produces higher F&I grosses.
We also, if you remember, move from -- we almost doubled our luxury presence in our mix. And again, those generate higher GPUs as well, even though the carrying cost of those cars can be a little bit higher than what they typically are.

Operator

Jeff Lick, Stephens.

Jeff Lick

Bryan, so 3Q was maybe a little more volatile than a typical quarter, the CDK in the beginning, BMW stop sales, Stellantis issues in the end, I mean, Stellantis was kind of all the way through. I'm just curious if you can maybe talk about the exit conditions in 3Q and then going into 4Q in terms of whether it's GPU sales cadence and if there'd be any variable you're looking at OEM circumstance that may have a more disproportionate effect as we get into Q4 and maybe into early 2025.

Bryan DeBoer

Great question, Jeff. This is Bryan again. I think it's easy to get into the sound bites of stop sales and inventory problems or recalls and these type of things. Ultimately, in Q3, towards the end of the quarter, we did have a fair amount of stop sales.
But I would urge everyone to think of this as a very positive event. And the reason is, is because even though the vehicle gross profits are deferred or revenues are deferred quarter over quarter, they're still there. You're going to get them. They're pent up, they're sold orders, those type of things. But more importantly than that, the aftersales profitability that is generated from stop sales and recalls are massive, okay?
We just were notified in mid-Q3 that one of the Koreans has an entire engine platform of the last three years of product that every single engine needs to be replaced, entirely replaced. So we've got engines sitting out in different parts of the country that are backlogged for months and quarters ahead. It could be a year before we could replace all those engines of three years of product mix.
One of the Japanese imports also had one of their main three products that they sell have the same recall. Full engine recalls on those products, which, again, is probably going to backlog us for a few quarters, if not a few years. Just like the airbags did many years ago when we had that issue.
So this idea of stop sales, it's a positive thing for new car dealers, primarily because it's the catalyst to after sales growth and as you know, we were a little over 5%. And I think our gross profit was almost 7% up in a same-store basis on after sales.
So we really see a good number of years, especially as products begin to evolve and change the different propulsion systems, that we're sitting nicely as dealers being able to reap the rewards of after sales business, even though the sound bite of new car sales and stop sales can sound a little bit negative.

Jeff Lick

And then just a quick follow-up, and I'm surprised that we got this fired in the call and no one's asked about it. But your thoughts on new GPUs sequentially down $241 from Q2 is actually pretty good. Most people were, I think, signaling it was going to be more than the $100 a month again.
I'm just kind of curious where you think things might level and why? And historically, go back a couple of quarters, you had once said, you thought there could be an overshoot. My guess is you don't think that anymore. So just any kind of pontification would be great, given your experience in the industry.

Bryan DeBoer

Jeff, I think that, that's a fair statement that the more that they stabilize at above normal levels of which today, we still sit at $600 to $700 above as an industry. We only sit as a company we believe, because of that change in mix from the Southeast to South Central and luxury, we think we only sit at a few hundred dollars, somewhere between $400 and $500 above a normalized state.
I'm really pleased to see that it's stabilized because I think there is a possibility of a nice soft landing over the next few quarters, which is positive. I mean, at one time, we thought that the margins would rescind at almost $200 a unit per month, okay? Then we reduced that to $100 per unit per month, and we're sitting at around $60 a unit over the last year.
So we're real pleased that our manufacturer partners, as Adam said, have increased incentive back to at least 7%. Now hopefully, we can get back to the 10%, 11% because ultimately, that helps make the soft landing for retailers even a little bit better.

Operator

Douglas Dutton, Evercore.

Douglas Dutton

Congrats on the nice quarter here. Just curious on the new vehicle GPUs, to follow up to the last question. Was the reason for the step down the $241 sequentially, was there some element of trading profitability for sales velocity early in the quarter while CDK was still experiencing the downtime?

