Genuine Parts Company ($GPC)

Good morning, everyone. I'm Michael Lasser, the hardline, broadline and food retail analyst from UBS. I could not be more excited to have the team from Genuine Parts with us today. This feels a little bit like seeing your buddies after they've had quite a lot going on. And so there is amount of things to talk about. And we are excited to have Will Stengel, the company's Chief Executive Officer; Bert Nappier, the company's Chief Financial Officer; and of course, Tim Walsh, who leads the company's Investor Relations.

Where I want to start our conversation is, obviously, you are intently focused on maximizing shareholder value. Genuine Parts has announced that there's going to be a split in the 2 businesses. Presumably, this is the result of a lot of work, a lot of diligence. So as a place for us to start, could you just walk us through the thought process around this? What are the advantages for each of Genuine Parts 2 businesses from being a stand-alone company?

Yes. Well, first and foremost, thanks for having us. It's always great to see you. It's a great conference and happy to represent Genuine Parts Company. So as we talked about last year, we had really embarked on a big analysis in 2025 as we were thinking about our next Investor Day. If you recall, we had an Investor Day in 2023. We set out a 3-year plan. And so we were coming up on the anniversary of our next plan, and that triggered really a fairly robust strategic analysis that started in the early part of 2025. All things strategy, all things financial analytics, all things understanding our investor base, our capital needs. So it was a pretty broad-based assessment. That work went through the balance of 2025 and culminated, as you said, in a decision to separate the business. And I think at its core, the decision was about creating the right conditions to enable both sides of our business to go get the opportunities that we saw. And we think doing that as 2 separate public companies is the best way to do that. I think it creates really a lot of agility for both sides of the business, and it's not a material departure in terms of the things that we're working on, but I think it clarifies and creates a different level of focus for us to go faster. As I think about the industrial side of the business, it's kind of all things growth. So whether that's organic growth or M&A growth, I think we've got opportunities to really lean into that. We're doing some good work around our e-commerce platform and our go-to-market strategy on the organic side and industrial, I think we can go faster there with some investments. I think on the M&A side for industrial, there's a ton of bolt-on consolidation opportunities that we can do there in a different way. And I think on the automotive side, it's all about investing in the business with a little bit more intensity and focus. So whether it's technology or supply chain, we have bolt-on M&A opportunities there. And I think you put all of that together, and it allows us to really grow the heck out of the business and also expand our margins in a different way. I think importantly, too, it simplifies and clarifies the appreciation of both businesses with our external stakeholders. So we've spent a lot of time over the years telling both stories. And I think as 2 entities, we'll be able to really articulate that to the investment community, the sell-side research community in a different way. So you put it all together and not only operationally, but also financially, we think there's a lot of value to unlock. We're focused on running the business now while we do all this work, which is important, but really excited about the decision that we've made. And I would tell you the reception, both internally and externally on the news of 2 companies has been very positive. A lot of discussion about this makes total sense. A lot of discussion internally about this topic have been discussed over the years, and so we're glad to bring it to this moment.

And you guys deserve a lot of credit for taking a fresh perspective and bringing institutional fortitude and some courage to making this decision.

Well, I think the other thing, too -- thank you for saying that. I think the other thing, too, is it gives us a chance to really reimagine the capital structures for both businesses. So you heard me talking a lot about investing in the business. We'll continue to do that. But that, I think, is also part of the calculus as to why this makes sense as we think about creating incremental value so we can put the right teams on the field, give them the right focus, give them the right capital structures and we can go to work.

And there's a lot of heavy lifting involved in making these changes. What are the work streams that are currently underway? And how do you think about additional costs that are going to need to come into each business as a result of this change?

Yes. The good news is that these businesses are led largely independently of each other. So our Motion customers are independent of automotive -- our Motion salespeople are independent of our automotive sales force. So operationally and commercially, they're already largely independent. We use the word manageable separation costs. That's an appropriate word. So there's not a massive, heavy operational lift to separate them. Bert, do you want to take that...?

