Thanks, Ryan, and good morning to everybody. Welcome to Asbury Automotive Group's fourth quarter and year-end 2011 earnings call.

Today's call is being recorded and will be available for replay later today. The press release detailing Asbury's fourth quarter and year-end results was issued earlier this morning, and is posted on our website at asburyauto.com.

Participating with us today, are Craig Monaghan, our President and CEO; Michael Kearney, our Executive Vice President and COO; and Scott Krenz, our Senior Vice President and CFO. At the conclusion of our remarks, we will open up the call for questions, and I will be available later for any questions you might have in my office.

Before we begin, I must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature.

All forward-looking statements are subject to significant uncertainties and actual results may differ materially from those suggested by the statements. For information regarding the certain of the risks that may cause actual results to differ, please see our filings with the SEC from time-to-time, including our Form 10-K for the year ended December 2010, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today.

We expressly disclaim any responsibility to update forward-looking statements.

It is now my pleasure to hand the call over to our CEO, Mr. Craig Monaghan.

Good morning, everyone, and thank you for joining us. Asbury is a different company today.

You see this in our accomplishments and our results. This past year we have paid down $95 million of debt, 17% reduction; improved our leverage ratio to 2.8 X, clearly in line with our industry peers; repurchased $45 million of our stock; completed $30 million in lease buyouts; purchased $16 million of real estate; generated over $50 million in cash proceeds from the sale of our non-core heavy truck business; completed a $900 million credit facility with improved terms and lower rates; and converted all of our stores to common systems.

Our financial results speak for themselves. Revenues were up 8% in the fourth quarter and 10% for the full year.

We improved our cost structure, reducing SG&A as a percent of gross profit by 200 basis points in the fourth quarter. We delivered a fourth quarter operating margin of 3.7%, placing us among the leaders in our peer group.

And finally, full year adjusted EPS was up 29% with fourth quarter adjusted EPS of 46%. Considering last year’s natural disasters and the resulting severe supply disruptions, these are outstanding results.

Now Scott will provide more detail.

Thanks, Craig. Our fourth quarter results of $0.54 were adjusted for after-tax loss of debt extinguishment of $400,000, or $0.01 per diluted share.

Before these adjustments, reported EPS from continuing operations was $0.53. We continued to make progress in improving our cost structure.

SG&A to gross profit margin was 74.7% for the quarter, a 200 basis point improvement compared to the prior year period. Before I move on I would like to note that 2011 results include a onetime benefit of approximately $1.5 million pre-tax, or $0.03 per share after-tax, from settlement of a legal matter and adjustments to certain of our retirement plans.

So at the end of the day, our $0.54 adjusted EPS for the fourth quarter was more like $0.51. Our fourth quarter strong store operating performance enabled us to continue strengthening our balance sheet and return capital to our shareholders.

During the fourth quarter we spent over $57 million investing in our business, reducing debt and repurchasing our common stock. For all of 2011, we invested over $200 million in CapEx, lease buyouts or real estate investments, debt reduction, and share repurchases.

With respect to CapEx, we spent $18 million of the $35 million we had budgeted for 2011. The remaining $17 million of projects were started in 2011, but the actual CapEx spend is carrying over into 2012.

Because of the carryover CapEx from 2011, we are budgeting approximately $50 million of CapEx for 2012. A majority of the budgeted CapEx is for store upgrades with the remainder for tech and maintenance.

Our CapEx numbers exclude lease buyouts and real estate investments.

With respect to real estate, we purchased $16 million of real estate during the year in anticipation of future lease maturities, and we have acquired $30 million of previously leased properties. We own approximately 60% of our stores and continue to evaluate additional lease buyout opportunities.

We repurchased $14 million of our convertible notes, and prepaid approximately $75 million of our mortgages during the year. We have achieved our goal of reducing our leverage below three times to total debt, total debt to adjusted EBITDA.

We ended the year with total debt to adjusted EBITDA leverage of 2.8 X. This compares favorably with our peers.

