Question-and-Answer Session
Operator
Thank you. (Operator instructions) We'll go first to John Murphy with Merrill Lynch.
John Murphy – Merrill Lynch
Good afternoon, guys. Just had a question on the new car margins and if you think this pressure is more structural and cyclical here? Also just on that, if you could just talk a little about your profit differential as the mix deteriorates from sort of the higher-end luxury and larger trucks towards these more fuel efficient vehicles, if there is a big swing factor there?
Charles Oglesby
Certainly under today's market conditions, where there is more inventory available than customers in some cases, it will have an impact on the margins. Everyone still wants to turn the inventory. The part of the financing arrangements with the customer that are cash, the cash position is a little bit less. So it structurally changes the deal a little bit. So, that combination of events, right now makes it unusually difficult on margins. We do expect it to return in the future as soon as this cycle returns to a more normal business. And as far as the luxury margins, the heavier luxury inventory is not in demand right now, so the margins are softer there. The newer products that are being introduced are still quite strong and the margins are holding, but they are at a lower level.
John Murphy – Merrill Lynch
If you think about the cost structure and the fixed cost structure and what you are able to do there, sounds like you cut pretty far so far. And I am just wondering if there is anything more you can do there in the face of potentially weaker sales, and as you implement DealerTrack, how much further you can go on these cost savings?
Charles Oglesby
John, we continue to manage the business to the market. There will always be more expense takeouts. We did do – as you know the greatest expense opportunities are the greatest cost in dealerships is inventory, personnel, and advertising. We did cut personnel and we did advertising. The one area right now that is glaring to us is our inventories, and we are working diligently right now to get our inventories down, so we can work on that expense reduction as well.
On a go-forward basis, we want to be very careful with our advertising adjustments in the future. We still know that we won't have the appropriate share in the marketplace of our voice. Personnel reductions, depending on what happens in the marketplace, whether or not we would go there or not. And then with the efficiencies, and what we look for with the gains with the Arkona and DealerTrack implementation is productivity gains. Because as you know, from an expense standpoint, you really have two ways to go with it, which is a direct expense reduction or an increase in productivity, so we will look for both of those areas to help put us where we want to be with our bottom line results.
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