Yes. Look, I'll just add a little bit more color to that, Michael. When you think about the specific work streams, Will mentioned capital structure. We need to be dedicated and focused on the capital structure for each business, capital allocation policy. That's going to follow business strategy, as Will outlined. So we'll be doing a lot of work in that space. We obviously have the process side of it. There's just a process side to doing these things. And I think this transaction on average takes somewhere between 9 and 12 months. And so we've got an audit to do. There's a heavy work stream there. There's an SEC filing that has to be done. There's a work stream that will come later on that. We're really focused on that. And then the main work right now is the separation and making sure we're separating the right way and that we're focused on the synergy. We had an opportunity to do synergy work before the announcement. Obviously, we're to the point now where we've got the whole team involved and we can refine that estimate. And when we get to the point where we're comfortable with it, we'll share it with everybody. I will say, as I told you when we talked right after earnings that when we think manageable...

Yes. You said manageable...

It's not the number you put out there...

yes, tell me about it.

I'd put your number in the eye-popping range, and I'd put our number in the manageable range, and we think the number will be something everybody can wrap their mind around and doesn't live in the $400 million to $500 million range.

Bert, if I had a $1 for everyone. Every time someone called me eye popping and not in a good way, I would be very happy man. But with that being said, how are you looking to preserve the culture of each independent organization? Because part of the culture of each entity right now is intertwined in this long-standing business that has more than 100 years of heritage. How do you preserve that as part of this?

It's a great question. I mean part of why GPC works, whether you're in motion or automotive is it is a very common and consistent culture already and has been built over 100 years. So that is certainly something we're not looking to change. It's really good people working hard. I mean we love our customers. So we'll preserve that by setting up the right leadership teams. It starts at the top. And we've got a really deep bench as we think about our choices there as we think about one of the key work streams that's happening now is all around talent strategy, talent management, governance. And so that's a Board-led process. And it starts with, as Bert said, understanding the business strategy, what capabilities do you need to execute that strategy? What choices do we have on the team today, where do we need to fill in some of the gaps, whether it's some of the public company support functions, et cetera. So we feel good about that. And as I said, the reception of the transaction internally was quite positive. Obviously, lots of questions. And as we answer those, I think people are really excited about the future of the business.

And this is an important point about leadership. I think Bert had emphasized that in order to have the proper tax treatment for this transaction, there needs to be an equitable distribution of leadership. So the market should take comfort in that.

They should take comfort and they should take comfort that we've got a good team across the board, and we've got a deep team across the board. And as I said, we'll fill in gaps as we think we need to. But I'm not worried about having a dislocation of talent one way or the other, and I know the Board is focused on it as well.

And we, as outsiders often look at the combined entity and its cap structure and with the different capital investment needs and different capital structure requirements for each business, how are you looking at those independent moving pieces? Your auto business might require different capital structure than your -- in Motion business, what are the considerations there?

Yes. I think when we think about that, Michael, the primary focus, and we said this in the release and on the call, is that we're targeting investment grade for both as we look at the capital structure. We have a strong balance sheet to begin with. We have a tremendous amount of liquidity. And as we think through setting up each business, we're targeting that structure so that we can move forward with that footing. The one consideration I would call out is that on the automotive side, it becomes more of an imperative when you think about the supply chain financing programs that are underpinning not just GPC, but all of the automotive aftermarket. So we'll be focused there. The investment grade really kind of bolsters the treatment of that and that keeps it cost effective. And so when we think through that, we'll make sure that we've appropriately considered the supply chain side, the financing side of it. And I think we have plenty of levers as we look ahead and choices we can make in terms of structure to allow us to preserve that construct on both.

And importantly, these are great cash flowing businesses. I mean distribution by nature, is a good cash flow profile. So that helps.

And the important point is that there are different needs of the businesses, which give you flexibility on how to capitalize each respective independent organization...

100%. And again, like Will mentioned earlier and like I mentioned, one of our big work streams is not only the capital structure, but the capital allocation.

Sure.

And we'll want the capital allocation policy to follow the strategies of the business so that we're balancing the right things between CapEx, M&A, share repurchase and dividend and making sure that we're setting both up for the success of the future.