During the quarter, we repurchased $15 million of our common stock, or 814,000 shares. With full year, we spent $45 million to repurchase 2.6 million shares of our common stock.

This represents around 8% of our outstanding shares. Our final DMS conversions went extremely well.

We now have a common DMS in all of our stores. Thank you to all of the Asbury team as well as our partners.

And for you listening, you guys did a great job.

With common systems now in place, we are taking the next steps in further reducing our SG&A expenses. Our goal is to reduce SG&A as a percent of gross profit on a full year basis from the 76.3% we achieved in 2011, by another 200 basis points over the next 24 months.

This implies a ratio of around 74%. Our view is that leasing versus buying property is a financing decision.

Therefore, when evaluating SG&A expenses, we believe it is important to adjust for rent expense. Excluding rent expense our 2011, SG&A as a percentage of gross profit ratio was 71.1%.

We ended the year with total liquidity of $232 million, which includes $205 million under our revolving credit lines, $11 million in cash, and $16 million available in floor plan offset accounts. We are executing our plan of allocating capital in a balanced and economically sound manner, to optimize our balance sheet, return capital to shareholders, and position our company for future growth.

I will now hand the call over to Michael to discuss our operational highlights.

Thank you, Scott. I would like to remind you that everything I will be covering with respect to operational highlights will pertain to same-store retail performance.

New vehicle gross profit increased 3% compared to the prior year. Our new vehicle margins for the quarter were 6.7%, basically flat compared to the prior period.

Adjusting for the luxury incentive we earned in 2010, our new vehicle margin improved over 30 basis points.

We believe the challenges that our Japanese branded dealerships experienced during the second half of 2011, are largely behind us, and anticipate more normalized inventory levels by the end of the first quarter, as well as continued opportunities for all of our brands. Used vehicle sales continue to be a strength for us and provide an alternate product for many of our Japanese branded stores during the quarter.

We increased used unit sales 19% over the fourth quarter last year. This is primarily due to the continued success of our Asbury 121 program.

Margins slipped 110 basis points to 8.8%, as a result of normal seasonal pressures we faced in the fourth quarter, as well as an intentional reduction in pre-owned inventory levels from the third quarter. Our used to new sales ratio was 70% for the quarter.

We ended the fourth quarter with $86 million of used vehicle inventory, a 31 day supply on a trailing 30 day basis. Our finance and insurance business continues to remain strong for us as the execution of our F&I sales processes and training is generating record results for Asbury.

Fourth quarter F&I revenues grew 21% compared to the prior period. F&I per vehicle retailed for the quarter was $1,147, up 13% year-over-year.

In addition to excellent F&I process execution, we continue to benefit from the current lending environment, and the return of much more favorable lease terms. In the fourth quarter, our parts and service revenues declined 1% and gross profit grew 2% compared to the fourth quarter of 2010.

Parts and services gross margin for the quarter was 56%, up 160 basis points compared to the prior year. The year-over-year gross profit improvement was driven primarily by the 31% increase in reconditioning work.

I would also like to highlight that our gross profit from warranty work was down 27% over the prior period. This is due to tough comps from higher recall volumes we saw last year, as well as lower units in operation resulting from the drop in new vehicle sales over the last three years.

We are making good progress on the national tire sales program we launched last quarter. This program is designed to retain our current customers and provide an incentive to all of our customers to return to our dealerships.

As an early example of how quickly this program can grow, I will highlight the success we have experienced at our Crown Auto Store, in Durham, North Carolina. With respect to tire sales, this store is now the number four Honda store in the nation and the number one in the Atlantic region.

The performance of this store highlights the potential of this program as to significantly boost our customer pay business. Considering the increasing number of consumers looking for more fuel efficient vehicles, the continued improvement in the availability of consumer credit, and a strong pipeline of new products coming from all of our manufacturing partners, we believe we are well positioned as we enter 2012.

Finally, I want to extend my appreciation to all of our associates in the field. You are doing an outstanding job during a challenging retail environment.

