During Penske Automotive Group’s fourth quarter earnings call that took place on Feb. 5, chairman Roger Penske wanted to comment early on about the company’s 2019 achievements.
He noted that the company retailed more than 500,000 new and used units and increased its used-to-new ratio from 1.20 to 1.28.
The company also opened two greenfield used supercenters, increasing its used-vehicle supercenter location total to 16.
“In total, we returned $305 million or 70% of our income to shareholders through share repurchase and dividends,” Penske said.
He added that 33 Penske dealerships were named out of 100 in Automotive News’ Best Dealerships To Work For.
“We had the No. 1 dealership in 2018, and we had the No. 1 dealership in 2019,” he said.
But then he moved on to discuss the fourth quarter of 2019, and that report also featured good news. Revenue increased 8.1%, and same-store retail automotive revenue increased 5.5%.
Used-vehicle supercenters looking up
Used vehicles were part of the good news as the company reported that for the three months ended Dec. 31, 2019, the used-vehicle supercenters increased units retailed by 3.1% to 15,405.
The supercenters also increased revenue by 12.0% to $292.7 million. Total gross profit per unit retailed increased 3.2%, or $61.
In the fourth quarter, the supercenters generated almost $300 million in revenue. Penske reported that the average gross transaction price was $15,700, and the average gross per unit retailed increased 3% to $1,951. That brought a gross margin of 12.4%.
Penske said the 16 supercenters include six in the United States and 10 in the U.K.
“We expect to grow the supercenter business through a combination of e-commerce initiatives and greenfield sites,” he said.
The two greenfield used supercenter locations the company opened in 2019 included one in the United States and one in the U.K., and Penske reported that both locations have had successful openings, outperformed the company’s initial expectations and are profitable.
The company expects to open two supercenter sites in 2020 and two more in early 2021, he said. In response to a request for more details from a conference call participant, Penske said one of the 2020 sites will be in New Jersey and the other in the Phoenix market.
“And they would be operational, hopefully both of them, one for sure, by the end of 2020,” Penske said.
Overall used and CPO news for the company was mostly good.
Total automotive units retailed were up 2% on a same-store basis, with new up 1% same-store used up 3%.
U.S. CPO sales in the fourth quarter increased 12%, and CPO represented 43% of used-vehicle unit sales.
But although new vehicle gross profit was up $245 or 8%, used vehicle gross profit was down $25 or 2%.
Penske went on to discuss the company’s retail commercial truck dealership business, noting that it retailed 3,728 new and used trucks in the fourth quarter, generating $600 million of revenue with a return on sales of 3.5%.
He said that because of the company’s July acquisition of Warner Truck Centers, its new and used truck sales increased 41%.
“However, our same-store unit sales declined 29%, mainly due to the timing of deliveries and bankruptcies of two of our largest customers in the fourth quarter,” Penske said.
Technology a strong area of focus
“We continue to improve our digital and enhance our capabilities and customer tools,” Penske said, adding that the company is offering more than 58,000 vehicles online and ready for purchase.
In the fourth quarter, the company’s U.S. new and used unit sales originated from digital sources hit more than 40% for the first time, Penske reported.
The company saw an increase in traffic and an 18% increase in leads. Customers engaged in the company’s Google business listings increased by 40%.
In addition, the company completed the rollout of docuPAD technology to all of its U.S. locations.
Penske said that allows the company to engage customers digitally by creating, processing and securing funding of a transaction electronically while improving efficiencies. That brings cost savings to the company’s back offices, Penske said.
“Customer satisfaction, whether self-service tools such as ability to pay online, make appointments and online estimating for our collision centers, continue to improve the customer experience,” Penske said.
He added, “Their success has encouraged us to pilot new technologies such as videos and digital pictures for service updates and Buy Your Car Now. We continue to enhance our proprietary online closed bid wholesale auction site in the U.K. with approximately 4,000 active online bidders and we've sold 21,000 vehicles through that source last year.”
He also announced what he describes as the initial pilot of the company’s new digital dealership on retail sales platform in the U.K. that the company is testing with its infinity partners.
“It's performing very well, and we continue to roll out enhancements that will result in a full digital transaction,” he said.
More on supercenters
On the supercenter side, the conference call participant also asked Penske if the company had discussed approaching the market differently, “perhaps in the lines of what Sonic is doing with EchoPark.”
Penske answered that Sonic has “a different model, probably higher volume, lower margin.”
“Because when you look at our margins today, we're in the 12% to 13%, and you compare that to the traditional used car business, which I think we were at 4.7%.”
He continued, “So, we see this as the way we want to continue. On the other hand, is there an opportunity to have an electronic opportunity to do the same thing where we don't have units and dealerships for the customers to view. So that’s an opportunity in the future.”