And just to emphasize the point, there is an imperative to make sure that the supply chain finance program that underlies the auto business will remain intact such that, that will be an important consideration.

It is for sure.

Got you. If we were to dig into the Motion business that for some investors, especially those who come at it from the consumer angle is less familiar, but the encouraging sign is that you have seen over the last year a widening out in the number of verticals that continue to show improvement. So if you could give us a sense of how that has unfolded and what you're seeing more recently, especially as there's been some encouraging signs around industrial manufacturing, ISM has been starting to show some positive signs.

Yes. I think you articulated it well. We're really encouraged. We've seen a couple of solid prints out of the PMI reading above 50. We've been here before. So we're cautiously optimistic, but it does feel like 2026 is a year where after a couple, 2, 3 years of depressed manufacturing activity that people are finally, a, comfortable with this idea of the world is uncertain, so I got to get on with work. And then two, one of the great things about both of these businesses, the concept of deferred maintenance. I mean there's only so long that you can run your manufacturing facility to fail. And so I would say on the margin, as we flip the page on '25 coming into 2026, it feels like the customers are ready to do work, and we've had a good start to the year, cautiously optimistic. But across many of our verticals, we're starting to see kind of more positive backlog trends and most importantly, more positive sentiment from customers.

And your concept of deferred maintenance is important because one of the key topics that's on everyone's mind is, and you alluded to this, is the world is a very dynamic place. There's a lot of uncertainty out there. Does it give you pause with what -- on the geopolitical events, the price of oil moving up? we'll touch on this in a minute with the auto business.

Yes, not in the Motion business really. I mean from a customer perspective, we have very little, what I would call, kind of upstream or downstream oil and gas exposure that are trying to make sense of the price of oil to figure out what they're going to do. So that's not material. And it's not really material for kind of the demand function of industrial. So I'd say on that, it's -- the team is pretty focused on just supporting customers with an uncertain world, and we feel good about that in '26.

And I think you've been making an important point, which is the world, the U.S., we as consumers have been operating under a period of uncertainty now for a while. And it just so happens that we're going to just adapt. And now we're -- it seems like the industrial economy is on the verge of adapting and operating in this environment such that it can provide a nice tailwind as that business is separating. So a, is that fair? And b, what does the flow-through look like as that recovery unfolds?

I think it's fair. I'd say on the industrial side, the consumer getting comfortable with uncertainty means something different for the maintenance professional keeping the factory up and running. So he's got to do work to keep the lights on essentially. That's slightly different than quasi-discretionary purchasing choices for you and me to get 2 brake pads versus 4 brake pads. So I'd say on the industrial side, we feel really, really good about where we find ourselves in the cycle. And Bert, if you want to talk a little bit about the flow-through on the business.

Look, I mean, when we think about the upside as we look ahead, I think it has a tremendous amount of upside because the discipline that we have had in the business over the last 2 years. I mean a large part of Motion outperforming with really weak backdrop has been execution of sales initiatives where they're taking share and they're out executing in the marketplace, but also a lot of great cost work. And we don't think we need to flex the cost structure much to be able to capitalize on the recovery. We will, and we'll do it in the right surgical places to make sure that we're taking advantage of the recovery that comes at us. But at the same time, I don't think that's a big move, and I think that actually creates quite a bit of leverage as we look ahead.

Sorry to throw one out of left field, but does it matter what drives the recovery if it's certain industries? Or this is just a leverage game. So you get more throughput through the machine...

That's the great thing about Motion. I mean we track 14 verticals where they go to market, very disciplined, diversified book of business without anything that's over-indexed in any one place. So to Will's point, we're not oversized in oil and gas. We're not oversized in food and beverage. So it doesn't take much for it all to start working, and you've seen it working here in the fourth quarter. I mean, Motion had a 5% top line with PMI declining through the quarter. So we're really out executing. And if we get a nice tailwind from PMI and just good energy and good momentum, it won't take much, and it doesn't have to come from any one place for it to be successful and to drive the business forward.