Your boundless energy and innovation are inspiring, I can't thank you enough. With that, I will hand the call back to Craig to conclude our prepared remarks.

Craig?

Thanks, Michael. 2011 was a pivotal year for Asbury.

We are entering 2012 as a very different company. For the past three years Asbury has been playing defense.

With strong operational and financial foundation in place, we look forward to 2012. There will be challenges ahead, but we are confident we are in a position to handle them.

In closing, I want to thank each of our employees for their dedication and innovation.

I would now like to turn the call back to the operator, and we would be happy to answer any questions you might have. Operator?

I would like to ask about the DMS rollout. The expenses that you incurred in the fourth quarter and full year, and just to be clear, those expenses go away in 2012 and some of the benefits maybe that we should expect to see from the DMS?

Yeah, Rick, this is Scott. Good morning to you.

You know as we talked for, really, our estimates haven’t changed. We do have expenses going away.

We completed this, as I think we have mentioned in the past, somewhere between $2 million and $3 million of expenses that were incurred in 2011 will disappear in 2012. You know principally things are related to consultants, the people we had in helping us with the conversions.

So there is some uplift from that. As I think you and I have discussed in the past though, that the real benefit of this isn’t just the dollars going away, it’s the fact we now are all looking at a common set of numbers, common definitions and it really provides the tools -- much better tools for Craig and Michael to manage the business going forward.

And that really where our focus is now going to be in 2012 is on. We have done it.

We have put the systems in place now we really need to use them and benefit from them.

So it’s hard to quantify that number, but it’s certainly a part of the 200 basis points of additional savings in SG&A which we’re targeting over the next 24 months, will come from that visibility and our ability to better manage the company.

Okay. What sort of SAR are you planning for 2012?

And your brands having Japan, Honda, Nissan, Toyota, if you could comment there what you see in terms of unit growth for 2012?

Yeah, Rick, I will take that one, it’s Craig, I will just jump in. We like to be a little conservative as you are well aware.

We have, for planning purposes, are looking at SAR somewhere between $13.5 million and $14 million. Our view is always, if we plan low and things come in a little stronger, we’ve just got upside.

With respect to the Japanese brands, clearly we were somewhat at a disadvantage in 2011, even through the end of year a lot of our stores were light on inventory. So we think we may have some tailwind into next year but it’s very difficult for us to quantify that.

It will be a function of how quickly those inventories come back online, I will say they are coming back very quickly here in the current quarter.

But I think it’s also going to be a function of how some of the new products that we will see from our J6 partners is perceived in the market. All in all though I think we feel like we are in a good place.

And if you could also comment on the new vehicle gross margins. Do you think you can maintain those in the 22.50 area as inventories normalize or do we start turning back to the pre-earthquake levels?

Rick, this is Michael. I think the 22.50 number is sustainable.

When I look at the pipeline of products that are coming out, there is a fair amount of new product sequencing over the next 12 months and as you all know the newer product commands a little bit better margin on it. We are seeing a little bit return of the incentives in a variety of different ways.

So I think all of that together will allow us to hold on to the margin. I don’t think we will see the new car margins that we saw in May, June and July, but I think that the period prior to that we should be able to maintain what we have carried throughout the fourth quarter.

Apologies if you already went through this. Can you give a days supply on inventory for both new and used and where your target levels are?

And do you expect to get back to normal in the first quarter or is it more of a second quarter story for the Japanese brands?

Yeah, maybe if we can a little bit, we will break that into two parts. Michael can talk a little bit about where we are now and Scott can take a minute and dig out where the inventory levels were DSOs base at the end of the quarter.

So Elizabeth this is Michael. I will answer it a little bit in reverse.

We were at 31 days used. We generally target somewhere between 30 and 35 days used cars.

We stay in that range. We are very comfortable in that, so on a go forward basis I think the 31 to 32-33 days is fine on that.

While we are getting the specifics on the new, I will tell you that we are, as we speak, rebuilding some of the J6 inventory. We had, as you can see, a good fourth quarter.