Bryan DeBoer

Doug, this is Bryan. I think if you think about the scale of the organization, we try to drive results in an individual store by an individual brand in an individual marketplace. So I would say there's no consorted effort to give some or gain volume for some level of GPU degradation. That's a decision that the store and the marketplace and competition really determined. So I think the answer is no on that. I think it will begin to normalize, and we'll have a better indication of that later this week and next week when some of the peers also report.

Douglas Dutton

Okay. Sure thing. And then not to beat a dead horse here, but just a little more on the repo math. If that 30% to 40% target is sort of comprehended for the full year of '24, conservatively, that's somewhere around $350 million or $400 million this year, probably a little greater. Is there -- should that be taken as a signal that we see maybe a little bit elevated repo in Q4 to hit the low end of that target?

Tina Miller

I think you're talking about repurchases. I just want to clarify.

Douglas Dutton

Yeah. Correct.

Tina Miller

Yes. So from a repurchase perspective, I mean, we have spent a significant amount in the year when you look at both what we did in Q2 as well as in Q3. So we've invested $273 million year-to-date, repurchasing 3.6% of our outstanding shares, which was a big swag. And so we can look at it more on an annualized basis.
And as Bryan spoke to earlier, we'll continue to balance what our cash generation is, our leverage as well as what the pipeline is for other avenues that we'll deploy capital, but we'll try to be very focused on returns for our shareholders.

Operator

Michael Ward, Freedom Capital.

Michael Ward

I wonder if I could talk about the implications of lower interest rates across the organization, the consumer floor plan, DFC.

Bryan DeBoer

Sure. This is Bryan again, Mike. We've now rethought about our interest rate sensitivities. And for every 100 basis points of rate improvements, which we have a good portion of our debt that is interest rate sensitive, that is unfixed, it's somewhere around $0.70 on a -- that's a quarterly basis, on a quarterly basis.
So it's a pretty big impact to us as an organization. Obviously, as we continue to grow and produce capital, it's less so. So I think the headwinds of interest rate increases are going to quickly turn into tailwinds for us and can make quite a difference.

Michael Ward

The second one on -- can you talk a little bit about the integration of Pendragon. You've had great success in the past with gaining operating efficiencies, and Pendragon is such a big acquisition. Do you have a similar opportunity?

Bryan DeBoer

Mike, this is Bryan. Yes, we do believe that there's similar opportunities. We now have full scale of what we were looking for in the United Kingdom as attentions in M&A all turned to the United States. The team there is doing a good job. They exited the quarter with a really solid month. Even though September and March are typically the biggest month, they actually performed better than what they expected, which was great to see.
Maybe more importantly, I think the big synergies are they're starting to get the idea of personnel make a difference, okay? How do you motivate teams to reach their potential? You do it through changing their mindsets and changing something that they believe they can't do into something they believe they can do. That sits right next to network optimization.
If you recall, we were going to divest, combine or sell approximately 40 assets of the 160 that we purchased. We're now up to between 40 and 50 assets that we're selling or combining or closing. Most of that has now been completed. We have six stores that are still on the market and available for sale. Everything else should be completed and either closed or sold by the end of November.
So we look quite good. Some other little key highlights in the quarter. We saw a nice F&I improvement. And I think that speaks to helping teams do things that they don't believe that they can. They moved their F&I year-to-date from an [824] to [903] in the quarter. That's a nice 75-point move. That's a great start, and it's more indicative of what our two peers that also have exposure in Great britain.

Michael Ward

So it sounds like there's an opportunity to get Pendragon closer to the performance of what you see in the US?

Bryan DeBoer

I think that -- Mike, I think that it's always going to be slightly lower margins. And if you look at some of the segment reporting from our peers, it's hard to say that I really believe that we could get operating margins to a five handle, which is where we're really looking at the US. But the idea of getting them to half that, well, it will take us quarters and maybe even years to be able to achieve that.
Remember also that F&I there is the biggest differential that drops directly to the bottom line. It's highly regulated in the United Kingdom, and you can see that again in the other peers that, that's the big differentiation.
And again, I'd reiterate that even as we look at the US and the Southeast and South Central, the biggest differentiation of profitability when I talk about that opportunity is the effective regulation, that we have massive dock fees in the Southeast and Southwest that create automatic throughput on high profitability items, okay? Same thing occurs in the negative sense in the United Kingdom.