Well, the great news is both of you have good energy. So that's a good starting point. On -- one last one on the Motion business. Last year was a year of outsized investment, more of the capital flowed to the Motion business. Are there any significant areas where this business needs some investment at this point? There's been some investment in automation, how much further can you go in that regard?

I think the big 3 areas of investment for Motion core -- investment are obviously technology. So -- but think about technology through the prism of what it means for our sales go-to-market strategy. So how do we connect closer with the customer? How do we make it easier for them to do business with us? How do we create sales effectiveness go-to-market where if you want to use a website or you want to work with inside sales or you need a dedicated. So that kind of technology enablement around growing organically with customers, that's an area of focus. Always an opportunity to invest in supply chain to get more productive. For Motion, that's less about creating a bunch of scaled DCs with automation and more about optimizing existing footprint using supply chain technology and technology. And then lastly, it's not necessarily CapEx, but to Bert's point, investing in feet on the street and sales coverage or inside sales professionals. So how do we create that really holistic sales coverage model and making sure that you're appropriately invested there. You do all those 3 things well and you manage your working capital and you get some tailwinds on the top line, you're going to have a really nice operating leverage story and cash flow story.

Got you. Very helpful. Let's pivot over to the NAPA business, which you guys deserve a lot of credit. NAPA is a little bit like a puzzle, and you guys have been trying to move some of those pieces around in order to optimize the picture of the broader organization. So a, while you've seen some improvements in areas in the company-owned stores, independents have lagged behind a little bit. Give us a sense of how you expect this to unfold from here? You only have so much influence you can provide a lot of support to your independent operator partners, but it's kind of just the nature of that business. So what do you see in that regard?

I think you said it well. We made a lot of really good progress. We saw some nice sequential improvement through the year, in particular, on our company-owned stores. We were very focused on making that be a differentiated part of our effort and focus and wanted the results out of that. And I think we've done a really nice job there. The independent owners will always be part of the NAPA story. They're an important part of covering some of our smaller, more rural markets. There, like even our own company-owned stores, we got some really impressive best-in-class, and we've got some owners that we get the opportunity to work with to get better, just like our company-owned stores, and we've made progress there, and we would expect to continue to make progress. The way that you do that is you work with them as essentially a small business and you help them think about inventory and pricing and sales coverage and footprint. And I would tell you that Alain Masse, who spent the better part of a decade up in Canada in the same operating model has now been in his role for 6 months in the U.S. We've consolidated his responsibilities to be both Canada and the U.S. And he has seen a lot of these dynamics in terms of working with independent owners to make them more successful. And so I'm incredibly encouraged by some of the work that he's doing. There'll always be part of a discussion as we move forward about how are they doing, what was this month versus last month. But substantively, they are getting better. They're healthy. They're stable. The business is stable, and we're in a position to make them even more successful as we come into [ 2026 ].

Got you. Obviously, all the geopolitical events have resulted in gas prices moving a little higher. How do you think about this as an influence on the auto aftermarket? What has been the relationship historically? Do you view the relationship any different today than it's been in the past?

I don't think so. I mean the historical relationship is the higher gas prices conceptually the fewer miles people drive. I think that relationship holds. I don't know where the breakpoints are. Typically, anything in the $3s we've seen as not material. And so we would expect that to hold true, but haven't studied it recently. From a gas price perspective, as it relates to our P&L, obviously, our freight out is an expense associated with being a distribution business. It's low single digits as a percent of sales. Plus or minus gas prices is probably not material in the grand scheme of things. So I think the thing to watch closely is on the customer demand side, miles driven. But I think it would have to be a pretty material move for that to make an impact.

Is it fair to think your mindset is -- all right, the longer this goes on, the duration is important as well as the intensity because that's going to have a ripple effect on potential price of barrel oil, which in turn will have an impact on gas price.