We were inventory constrained throughout the second half of the year. We brought the inventories down to some fairly low levels in December.

Those inventories are rebuilding now and we would expect, as we noted earlier, that particularly the J6 brands will normalize out by the end of the first quarter.

And your other question was just asking where the days sales in inventory were. You know we are returning here to a more inventory -- a more normalized level here.

On the new, fourth quarter this year we are running about 53 days which is just in line with where we were a year from now which is just slightly higher than that. So I mean that’s pretty healthy on the new, and Michael’s already been talking about the used.

So I think the bottom line as we look at the inventories, we have seen a steady recovery from the period we had sort of mid this last year, we’re approaching what we consider to be normalized levels in this quarter. And I think Michael’s pretty much covered the rest of it.

Okay, great. And the SAR in January was very strong but the retail data today suggests that retail auto sales were weak.

Without commenting specifically on what your numbers for January looked like, can you give any sense of what the overall retail environment is like and do you think fleet was driving most of the strength in the SAR? Or is that just a function of volatility and the seasonal factors or something else is going on there.

It’s Craig. I will just jump in there a little bit.

I think we have, and I will speak to Asbury, we have got two things that are happening here as we begin 2012. Clearly, we started off with a very strong SAR in January, up in the above 14%.

But there was a lot of fleet there. And we saw the domestic fleet numbers all in the 30% range.

And so that I think created somewhat of a misleading SAR number because the retail SAR is certainly below that level.

On the other hand from our perspective, we are starting to see inventory build back into the J6 stores. So that makes things in some ways feel a little better for us.

So I think we are in somewhat of a unique situation given our heavy J6 mix in the portfolio. But all in all, I would say that we believe 2012 will be a good year and we are looking forward to it.

I wanted to dig in a little bit, if I may, on the DMS rollout now that it’s complete, it’s across all your stores. I want to understand, I guess you pointed to a 200 basis point leverage opportunity over the course of the next 24 months.

So how you are thinking about the cadence of that leverage opportunity? Is it relatively evenly spread over that period of time or was it going to be more front, middle or backend weighted.

And then separately, sort of qualitative look at what the milestones look like from here? I mean now that it’s rolled out, is personnel training still an important next step, or is it adoption, or is it optimization?

And where will we see the flow through, is it going to be first in the new or used, or P&S businesses? I just want to understand all that?

Did you get this question from my boss, Craig, he asked me the same thing. In terms of the timing of this, it’s certainly not going to all be at the back-end.

I mean we will achieve it as we go along in the period. The exact timing of it is real tough.

Because there is some investment and training to be done upfront. It’s not inconceivable and I would back up a little bit because of some training dollars and stuff, before we get the full benefits on this.

But it’s not going to be even, but it should be relatively well spread out over the next 24 months as we achieve it.

Next steps, now that it’s rolled out, is utilize it. We still have -- we have identified gaps in training.

Our CIO was chatting with Craig and I the other day and saying a lot of the complaints where the system won't do this, is really a lack of understanding of what the system can do. So we are inventorying that right now with the intent of going back and catching those spots where we do need to do some additional training.

And we are also now looking at how do we utilize this. And a lot of it is ability to get the data which we now have available to us out of the system and organized in a form where its information.

Where it helps to predict where we are going and it helps our managers, our general managers at the stores, our regional managers, our other operating people to make good decisions here.

And that is an ongoing process. So I think every month which goes by we see better information and people having access to it on a more timely basis.

How it plays out, where you see I manifest itself? A lot of it is going to be in SG&A, where we take just basic costs out.

It allows us to take a much more aggressive look at productivity across all of our stores and make improvements there. So it may well come out in the gross of the cars as it gives us better visibility on inventory and a better ability to manage that, although Michael and his team do a great job with that already.

I think we can even -- as Michael always reminds me, we can always improve and I think we will have better information there.

So it will be a lot of places. But the vast majority, I mean obviously the 200 basis points is all SG&A.

