Roger Penske was answering a question specific to the retailer’s operations in the U.K., but the sentiment, perhaps, is universal when it comes to the standalone used-car stores at Penske Automotive Group.
Responding to that inquiry during the Q&A portion of the company’s quarterly conference call, Penske said that used-car standalone stores “really give us some real momentum as we go through the balance of the year, not only from a unit perspective but a profitability and margin (perspective).”
Counting the stores that came into the fold after its January acquisition of The Car People in the U.K., Penske Automotive currently has 14 used-car stores throughout the U.S. and U.K.
Penske, the group’s chairman, said he believes these stores can sell more than 65,000 units annually and pull in $1 billion plus in revenue.
“When you look at the first quarter, this business generated a 4-percent return on sale and a pre-tax return on invested capital averaging over 15 percent,” Penske said during opening remarks on last week’s call. “We believe these used-vehicle supercenters further diversify PAG’s business and provide an opportunity to capitalize on the highly fragmented used-vehicle marketplace.”
During the first quarter, Penske’s used-car stores moved 18,673 used vehicles, according to a presentation accompanying quarterly results. They generated $331.1 million in revenue.
The average transaction price on these cars is a shade under $15,000, with a total variable gross profit $2,233 per unit and a margin of 15 percent, Penske said.
The revenue mix for these stores is 84 percent used vehicles, 9 percent wholesale, 6 percent F&I and 1 percent service and parts. Gross profit contribution is 43 percent used, 4 percent wholesale, 41 percent F&I and 12 percent service and parts.
Penske said he would like to further drive the parts and service business within its U.K. standalone stores, much like it has in the U.S.
6 new stores to open by 2020
In early January, the retailer closed its purchase of U.K.-based used-car retailer The Car People, an acquisition first announced on Dec. 12.
This followed a similar move Penske made in January 2017, when it announced an agreement to buy CarShop, a U.K. chain of five standalone used-car retail stores. That acquisition was completed in February 2017
Stateside, Penske announced a deal in December 2016 to buy U.S.-based used-car retailer CarSense, closing that acquisition in January 2017.
And now the retailer has its sights on six new greenfield locations that it plans to have open by 2020. In the U.K., Penske has a commitment on a property that is close to ready, with the company aiming to have that converted in 2020.
In the U.S., Penske does have a potential spot in Phoenix along with eyeing the Mid-Atlantic. But they’re not just trying to dot the map with start-from-scratch facilities.
“What we’re trying to do is not just go all over the country for white spots,” Penske said. “We’re trying to grow where we have the impact of our digital and also our advertising, so we get that coverage.”
A $2-3 billion business?
Speaking of growth, Penske was asked during the Q&A if it would be reasonable to believe the standalone could grow to $2 billion to $3 billion per year.
“Well, I would say that there’s no reason we can’t double it, maybe not by 2020,” he said. “But I didn’t realize we’d make these acquisitions as fast as we did, and we’re going to continue to look and see what’s out there. But this is a very good business and I’d have to take my hat off to CarMax.”
The business CarMax has built leans on “a single brand, large stores, good discipline,” Penske said. “I think that’s the same formula that we’re trying to adopt ourselves.
“And we have some great people. When you think about the team at CarSense here in the U.S., they’ve been together for a long time; they’re all still running the business. We’re learning from them every day,” he said, echoing a similar sentiment about the folks in the U.K.