I mean I'm not an economist, but my sense is if you've got a material global oil shock going through global economies, that can't probably be constructive. And the longer it lasts, the more disruptive it gets. So hopefully, we're in a moment. The good news is -- or the bad news is we've been accustomed to being agile to global shocks in one way or the other. And I think as investors, what you're hoping to invest alongside is people that have some operating muscle to adjust and make hard calls as the world unfolds. These jobs require an incredible amount of agility and calmness in chaos and whether it was tariffs, whether it was pandemic, whether it was supply chain crisis, I think the global GPC team, I would say, is pretty well positioned and well accustomed to navigating change.

Yes. I have a few more questions on the auto business and flow-through and the profitability. But this is a good speaking of a very dynamic environment. Obviously, tariffs have been an evolving story with IEEPA tariffs now repealed. What does that mean for the auto business? How does that unfold? What are your expectations in that regard?

Yes. Look, maybe I'll take that one. I think the first place that folks go is, okay, well, does that mean that you've got some -- now that they were repealed or shut down, is there some big windfall coming back? And from our perspective, the -- not to get too technical, but the importer of record is the owner of the receipt of a refund if there's going to be one because they paid it. And for the automotive business on our side of the house, we're not the importer of record for virtually anything. We have a very, very small amount of goods that we import as the importer of record. So for us, this is a case where our suppliers, if they have the ability, will be going back to get refunds. And if that happens and we're entitled to some piece of that, then great. We know exactly what we paid them, SKU by SKU and supplier by supplier. So we've got great data on how to have a good negotiation going forward if they were to have a different cost profile. So for us, we're going to continue to execute. We continue to have our tariff command center set up and we're working on the situation every single day for the ones that are still applicable across the entire business. And for the small de minimis amount that we have available to us, we'll look at what opportunities we have for our own recoveries there. But look, it's just one more thing that's happened, right, here in the first quarter, and we're pivoting and adjusting the business accordingly.

I would just add, scale matters here, again, kind of like when tariffs came out and supply chain crisis. So I think if you're a scaled player in either one of these businesses, the communication and relationships that you have that are long-standing with these vendor partners and supplier partners, like that makes a difference where you can engage in the discussion, as Bert talked about, hey, we've done our analysis, looks like you are a benefactor from the following 3 factors, we'd like to have a discussion. So those discussions are happening as we speak.

And is your expectation that this has an influence or a change in the pricing environment for the sector?

I don't think so. I mean I think if you look at the automotive aftermarket and all of us play in a very rational space, and we'll continue to do so. So I don't think you're going to see a material pivot of any shape, form or fashion in an overall pricing environment. We obviously all continue to run our own individual playbooks and make our individual choices market by market and SKU by SKU. But in terms of an overall kind of shaping, I don't think that you're going to see anything differently.

And are there 2 points here? Because one, there's a lot of factors that have led to this above-average growth in pricing over the last several quarters, and it's not just tariffs. So that is one reason why the pricing may stick. And two, even if there are pockets where some of prices roll back as certain players might try and sneak a little -- look to gain a little more market share that is not going to be pervasive or widespread. Are those 2 ways to look at it?

I think that's right. The pricing strategies for any distribution business is at the SKU level. So it's at the market level, it's at the SKU level. And so as we've talked about before, you're always having movement up and down. In the aggregate, these -- both markets are very rational. They're very structured and steady, consistent kind of low to mid-single-digit price inflation is healthy and not totally unusual. And if you remember, too, this is a break-fix business. So when we talk to our customers, if that maintenance professional that's trying to keep line one of the bottling plant up because it costs them $100,000 an hour for it to be down, we're not spending a lot of time talking about the price of the widget. We're there to be helpful and say, you need this widget, but you also need this, and we've got the team coming over. And so that's relevant on both sides of the business. So I think all of that put together puts us in a pretty advantaged position, certainly relative to the smaller, less sophisticated competitor, of which there are many in both profit pools, but also, I think, relative to other industries.

And the message that GPC has offered is there's been a little bit more pricing in auto than Motion, and it accelerated a bit over the course of the year. Is it your expectation that the first half pricing environment or contribution is going to look like the second half and then it will just moderate to more historic levels. Is that the right way to think about it?