But I think there will be benefits elsewhere in the company as well that we will see. I don’t know, does that answer your question?

Absolutely. I appreciate the additional detail.

And just one quick follow-up, if I may. It may be early to tell just in terms of your acquisition cadence obviously is at zero.

And before you start to think about sort of next steps in the acquisition, in acquiring to build out a portfolio, what do you think this roll-out will do with respect to new store productivity, IRR metrics? Length of time it takes to sort of pay back from the initial acquisition stage relative to ABG historically?

Jim, it’s Craig. I will just jump in here on that one.

We are working very hard and have been working very hard over the last year to make Asbury a stronger company and a better operator. And obviously, to the extent that we have made progress doing that, it makes it that much easier to integrate an acquisition.

I would point out that about a year ago we did make a fairly significant acquisition for us. And we are very pleased with the performance of that store.

But we learned that it takes time to integrate something of that size. You can go out and find stores in the marketplace that have a lot of upside potential, but there’s no layoffs.

So, which brings us back to, when we spent time making the stores that we have, better. We think those are great return on investments as well.

Couple of things, several might have been answered. But I don’t have sort of the cadence to the new product launch in front of me.

How should we think about that? Is it mostly back half of the year weighted in terms of some of the new things we are seeing from Honda, Nissan, Toyota etcetera.

Steve, this is Michael. It’s not all back weighted, it’s actually fairly good cadence throughout the entire year.

We have got the new 3 series that’s just coming out. We had a new CRV that came out in December.

The Accord was previewed at the Detroit Auto Show, that’s a little bit later this year. Then Civic relaunch.

It’s a little bit later on this year. Camry came out in the fourth quarter.

Camry Hybrid is out now. The Prius rebranding, the whole thing as a different product, that’s in sequence throughout this year.

Lexus GS is out now. We have got some other Lexus product with some new skin and some little bit different faces scheduled throughout the second half and the third and fourth quarter.

We just saw a new Audi 7, the new 6, there is some new product coming out of that. Mercedes, new S later on the year.

We have got a new SL that’s come out. The C Class came out late last year.

So we could go on and on, we can provide the detail. But we think that the true cadence of this product starts last quarter and it goes to at least another five quarters for us.

I think our brand mix is well positioned to take advantage of all that new product.

Okay. And then I was wondering, you know if you sort of net out all the different, I guess you would call them somewhat onetime items in the year-over-year lower floor plan, financing, rent savings etcetera.

Any way of quantifying sort of the relief you get on the year-over-year basis in dollar terms?

Steve, it’s Craig, I will just jump in there. I think if you look at our SG&A year-over-year, there were a lot of things going out last year, a lot of things going on this year as well.

I would say, roughly speaking, we probably saw about 100 basis point improvement in SG&A over the last 12 months. And then, like Scott mentioned earlier, we are targeting another 200 basis points on top of that as we move forward over the course of the next two years.

Yeah, your parts and service business gross margins certainly benefited from the higher reconditioning work. Going forward as you increase your tire business, could you talk about what the net impact would be to your gross margins throughout the year?

Scott, this is Michael. I think if you were just in the tire business, and that was the only reason we would get into what I think you would see an impact, a negative impact on the overall margins as tires are relatively low margin product.

We are not doing it just for that, we are doing it to retain the customer and bring customers back that we had abandoned over the years. I think it’s a reasonably well documented fact that for every dollar of tire sales you get an additional $1.50 in other sales.

Those other sales are at the margins that we have today. So I think just as a very broad gauge, there might be some slight impact, but I think the offset to that is the growth, and the increased growth on the overall customer pay side of the business.

Okay. And if you could just maybe remind us what the margin profile is, customer pay versus reconditioning.

The way we account for reconditioning, I think it’s somewhere close to 100% margins on the labor side. Customer pay is in the 70% margin range on the labor side.

Okay. And just going through the expense run, you guys did a great job of leveraging your G&A versus your gross profit.

Could you talk about some of the buckets that you were able to draw from in the fourth quarter?