Operator

Bret Jordan, Jefferies.

Bret Jordan

I guess, looking at regional and brand dispersion and front-end GPUs, I mean you've talked about Southeast and South Central being more profitable, but a bit more on the F&I side. Could you talk about sort of what the underperforming or outperforming markets or brands are? Sounds like Stellantis is underperforming and maybe the Northwest is, but some magnitude?

Adam Chamberlain

Bret, it's Adam. I'll start with that. I mean we see -- as we've reported, I think, probably fairly consistent this year, we see a real strong performance in the Southwest, the Southeast and the Northeast with maybe the kind of Northwest and South Central, I was getting confused. Apologies, Bret. But those regions struggling a little bit more.
We've seen, and as it relates to manufacturers, we've seen, as Bryan said, we've seen Stellantis mid-double digits down for us, but we've seen the other two domestic fairly resilient. But most of all, we've seen a real resilience from the imports. So our imports are about 8% up quarter on quarter and about 7% up year on year. So we've seen real strength there. And the luxury is kind of at the same level.

Bryan DeBoer

That was great, Adam. I'd embellish one point. The differentiation across our 6 regions domestically have changed, okay? If you remember, 1 year, 1.5 years ago, the Western regions were performing at negative double-digit declines in same-store sales, their profitability, their GPU, all of those things were behaving much differently.
The differentiation between the Northwest and the North and the South Central is not as bad anymore, okay? We're talking about single-digit percentage differences in same-store sales and other things, where the country has now flattened, including the idea that the South Central now has become one of the worst-performing regions, okay? But again, it's only a few points, not massive differentiation between the different regions.

Bret Jordan

Okay. And then a quick question on the service side of the business. In customer pay, could you talk about the breakout between car counts and price and that comp?

Bryan DeBoer

Do you have after sales stuff?

Chuck Lietz

Yes, yes, for sure. So as you saw, our customer pay -- our total revenue is up about 5.1%. Pleasingly, our customer pay because warranty was up 15%, and Bryan talked a little bit about the stop sell and the significant impact that has on the revenue. But importantly, it's always important to maintain a focus on the customer pay because that's the business that keeps on coming back concurrently and recurring, right? And I'm pleased to report that quarter-to-quarter, customer put it up to 3.6%, and it's up about the same on a year-to-date level. So we've grown both the customer pay and the warranty business.

Bret Jordan

And customer pay, what's price versus traffic? Are car counts up as well? Or is there more price in that comp?

Chuck Lietz

Probably that's about flat. So price is up a little bit in that account, absolutely.

Operator

Colin Langan, Wells Fargo.

Colin Langan

After sale margins are 56%, they've been quite high. I think the long-term targets, I think slide 21 is 51% to 54%. So what is driving the strong margins? And how should we think about it? Is it sustainable near term? And are we just thinking midterm they kind of fade back or maybe any color there?

Bryan DeBoer

Colin, thanks for joining us today. The reason that we believe that margins will come down is truly just the mix between parts, which has a 30% approximate margin because it's an inventory-based business, okay? And we believe as sustainable vehicles become more prevalent, there's more parts or repair and replace as we call it, where there's a higher portion of your business that becomes parts. Whereas labor is a 65% margin business, okay, and that becomes lessened. As such, we believe that the margins would drop to 51% to 54%.
Now on a positive note, Colin, those new propulsion systems, when the cars break, the average cost of the repair is substantially higher than what it is on a nice engine. So even though your margins may drop a couple of points, okay, the overall same-store sales should grow, and your overall gross profit should grow as well, okay?
And we'll be sharing more information on that. And I think everyone's running their numbers of the implications on BEVs and plug-ins and all these different propulsion systems on, the aftersales business, but the days of us believing that there are headwinds is no longer.
We think we've got at least a decade of tailwinds, and they could be much larger than what we think that will carry us through until the point when BEVs need battery replacements or hybrids or plug-in hybrids, need battery replacements, and then all the numbers blow up for new car dealers, making it quite attractive to be a new car dealer.