I think one point I would make is it doesn't accelerate from here, right? So I think where we guided to was that we exited at a place in 2025, it's not going to accelerate. And if I have to shape the year on that specific point, I would say the comps on the pricing side of it are a little easier in the first half than they are in the second half. So that's how I would weigh out the way we think about the benefit of price to the top line for the year.

Got you. And one of the areas of focus that you guys have had across the organization is on maximizing the gross margin, maximizing the profitability. Can you give us a sense of what's been driving that? I think there's an expectation that, that's going to continue this year, especially on the auto side. How much more room is there to go?

Well, look, we guided to another 40 to 60 basis points of gross margin improvement for the year. We believe that we've got great opportunities still. It cools off a little bit from last year. Last year was 90 basis points of year-over-year improvement. About 1/3 of that came from the big acquisitions we did at NAPA. So you can't expect that to repeat. But I think the 40 to 60 puts us in a nice place. The work that we're doing is really our own work. And so it's about strategic sourcing, and it's about pricing capability and technology. Those are the 2 big ones. And when I say sourcing, I'm talking about professionalizing and continuing to modernize the category management team, the strategic sourcing team, leveraging our size and scale in ways that we never had historically. And that's one dimension. We're going to continue to get goodness there. We're also going to continue to lean into the investments we've made in pricing technology and allow us to deploy, as Will mentioned, really scientific approach to SKU by SKU, market-by-market pricing strategies on both businesses. And that's what's been driving the gross margin benefit over the last couple of years, and that's what we continue to see moving forward on both sides of the house.

Got you. I think if there was an area of focus in the fourth quarter, it was on the flow-through that the business has slowed a little bit, especially on the auto side, on the independent side and maybe in Europe a little bit. And that -- the outcome of that was the flow-through may not have been as strong as what you had anticipated. So give us a sense on how that unfolded. What are levers from here that GPC can pull in order to maximize the flow-through that you see on the auto business? And then I have a follow-up. I'm so excited.

You're so excited. It's -- look, it's a great question, and we did have a tough fourth quarter. Everybody knows that, no doubt. I will say that we shared some commentary on the call around the headwinds we saw with independent owners and with Europe. That was about a $0.20 headwind to our profitability in the fourth quarter, below our expectations. When we talk about the North American automotive business, to your point, Michael, we shared on the call that we had cost inflation headwinds. Those are mostly in rent and wages in the fourth quarter. We're continuing to invest in IT. So we're making investments in IT and those flow through SG&A now because of the technology we're deploying. I'll add a little color maybe that we haven't shared in the call to this group, which was the fourth quarter at the NAPA business had some unanticipated, what I would call, year-end kind of things that I wouldn't expect to repeat. And that's probably somewhere in the order of $30 million or so of cost headwinds, mostly with health care. We had a tough year with health care, not only in terms of our own claims experience, but also as we've talked about the high level of inflation with health care costs. And that really hit us in the fourth quarter. And we had a couple of other areas of SG&A costs that came in a little higher than we expected. Having said all that, I wouldn't expect those things to repeat, and I do think we've got a very stable business. The other color I would give everyone is that when you look historically at the North American automotive business, the first quarter and the fourth quarter always have the lowest EBITDA rate conversion with the middle 2 quarters, Q2 and Q3 being the highest, and we finished the year at [ 7 ]. I don't think the fourth quarter is the proxy for how to measure the business going forward. And the evidence of that is that we started out 2026 really well. So when I say stability, I can point to the way we started the first quarter. January and February, right in line with our expectations. North American automotive business top line at mid-single digits in both months. We've had a great start at Motion, particularly with PMI above 50. We are still watching Europe. The European market conditions remain muted, but that was in line with the guide we gave. And so when I think about all of that and what levers do we have, we're very confident in our guidance for 2026 and how we look ahead. And that's because we've got, I think, pretty prudent thoughts around market conditions. So we're not banking on a big lift from market conditions, but our sales growth is going to come from execution of strategic initiatives. You couple that with the transformation and restructuring benefits we'll see for the full year, particularly accelerating in the second half, I think that gives us a lot of confidence as we think about the shape of the year and how we're going to go execute. When I think about the first half of the year, we're looking through the entire year at EBITDA growth, a sequential improvement in EBITDA across the year. When I look at the first half, there's some tougher comparisons. Europe is going to continue to be muted, I think. We've got the tariff comparison starting to come in, particularly as we look into the second half of half 1. And then as we mentioned on the call, my depreciation and interest headwinds of $0.30 for the year, $0.20 of that happens in the first half. So we've got some things we got to work through. But I think when you think about the way we're attacking it with restructuring, transformation, continued gross margin expansion, sales initiatives, it gives us a tremendous amount of confidence of the strength of the businesses and the stability of the business going forward.