Well, I think there is a lot of -- you know clearly -- let me backup here, the biggest piece of SG&A is always salaries. I mean we are a people company.

We saw a lot of improvement in the non-commission salaries and that’s the payoff for a lot of work people have done around here in terms of becoming more efficient and headcounts down in some places. So that was one big bucket it came from.

Another you mentioned is rents. We have been working very hard to bring our rent expense down and that has benefitted us a lot throughout the period.

And then beyond that it’s into a lot of other buckets that we look at, outside professional services, we’re always looking at. And we are always looking how we can do better in that area.

Contractors, we tend to now use contractors where we know that we have got a burst of work and then it’s not going to persist, and they can go away afterwards. And we made some progress on that in bringing that level down in the fourth quarter.

So it’s a lot of things. Like most businesses, and ours is no different, bringing SG&A down is attention to detail.

It’s not one big thing. It is thousands of things and it’s creating a culture where everybody is looking at those and everybody is looking at those small things and they add up.

Got you. And just a follow-up, Scott.

In your comments you made some, you referred to the $0.03 of benefit in the quarter, I think one of them related to a legal reversal or something like that. Could you just go over that one more time?

Yeah, I mean, I don’t want to get too deeply into it but we did -- we just thought in fairness we needed to let people know that we did have a tailwind from two onetime events in the quarter. One was, we brought successfully to a conclusion a matter we had here, a legal matter, and what we had reserved previously for that was slightly more than what we needed at the end.

And that came into the quarter. And then we were looking at some of our benefit plans for all of our people and found that there were some which were not being widely used and we did some fine tuning there and that benefitted us a little as well.

So it total it’s $1.5 million pre-tax which helped the quarter, which ends up being about $0.03 on a per share basis. So we just wanted to be absolutely upfront that as good this quarter was, and we are very proud of the quarter, it wasn’t all hard work, some of it was just stuff which happened.

It’s Dan Galves in for Rod. I apologize, I jumped on a little late, I just wanted to ask about the used business a bit.

I mean the unit comps are really strong against a tough comp from last year’s fourth quarter, margins on kind of on the weaker side. Can you give us some color on what's going on in that business.

I mean there’s definitely less -- a lower pool of young used vehicles out there, is that pushing up acquisition prices and kind of how do you see that market looking going forward?

Dan, this is Michael, I will take a shot at that. The growth on the units side is a direct result of a program we started as a pilot in ’09, and rolled out to all the stores in 2010.

We called it Asbury 121. It’s a stated goal of trying to sell one used for every new.

It is a process. It’s a process at the dealership level whereby we do trade walks, we evaluate trades.

And the goal at every dealership is to broaden the price band of cars that we will take in trade. Recondition those cars and then sell those cars.

So traditionally, what happens at the initial phases of that one of two years, is that you will see a little deterioration in margin and that you are working with cars that you are having to spend a little bit more money on. And then we try to broaden the price bands that we can get financed with those vehicles.

We did see a little bit of margin deterioration in the fourth quarter as a result of an inventory buildup that we had in the second and third quarter, to supply our Japanese branded dealerships with product that they did not have on the new car side. We did run the inventories up a little bit, if you look back and see our third quarter inventory levels are higher than our fourth quarter.

As we knew the inventories would return to normal, we started moving that inventory down. Our preference is to retail those units, not necessarily wholesale them.

When you retail an overaged vehicle you will generally take a lighter margin. So we saw a couple of things that hit the pressure on that.

I would say on a go forward basis, we will continue the program obviously to sell more and more used. We are not seeing, as of today, a dramatic increase in the cost of the cars, it’s gone up a little bit but it’s not a dramatic increase.

Our program focuses on taking in trades not necessarily going to the auctions to buy them. We will of course buy cars at the auction but the biggest single source of our vehicles are trade-ins.

So we are seeing a little bit of shortage of late models, luxuries particularly as you know, that business disappeared in ’08 and ’09 and particularly on the lease side. We are seeing some shortages of that.