Colin Langan

Got it. That's helpful color. Can I just -- one clarification. If I go to that same slide 21, I think you're targeting normalized new GPUs of $2,500 to $2,700. That's about $600 below where your GPU is right now. I think you said earlier about $400 to $500 further decline. Is there -- is that just rounding? Or is there -- are you kind of talking about slightly different things?

Bryan DeBoer

Correct. No, the $4,200 to $4,500 is aggregated new and used. So the used will come back $200 to $300 at least that will offset the difference of the $150 $200 in your math.

Colin Langan

Okay. So it's fair to think you're thinking another maybe $600-ish on the new side? Okay.

Bryan DeBoer

Yes.

Operator

Ron Josey, Citi.

James Michael

Hi, this is James Michael on for Ron. First of all, with online monthly needs flat quarter-over-quarter, how are you evolving your broader omnichannel strategy? And any platform changes or reinvestment plans to accelerate the online sales channel, particularly in context of the advertising efficiency you're seeing with firm rates down [40%]? And I have a quick follow-up that I'll ask.

Bryan DeBoer

Great, James. If you remember the prepared remarks, we've seen nice growth in our overall e-commerce business. Most importantly, our Driveway and GreenCars have really turned the corner that we're at a point that we've got our expenses skinny down to the appropriate levels to be able to now constructively scale at some point again.
Our effectiveness within the funnel is still has lots of opportunity for growth. We're actually at 0.08, what we call golden ratio, which means 0.08 of every customer actually buys a car, which is what, one out of about every 400, something like that. Okay, buys a car.
The good news is that almost 9 out of every 10 customers is giving us a 5-star rating, which is hyper positive. So we think that our ability to now capture more market share, that 50 times more customers than what our stores touch is readily available.
We also have great support from the infrastructure and the stores now that they're starting to get it, that let Driveway and GreenCars sell the car, I can replace it by going and find it either through trade-ins, through buying cars from customers or through going to the auctions or buying them from wholesalers or other dealers.
So we're quite pleased with what we're seeing in our e-commerce platform, knowing that, that pedal of gas is still there to step on. We've just got to decide the right time. We were down about 40% in burn rate. I will also say this, that burn rate has no attributed sales, meaning anything that's sold by Driveway or anything that is bought by Driveway and then sold by the stores or anything that the stores sell in GreenCars is not attributed to that burn rate, okay?
We actually think that if you attribute the gross profit on all of those sales, it's quite large. It's almost 3,000 units a month, okay? And you can do your math on $3,800 a unit, okay? But you quickly get to some real nice numbers that Driveway and GreenCars may not really have a burn rate. It's just what do you want to attribute directly to that.

James Michael

Got it. Lastly, a high-level question. Are you seeing any changes in the competitive landscape across Driveway and GreenCars from either offline or online used retail competitors?

Bryan DeBoer

Good follow-up, James. I think most importantly, we don't see impacts from the online retailers directly with Driveway. Where we see impact is what our new car dealers and used cars dealers doing because if you remember, most of the people that we're selling to today, it's a finance equation of finding the right car that fits their current equity or disequity situation and their downpayment to match that, okay?
So when we think about how do we find customers, it's really matching customers' financeability with picking the right car out of our inventory. So our algorithms are really trying to steer customers into those areas, and that's what we've been able to really perfect over the last few years, okay?
But really, the competition. It really comes from a person shopping physically at multiple locations and finally getting tired of that, and being told no because they happen to pick a car that may be too high demand for their disequity situation, okay, that they happen to be able to shop 10, 15 vehicles on our website and finally happen to match a car that meets their credit needs.

Operator

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Bryan DeBoer for closing comments.

Bryan DeBoer

Thank you for joining us today, and we look forward to seeing you on another Lithia & Driveway call in the fourth quarter, which I believe is February. See you all soon. Bye-bye.

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.