It's so fun when you give us nuggets [indiscernible], this is great. A couple of things to dig in there. Number one, Genuine Parts is not alone in experiencing some of these outsized cost pressures in areas like health care and insurance. What is your view on how the industry ultimately manages this? You're not in the -- you don't have a fiduciary responsibility to absorb those costs. You have a responsibility to try and maximize profitability. So is it of your view that over time, the industry is just simply going to have to price to these factors in order to navigate through them? Or are there some other ways to manage through them?

I think it's all of it. I really do. I think it's all of it. But I think you left out an important stakeholder, which is how do we manage and lead and take care of our people while we do all this. And I'm proud of the work that we did starting 2 years ago. We call it restructuring, but I mean, this is basically adjusting to the actions, adjusting to the realities of the world that we operate in. So whether it's cost inflation, health care, wage pressure, et cetera. And we've done a big body of work. And without that body of work, who knows where you would be. So going back to my point about the operating intensity of these management teams, I think you're looking for folks that are willing to make hard calls and do that work. I think AI presents a really interesting opportunity as we think about new ways of working. I'm not prepared to declare how that's in or out of our budget and our plan. But I would tell you that like many companies, if not all companies, we're exploring it and testing it actively, but taking all that non-value-add activity work and finding ways to get more productive. I think it's going to take all of that. And to your point, making really hard calls, tough calls like we've done in 2026, like we did in '25 on getting these businesses to their best potential. That's just -- that's our job, and it's not an easy one, but we're prepared to do it.

Since you brought it up, technology and related investments and opportunities from it. As we look at the GPC business, your largest cost is inventory. There's clear applications for how artificial intelligence and other technology could work to optimize how you deploy inventory. You have constant interactions with your consumers, largely on the professional side. So there's probably opportunities there. Can you give us some insight into how you're thinking about this? How quickly can you embrace this technology? It's obviously, we're rolling this together and try to figure it out. So how are you looking at it?

Yes, we were really intentional in '25. We pulled out one of our best operators and made his entire day job around institutionalizing AI. So he wakes up every single day coordinating and creating governance and process around how to make sense of it. So part of that foundation was actually creating what we call ChatGPC.

There we go.

It is proprietary to our ecosystem, which is a really important point in terms of the governance of the data and the output of information coming out of AI. I think -- and the protection for that matter of your data. So that would be observation number one. We have 6,000 active users on ChatGPC. So...

We're having a good ChatGPC right now.

We are. The second part that's relevant for work that we've done is all around data governance. so AI is only helpful if your data is actionable. And so to your point, we've done a ton of work around customer data. We've done a ton of work on inventory data. We've done a ton of work on supply chain visibility. So with that foundation and ChatGPC, I think you're in a position to start to make sense of it. It's like any big technology shift. People are scared of it. It requires education. We had a lot of folks come into the building. We did the entire global technology team. All of our engineers have been through AI training, and it's part of their annual performance review on proficiency for AI. So in terms of actually coding and doing engineering work, they will use it, and we will use it to be more efficient. So it's happening. And it's really exciting. I think your point about inventory, like that's a very tangible use case. Sales coverage and taking the non-value-add work, as you heard me describe that motion sales experience so that we can dedicate more resources to spending time with customers that's a real use case. So there's a lot of exciting things, and it's early days.

Your nonverbal cues are picking up a little bit. You're smiling when you talk about this. Are you struck by the pace at how quickly this is changing as a leader of a very large organization?