But we continually take trades so we don’t anticipate that being problem for us. So kind of a long winded answer, hopefully I have touched on all the points that you asked.

Yeah, actually, great answer. Sounds really favorable actually.

And then I guess related, on the parts side, the recon and prep line. Just wondering was -- gross profit was up 30%, was revenue up that high?

And I was wondering, I mean it sounds like definitely your getting some benefits from this 121 program, but was there any kind of catch-up benefit from the growth in inventory. The new vehicles on the prep side or kind of increased inventory on the used side and recon.

Just looking to see kind of what you would expect for an ongoing run rate for that business? And kind of conversely on the warranty side, I think that the fourth quarter 2010 was a tough comp for recalls, should we be looking at this run rate from the fourth quarter this year as the ongoing, or looking to grow back towards where you were at the prior year?

Dan, I will take a shot at it, I hope that answers the question. I think that the revenue was up, I think it’s what, 30% something of that nature.

But what we are seeing is the real force behind the increase in the internal reconditioning work is that fact that we are selling much more used cars. The lion’s share of the growth comes from used car business not the prep on the new cars.

Our new car inventories are actually, as you know we are constrained throughout the second half of last year. So almost all of the growth comes from the increase in used car sales.

So as we anticipate more and more used car sales as we anticipate keeping our ratios in line with new car growth, we anticipate that we will continue to grow the reconditioning business. I don’t know whether that answers your question.

It does. And if you could help us just to understand kind of when you started getting this benefit from this 121 program.

I mean I think you said that you rolled it out companywide in 2010. So is this -- did you get kind of a benefit in the full year of 2011, from that program?

We had all of our stores installed on the system throughout 2011. So that’s part of the script.

We started installing it and got them all done late in 2010. There is a constant retraining down on this.

So we have people that are constantly in the stores, we actually put the last group on, put on in very early ’11, that would been the Greenville acquisition that we did in December of ’10. So for the most part we had the benefit of all stores being on it throughout ’11.

I apologize, I joined the conference call a little late, had another conference call conflicting here. But so if I ask this, or this question was discussed earlier then we can move on to the second one.

But can you give us a sense of where your Toyota inventory today's is versus where you would like it to be. And then where your Honda inventory is today versus where you would like it to be.

And then if we are not at full inventory levels, what's the outlook there?

Brett, this is Michael. Very broadly speaking, we are getting close to where we would like to be with both Toyota and Honda.

We had a very good sales rate in December, particularly on thin inventory. And a number of those dealerships we were in a very low days supply at the end of December.

And going into the first two weeks of January. As we sit here in the middle of February, those inventories are rebuilding.

I would say, as we said earlier in the statements, by the end of the first quarter we believe the inventories in those brands will be normalized and we would be -- that would be where we want to be with those.

Now, as you go into that second quarter timeframe with healthier inventories, what are your expectations? There is some who believe that there is a significant amount of pent up demand, Toyota buyers or Honda buyers, who only want to buy Toyotas or Hondas.

What’s your sense of the pent up demand out there for Toyota and Hondas, in particular. And then secondly, what are your expectations in terms of possible promotion activity or incentive activity from the manufacturers to try to improve their market share.

So, Brett, I will take a shot at this first. There are a lot of views on the pent up demand theory.

There are very many loyal owners of Toyota and Honda products. However, when someone needed a car last year because their automobile broke down and they could not buy a Honda or Toyota, they may have purchased pre-owned, they may have gone to other brands.

I think there is some pent up demand but I would not anticipate a wave of that pent up demand. We are still -- for the most part -- in the need buyer.

Seeing more of the want buyer of course by for the most part still a need buyer that they would purchase a car when they just needed to have a new vehicle.

In terms of incentive, I think there’s been a subtle but increasing wave of incentives throughout the fourth quarter of last year. We are seeing them continue into the first quarter.

Again, it is subtle but nonetheless increasing. I think the amount and the incentive level will be almost entirely dependent on the manufactures in two ways.