I am. I mean this is obviously -- I've never been through this type of...

None of us have. Yes.

In this -- certainly in this chair, but probably ever to your point. I think it's exciting. I mean I really do. I think if you're intellectually curious and you're open to change, and you're open to better ways, like we've just been given a gift, and it's hard to figure out. But I think those that figure it out in a very disciplined way. I would tell you, you can let AI costs run wild really quickly. And I think one of the things that was behind our calculus on creating the proprietary tool was to make sure it still uses a lot of those partners, but the engine itself is very cost efficient. So I think it -- this moment requires that discipline, but it is really exciting.

So as an operator and a leader of a business, very large business, you're more excited about ...

100%.

Yes. Michael, I mean, I'll give you a specific example, like just this same leader that is basically our AI quarterback for GPC he had the experience to bring the credibility into that role, he built the technology using AI at Motion that allowed us to rearchitect our business rules for inventory replenishment. So using AI to really look across the spectrum SKU by SKU of when is that part predictably going to sell again to a customer and looking at the tails of inventory and saying, okay, that's actually one of the slowest moving parts we have in our business, it probably won't sell again for another 11 months. And we changed the business rules around replenishment to match the predictive modeling from this AI tool, which allows me to be more efficient on working capital. So it has a real impact to the business. We've seen it's changed the way we interact with customers. Back to Will's earlier point about being frictionless, where we can use AI to ingest a customer e-mail on an inquiry or an order and turn that into something that happens much, much faster, which inventory availability is such an important part of both businesses. So we're seeing it change the way we work through the prism of the customer daily. I think the way we think about it internally is no different than a capital investment, no different than an M&A business. We've actually put our investment committee governance on top of these things to make sure that we're hunting on the right opportunities, hunting with the right returns and managing the cost side of it as well...

And I want to merge this topic into another question, which is that the perception from outsiders is that the NAPA business needs some investment. And so a, is that a fair assessment? And b, does this technological change actually enable some of that investment to happen more quickly, more efficiently and maybe less capital intensively than it might have otherwise been?

I think any good business needs investment. How much and through the cycle is the debate. But absolutely, we're very focused on investing in both Motion and NAPA, and that was part of the calculus as to why do you create new conditions or different conditions to make that happen. So absolutely, we're excited about investing in the business through the cycle. And I think our recent track record would suggest that even as the world does this, we're prepared to invest in the business. And I do think AI will change the nature of the way in which you invest. I mean think about a new distribution, like how will AI change what's required to go into that facility. I don't have a perfect answer for that, but I know it will be different than it was 3 years ago. So I think there's the whole software application, the WMS, does that get replaced with AI logic and so you don't need to do a big ERP conversion. I think all of those things become discussions in a way that are perhaps different than they have been in the past 3 years.

And in terms of investment, especially on the auto business, is there anything you would put off or save until post separation? And is the post-separation investment posture look like it is now?

I would say there's nothing that we're putting off. I think there are a handful of things that were One GPC in nature that perhaps we'll pause on so maybe pivot them to One Automotive, if you will, One NAPA. But no, I don't think we're going to slow down. I mean in these markets, we're being a lot more precise about where we want to focus and execute. That's part of our natural process. And I think this moment has made us do that with a different level of depth. But no, I mean, I think we're very focused on investing in the business. We need to be prudent stewards of the capital. Bert alluded to our investment committee. That's a process that we put in place. The good news is that, as we've said publicly, the last, call it, 5 to 10 years, this investment philosophy has positioned these businesses and the geographies to have a great platform where you can kind of pivot off of it from an investment standpoint. Our Asia Pacific business is very well invested. Our European business now is very well invested. Our technology and some of our foundational work in the North America auto business is very well invested. We've done DC work. So we're not starting flat-footed as 2 new entities, and we can continue to get more precise and more impactful as we deploy capital for the long-term benefit of the business.

What a fun ChatGPC. I can do this all day. Please join me in thanking both Will, Bert and Tim for a great conversation.

Good to be with you. Thank you.

Thanks, Michael.