One is their drive to regain market share or their desire to keep their production at a specific level. We will of course react to that as we do with each incentive level and with each manufacturer level.

So we would just -- it’s hard for us to predict, Brett, what they will be. Because every manufacturer has -- that information essentially comes out when it happens that day.

So my answer is that we would anticipate a continuation of subtle inventory increase. And we will see how that plays out with all the manufacturers.

All right. And then switching gears to parts and service.

Specifically on the margin front. The margins surprised us.

And from some of your recent comments, I am going to guess, and I could be wrong here, that the reconditioning work on your used cars is potentially bolstering your margins to some extent. My real question is, as we think about your service and parts margins, do you feel that we are at a point where margins have bottomed and we are going to start to see some improvement?

And where we are at in terms of kind of warranty work and a potential inflection in terms of the amount of warranty work that you are at? Is it possible that we could start to see warranty work increase in the back half of 2012 and into 2013?

What are your thoughts there?

It’s Michael again, I will answer it kind in reverse. You know cars are made so much better.

There is obviously a lot of less new cars went into the system over the last few years. With one caveat, I would say that I don’t anticipate, we don’t anticipate a growth in warranty business in the second half of the year.

The caveat is that there are always recalls. We can't predict them, nobody can predict them.

We had substantial recalls in the fourth quarter of ’10. Very much lower rate of recalls in the fourth quarter of ’11.

So that caveat is out there. I don’t anticipate a large growth in warranty business.

To your first question on the margins. Our margins, I think are very strong in the parts and service business.

I don’t anticipate anything that we are doing would grow that margin. I mentioned earlier, an earlier question, one of our programs that we have out there with tires.

Our national tire program, I wouldn’t expect we might see a slight, slight erosion in the overall margin but I don’t see any growth in that.

Question I believe for Craig on your SAR commentary earlier for 2012. You said anything above $14 million is upside.

If the retail component of that really starts driving auto consumers back to the showroom and we start getting a SAR of 14.3, 14.5, will you guys have to add a material amount of headcount or is it all upside to you?

I think a small movement in SAR like you are talking about those numbers is, really will require virtually no change in our staffing levels. But here could be some addition on the sales force but it would be immaterial.

I think one of the ways to look at that is -- clunkers. We saw a massive spike in SAR and we saw virtually no change in our staffing levels in the stores.

So I think we are pretty comfortable where we are. I would -- I would argue that we have got the capacity to expand the business.

In the 5% to 10% range without any significant increase in fixed cost.

Okay. That’s helpful.

And a follow-up on the Honda inventory. You are saying J6 will normalize by the end of first quarter.

But Honda in particular, do you think they will be completely back to normal by the end of March, or just close to normal?

Dave, this is Michael. I think close to normal.

You know it’s a -- Honda has just launched the brand new CRV. So we are still very short supplied.

That’s a very popular product. So we are trying to build CRV levels.

They will relaunch the Civic at some point in time this year so we won't know where that inventory level will be. There is a new Accord of course coming out, so we will have to see that inventory.

So it will be a little bit of an unusual year with Honda but definitely barring any horrible natural tragedies, again, a much better inventory levels in the second quarter than we saw in the second quarter last year.

And lastly what are your customers saying about the new Civic? Are they as displeased with it as Consumer Reports was?

This is Michael again. I think it’s well known that Honda has announced a relaunch of the Civic in response to the consumers, perhaps not as an enthusiastic acceptance of that.

We applaud Honda, as one of our partners they reacted very professionally and very quickly and said we hear what the consumer is saying and we will change the body style, we will change the content on that car. And that’s anticipated sometime during this year, I don’t know the exact date yet.

We are selling Honda Civics. We do not have an overloaded days supply of them whatsoever.

It’s an outstanding product. And the relaunch will make it an even better product.

Well thank you very much. This is Craig, and we would just like to thank everyone for being patient with us, working through what was for us a challenging 2011.

Like I said when we started we are looking forward to 2012 and with the conclusion of the call we all go back to work. Thanks for your time.